Lftd Partners Inc S-1/A, filed Jul 6, 2020
Lftd Partners Inc. (LIFD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1/A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ACQUIRED SALES CORP.
(Exact name of registrant as specified in its charter)
Nevada |
| 5900 |
(State of jurisdiction of Incorporation) |
| (Primary Standard Industrial Classification) |
Acquired Sales Corp.
31 N. Suffolk Lane
Lake Forest, Illinois 60045
(847) 915-2446
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Gerard M. Jacobs
Chief Executive Officer
Acquired Sales Corp.
31 N. Suffolk Lane
Lake Forest, Illinois 60045
(847) 915-2446
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with copies to
David S. Hunt, Esq.
222 Main Street, Suite 500
Salt Lake City, Utah 84101
(801) 355-7878
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Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
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CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered |
Amount to be Registered |
Proposed Maximum Offering Price per Security(1)(2) |
Proposed Maximum Aggregate Offering Price |
Amount of registration fee(3)(4) |
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Shares of Common Stock issuable upon conversion of Series A and Series B Preferred Stock | 2,014,500 | $1.66 | $3,344,070 | $405 |
Total |
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(1)Estimated in accordance with Rule 457(c) solely for purposes of calculating the registration fee. The maximum price per Security and the maximum aggregate offering price are based on the average of the $1.66 (high) and $1.66 (low) sale price of the Registrant's common as reported on the OTC Markets on June 30, 2020, which date is within five business days prior to the initial filing of this Registration Statement.
(2)Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(3)Calculated by multiplying the proposed maximum aggregate offering price of securities by securities to be registered by 0.0001212 and rounding up to nearest dollar.
(4)The Registrant previously paid $5,291.47 toward the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED JUNE 23, 2020
2,014,500 Shares of Common Stock
This prospectus relates to the resale of up to 2,014,500 shares (the “Shares”) of our common stock, par value $0.001 (the “Common Stock”) by our security holders (the “selling stockholders”) that acquired securities in our private placement consummated on December 5, 2019 (the “Private Placement”), all of which are issuable upon conversion of preferred stock (the “Preferred Stock”). The 2,014,500 Shares being registered were issued to investors in the Private Placement. Please refer to the section of this prospectus entitled “The Private Placement” for a description of the Private Placement, and the section entitled “Selling Stockholders” for additional information regarding the Selling Stockholders.
We are not selling any Shares in this offering. We, therefore, will not receive any proceeds from the sale of the Shares by the Selling Stockholders.
We have paid and will pay the expenses incurred in registering the Shares, including legal and accounting fees. See “Plan of Distribution.”
Our common stock issued is traded on the OTC PINK under the symbol “AQSP”. On July 6, 2020, the last reported sales prices of our common stock on the OTC PINK was $1.70.
Investing in our securities involves various risks. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is July 6, 2020
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Table of Contents
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS6
DETERMINATION OF OFFERING PRICE44
MANAGEMENT’S DISCUSSION AND ANALYSIS50
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS50
BOARD OF DIRECTORS COMPENSATION77
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS80
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS81
DESCRIPTION OF CAPITAL STOCK88
WHERE YOU CAN FIND MORE INFORMATION91
The registration statement containing this prospectus, including the exhibits to the registration statement, provides additional information about us and the common stock offered under this prospectus. The registration statement, including the exhibits and the documents included herein, can be read on the Securities and Exchange Commission website or at the Securities and Exchange Commission offices mentioned under the heading “Where You Can Find More Information.”
Information contained in, and that can be accessed through, our web site http://www.acquiredsalescorp.com shall not be deemed to be part of this prospectus or incorporated herein by reference and should not be relied upon by any prospective investors for the purposes of determining whether to purchase the Shares offered hereunder.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, in addition to historical information, certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that includes information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “would,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan,” “potential” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus or incorporated herein by reference.
You should read this prospectus and the documents we have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front cover of those documents.
Risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this prospectus under the heading “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2019 under the headings “Risk Factors” and “Business,” as updated in our Quarterly Report(s) on Form 10-Q.
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus particularly our forward-looking statements, by these cautionary statements.
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This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors”. We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
The following summary highlights certain of the information contained elsewhere in this prospectus. Because this is only a summary, however, it does not contain all of the information you should consider before investing in our securities and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information included elsewhere in or incorporated by reference into this prospectus. Before you make an investment decision, you should read this entire prospectus carefully, including the risks of investing in our securities discussed under the section of this prospectus entitled “Risk Factors” and similar headings. You should also carefully read our financial statements, and the exhibits to the registration statement of which this prospectus is a part.
Unless the context otherwise requires, references to “we,” “us,”, “our,” Acquired Sales”, the “Company”, “AQSP”, and “Acquired”, refer to Acquired Sales Corp.. on a consolidated basis.
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PART I
BUSINESS
Description of the Business of Acquired Sales Corp.
Business Overview
Organized in 1986, we have spent the last decade focusing on the acquisition and development of existing businesses. Our business currently involves acquiring all or a portion of operating businesses involving the manufacture, sale and distribution of cannabinoid-infused products such as beverages, lotions, oils, hemp joints and cigarettes, tinctures, bath bombs, balms, body washes, gummies, food, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). Our business also involves selling and distributing hand sanitizer, and potentially other personal protective equipment, during the pendency of the COVID-19 pandemic, and possibly longer.
In order to consummate a particular acquisition of a Canna-Infused Products Company, management of the Company is open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such Canna-Infused Products Company, for example operating businesses and/or assets involving distilled spirits, beer, wine, paraphernalia and real estate. In addition, management of the Company is open-minded to the concept of acquiring all or a portion of one or more operating businesses and/or assets that are considered to be “essential” businesses which are unlikely to be shut down by the government during pandemics such as COVID-19.
To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company d/b/a Lifted Made, 4.99% of the ownership interests in a second Canna-Infused Products Company called Ablis Holding Company ("Ablis"), and 4.99% of the ownership interests in two other businesses that manufacture distilled spirits called Bendistillery Inc. ("Bendistillery") and Bend Spirits, Inc. ("Bend Spirits").
We have also terminated a planned acquisition of Canna-Infused Products Company called CBD Lion LLC.
At this point in time, we are in discussions with several companies in our acquisition pipeline that are involved in cannabinoid businesses of various types. However, our cash on hand is currently limited, so in order to close future acquisitions it is highly likely that it will be necessary for us to raise additional capital, and no guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.
Acquisition of 100% of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids)
On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Warrants").
Pursuant to the Merger, Lifted Liquids, Inc. d/b/a Lifted Made, an Illinois corporation ("Lifted" or "Lifted Made"), is now operating as a wholly-owned subsidiary of the Company, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.
Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.
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Ownership of 4.99% of Ablis, Bendistillery and Bend Spirits
On April 30, 2019, we closed on the acquisition of 4.99% of the common stock of each of CBD-infused beverages maker Ablis, and of distilled spirits manufacturers Bendistillery and Bend Spirits, all of Bend, Oregon.
Corporate Information
Acquired Sales Corp. is a Nevada corporation incorporated on January 2, 1986 that is primarily engaged in the identification, structuring and seeking to execute on acquisitions of all or a portion of one or more operating businesses involving the manufacture and sale of cannabinoid-infused products.
Our principal headquarters are located at 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Our telephone number is (847) 915-2446. Our corporate website address is http://www.acquiredsalescorp.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase or sell our securities.
We, or our target acquisitions, have proprietary rights to a number of trademarks, service marks and trade names used in this prospectus which are, or may become, important to our business. Solely for convenience, the trademarks, service marks and trade names in this prospectus are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.
Issuer: | Acquired Sales Corp., a Nevada corporation |
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Securities offered | This prospectus covers the resale of up to 2,014,500 shares of our common stock issuable upon conversion of Series A and Series B Preferred Stock. |
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Total Common stock outstanding before this offering | 6,640,236 shares of common stock |
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Use of proceeds | We will not receive any proceeds from the sale of the Shares covered by this prospectus. We will not receive proceeds from the exercise of the preferred stock if exercised. See “Use of Proceeds”. |
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Risk Factors | Investing in our securities involves a high degree of risk. For a discussion of factors to consider before deciding to invest in our securities, you should carefully review and consider the “Risk Factors” section of this prospectus beginning on page 9 of this prospectus.
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The number of shares of our common stock that will be outstanding immediately before this offering is based on 6,460,236 shares of common stock outstanding as of June 23, 2020, and does not include, as of that date:
•6,537,869 shares of our common stock issuable upon exercise of outstanding stock options and warrants at a weighted average exercise price of $2.56 per share as of June 23, 2020; and
•6,615,000 shares of common stock issuable upon exercise of the Series A Preferred Stock.
•100,000 shares of common stock issuable upon exercise of the Series B Preferred Stock.
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Our business is subject to numerous risks and uncertainties (“Risk Factors”). In the following Risk Factors, the terms "us", "we", "Company" and "Lifted" are meant to include references to Acquired Sales, Lifted, Ablis, Bendistillery and Bend Spirits, as appropriate in the context of particular Risk Factors. These Risks Factors may cause our operations to vary materially from those contemplated by our forward-looking statements.
Investing in our securities involves a high degree of risk. You should carefully consider the following risks, together with all of the other information contained in this prospectus, including our financial statements and related notes, before making a decision to invest in our securities. Any of the following risks could have a material adverse effect on our business, operating results, and financial condition and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. These Risk Factors include:
IMPACTS OF COVID-19
LIKE NEARLY ALL BUSINESSES IN THE UNITED STATES TODAY, ACQUIRED SALES CORP. IS FACING AN UNPRECEDENTED AND HIGHLY RISKY BUSINESS ENVIRONMENT AND UNCERTAIN FUTURE CAUSED BY THE CORONAVIRUS KNOWN AS COVID-19.
THE IMPACTS OF COVID-19 ON ACQUIRED SALES CORP., ON ITS WHOLLY OWNED SUBSIDIARY LIFTED LIQUIDS, INC. D/B/A LIFTED MADE, AND ON LIFTED MADE'S OFFICERS, EMPLOYEES, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME COULD BE DISASTROUS FOR OUR COMPANY. AMONG THE MANY POTENTIALLY DISASTROUS IMPACTS OF COVID-19:
·THE U.S. ECONOMY MAY BE PUSHED INTO A DEEP RECESSION OR DEPRESSION THAT COULD MATERIALLY ADVERSELY IMPACT ACQUIRED SALES CORP. AND LIFTED MADE
·ACQUIRED SALES CORP. AND LIFTED MADE COULD LOSE SOME OR ALL OF OUR KEY DIRECTORS, OFFICERS AND EMPLOYEES, WHO MAY BE IRREPLACEABLE
·LIFTED MADE COULD BE UNABLE TO OBTAIN HIGH QUALITY RAW GOODS AND PACKAGING MATERIALS NEEDED TO MANUFACTURE ITS PRODUCTS, OR OBTAINING HIGH QUALITY RAW GOODS AND PACKAGING MATERIALS COULD BE MORE EXPENSIVE AND/OR DELAYED
·LIFTED MADE COULD BE UNABLE TO DISTRIBUTE OR SELL ITS PRODUCTS PROFITABLY, IF AT ALL
·U.S. CONSUMERS COULD BE SO FINANCIALLY DISTRESSED THAT THEY CANNOT OR WILL NOT PURCHASE LIFTED MADE'S PRODUCTS
·U.S. FEDERAL, STATE AND LOCAL GOVERNMENTS MAY IMPOSE LAWS, RULES, REGULATIONS AND EXECUTIVE ORDERS THAT EFFECTIVELY PROHIBIT LIFTED MADE FROM OPERATING PROFITABLY, IF AT ALL, OR THAT EFFECTIVELY LIMIT LIFTED’S EMPLOYEES FROM PERFORMING THEIR WORK FOR LIFTED IN A NORMAL AND COST-EFFECTIVE MANNER
·THE U.S. FINANCIAL SYSTEM AND ECONOMY MAY NOT BE ABLE TO CONTINUE TO FUNCTION AS THEY HAVE HISTORICALLY, WHICH MAY HAVE MATERIAL ADVERSE IMPACTS UPON ACQUIRED SALES CORP. AND LIFTED MADE THAT CANNOT PRESENTLY BE ESTIMATED OR PREDICTED
·LIFTED MADE COULD EXPERIENCE SEVERE FINANCIAL LOSSES NOT COVERED BY ANY INSURANCE
NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN THAT ACQUIRED SALES CORP. AND LIFTED MADE WOULD BE ABLE TO AVOID THESE POTENTIALLY DISASTROUS IMPACTS OF COVID-19.
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CONSEQUENTLY, ACQUIRED SALES CORP. AND LIFTED MADE COULD RUN OUT OF MONEY AND COULD BECOME INSOLVENT OR BANKRUPT AS A RESULT OF THE IMPACTS OF COVID-19, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR COMPANY AND ON THE PRICE OF OUR COMMON STOCK.
THE IMPACTS OF COVID-19 ARE ALREADY BEING EXPERIENCED BY ACQUIRED SALES CORP. AND LIFTED MADE. ON MARCH 20, 2020, ILLINOIS GOVERNOR J.B. PRITZKER ISSUED EXECUTIVE ORDER 2020-10, ENTITLED "EXECUTIVE ORDER IN RESPONSE TO COVID-19 (COVID-19 EXECUTIVE ORDER NO. 8)", PURSUANT TO WHICH, WITH CERTAIN EXCEPTIONS, ALL INDIVIDUALS CURRENTLY LIVING WITHIN THE STATE OF ILLINOIS ARE ORDERED TO STAY AT HOME OR AT THEIR PLACE OF RESIDENCE, EXCEPT AS ALLOWED IN THE EXECUTIVE ORDER.
NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW SUCH EXECUTIVE ORDER WILL IMPACT ACQUIRED SALES CORP., LIFTED MADE, LIFTED MADE'S OFFICERS, EMPLOYEES, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME, OR THE PRICE OF OUR COMMON STOCK.
DURING THE ONGOING COVID-19 PANDEMIC, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES HAVE BEEN SIGNIFICANTLY DEPENDENT UPON THE RE-SALE OF HAND SANITIZER TO A SMALL NUMBER OF CUSTOMERS, AND UPON THE RECEIPT BY LIFTED MADE OF $149,622.50 BORROWED FROM THE U.S. SMALL BUSINESS ADMINISTRIATION (“SBA”) UNDER THE SBA’S PAYROLL PROTECTION PROGRAM (THE “PPP LOAN”). SUCH RE-SALES OF HAND SANITIZER MAY NOT CONTINUE IN THE FUTURE, AND THE PPP LOAN MAY BE REQUIRED TO BE REPAID. CONSEQUENTLY, LIFTED’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.
PLEASE ALSO CONSIDER "RISK FACTORS RELATING TO LIFTED AND FUTURE ACQUISITIONS - Pandemics or disease outbreaks, such as the novel coronavirus, may disrupt consumption and trade patterns, supply chains, and production processes, which could materially affect Lifted’s and target companies’ operations and results of operations", in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2020 for the period ended December 31, 2019.
RISK FACTORS RELATING TO OUR COMPANY AND OUR STOCK
Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability
We have a limited operating history with respect to our cannabinoid-related operations upon which you can evaluate our prospects and our potential value. Prior to that, we have not been profitable during most of our years of operation. We face many risks that could prevent us from achieving profits in future years. We cannot assure you that we will be profitable in the future. Our acquisition of Lifted and our prior acquisitions of 4.99% of the outstanding equity of each of Ablis, Bend Spirits and Bendistillery. d/b/a Crater Lake Spirits, involve significant risk, and there can be no assurance that the business of Lifted, or 4.99% of the common stock of each of Ablis, Bend Spirits and Bendistillery d/b/a Crater Lake Spirits, will be successful or generate any profit or other financial benefit for our Company. An inability by Acquired Sales Corp. to achieve financial benefit from Lifted, Ablis, Bend Spirits or Bendistillery could materially adversely affect our Company and the trading price of our Stock.
We have incurred substantial losses in the past and it may be difficult to achieve profitability
We have a history of losses and we may incur additional losses in the future. For the years ended December 31, 2019, and December 2018, we had net losses of $1,236,105 and $220,621, respectively. As of December 31, 2019 and December 31, 2018, we had accumulated deficits of $15,392,552 and $14,005,689, respectively. There exists
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substantial doubt regarding our ability to continue as a going concern. We intend to continue to invest in the cannabinoid space, including by hiring additional personnel, upgrading our management systems and integrating several businesses into or as a part of our operations. To the extent we are successful in integrating several businesses into our operations, we may also incur increased losses in the short term because costs associated with these activities are expected to commence in advance of service and transactional revenues at future dates if at all. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenues enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this section, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common Stock may significantly decrease. Our ability to continue as a going concern is dependent upon generating profits from operations in the future and/or our ability to obtain necessary financing required to meet our obligations and repay our liabilities arising from normal business operations. We intend to finance our operating costs over the next twelve months with existing cash on hand, cash from operations, debt financings, and/or the sale of equity which may not be available to us on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to curtail or cease our operations.
Our balance sheet is weak and we lack liquidity
Our balance sheet is weak. Among other financial obligations, we owe Nicholas S. Warrender $3,750,000 under the Promissory Note, which was executed on February 24, 2020, as part of the Lifted Merger. Please note that this obligation did not exist as of December 31, 2019. We also owe Gerard M. Jacobs and William C. "Jake" Jacobs an aggregate of $350,000 in bonuses, which were also triggered on February 24, 2020 pursuant to the Compensation Agreement, as a result of the closing of the Lifted Merger. Again, these obligations did not exist as of December 31, 2019. We have also borrowed the $149,622.50 PPP Loan from the SBA. This obligation did not exist as of December 31, 2019. We are also accruing 3% annual dividends on our Series A and Series B Convertible Preferred Stock. There is no guarantee that we can obtain the funding needed to pay these financial obligations, to pay for our operations, and to pay for additional acquisitions on acceptable terms, if at all, and neither our directors, officers, or any third party is obligated to provide any financing. A failure to pay our financial obligations when they become due and payable could materially adversely affect our Company and the trading price of our common stock.
We may not be profitable in the future
We have not been profitable during most of our years of operation. We face many risks that could prevent us from achieving profits in future years. We cannot assure you that we will be profitable in the future. There can be no assurance that Lifted or any other acquisition that we may make will be profitable. A failure to achieve profitability could materially adversely affect our Company and the trading price of our common stock.
Our common stock lacks a meaningful public market
At present no active market exists for our common stock and there is no assurance that a regular trading market will develop and if developed, that it will be sustained. An owner of our common stock may, therefore, be unable to sell our common stock should he or she desire to do so. Or, if an owner of our common stock decides to sell our common stock, such sales could drive the price of our common stock significantly lower. Furthermore, it is unlikely that a lending institution will accept our common stock as pledged collateral for loans. This lack of liquidity could materially adversely affect our Company and the trading price of our common stock.
Our common stock may never be listed on a national exchange
Our common stock may never meet the listing requirements of a national exchange. You should not assume that an effort to list our common stock would be successful, or if successful, that such listing requirements will be maintained, including but not limited to requirements associated with maintenance of a minimum net worth, minimum stock price, and ability to establish a sufficient number of market makers.
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Our common stock may be considered a “penny stock” and may be difficult to trade
The U.S. Securities and Exchange Commission (the “SEC”) has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock may be less than $5.00 per share and, therefore, may be designated as a penny stock according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, to obtain a written agreement from the purchaser, and to determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may adversely affect the ability of investors to sell our common stock, and may materially adversely affect our business and the trading price of our common stock.
Our common stock lacks institutional or analyst support
Our Company lacks institutional support. In addition, investment banks with research capabilities do not currently follow our common stock. This lack of institutional or analyst support lessens the trading volume and general market interest in our common stock, and may adversely affect an investor’s ability to trade a significant amount of our common stock. This lack of institutional or analyst support could materially adversely affect our Company and the trading price of our common stock. Moreover, in the event we obtain securities or industry analyst coverage, if one or more of the analysts who cover us or our business downgrade our securities or publish inaccurate or unfavorable research about us or our business, our Company and the trading price of our common stock could be materially adversely affected.
The public float of our common stock is small
The public float of our common stock is small, which may limit the ability of some institutions to invest in our common stock. This lack of liquidity could materially adversely affect our Company and the trading price of our common stock.
The trading price of our common stock may be volatile and could drop quickly and unexpectedly
The stocks of micro-cap and small-cap companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macro-economic developments in North America and globally, and market perceptions of the attractiveness of particular industries. This volatility could materially adversely affect our Company by making it more difficult to raise capital or complete acquisitions. In addition, securities class-action litigation often has been brought against companies following periods of volatility in the market price of their securities. Our Company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert our management’s attention and resources away from our business. For these reasons and others, quick and unexpected drops in the trading price of our common stock are likely from time to time. Volatility in our common stock price could materially adversely affect our Company and the trading price of our common stock.
We are adversely affected by many significant economic, health, safety and financial issues
Businesses are materially adversely affected by periods of significant economic slowdown or recession, tariff wars, pandemics, fears of inflation or deflation, rising interest rates, or a public perception that any of these events are occurring or may occur, which could adversely affect our revenues, results of operations, and cash flow. In addition, as they relate to our proposed acquisitions, the capital and credit markets have experienced volatility and disruption. National and global political, trade, financial and business conditions have experienced difficulties. Access to financing often is negatively impacted. Credit is often limited. In many cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers. Prominent risks include issues involving interest rate fluctuations, the coronavirus, questions about the health risks of CBD and vaping, trade disputes with China and other countries, turmoil in the Middle East and around the world, oil prices, rising health care costs, social and political unrest, and many other issues. These factors could materially adversely affect our Company and the trading price of our common stock.
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We may not be able to raise needed capital
We need to raise substantial amounts of additional capital to pay the $3,750,000 Promissory Note owed to Nicholas S. Warrender, to pay the $149,622.50 PPP Loan owed to the SBA, to pay an aggregate of $350,000 in bonuses payable to our other officers triggered by the closing of our acquisition of Lifted, to pay an aggregate of up to $700,000 in bonuses that will be earned by our officers during the period from December 1, 2020 through December 1, 2021, or earlier if the Company raises an aggregate of between $15,000,000 and $25,000,000 of capital, to pay for future acquisitions, to pay 3% dividends on our preferred stock, and to cover overhead costs. In addition, our aggregate future capital requirements are uncertain. The amount of capital that we will need in the future will depend on many factors that we cannot predict with any certainty, including: the market acceptance of Lifted's products and services; the levels of promotion and advertising that will be required to launch Lifted's new products and services and to achieve and maintain a competitive position in the marketplace; our business, product, capital expenditures and technology plans, and product and technology roadmaps; technological advances; our competitors’ responses to our products and services; our pursuit of mergers and acquisitions; and our relationships with our customers.
We cannot assure you that we will be able to raise the needed capital on commercially acceptable terms, or at all. Delay, disruption, or failure to obtain sufficient financing may result in the delay or failure of our business plans. Our inability to raise sufficient capital on commercially acceptable terms, or at all, could have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to secure adequate or reliable sources of funding required to operate our business or increase our production to meet consumer demand for our products
The continued development of our business will require additional financing, and there is no assurance that we will obtain the financing necessary to be able to achieve our business objectives. Our ability to obtain additional financing will depend on investor demand, our performance and reputation, market conditions and other factors. Our inability to raise such capital could result in the delay or indefinite postponement of our current business objectives or in our inability to continue to carry on our business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to us.
In addition, from time to time, we may enter into transactions to acquire assets or the capital stock or other equity interests of other entities. Our continued growth may be financed, wholly or partially, with debt, which may increase our debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings may also contain provisions that, if breached, may entitle lenders or their agents to accelerate the repayment of loans or realize upon security over our assets, and there is no assurance that we would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to any such debt financing.
Our assets are pledged as collateral for repayment of the $3,750,000 Promissory Note
Part of the consideration paid by us to acquire Lifted is the $3,750,000 Promissory Note payable to Nicholas S. Warrender, which is described above. All of our assets are pledged to Nicholas S. Warrender as collateral for the repayment of such Promissory Note. These assets include all of the common stock of Lifted, and the common stock that we own of Ablis, Bendistillery and Bend Spirits. If we fail to repay such Promissory Note, we could lose all of our assets or go bankrupt. In addition, except in regard to capital raised in connection with two potential acquisitions in Wisconsin, 50% of all future capital raised by us must be applied by us toward the partial or full repayment of the outstanding principal and accrued interest on such Promissory Note. Such requirement may make it difficult or more costly for us to raise additional capital. Such Promissory Note, the pledge of all of our assets as collateral for such Promissory Note, and the requirement that we apply 50% of new capital raised by us toward the partial or full repayment of the outstanding principal and accrued interest on such Promissory Note, could have a material adverse effect on our Company and the trading price of our common stock.
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Future sales of shares of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price
The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if any of our significant stockholders sells a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Any issuance of additional common stock or common stock equivalents by us would result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock could depress the market for our shares and make it more difficult for us to sell equity securities in the future at any time, if at all.
We may issue additional shares of common stock, and options and warrants to purchase additional shares of common stock, without stockholder approval, which would dilute the current holders of our common stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common stock, and/or options and warrants to purchase shares of common stock. We may issue shares of our common stock, or options or warrants to purchase shares of our common stock, to complete a business combination or to raise capital, or to incentivize our directors, officers and employees. Such stock issuances, and such issuances of options and warrants, could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances could dilute our stockholders’ ownership interests significantly. These issuances also would have the effect of reducing our stockholders' influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of currently outstanding stock options and warrants exercise those options or warrants to purchase shares of our common stock. This dilution could materially adversely affect the trading price of our common stock.
The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock
Our certificate of incorporation gives our Board of Directors the right to create one or more new series of preferred stock. As a result, the Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be used to discourage, delay or prevent a change of control of our Company, which could materially adversely affect the price of our common stock.
Our common stock may be subject to significant dilution
Our capital raising may include the sale of significant numbers of shares of our common stock or other securities convertible into our common stock, and may also include the issuance of significant numbers of options, warrants or other securities convertible into shares of our common stock. We also may issue significant numbers of shares of our common stock, or options, warrants, or other securities convertible into shares of our common stock, as a portion of the consideration for acquisitions. We are also likely to issue significant numbers of options and/or warrants, or rights to purchase warrants, to our officers, directors and/or independent contractors, and to investment bankers and finders, especially in connection with the closing of capital raises and acquisitions. Such transactions may significantly increase the number of outstanding shares of our common stock, and may be highly dilutive to our existing stockholders. In addition, the securities that we issue may have rights, preferences or privileges senior to those of the holders of our outstanding common stock. This dilution could have a material adverse effect on our Company and the trading price of our common stock. In addition, we have options, warrants, and rights to purchase warrants, outstanding covering several million shares of our common stock. If all of these millions of options and warrants were to be exercised, the number of outstanding shares of our common stock would increase significantly. Moreover, additional shares may be issued in connection with future acquisition and business operations. This dilution could have a material adverse effect on our Company and the trading price of our common stock.
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Raising capital by selling our common stock or convertible preferred stock is difficult to accomplish
Selling equity is difficult to accomplish in the current market, especially because the prices of stocks of many publicly traded companies involved in the marijuana and CBD industries have experienced significant declines. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. This could materially adversely affect our Company and the trading price of our common stock.
Raising capital by selling our common stock or convertible preferred stock could be expensive
If we were to raise capital by selling common stock or securities convertible into common stock, it could be expensive. We may be required to pay cash fees and/or fees in the form of warrants equal to 7% or more of the gross sales proceeds raised, in addition to legal, accounting and other fees and expenses. In addition, when it becomes known within the investment community that an issuer is seeking to raise equity capital, it is common for the common stock of that issuer to be sold off in the market, lowering the trading price of the issuer’s common stock in advance of the pricing of the issue. This could make our raising capital by selling equity securities significantly more expensive and materially adversely affect the trading price of our common stock.
Debt financing is difficult to obtain and could be expensive
Debt financing is difficult to obtain in the current credit markets, especially for companies involved in the marijuana and CBD industries. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. Providers of debt may also be issued options, warrants, or rights to purchase warrants, to purchase shares of our common stock. This could materially adversely affect our Company and the trading price of our common stock.
Raising capital by borrowing could be risky
We have issued a $3,750,000 Promissory Note payable to Nicholas S. Warrender as part of the acquisition consideration paid for Lifted. As discussed above, this entails risk. If we were to raise capital by borrowing amounts to fund our operations or for additional acquisitions, that would also be risky. Cash is required to service the debt, ongoing covenants are typically employed which can restrict the way in which we operate our business, and if the debt comes due either upon maturity or an event of default, we may lack the resources at that time to either pay off or refinance the debt, or if we are able to refinance, the refinancing may be on terms that are less favorable than those originally in place, and may require additional equity or quasi-equity accommodations. These risks could materially adversely affect our Company and the trading price of our common stock.
Our financing decisions may be made without stockholder approval
Our financing decisions and related decisions regarding levels of debt, capitalization, distributions, acquisitions and other key operating parameters are determined by our Board of Directors in its discretion, in many cases without any notice to or vote by our stockholders. This could materially adversely affect our Company and the trading price of our common stock.
We lack investor relations, public relations and advertising resources
We lack the resources to properly support investor relations, public relations, and advertising efforts. This puts us at a disadvantage with potential acquisition candidates, investors, research analysts, customers, and job applicants. These disadvantages could materially adversely affect our Company and the trading price of our common stock.
Sales of our common stock could cause the trading price of our common stock to fall
Since the trading volume of our common stock is very low and the amount of our common stock in the public float is very small, any sales or attempts to sell our common stock, or the perception that sales or attempts to sell our common stock could occur, could adversely affect the trading price of our common stock.
An increase in interest rates may have an adverse effect on the trading price of our Stock
An increase in market interest rates may tend to make our common stock less attractive relative to other investments, which could adversely affect the trading price of our common stock.
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Increases in taxes and regulatory compliance costs may reduce our revenue
Costs resulting from changes in or new income taxes, value added taxes, service taxes, sales and use taxes, or other taxes may adversely affect our margins. These costs could materially adversely affect our Company and the trading price of our common stock.
Tax interpretations and changes in tax regulations and legislation could adversely affect us
Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities. Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by us that may be challenged by the applicable taxation authorities upon audit. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduced the U.S. federal statutory tax rate, broadened the corporate tax base through the elimination or reduction of deductions, exclusions, and credits, limited the ability of U.S. corporations to deduct interest expense, and transitioned to a territorial tax system which allows for the repatriation of foreign earnings to the U.S. with a 100% federal dividends received deduction prospectively. In addition, the Tax Act required a one-time transitional tax on foreign cash equivalents and previously unremitted earnings. Several of the new provisions enacted as part of the Tax Act require clarification and guidance from the U.S. Internal Revenue Service (“IRS”) and Treasury Department. These or other changes in U.S. tax laws could impact our profits, effective tax rate, and cash flows.
We have accumulated net operating losses (“NOLs”) arising from our operations and foreign and domestic acquisitions of approximately $2.4 million as of December 31, 2019. We have recognized valuation allowances to reduce these amounts to our current estimate for NOLs that will be recoverable against future taxable income prior to their expiration in accordance with the appropriate tax regulations. If our estimates change or we do not generate sufficient taxable income prior to the expiration of these NOLs we may have to record additional valuation allowances resulting in higher income tax expense.
In addition, we may periodically restructure our legal entities and if taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. In connection with such restructurings we could also incur additional charges associated with consulting fees and other charges. This could materially adversely affect our Company and the trading price of our common stock.
We are adversely affected by regulatory uncertainties
Regulatory uncertainties regarding potential adverse changes in federal and state laws and governmental regulations materially adversely affect our business and the trading price of our common stock. This risk is especially important relative to the marijuana and CBD industries, which are controversial both socially and scientifically.
A small number of stockholders have significant influence over us
A small number of our stockholders and members of our board of directors and management acting together would be able to exert significant influence over us through their ability to influence the election of directors and all other matters that require action by our stockholders. The voting power of these individuals could have the effect of preventing or delaying a change in control of our Company which they oppose even if our other stockholders believe it is in their best interests.
In addition, our shareholders have authorized our Chief Executive Officer, Gerard M. Jacobs, to seek shareholders agreements and/or proxies from other parties, including potential future capital sources and the owners of potential future acquisition candidates. Pursuant to this authorization, our Chief Executive Officer Gerard M. Jacobs has signed a Stockholders Agreement with our largest stockholder, our Chief Operating Officer Nicholas S. Warrender, and with our President and Chief Financial Officer William C. "Jake" Jacobs, that will ensure that all 3,900,455 shares of our common stock issued to Nicholas S. Warrender in the Lifted Merger, and the hundreds of thousands of
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shares of our common stock owned and controlled by Gerard M. Jacobs and William C. "Jake" Jacobs, representing a substantial majority of our shares of common stock (prior to the conversion of any shares of our preferred stock), will be voted in concert on the election of directors, compensation matters, acquisitions and divestitures, capital raises, and other significant matters.
Accordingly, our officers Gerard M. Jacobs, William C. "Jake" Jacobs and Nicholas S. Warrender, voting together, have substantial influence over our policies and management. We may take actions supported by the three of them that may not be viewed by some stockholders to be in our best interest, or the three of them could prevent or delay a change in our control which they oppose even if our other stockholders believe it is in their best interests. This could materially adversely affect our Company and the trading price of our common stock.
State law and our articles of incorporation and bylaws help preserve insiders’ control over us
Provisions of Nevada state law, our articles of incorporation and bylaws may discourage, delay or prevent a change in our management team that stockholders may consider favorable. These provisions may include: (1) authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; (2) permitting stockholder action by written consent; and (3) establishing advance notice requirements for nominations for election to the board of directors, or for proposing matters that can be acted on by stockholders at stockholder meetings. These provisions, if included in our articles of incorporation or by-laws, could allow our board of directors to affect an investor’s rights as a stockholder since our board of directors could make it more difficult for preferred stockholders or common stockholders to replace members of the board of directors. Because the board of directors is responsible for appointing the members of the management team, these provisions could in turn affect any attempt to replace the current or future management team. These factors could adversely affect our Company or the trading price of our Stock.
Retaining and attracting directors and officers may be expensive
We cannot make any assurances regarding the retention of our current directors and officers. Some of our directors and officers may resign upon our raising money, upon our consummation of a business combination, or otherwise. Attracting new directors and officers, and retaining our current directors and officers, may be expensive. We may in the future pay director fees to one or more of our directors. The costs of incentives to retain and attract directors and officers could materially adversely affect our Company and the trading price of our common stock.
We indemnify our directors and officers, and certain other parties
Our bylaws specifically limit the liability of our officers and directors to the fullest extent permitted by law. As a result, aggrieved parties may have a more limited right to action than they would have had if such provisions were not present. The bylaws also provide for indemnification of our officers and directors for any losses or liabilities they may incur as a result of the manner in which they operated our business or conducted internal affairs, provided that in connection with these activities they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest. In the ordinary course of business, we also may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, independent contractors and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. We may also agree to indemnify former officers, directors, employees and independent contractors of acquired companies in connection with the acquisition of such companies. Such indemnification agreements may not be subject to maximum loss clauses. It is not possible to determine the maximum potential amount of exposure in regard to these obligations to indemnify, due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation. Use of our capital or assets for such indemnification would reduce amounts available for the operations or for distribution to our investors, which could materially adversely affect our Company and the trading price of our common stock.
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We do not expect to pay dividends to holders of our common stock
For the foreseeable future, it is anticipated that earnings, if any, which may be generated from our operations will be used to finance our growth and that dividends may not be paid to the holders of our common stock, which may have a material adverse effect on our Company and the trading price of our common stock.
Our cost of being a publicly traded company will increase significantly as our business operations expand
As we grow, our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company will continue to increase significantly. We will eventually need to hire additional employees and/or additional consultants and professionals, in order to have appropriate internal financial controls and accurate financial reporting, and otherwise to comply with the requirements of the Sarbanes-Oxley Act. While we cannot state with certainty what all of these costs will be, we believe that our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company will eventually increase to at least $350,000 per year, which may have a material adverse effect on our Company and the trading price of our common stock.
We incur increased costs as a result of operating as a public company and our management is required to devote substantial time to new compliance initiatives
As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and rules implemented by the SEC, impose various requirements on public companies, including requirements to file annual, quarterly and event-driven reports with respect to our business and financial condition and operations and to establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel may fail to improve or maintain effective internal controls over financial reporting (“ICFR”) and disclosure controls and procedures (“DCP”) necessary to ensure timely and accurate reporting of operational and financial results. Our management team has to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with complying with these requirements. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our ICFR, which, after we have met certain requirements, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that we will not be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which may have a material adverse effect on our Company and the trading price of our common stock.
Management may not be able to successfully implement adequate internal controls over financial reporting
Proper systems of ICFR and disclosure are critical to the operation of a public company. However, our DCP or ICFR may not prevent all errors and all fraud. Our efforts to remediate material weaknesses may not be effective or prevent future material weaknesses or significant deficiencies in our internal control over financial reporting. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results could be materially and adversely affected, which could materially adversely affect our Company and the trading price of our common stock.
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We may not be able to obtain adequate insurance coverage in respect of the risks our business faces, the premiums for such insurance may not continue to be commercially justifiable, or there may be coverage limitations and other exclusions which may result in such insurance not being sufficient to cover potential liabilities that we face
We may not be able to obtain adequate insurance coverage in respect of the risks our business faces, including product liability insurance, protecting our assets and operations. Our insurance coverage may be subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities, including potential product liability claims, or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, we may be exposed to material uninsured liabilities that could impede our liquidity, profitability or solvency, all of which could materially adversely affect our Company and the trading price of our common stock.
RISK FACTORS RELATING TO LIFTED AND FUTURE ACQUISITIONS
Pandemics or disease outbreaks, such as the novel coronavirus, may disrupt consumption and trade patterns, supply chains, and production processes, which could materially affect Lifted’s and target companies’ operations and results of operations
Pandemics or disease outbreaks such as the novel coronavirus known as COVID-19 may depress demand for cannabinoid-infused products manufactured by Lifted and target companies for many reasons. Governmentally imposed restrictions on public gatherings or interactions may limit Lifted’s and target companies’ ability to manufacture, sell and distribute their products, and may also restrict Lifted’s and target companies’ customers’ and consumers’ ability or willingness to purchase Lifted’s and target companies’ products.
The spread of pandemics or disease outbreaks such as COVID-19 may also disrupt logistics necessary to import, export, and deliver products to Lifted, target companies and their customers. Ports and other channels of entry may be closed or operate at only a portion of capacity, as workers may be prohibited or otherwise unable to report to work, and means of transporting products within regions or countries may be limited for the same reason.
Lifted’s and target companies’ operations may become limited in their ability to procure, deliver, produce or distribute their cannabinoid-infused products because of transport restrictions related to quarantines or travel bans.
Workforce limitations and travel restrictions resulting from pandemics or disease outbreaks and related government actions may impact many aspects of Lifted’s and target companies’ businesses. If a significant percentage of Lifted’s or target companies’ workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, Lifted’s and target companies’ operations may be negatively impacted. In addition, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect customers’ demand for Lifted’s and target companies’ products, all of which could materially adversely affect our Company and the trading price of our common stock.
Lifted and target companies, or the cannabis industry more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception
The cannabis industry is highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the cannabis distributed to consumers. The perception of the cannabis industry and cannabis products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) relating to the consumption of cannabis products, including unexpected safety or efficacy concerns arising with respect to cannabis products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular cannabis product or delivery system or will be consistent with earlier publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction
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in the demand for target companies’ products. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis, or target companies’ products specifically, or associating the consumption of cannabis with illness or other negative effects or events, could adversely affect target companies. This adverse publicity could arise even if the adverse effects associated with cannabis products resulted from consumers’ failure to use such products legally, appropriately or as directed, and could materially adversely affect our Company and the trading price of our common stock.
Prohibition, banning or regulation of vaping, e-liquids and electronic cigarette products, or lawsuits related to the use of such products, could have a material adverse effect on Lifted, and could have a material adverse effect on the trading price of our common stock
Federal, state and local authorities are investigating deaths and illnesses apparently related to vaping. We can provide no guarantees or assurances that vaping, e-liquids and electronic cigarettes will not be prohibited, banned and/or heavily regulated in response to these deaths and illnesses, nor that Lifted will not be sued by customers who use Lifted's vaping, e-liquids and electronic cigarette products. Prohibition, banning or regulation of such products, or lawsuits related to the use of Lifted's products, could have a material adverse effect on Lifted, and could have a material adverse effect on the trading price of our common stock.
Any unfavorable verdict or settlement of the dispute between Lifted and Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and Ralph L. Taylor III, who is a former representative of Lifted, could have a material adverse effect upon Lifted and upon the trading price of our common stock
In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and Ralph L. Taylor III, who is a former representative of Lifted, in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by the defendants. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted, and upon the price of our common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
If Lifted and target companies are not able to comply with all safety, health and environmental regulations applicable to their operations and industry, they may be held liable for any breaches of those regulations
Safety, health and environmental laws and regulations may affect aspects of Lifted's and target companies’ operations, including product development, working conditions, waste disposal, emission controls, the maintenance of air and water quality standards and land reclamation, and, with respect to environmental laws and regulations, impose limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Lifted and target companies may also follow other standards for the conduct of their operations and may be subject to ongoing compliance inspections in respect of these standards. Compliance with safety, health and environmental laws and regulations may require significant expenditures, and failure to comply with such safety, health and environmental laws and regulations may result in the imposition of fines and penalties, the temporary or permanent suspension of operations, the imposition of clean-up costs resulting from contaminated properties, the imposition of damages and the loss of or refusal of governmental authorities to issue permits or licenses to Lifted or the target companies or to certify Lifted's or target companies’ compliance with good manufacturing practices (“GMP”) standards. Exposure to these liabilities may arise in connection with Lifted's or target companies’ existing operations, their historical operations and operations that they may undertake in the future. They could also be held liable for worker exposure to hazardous substances and for accidents causing injury or death. There can be no assurance that Lifted or target companies will at all times be in compliance with all safety, health and environmental laws and regulations notwithstanding Lifted's or target companies’ attempts to comply with such laws and regulations.
Changes in applicable safety, health and environmental standards may impose stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for Lifted and target companies and their officers, directors and employees. Lifted and target companies may not be able to determine the specific impact that future changes in safety, health and environmental laws and regulations may have on their industry, operations and/or activities and our resulting financial position; however, Lifted and target companies may anticipate that capital expenditures and operating expenses may increase in the future as a result of the implementation of new and increasingly stringent safety, health and environmental laws and regulations. Further changes in safety, health and environmental laws and regulations, new information on existing safety, health and environmental conditions or other events, including legal
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proceedings based upon such conditions or an inability to obtain necessary permits in relation thereto, may require increased compliance expenditures by Lifted and target companies. This could have a material adverse effect on Lifted and the trading price of our common stock.
Lifted and target companies may lose profits or become subject to liability arising from any breach of contract or fraudulent or illegal activity by our employees, contractors, consultants and others
Lifted and target companies are exposed to the risk that their employees, independent contractors, consultants, service providers and licensors may engage in breach of contract or fraudulent or other illegal activity. Misconduct by these parties could include intentional undertakings of unauthorized activities, or reckless or negligent undertakings of authorized activities, in each case on Lifted's or target companies’ behalf or in Lifted's or target companies’ service that violate: (i) confidentiality agreements; (ii) other contracts; (iii) government regulations; (iv) manufacturing standards; (v) laws that require the true, complete and accurate reporting of financial information or data; or (vi) Lifted's or target companies’ agreements with insurers. In particular, the target companies could be exposed to loss of sales, revenue and profits, class action and other litigation, increased governmental inspections and related sanctions, the loss of any compliance certifications or the inability to obtain future compliance certifications, or reputational damage as a result of prohibited activities that are undertaken without Lifted's or target companies’ knowledge or permission and contrary to Lifted's and target companies’ confidentiality agreements, contracts, internal policies, procedures and operating requirements.
Lifted and target companies may be required to expend substantial time, effort and legal fees in order to address such situations. For example, in January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and Ralph L. Taylor III, who is a former representative of Lifted, in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by the defendants. Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
Lifted and target companies may not always identify and prevent misconduct by their employees, contractors and other third parties, including service providers and licensors, and the precautions taken by Lifted and target companies to detect and prevent this activity may not be effective in controlling unknown, unanticipated or unmanaged risks or losses or in protecting Lifted and target companies from governmental investigations or other actions or lawsuits stemming from such misconduct. If any such actions are instituted against Lifted and target companies, and Lifted and target companies are not successful in defending themselves or asserting their rights, those actions could have a significant impact on their businesses, including the imposition of civil, criminal or administrative penalties, damages, monetary fines and contractual damages, reputational harm, diminished profits and future earnings or curtailment of their operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may experience breaches of security at their facilities or loss as a result of the theft of their products
Because of the concentration of inventory at Lifted's and target companies’ facilities, Lifted and target companies are subject to the risk of theft of their products and other security breaches. A security breach at Lifted's or a target company’s facility could result in a significant loss of available products, expose Lifted or the target company to additional liability under applicable regulations and to potentially costly litigation or increased expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on Lifted's and the target company’s business, financial condition and results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to risks related to their information technology systems, including the risk that they may be the subject of a cyber-attack and the risk that they may be in non-compliance with applicable privacy laws
Lifted and target companies may have entered into agreements with third parties for hardware, software, telecommunications and other information technology (“IT”), services in connection with their operations. Their operations may depend, in part, on how well they and their vendors protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, disruptions in Internet and mobile
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commerce, hacking, computer viruses, vandalism, theft, malware, ransomware and phishing attacks. Any of these and other events could result in IT system failures, delays, increases in capital expenses, or potential costs and business disruption that may result if Lifted's or target companies’ customers complain or assert claims regarding Lifted's or target companies’ technology. Lifted's and target companies’ operations may also depend on the timely maintenance, upgrade and replacement of networks, equipment and IT systems and software, as well as preemptive expenses to mitigate the risks of failures. The failure of IT systems or a component of IT systems could, depending on the nature of any such failure, adversely impact Lifted's and target companies’ reputations and results of operations.
There are a number of laws protecting the confidentiality of customer personal information, and restricting the use and disclosure of that protected information. Lifted and target companies may collect and store personal information about their customers and are responsible for protecting that information from privacy breaches. A privacy breach may occur through a procedural or process failure, an IT malfunction or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly patient lists and preferences, is an ongoing risk whether perpetrated through employee collusion or negligence or through deliberate cyber-attack. Moreover, if Lifted or target companies are found to be in violation of the privacy or security rules under laws protecting the confidentiality of customer information, including as a result of data theft and privacy breaches, Lifted and target companies could be subject to sanctions and civil or criminal penalties, which could increase their liabilities and harm their reputations.
As cyber threats continue to evolve, Lifted and target companies may be required to expand significant additional resources to continue to modify or enhance their protective measures or to investigate and remediate any information security vulnerabilities. While Lifted and target companies may have implemented security resources to protect their data security and information technology systems, such measures may not prevent such events. Significant disruption to their information technology system or breaches of data security could have a material adverse effect on their business financial condition and results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be unable to grow
Lifted and target companies’ businesses are subject to a variety of business risks generally associated with developing companies. Lifted's and target companies’ ability to grow, and to expand and maintain market acceptance for their products, will depend on a number of factors, many of which may beyond their control. Future development and expansion could place significant strain on Lifted's and target companies’ management personnel and likely will require them to recruit additional management personnel, and there is no assurance that they will be able to do so. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted's and target companies may be unable to expand their operations quickly enough to meet demand or manage their operations beyond their current scale
There can be no assurance that Lifted and target companies will be able to manage their expanding operations effectively, that they will be able to sustain or accelerate their growth, or that such growth, if achieved, will result in profitable operations, or that Lifted and target companies will be able to attract and retain sufficient management personnel necessary for continued growth.
Demand for cannabinoid-infused products is dependent on a number of social, political and economic factors that are beyond Lifted's and target companies’ control. There is no assurance that an increase in existing demand will occur, that Lifted and target companies will benefit from any such demand increase or that their businesses will remain profitable even in the event of such an increase in demand. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may experience significant fluctuations in their operating results and growth rate
Lifted and target companies may not be able to accurately forecast their growth rate. Lifted's and target companies’ revenue growth may not be sustainable, and their percentage growth rates may decrease. Lifted's and target companies’ revenue and operating profit growth may depend on the continued growth of demand for their products and services, and their businesses may be affected by general economic and business conditions worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.
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Lifted's and target companies’ sales and operating results may also fluctuate for many other reasons, including due to risks described elsewhere in this section and due to risks and uncertainties associated with the following topics and issues:
·Lifted's and target companies’ ability to retain and increase sales to existing customers, attract new customers, satisfy their customers’ demands, and maintain profit margins;
·Lifted's and target companies’ ability to retain and expand their network of wholesalers and distributors;
·Lifted's and target companies’ ability to offer products on favorable terms, manage inventory, and fulfill orders;
·The introduction of competitive stores, websites, products, services, price decreases, or improvements, and changes in consumer preferences and trends;
·Changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the U.S.;
·Timing, effectiveness, and costs of expansion and upgrades of Lifted's and target companies’ systems and infrastructure;
·The success of Lifted's and target companies’ geographic, service, and product line expansions;
·The extent to which Lifted and target companies finance, and the terms of any such financing for, Lifted's and target companies’ current operations and future growth;
·The outcomes of legal proceedings and claims, which may include significant settlement costs, monetary damages or injunctive relief and could have a material adverse impact on Lifted's and target companies’ operating results;
·Variations in the mix of products and services Lifted and target companies sell;
·Variations in Lifted's and target companies’ level of merchandise and vendor returns;
·The extent to which Lifted and target companies offer favorable shipping terms, reduce prices, and provide additional benefits to their customers;
·Factors affecting Lifted's and target companies’ reputations or brand images;
·The extent to which Lifted and target companies invest in technology and content, fulfillment, and other expense categories;
·Increases in the prices of energy products and commodities like paper and packing supplies;
·The ability to collect amounts owed to Lifted and target companies when they become due;
·The extent to which Lifted and target companies’ are affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; and
·Terrorist attacks and armed hostilities.
Lifted and target companies may be subject to risks related to the protection and enforcement of their intellectual property rights, or intellectual property they license from others, and may become subject to allegations that they or their licensors are in violation of intellectual property rights of third parties
The ownership, licensing and protection of trademarks, patents and intellectual property rights may be significant aspects of Lifted's and target companies’ future success. Unauthorized parties may attempt to replicate or otherwise obtain and use Lifted's and target companies’ look and feel, packaging, products and technology. Policing the unauthorized use of Lifted's and target companies’ current or future trademarks, patents or other intellectual property rights now or in the future could be difficult, expensive, time consuming and unpredictable, as may be enforcing these rights against the unauthorized use by others. Identifying the unauthorized use of intellectual property rights is difficult as Lifted and target companies may be unable to effectively monitor and evaluate the products being distributed by their competitors, and the processes used to produce such products.
In addition, in any infringement proceeding, some or all of Lifted's and target companies’ trademarks, patents or other intellectual property rights or other proprietary know-how, and that which they may license from others, or arrangements or agreements seeking to protect the same for Lifted's and target companies’ benefit, may be found invalid, unenforceable, anticompetitive or not infringed or may be interpreted narrowly and such proceeding could put existing intellectual property applications at risk of not being issued. In addition, other parties may claim that Lifted's and target companies’ products, or those that they license from others, infringe on their proprietary, copyright or patent protected rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources and legal fees, result in injunctions or temporary restraining orders or require the payment of damages. As well, Lifted and target companies may need to obtain licenses from third parties who allege that Lifted and target companies have infringed on their lawful rights. Such licenses may not be available
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on terms acceptable to Lifted and target companies, or at all. In addition, Lifted and target companies may not be able to obtain or utilize on terms that are favorable to them, or at all, licenses or other rights with respect to intellectual property that they do not own.
Lifted and target companies may also rely on certain trade secrets, technical know-how and proprietary information that are not protected by patents to maintain their competitive position. Lifted's and target companies’ trade secrets, technical know-how and proprietary information, which are not protected by patents, may become known to or be independently developed by competitors, which could adversely affect Lifted and target companies. This could have a material adverse effect on our Company and the trading price of our common stock.
The seasonality of Lifted's and target companies’ businesses may place increased strain on their operations
Lifted and target companies may expect a disproportionate amount of their net sales to occur during a particular quarter. If Lifted and target companies do not stock or restock popular products in sufficient amounts such that they fail to meet customer demand, it could significantly affect Lifted's and target companies’ revenue and their future growth. If Lifted and target companies overstock products, they may be required to take significant inventory markdowns or write-offs and incur commitment costs, which could reduce profitability. If too many customers access Lifted's and target companies’ websites within a short period of time due to increased demand, Lifted and target companies may experience system interruptions that make their websites unavailable or prevent Lifted and target companies from efficiently fulfilling orders, which may reduce the volume of goods they sell and the attractiveness of their products and services. In addition, Lifted and target companies may be unable to adequately staff their fulfillment network and customer service centers during these peak periods and may be unable to meet the seasonal demand. All of these situations could have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to identify, audit, negotiate, finance or close future acquisitions
A significant component of our growth strategy focuses on acquiring minority or majority equity ownership interests in Canna-Infused Products Companies. We may not, however, be able to identify, audit, or acquire such equity ownership interests on acceptable terms, if at all. Additionally, we may need to finance all or a portion of the purchase price for an acquisition by incurring indebtedness or by selling shares of our common or convertible preferred stock. There can be no assurance that we will be able to obtain financing on terms that are favorable, if at all, which will limit our ability to acquire such equity ownership interests in the future. Failure to acquire such equity ownership interests on acceptable terms, if at all, would have a material adverse effect on our ability to increase assets, revenues and net income and on the trading price of our common stock.
Canna-Infused Products Companies are subject to regulatory risks, both nationally and internationally
Lifted, Ablis and other Canna-Infused Products Companies are subject to risks associated with the federal government’s and state and local governments’ evolving regulation of hemp, hemp oil, CBDs, and CBD-infused products. We can provide no assurance that one or more federal agencies, such as the US Food and Drug Administration (the “FDA”), or state and local governments will not attempt to impose rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon Canna-Infused Products Companies. For example, several states including California, Iowa, Louisiana and North Carolina have enacted laws and regulations that negatively impact the sale of cannabinoid-infused products. Moreover, if Canna-Infused Products Companies expand internationally (of which there is no guarantee that they ever would), we can provide no guarantee or assurance that Canna-Infused Products Companies will be able to comply with all applicable local laws and regulations. Such regulatory action could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may rely on contract manufacturers to manufacturer their products. If Lifted and target companies are unable to maintain good relationships with their existing contract manufacturers and/or secure such contract manufacturers, their businesses could suffer
Many of Lifted's and target companies’ contract manufacturers are affiliated with and manufacture other CBD-infused product brand products. In many cases, such products compete directly with Lifted's and target companies’ products. If Lifted and target companies are unable to maintain good relationships with their existing contract manufacturers and/or secure such contract manufacturers, their businesses, financial conditions and results of
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operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations
We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations. Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness or stock dilution; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations and (vi) the loss or reduction of control over certain of our assets. Material acquisitions have been and may continue to be material to our business strategy. There is no guarantee that any acquisition will be accretive. The existence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition could result in our incurring those liabilities. A strategic transaction may result in a significant change in the nature of our business, operations and strategy, and we may encounter unforeseen obstacles or costs in implementing a strategic transaction or integrating any acquired business into our operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may seek to enter into marketing relationships, affiliations, strategic alliances, or expand the scope of currently existing relationships, with third parties that Lifted and target companies believe will have a beneficial impact on them, and there are risks that such strategic alliances or expansions of Lifted's and target companies’ currently existing relationships may not enhance their businesses in the desired manner
Lifted and target companies may expand the scope of, and may in the future enter into, strategic alliances with third parties that they believe will complement or augment their existing businesses. Their ability to complete further strategic alliances is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance their businesses and may involve risks that could adversely affect them, including the investment of significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. Lifted and target companies may become dependent on their strategic partners and actions by such partners could harm their businesses. Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will be developed, maintained or achieve the expected benefits to their businesses or that they will be able to consummate future strategic alliances on satisfactory terms, or at all. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to product liability claims or regulatory action if their products are alleged to have caused significant loss or injury. This risk is exacerbated by the fact that cannabis use may increase the risk of serious adverse side effects
Lifted and target companies, as manufacturers and distributors of products which are ingested by humans, face the risk of exposure to product liability claims, regulatory action and litigation if their products are alleged to have caused loss or injury. Lifted and target companies may be subject to these types of claims due to allegations that their products caused or contributed to injury or illness, failed to include adequate instructions for use, or failed to include adequate warnings concerning possible side effects or interactions with other substances. This risk is exacerbated by the fact that cannabis use may increase the risk of developing schizophrenia and other psychoses, symptoms for individuals with bipolar disorder, and other side effects. Previously unknown adverse reactions resulting from human consumption of cannabis products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of cannabis products, like the manufacture and sale of any ingested product, involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Lifted and target companies may in the future have to recall certain of their cannabis products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against Lifted or a target company could result in increased costs and could adversely affect Lifted or such target company’s reputation and goodwill with its customers. There can be no assurance that Lifted and target companies will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms,
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or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and also could adversely affect Lifted's and target companies’ commercial arrangements with third parties. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies rely on third-party distributors to distribute a portion of their products, and those distributors may not perform their obligations or may have allegiances to their own or other competitors' products
Lifted and target companies rely on third-party distributors to distribute a portion of their products. If these distributors do not successfully carry out their contractual duties, if these distributors have allegiances to their own or other competitors' products, if there is a delay or interruption in the distribution of Lifted's or target companies’ products, or if these third parties damage Lifted's or target companies’ products in transit, it could negatively impact Lifted's and target companies’ revenue from product sales. Any damage to Lifted's and target companies’ products could expose Lifted and target companies to potential product liability, damage the reputation of Lifted's and target companies’ brands or otherwise harm Lifted's and target companies’ businesses. The foregoing factors and issues associated with third-party distributors could have a material adverse effect on our Company and the trading price of our common stock.
The US FDA considers the sale of most cannabinoid-infused products to be illegal
The FDA appears to believe that CBDs are drugs, and that the sale of most cannabinoid-infused products without FDA approval is illegal. In deference to the FDA’s position, various states and municipalities have similarly declared that the sale of certain cannabinoid-infused products are illegal. There can be no guarantee or assurance whatsoever that this regulatory hostility to CBDs will be resolved favorably to the CBD products industry. Aggressive law enforcement against the CBD industry by federal, state or local authorities and agencies could have a material adverse effect upon Lifted and the trading price of our common stock.
Cannabinoid-infused products may be shown to have negative health and/or safety impacts upon consumers
The health and safety impacts of CBDs have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that CBDs can have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. If the FDA, scientific research and/or clinical studies ultimately demonstrate negative health and/or safety impacts upon consumers, Lifted's business and the trading price of our common stock could be materially adversely affected.
Hemp and cannabinoid-infused products are illegal if they exceed 0.3% delta-9-THC
Hemp and cannabinoid-infused products which exceed a delta-9-THC concentration of 0.3% are illegal. Any failure to keep the delta-9-THC concentration in hemp or cannabinoid-infused products below 0.3% could subject Lifted and target companies to action by regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon Lifted's business and the trading price of our common stock.
In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the delta-9-THC levels reflected in consumers’ blood tests are the result of CBD-infused products or delta-9-THC-infused products. This may result in regulatory actions or lawsuits that could have a material adverse effect upon Lifted's business and the trading price of our common stock.
Also, certain hemp products may, over time, gradually increase their delta-9-THC concentration, and this may ultimately cause such products to exceed the 0.3% delta-9-THC concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon Lifted and the trading price of our common stock.
Also, federal and state authorities may seek to classify other cannabinoids that naturally occur in hemp, such as delta-8-THC, as illegal. If this happens, we could be subject to regulatory action that could have a material adverse effect upon Lifted and the trading price of our common stock.
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The price of cannabinoid raw materials could spike as demand for cannabinoid-infused products increases
Although considerable additional hemp acreage is being developed around the country, which is expected to increase the supply of CBD isolate, distillate and water-soluble CBD, the demand for these raw materials reportedly is also growing, and any spike in the price of these raw materials could materially adversely affect Lifted and the trading price of our common stock.
Target companies may not be of the same caliber company as previous acquisitions, or target companies' management may not fit well into our corporate culture
If we acquire a company that is not of the same caliber company as previous acquisitions, or if we acquire a company that does not have management that is as high energy as our management, or for whatever reason the management of the acquired company does not fit in well with the rest of our team, we may become less attractive for potential investors, future acquisition targets may be uninterested in merging into our Company, and the overall camaraderie among the players in our Company may disappear, which could materially adversely affect our Company and the price of our stock.
Lifted and target companies may be unable to keep pace with rapid industry, technological and market changes
Lifted and target companies may be unable to keep pace with rapid industry, technological and market changes that could affect Lifted's and target companies’ services, products and businesses, which could materially adversely affect our Company and the trading price of our common stock.
Large competitors are expected to enter the CBD-infused product industry
We expect that over the next few years several major chain stores, other retailers, beverage and other consumer products companies, and distributors, with tremendous financial resources will emerge to compete against Lifted and target companies in the cannabinoid-infused products industry. Lifted and target companies may not have the personnel, products, marketing and distribution capabilities, and/or financial resources to compete effectively against such larger companies, which could materially adversely affect our Company and the trading price of our common stock.
Regulatory risks related to alcohol
We purchased 4.99% of CBD-infused beverage maker Ablis, and of craft distillers Bendistillery and Bend Spirits. Two of those companies produce and sell alcohol. Federal, state, local, and foreign authorities regulate how companies produce, store, transport, distribute, and sell products containing alcohol and distilled spirits. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part. In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, sales, advertising, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in most non-U.S. jurisdictions where craft distillers Bendistillery and Bend Spirits sell their products. In addition, beverage alcohol products are subject to customs duties or excise taxation in many countries, including taxation at the federal, state, and local level in the United States. Laws of each nation define distilling and maturation requirements; for example, under U.S. federal and state regulations, bourbon and Tennessee whiskeys must be aged in new charred oak barrels. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state are required in connection with the lawful selling of liquor. As 4.99%, owner of craft distillers Bendistillery and Bend Spirits, we are impacted by the regulatory risks relating to the production and sale of alcohol which is subject to extensive regulatory requirements regarding production, exportation, importation, marketing and promotion, labeling, distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or governmental policies, or the manner in which current ones are interpreted, could cause Bendistillery, Bend Spirits and target companies to incur material additional costs or liabilities, and jeopardize the growth of their businesses in any affected market. For instance, federal, state, or local governments may prohibit, impose, or increase limitations on advertising and promotional activities, or times or locations where beverage alcohol may be sold or consumed, or adopt other measures that could limit Bendistillery's, Bend Spirits' and target companies’ opportunities to reach consumers or sell products. It is conceivable that television, newspaper, magazine, and/or internet advertising for beverage alcohol products could be limited or banned completely. Increases in regulation of this nature could substantially reduce consumer awareness of the products of Bendistillery,
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Bend Spirits and target companies in the affected markets and make the introduction of new products more challenging. The impact of increased taxation on alcohol and distilled spirits may have additional negative financial impacts on Bendistillery, Bend Spirits and target companies.
Alcoholic beverage sales are subject to slowdowns and are seasonal
Bendistillery, Bend Spirits and target companies are involved in the sale of a variety of distilled alcoholic beverages including vodka, whiskey and gin, and their sales of such beverages are subject to occasional slowdowns and are seasonal. Also, some health-conscious consumers are reducing or eliminating their alcohol consumption entirely. These factors could adversely affect the value of our ownership interest in those companies, which could materially adversely affect our Company and the trading price of our common stock.
Alcoholic beverage distributors are powerful and control much of the marketplace
Bendistillery, Bend Spirits and target companies distribute their distilled alcoholic beverages through a limited number of powerful distributors that control much of the marketplace for alcoholic beverages. The loss of such distributors, or disruptions to the operations of such distributors, could adversely affect the value of our ownership interest in those companies, which could materially adversely affect our Company and the trading price of our common stock.
The Oregon Liquor Control Commission has jurisdiction over our directors, officers and significant shareholders
Due to our minority ownership interest in Bendistillery and Bend Spirits, the Oregon Liquor Control Commission ("OLCC") has jurisdiction over our directors, officers and significant shareholders. If the OLCC were to refuse to approve any of our directors, officers or significant shareholders, it could disrupt our management and corporate governance, which could materially adversely affect our Company and the trading price of our common stock. To our knowledge, our directors Nicholas S. Warrender and Kevin J. Rocio have not yet been formally approved by the OLCC.
Increases in labor costs could harm Lifted's and target companies' businesses
The U.S. in general, and Bend, Oregon in particular, are experiencing very low unemployment, and higher minimum wages, which generally results in rising labor costs. Such rising labor costs are adversely affecting the expenses of Ablis, Bendistillery and Bend Spirits, and may adversely affect the expenses of Lifted and target companies' businesses, which could materially adversely affect our Company and the trading price of our common stock.
We cannot predict the effect of inquiries from and/or actions by the DEA, the FDA, state attorneys general, other government agencies and/or quasi-government agencies into the production, advertising, marketing, promotion, labeling, ingredients, usage and/or sale of Lifted's and target companies’ products
Lifted and target companies are subject to the risks of investigations and/or enforcement actions by the DEA, the FDA, state attorneys general and/or other government and/or quasi-governmental agencies relating to the advertising, marketing, promotion, ingredients, usage and/or sale of their products. If an inquiry by the DEA, the FDA, a state attorney general or other government or quasi-government agency finds that Lifted's or target companies’ products and/or the advertising, marketing, promotion, ingredients, usage and/or sale of such products are not in compliance with applicable laws or regulations, Lifted or target companies may become subject to fines, product reformulations, container changes, changes in the usage or sale of Lifted's or target companies’ products, changes in their advertising, marketing and promotion practices, and/or injunctions on the sale of the products, each of which could have a material adverse effect on our business, financial condition or results of operations and on the trading price of our common stock.
We may be required to obtain DEA and/or FDA certifications and/or approvals in order to conduct business
Lifted and target companies may be required to obtain and maintain DEA and/or FDA certifications and/or approvals in order to conduct business involving cannabinoids, food, other edibles, and non-prescription cannabinoid formulations. These certifications and/or approvals may not be obtainable, or obtaining and maintaining them may involve enormous expenditures of time and money for consultants, studies, facilities, compliance and other matters. Failure to obtain and maintain all necessary certifications and approvals, or the
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enormous expenditures of time and money associated with obtaining and maintaining all necessary certifications and approvals, could have a material adverse effect on our business, financial condition or results of operations and on the trading price of our common stock.
Litigation regarding Lifted's and target companies’ business and products, and related unfavorable media attention, could expose Lifted and target companies to significant liabilities and reduce demand for their products
From time to time third parties may claim that certain statements made in Lifted's and target companies’ advertisements, certificates of analysis and/or on the labels of their products were false and/or misleading or otherwise not in compliance with standards applicable to food, other edibles, or non-prescription cannabinoid formulations under local, state or federal law, and/or that their products are not safe. Pending or threatened business-related and product-related litigation could consume significant financial and managerial resources and result in decreased demand for Lifted's and target companies’ products, significant monetary awards against Lifted and target companies, and injury to Lifted's and target companies' and their respective management’s reputations. This could have a material adverse effect on our Company and the trading price of our common stock.
Criticism of Lifted's and target companies’ products and/or criticism or a negative perception of Lifted's and target companies’ industries, could adversely affect Lifted and target companies
Unfavorable reports on the health effects or pricing of Lifted's and target companies’ products, including product safety concerns, whether generated by scientists, government regulators, industry groups, or on social media could have an adverse effect on Lifted's and target companies’ businesses, financial conditions and results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Vape, E-liquid and E-cigarette product risks
Some of Lifted's and target companies’ inhalable products may contain nicotine. However, according to the U.S. Surgeon General, besides nicotine, e-cigarettes in some cases can contain harmful and potentially harmful ingredients, including, ultrafine particles that can be inhaled deep into the lungs, flavorants such as diacetyl, a chemical linked to serious lung disease, volatile organic compounds, and heavy metals, such as nickel, tin, and lead. There is a risk that Lifted and target companies could be targeted by regulators or consumers with claims that their products are unsafe.
The market for CBD vapes and cartridges is currently subjected to prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping. These various prohibitions and regulations may have a material adverse effect on Lifted's and target companies’ financial condition, operating results, liquidity, cash flow and operational performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted's and target companies’ inability to innovate successfully and to provide new cutting edge products could adversely affect Lifted's and target companies’ businesses and financial results
Lifted's and target companies’ ability to compete in their highly competitive industries and to achieve their business growth objectives depends, in part, on their ability to develop new products and packaging. The success of their innovation, in turn, depends on their ability to identify consumer trends and cater to consumer preferences. If they are not successful in our innovation activities, their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
Changes in consumer preferences may reduce demand for some of Lifted's and target companies’ products
Lifted's and target companies’ industries are subject to changing consumer preferences and shifts in consumer preferences may adversely affect Lifted and target companies. Lifted's and target companies’ future success will depend, in part, upon their continued ability to develop and introduce different and innovative products that appeal to consumers. In order to retain and expand their market share, Lifted and target companies must continue to develop and introduce different and innovative products, although there can be no assurance of Lifted's and target companies’ ability to do so. There is no assurance that consumers will continue to purchase Lifted's and target companies’ products in the future. Product lifecycles for some brands, products and/or packages may be limited to a
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few years before consumers’ preferences change. The products Lifted and target companies currently market are in varying stages of their product lifecycles, and there can be no assurance that such products will become or remain profitable for Lifted and target companies. Lifted and target companies may be unable to achieve volume growth through product and packaging initiatives. Lifted and target companies may also be unable to penetrate new markets. Additionally, as shopping patterns are being affected by the digital evolution, with customers embracing shopping by way of mobile device applications, e-commerce retailers and e-commerce websites or platforms, Lifted and target companies may be unable to address or anticipate changes in consumer shopping preferences. If Lifted's and target companies’ revenues decline, their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
Any expansion of Lifted and target companies outside of the United States exposes Lifted and target companies to uncertain conditions and other risks in international markets
As Lifted's and target companies’ growth strategy includes expanding internationally, if Lifted and target companies are unable to expand distribution of their products outside the United States, their growth rate could be adversely affected. In many international markets, Lifted and target companies have limited operating experience and in some areas they have no operating experience. It is costly to establish, develop and maintain international operations and to develop and promote brands in international markets. Their percentage gross profit margins in many international markets are expected to be less than the comparable percentage gross profit margins obtained in the United States. Lifted and target companies face and will continue to face substantial risks associated with having foreign operations, including: economic and/or political instability in their international markets; unfavorable foreign currency exchange rates; restrictions on or costs relating to the repatriation of foreign profits to the United States, including possible taxes and/or withholding obligations on any repatriations; and tariffs and/or trade restrictions. These risks could have a significant impact on their ability to sell their products on a competitive basis in international markets and could have a material adverse effect on their businesses, financial conditions and results of operations. Also, their operations outside of the United States are subject to risks relating to appropriate compliance with legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, higher product damages, particularly when products are shipped long distances, potentially higher incidence of fraud and/or corruption, credit risk of local customers and distributors and potentially adverse tax consequences. This could have a material adverse effect on our Company and the trading price of our common stock.
Global or regional catastrophic events could impact Lifted's and target companies’ operations and affect their ability to grow their businesses
Lifted's and target companies’ businesses could be affected by unstable political conditions, civil unrest, large-scale terrorist acts, especially those directed against the United States or other major industrialized countries where their products are distributed, the outbreak or escalation of armed hostilities, major natural disasters or widespread outbreaks of infectious diseases such as the coronavirus. Such events could impact the production and/or distribution of their products. In addition, such events could disrupt global or regional economic activity, which could affect consumer purchasing power, thereby reducing demand for their products. If they are unable to grow their businesses internationally as a result of these factors, their growth rate could decline. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may rely on laboratories, private label manufacturers, bottlers and other contract packers to manufacture their products. If Lifted and target companies are unable to maintain good relationships with their laboratories, private label manufacturers, bottlers and contract packers and/or their ability to manufacture their products becomes constrained or unavailable to them, their businesses could suffer
Lifted and target companies may not manufacture finished goods, but instead outsource manufacturing of their finished goods to laboratories, private label manufacturers, bottlers and other contract packers. As a result, in the event of a disruption and/or delay, Lifted and target companies may be unable to procure alternative packing facilities at commercially reasonable rates and/or within a reasonably short time period. In addition, recently there has been a consolidation of co-packers. If Lifted and target companies are unable to maintain good relationships with their largest co-packers, or if their costs of co-packing increase, their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
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Lifted and target companies may rely on bottlers, distributors and white label manufacturers to distribute a portion of their products. If Lifted and target companies are unable to maintain good relationships with their existing bottlers, distributors and white label manufacturers, and/or secure such bottlers, distributors and white label manufacturers, their businesses could suffer
Many of Lifted's and target companies’ bottlers, distributors and white label manufacturers are affiliated with and manufacture and/or distribute other cannabinoid-infused products. In many cases, such cannabinoid-infused products compete directly with the Lifted's and target companies’ products.
Unilateral decisions could be taken by Lifted's and target companies’ bottlers, distributors and white label manufacturers, and by convenience and gas chains, grocery chains, specialty chain stores, club stores and other customers, to discontinue carrying certain or all of Lifted's and target companies’ products that they are carrying at any time, which could cause Lifted's and target companies’ businesses to suffer.
The marketing efforts of Lifted's and target companies’ distributors are important for Lifted's and target companies’ success. If Lifted's and target companies’ brands prove to be less attractive to Lifted's and target companies’ existing bottlers, distributors and white label manufacturers, or if Lifted and target companies fail to attract additional bottlers, distributors and white label manufacturers, and/or if Lifted's and target companies’ bottlers, distributors and white label manufacturers do not market, promote and distribute Lifted's and target companies’ products effectively, their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
Increases in costs and/or shortages of raw materials and/or ingredients and/or fuel and/or costs of co-packing could harm Lifted's and target companies’ businesses
The costs and availability of the raw materials used by Lifted and target companies are subject to fluctuations. For certain terpenes, flavors, formulas and other products purchased from third-party suppliers, these suppliers own the proprietary rights to certain of their products. Lifted and target companies do not have possession of the list of the ingredients or formulas used in the production of certain of their products and certain of their blended concentrates, and Lifted and target companies may be unable to obtain comparable products from alternative suppliers on short notice. Industry-wide shortages of certain products have been, and could from time to time in the future be, encountered, which could interfere with and/or delay production of certain of Lifted's and target companies’ products. In addition, certain of Lifted's and target companies’ co-packing arrangements may allow such co-packers to increase their fees based on certain of their own cost increases. The prices of any of the above or any other raw materials or ingredients may continue to rise or may rise in the future. Lifted and target companies may or may not be able to pass any of such increases on to their customers. In recent years, the United States has imposed tariffs on many products and goods imported from China and certain other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs. In addition, some of these raw materials, including certain sizes of cans, are available from limited suppliers. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted's and target companies’ failure to accurately estimate demand for their products could adversely affect their businesses and financial results
Lifted and target companies may not correctly estimate demand for their existing products and/or new products. Their ability to estimate demand for their products is imprecise, particularly with regard to new products, and may be less precise during periods of rapid growth, particularly in new markets. If Lifted and target companies materially underestimate demand for their products or are unable to secure sufficient ingredients or raw materials or experience difficulties with their co-packing arrangements, including production shortages or quality issues, they might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain raw materials and products have been and could, from time to time in the future, be experienced, resulting in production fluctuations and/or product shortages. Such shortages could interfere with and/or delay production of certain of their products and could have a material adverse effect on their business and financial results. This could have a material adverse effect on our Company and the trading price of our common stock.
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If Lifted and target companies do not maintain sufficient inventory levels, if Lifted and target companies are unable to deliver their products to their customers in sufficient quantities, and/or if Lifted and target companies’ customers’ or retailers’ inventory levels are too high, Lifted and target companies’ operating results could be adversely affected
If Lifted and target companies do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, their inventory levels may be inadequate and their results of operations may be negatively impacted. If Lifted and target companies fail to meet their shipping schedules, Lifted and target companies could damage their relationships with distributors and/or retailers, increase their distribution costs and/or cause sales opportunities to be delayed or lost. In order to be able to deliver their products on a timely basis, Lifted and target companies need to maintain adequate inventory levels of the desired products. If the inventory of their products held by their distributors and/or retailers is too high, they will not place orders for additional products, which could unfavorably impact Lifted's and target companies’ future sales and adversely affect their operating results. This could have a material adverse effect on our Company and the trading price of our common stock.
The costs of packaging supplies are subject to price increases from time to time, and Lifted and target companies may be unable to pass all or some of such increased costs on to their customers
Lifted's and target companies’ packaging suppliers may increase the costs they charge Lifted and target companies for packaging supplies based on changes in the costs of the underlying commodities that are used to produce those packaging supplies. If the costs of these packaging supplies increase, Lifted and target companies may be unable to pass these costs along to their customers through corresponding adjustments to the prices they charge, which could have a material adverse effect on their results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
If Lifted and target companies encounter product recalls, their businesses may suffer and they may incur material losses
Lifted and target companies may be required from time to time to recall products entirely or from specific co-packers, markets or batches if such products become contaminated, damaged, mislabeled or otherwise materially non-compliant with applicable regulatory requirements. Material product recalls could adversely affect Lifted's and target companies’ profitability and their brand images. Lifted and target companies may not maintain recall insurance. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to payments-related risks
Lifted and target companies may accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options Lifted and target companies offer to their customers, Lifted and target companies may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in significant costs and reduce the ease of use of their payments products), as well as fraud. For certain payment methods, including credit and debit cards, Lifted and target companies pay interchange and other fees, which may increase over time and raise their operating costs and lower profitability. Lifted and target companies may rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing. In each case, it could disrupt Lifted's and target companies’ businesses if these companies become unwilling or unable to provide these services to Lifted and target companies. Lifted and target companies may also be subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for Lifted and target companies to comply. If Lifted and target companies fail to comply with these rules or requirements, or if Lifted and target companies’ data security systems are breached, compromised, or otherwise unable to detect or prevent fraudulent activity, Lifted and target companies may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and may lose their ability to accept credit and debit card payments from their customers, process electronic funds transfers, or facilitate other types of online payments, and Lifted's and target companies’ businesses and operating results could be adversely affected. Lifted and target companies may also subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money transfers, privacy and information security, and electronic fund transfers. If Lifted and target companies were found to be in violation of applicable laws or
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regulations, Lifted and target companies could be subject to additional requirements and civil and criminal penalties, or forced to cease providing certain services. All of these points could have a material adverse effect on our Company and the trading price of our common stock.
If Lifted and target companies are not able to retain the full-time services of senior management, there may be an adverse effect on their operations and/or their operating performance until Lifted and target companies find suitable replacements
Lifted and target companies’ businesses are dependent, to a large extent, upon the services of their senior management. Lifted and target companies may not maintain key person life insurance on any members of their senior management. The loss of services of Lifted's and target companies’ senior management could adversely affect their businesses until suitable replacements can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and Lifted and target companies may be unable to locate or employ such qualified personnel on acceptable terms. This could have a material adverse effect on our Company and the trading price of our common stock.
Climate change may negatively affect Lifted's and target companies’ businesses
There is concern that a gradual increase in global average temperatures due to increased carbon dioxide and other greenhouse gases in the atmosphere could cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Changing weather patterns could result in decreased agricultural productivity in certain regions, which may limit availability and/or increase the cost of cannabinoids and other ingredients used in Lifted's and target companies’ products and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt Lifted's and target companies’ supply chains (including, without limitation, the availability of, and/or result in higher prices for, CBDs and other ingredients) and/or impact demand for Lifted's and target companies’ products. Natural disasters and extreme weather conditions, such as hurricanes, wildfires, earthquakes or floods, may affect Lifted's and target companies’ operations and the operation of Lifted's and target companies’ supply chains and unfavorably impact the demand for, or Lifted's and target companies’ consumers’ ability to purchase, Lifted's and target companies’ products. The predicted effects of climate change may also result in challenges regarding availability and quality of water, or less favorable pricing for water, which could adversely impact Lifted's and target companies’ businesses and results of operations. In addition, public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs, and may require Lifted and target companies to make additional investments in facilities and equipment. As a result, the effects of climate change could have a long-term adverse impact on Lifted's and target companies’ businesses and results of operations. Sales of Lifted's and target companies’ products may also be influenced to some extent by weather conditions in the markets in which Lifted's and target companies operate. Weather conditions may influence consumer demand for certain of Lifted's and target companies’ products, which could have an effect on Lifted's and target companies’ operations, either positively or negatively. This could have a material adverse effect on our Company and the trading price of our common stock.
Potential changes in accounting standards or practices and/or taxation may adversely affect Lifted's and target companies’ financial results
Future changes in accounting standards or practices may have an impact on Lifted's and target companies’ financial results. New accounting standards could be issued that change the way Lifted and target companies record revenues, expenses, assets and liabilities. These changes in accounting standards could adversely affect Lifted and target companies’ reported earnings. Increases in direct and indirect income tax rates could affect after-tax income. Equally, increases in indirect taxes (including environmental taxes pertaining to the disposal of beverage containers and/or indirect taxes on beverages) could affect Lifted's and target companies’ products’ affordability and reduce Lifted's and target companies’ sales. This could have a material adverse effect on our Company and the trading price of our common stock.
Fluctuations in Lifted's and target companies’ effective tax rates could adversely affect their financial conditions and results of operations
Lifted and target companies may be subject to income and other taxes in both the U.S. and certain foreign jurisdictions. Therefore, Lifted and target companies may be subjected to audits for multiple tax years in various
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jurisdictions at once. At any given time, events may occur which change Lifted's and target companies’ expectations about how any such tax audits will be resolved and thus, there could be variability in Lifted's and target companies’ quarterly and/or annual tax rates, because these events may change Lifted's and target companies’ plans for uncertain tax positions. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act, which imposes broad and complex changes to the U.S. tax code and may have tax implications for Lifted and target companies. This could have a material adverse effect on our Company and the trading price of our common stock.
Growth of operations will depend on the acceptance of Lifted's and target companies’ products and consumer discretionary spending
The acceptance of Lifted's and target companies’ cannabinoid-infused products by both retailers and by consumers is critically important to their success. Shifts in retailer priorities and shifts in user preferences away from Lifted's and target companies’ products, Lifted's and target companies’ inability to develop products that appeal to both retailers and consumers, or changes in Lifted's and target companies’ products that eliminate items popular with some consumers could harm their business. Also, their success will depend to a significant extent on discretionary user spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, Lifted and target companies may experience an inability to generate revenue during economic downturns or during periods of uncertainty, when users may decide to purchase products that are cheaper or to forego purchasing any type of Lifted's and target companies’ products, due to a lack of available capital. Any material decline in the amount of discretionary spending could have a material adverse effect on Lifted's and target companies’ sales, results of operations, business and financial condition. This could have a material adverse effect on our Company and the trading price of our common stock.
We cannot be certain that the products that Lifted and target companies offer will become, or continue to be, appealing and as a result there may not be any demand for these products and Lifted's and target companies’ sales could decrease, which would result in a loss of revenue. Additionally, there is no guarantee that interest in Lifted's and target companies’ products will continue, which could adversely affect Lifted's and target companies’ business and revenues
Demand for cannabinoid-infused products that Lifted and target companies sell depends on many factors, including the number of customers that Lifted and target companies are able to attract and retain over time, and the competitive environments in Lifted's and target companies’ industries. This may force Lifted and target companies to reduce prices below their desired pricing levels or increase promotional spending. Inability to anticipate changes in user preferences and to meet consumer’s needs in a timely and cost-effective manner all could result in immediate and longer term declines in the demand for the products Lifted and target companies plan to offer, which could adversely affect Lifted's and target companies’ sales, cash flows and overall financial conditions. This could have a material adverse effect on our Company and the trading price of our common stock.
Competition that Lifted and target companies face is varied and strong
Lifted's and target companies’ products and industries are subject to competition. There is no guarantee that Lifted and target companies can develop or sustain a market position or expand their businesses. We anticipate that the intensity of competition in the future will increase.
Lifted and target companies compete with a number of entities in providing products to their customers. Such competitor entities include: (1) a variety of large multinational corporations, including but not limited to companies that have established loyal customer bases over several decades; (2) companies that have an established customer base, and have the same or a similar business plan as Lifted and target companies do and may be looking to expand nationwide; and (3) a variety of other local and national companies with which Lifted and target companies either currently or may, in the future, compete.
Many of Lifted's and target companies’ current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and greater name and brand recognition than Lifted and target companies have. As a result, these competitors may have greater credibility with both existing and potential customers. They also may be able to offer more products and more aggressively promote and sell their products. Lifted's and target companies’ competitors may also be able to support more aggressive pricing than Lifted and target companies will be able to, which could adversely affect sales, cause Lifted and target companies to
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decrease their prices to remain competitive, or otherwise reduce the overall gross profit earned on Lifted's and target companies’ products. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted's and target companies’ industries require the attraction and retention of talented employees
Success in Lifted's and target companies’ industries does and will continue to require the acquisition and retention of highly talented and experienced individuals. Due to the growth in the cannabinoid industry, such individuals and the talent and experience they possess is in high demand. There is no guarantee that Lifted and target companies will be able to attract and maintain access to such individuals. If Lifted and target companies fail to attract, train, motivate and retain talented personnel, Lifted's and target companies’ businesses, financial conditions, and operating results may be materially and adversely impacted. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies depend on a limited number of suppliers of raw and packaging materials
Lifted and target companies rely upon a limited number of suppliers for raw and packaging materials used to make and package their products. Lifted's and target companies’ success will depend in part upon their ability to successfully secure such materials from suppliers that are delivered with consistency and at a quality that meets their requirements. The price and availability of these materials are subject to market conditions. Increases in the price of Lifted's and target companies’ products due to the increase in the cost of raw materials could have a negative effect on their business.
If Lifted and target companies are unable to obtain sufficient quantities of raw and packaging materials, delays or reductions in product shipments could occur which would have a material adverse effect on Lifted's and target companies’ businesses, financial conditions and results of operations. The supply and price of raw materials used to produce Lifted's and target companies’ products can be affected by a number of factors beyond Lifted's and target companies’ control, such as frosts, droughts, other weather conditions, economic factors affecting growing decisions, and various plant diseases and pests. If any of the foregoing were to occur, no assurance can be given that such condition would not have a material adverse effect on Lifted's and target companies’ businesses, financial conditions and results of operations. In addition, Lifted's and target companies’ results of operations are dependent upon their ability to accurately forecast their requirements of raw materials. Any failure by Lifted and target companies to accurately forecast their demand for raw materials could result in an inability to meet higher than anticipated demand for products or producing excess inventory, either of which may adversely affect their results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies depend on a small number of retailers for a significant portion of their sales
Retailers across all channels in the U.S. and other markets have been consolidating, increasing margin demands of brand suppliers, and increasing their own private brand offerings, resulting in large, sophisticated retailers with increased buying power. They are in a better position to resist Lifted's and target companies’ price increases and demand lower prices. They also have leverage to require Lifted and target companies to provide larger, more tailored promotional and product delivery programs. If Lifted and target companies and their distributor partners do not successfully provide appropriate marketing, product, packaging, pricing and service to these retailers, Lifted's and target companies’ product availability, sales and margins could suffer. Certain retailers make up an important percentage of Lifted's and target companies’ products’ retail volume, including volume sold by Lifted's and target companies’ distributor partners. Some retailers also offer their own private label products that compete with some of Lifted's and target companies’ brands. The loss of sales of any of Lifted's products by a major retailer could have a material adverse effect on our business and financial performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies depend on third party manufacturers for a portion of their businesses
A portion of Lifted's and target companies’ sales revenue is dependent on third party manufacturers that Lifted and target companies do not control. The majority of these manufacturers’ business comes from producing and/or selling either their own products or their competitors’ products. As independent companies, these manufacturers make their own business decisions. They may have the right to determine whether, and to what extent, they manufacture Lifted's and target companies’ products, Lifted's and target companies’ competitors’ products and their own
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products. They may devote more resources to other products or take other actions detrimental to their brands. In many cases, they are able to terminate their manufacturing arrangements with Lifted and target companies without cause. Lifted and target companies may need to increase support for their brands in their territories and may not be able to pass on price increases to them. Their financial condition could also be adversely affected by conditions beyond Lifted's and target companies’ control, and Lifted's and target companies’ business could suffer as a result. Deteriorating economic conditions could negatively impact the financial viability of third party manufacturers. Any of these factors could negatively affect Lifted's and target companies’ business and financial performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Failure of third-party distributors upon which Lifted and target companies rely could adversely affect their businesses
Lifted and target companies rely heavily on third party distributors for the sale of a portion of their products to retailers. The loss of a significant distributor could have a material adverse effect on Lifted's and target companies’ businesses, financial conditions and results of operations. Lifted's and target companies’ distributors may also provide distribution services to competing brands, as well as larger, national or international brands, and may be to varying degrees influenced by their continued business relationships with other larger companies. Lifted's and target companies’ independent distributors may be influenced by a large competitor if they rely on that competitor for a significant portion of their sales. There can be no assurance that Lifted's and target companies’ distributors will continue to effectively market and distribute Lifted's and target companies’ products. The loss of any distributor or the inability to replace a poorly performing distributor in a timely fashion could have a material adverse effect on Lifted's and target companies’ businesses, financial conditions and results of operations. Furthermore, no assurance can be given that Lifted and target companies will successfully attract new distributors as they increase their presence in their existing markets or expand into new markets. This could have a material adverse effect on our Company and the trading price of our common stock.
Disruptions to production at Lifted's and target companies’ manufacturing and distribution facilities could occur
Disruptions in production at Lifted's and target companies’ manufacturing facilities could have material adverse effects on their businesses. In addition, disruptions could occur at any of Lifted's and target companies’ other facilities or those of Lifted's and target companies’ suppliers or distributors. The disruptions could occur for many reasons, including fire, natural disaster, weather, water scarcity, manufacturing problems, disease, strikes, transportation or supply interruption, government regulation, cybersecurity attacks or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect Lifted's and target companies’ business and financial performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to seasonality related to sales of their products
Lifted's and target companies’ businesses may be subject to substantial seasonal fluctuations. Lifted's and target companies’ operating results for any particular quarter may not necessarily be indicative of any other results. If for any reason Lifted and target companies’ sales were to be substantially below seasonal norms, Lifted's and target companies’ annual revenues and earnings could be materially and adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may fail to comply with applicable government laws and regulations
Lifted and target companies are subject to a variety of federal, state and local laws and regulations in the U.S. These laws and regulations apply to many aspects of their businesses including the manufacture, safety, labeling, transportation, advertising and sale of their products. Violations of these laws or regulations in the manufacture, safety, labeling, transportation and advertising of their products could damage their reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations, could result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special taxes on Lifted's and target companies’ beverages and their ingredients could increase in their costs. Regulatory focus on the health, safety and marketing of beverage products is increasing. Certain federal or state regulations or laws affecting the labeling of Lifted's and target companies’ products, such as California’s “Prop 65,” which requires warnings on any product with substances that the state lists as potentially causing cancer or birth defects, are or
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could become applicable to Lifted's and target companies’ products. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies face various operating hazards that could result in the reduction of their operations
Lifted and target companies’ operations are subject to certain hazards and liability risks faced by beverage, food and edibles companies that manufacture and distribute drink products, food and other edibles, such as defective products, contaminated products and damaged products. The occurrence of such problems could result in a costly product recall and serious damage to Lifted's and target companies’ reputations for product quality, as well as potential lawsuits. Although Lifted and target companies sometimes may maintain insurance against certain risks under various general liability and product liability insurance policies, no assurance can be given that their insurance (if any) will be adequate to fully cover any incidents of product contamination or injuries resulting from their operations and their products. Lifted and target companies may not be able to continue to maintain insurance (if any) with adequate coverage for liabilities or risks arising from their business operations on acceptable terms. Even if the insurance (if any) is adequate, insurance premiums could increase significantly which could result in higher costs for Lifted and target companies. This could have a material adverse effect on our Company and the trading price of our common stock.
Litigation and publicity concerning product safety or quality, health, human and workplace rights, and other issues could damage Lifted's and target companies’ brand image and corporate reputation, and may adversely affect Lifted's and target companies’ results of operations, business and financial conditions
Lifted's and target companies’ success depends on their ability to build and maintain the brand images for their existing products, new products and brand extensions and maintain their corporate reputations. There can be no assurance that their advertising, marketing and promotional programs and their commitments to product safety and quality and human rights will have the desired impact on their products’ brand image and on consumer preference and demand. Product safety, quality and/or ingredient content issues, efficacy or lack thereof (real or imagined), or allegations of product contamination, even if false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products. Furthermore, Lifted's and target companies’ brand images or perceived product quality could be adversely affected by litigation, unfavorable reports in the media (internet or elsewhere), studies in general and regulatory or other governmental inquiries (in each case whether involving their products or those of their competitors) and proposed or new legislation affecting their industries. In addition, from time to time, there may be public policy endeavors that are either directly related to Lifted's and target companies’ products and packaging or to their businesses. These public policy debates can occasionally be the subject of backlash from advocacy groups that have a differing point of view and could result in adverse media and consumer reaction, including product boycotts.
Similarly, Lifted's and target companies’ sponsorship relationships could subject Lifted and target companies to negative publicity as a result of actual or alleged misconduct by individuals or entities associated with organizations or individuals Lifted and target companies sponsor or support. Likewise, campaigns by activists connecting Lifted and target companies, or their supply chains, with human and workplace rights issues could adversely impact Lifted's and target companies’ corporate images and reputations. Allegations, even if untrue, that Lifted and target companies are not respecting one or more of the human rights found in the United Nations Universal Declaration of Human Rights; actual or perceived failure by Lifted's and target companies’ suppliers or other business partners to comply with applicable labor and workplace rights laws, including child labor laws, or their actual or perceived abuse or misuse of migrant workers; and adverse publicity surrounding obesity and health concerns related to Lifted's and target companies’ products, water usage, environmental impact, labor relations or the like could negatively affect Lifted's and target companies’ overall reputations and brand images, which in turn could have negative impacts on Lifted's and target companies’ products’ acceptance by consumers.
Lifted and target companies could also incur significant liabilities, if lawsuits or claims result in decisions against them, or litigation costs, regardless of the result. Further, any litigation may cause Lifted's and target companies’ key employees to expend resources and time normally devoted to the operations of their businesses. This could have a material adverse effect on our Company and the trading price of our common stock.
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It is difficult and costly for Lifted and target companies to protect their proprietary rights
Lifted's and target companies’ commercial success will depend in part on obtaining and maintaining trademark protection, patent protection, and trade secret protection of their products and brands, as well as successfully defending that intellectual property against third-party challenges, which they might not be able to do. Lifted and target companies will only be able to protect their intellectual property related to their trademarks, patents and brands to the extent that they have rights under valid and enforceable trademarks, patents or trade secrets that cover their products and brands, which they might not have. Changes in either the trademark and patent laws or in interpretations of trademark and patent laws in the U.S. and other countries may diminish the value of their intellectual property (if any). Accordingly, Lifted and target companies cannot predict the breadth of claims that may be allowed or enforced in their issued trademarks or their issued patents (if any). The degree of future protection for their proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect their rights or permit them to gain or keep their competitive advantage. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may face intellectual property infringement claims that could be time-consuming and costly to defend, and could result in their loss of significant rights and the assessment of treble damages
From time to time Lifted and target companies may face intellectual property infringement, misappropriation, or invalidity/non-infringement claims from third parties. Some of these claims may lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome could affect Lifted and target companies negatively. For example, were a third party to succeed on an infringement claim against Lifted and target companies, Lifted and target companies may be required to pay substantial damages (including up to treble damages if such infringement were found to be willful). In addition, Lifted and target companies could face an injunction, barring them from conducting the allegedly infringing activity. The outcome of the litigation could require Lifted and target companies to enter into a license agreement which may not be under acceptable, commercially reasonable, or practical terms or Lifted and target companies may be precluded from obtaining a license at all. It is also possible that an adverse finding of infringement against Lifted and target companies may require them to dedicate substantial resources and time in developing non-infringing alternatives, which may or may not be possible. In the case of diagnostic tests, Lifted and target companies would also need to include non-infringing technologies which would require Lifted and target companies to re-validate their tests. Any such re-validation, in addition to being costly and time consuming, may be unsuccessful.
Finally, Lifted and target companies may initiate claims to assert or defend their own intellectual property against third parties. Any intellectual property litigation, irrespective of whether Lifted and target companies are the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and could divert Lifted's and target companies’ management’s attention from their businesses and negatively affect their operating results or financial condition. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to claims by third parties asserting that Lifted's and target companies’ employees or Lifted and target companies have misappropriated the third parties’ intellectual property, or claiming ownership of what Lifted and target companies regard as their own intellectual property
Although Lifted and target companies try to ensure that they, their employees, and independent contractors do not use the proprietary information or know-how of others in their work for Lifted and target companies, they may be subject to claims that they, their employees, or independent contractors have used or disclosed intellectual property in violation of others’ rights. These claims may cover a range of matters, such as challenges to Lifted's and target companies’ trademarks, as well as claims that their employees or independent contractors are using trade secrets or other proprietary information of any such employee’s former employer or independent contractors. As a result, Lifted and target companies may be forced to bring claims against third parties, or defend claims they may bring against Lifted and target companies, to determine the ownership of what Lifted and target companies regard as their intellectual property. If Lifted and target companies fail in prosecuting or defending any such claims, in addition to paying monetary damages, Lifted and target companies may lose valuable intellectual property rights or personnel. Even if Lifted and target companies are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management. This could have a material adverse effect on our Company and the trading price of our common stock.
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We will not control businesses in which we own a minority equity ownership interest
We will not control any business in which we own a minority equity ownership interest, such as Ablis, Bendistillery and Bend Spirits. We can provide no assurance that the owner of the majority equity ownership interest of such business will be able to manage such business successfully. A failure by the controlling owner of a company in which we own a minority equity ownership interest could materially adversely affect our Company and the trading price of our common stock.
Under US generally accepted accounting principles (US GAAP), we will not be able to consolidate our financial statements with the financial statements of companies in which we own minority equity ownership interests
Under US GAAP, we will use the cost method to account for our minority equity ownership interests in businesses in which we own less than 20% of equity ownership, and have no substantial influence over the management of the businesses. Under the cost method of accounting, we will report the historical costs of the investments as assets on our balance sheet. However, US GAAP does not permit the consolidation of our financial statements with the financial statements of companies in which we own minority equity ownership interests. US GAAP also requires us to record these types of investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As such, we will not be allowed to consolidate into our financial statements any portion of the revenues, earnings or assets of companies in which we own minority equity ownership interests such as Ablis, Bendistillery and Bend Spirits. Moreover, even if there is evidence that the fair market values of the investments have increased above their historical costs, US GAAP does not allow increasing the recorded values of the investments. Under US GAAP, the only adjustments that may be made to the historical costs of the investments are write downs of the values of the investments, which must be made if there is evidence that the fair market values of the investments have declined to below the recorded historical costs. As a result of these effects of US GAAP, potential buyers of our stock may be confused because they may not be able to immediately understand the financial results and the values of the minority ownership interests that we have in certain businesses such as Ablis, Bendistillery and Bend Spirits. This situation could materially adversely affect our Company and the trading price of our common stock.
We may not be able to exit from minority equity ownership interests
We may not be able to exit from minority equity ownership interests in companies such as Ablis, Bendistillery and Bend Spirits on acceptable terms, if at all. Because our minority equity ownership interests will not allow us to control the management, operations, and direction of the businesses, a potential sale or other exit from such investment may be extremely difficult or impossible to achieve on acceptable terms, if at all. The owners of the majority equity ownership interests in such businesses may refuse to cooperate with such a sale or exit, or may engage in business practices including but not limited to inflated salaries, stock dilution, or other behavior that would result in our minority equity ownership interests having an extremely limited or non-existent market. Such a situation could materially negatively affect our Company and the trading price of our common stock.
We may not be able to properly brand our Company
We are not satisfied with “Acquired Sales Corp.” as the name of our company, and we want to change the name and our ticker symbol. However, because we intend to acquire equity ownership interests in many different Canna-Infused Products Companies, with a range of products, packaging, names and cultures, we may not be able to properly brand our Company or properly represent all of the companies in which we are invested. Consumers and potential investors may have difficulty assimilating all of our diverse business interests, and consequently may not give these equity ownership interests proper valuations. Even if we change the name of our Company to a name that more properly reflects our focus on acquiring equity ownership interests in Canna-Infused Products Companies, such a name change may not be embraced by consumers or potential investors. This situation could materially negatively affect our Company and the trading price of our common stock.
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We may not be able to properly market our cannabinoid-infused products
Marketing our cannabinoid-infused products properly will require a great deal of marketing expertise, an extensive and trained staff, and large amounts of marketing dollars. Our marketing expertise and experience is limited, our staff size and training is limited, and we lack large amounts of marketing dollars. A failure or inability to properly market our cannabinoid-infused products could materially adversely affect our Company and the trading price of our common stock.
We may not be able to properly manage multiple businesses
We may not be able to properly manage multiple businesses in the cannabinoid-infused products industry. Managing multiple businesses would be more complicated than managing a single line of business, and would require that we hire and manage executives with experience and expertise in different fields. We can provide no assurance that we will be able to do so successfully. A failure to properly manage multiple businesses could materially adversely affect our Company and the trading price of our common stock.
We may not be able to successfully integrate new acquisitions
Even if we are able to acquire additional companies or assets, we may not be able to successfully integrate those companies or assets. For example, we may need to integrate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, accounting software, compensation schemes, business plans and growth potential requiring significant management time and attention. In addition, the successful integration of any companies we acquire will depend in large part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, finance, accounting, engineering, sales, customer support, and operations personnel that are critical to the success of the integrated Company, resulting in disruption of operations, loss of key information, expertise or know-how, unanticipated additional recruitment and training costs, and otherwise diminishing anticipated benefits of these acquisitions, including loss of revenue and profitability. Failure to successfully integrate acquired businesses could have a material adverse effect on our Company and the trading price of our common stock.
Our acquisitions of businesses may be extremely risky and we could lose all of our investments
We may invest in the cannabinoid-infused products industry or other risky industries. An investment in these companies may be extremely risky because, among other things, the companies we are likely to focus on: (i) may be viewed as being illegal by the DEA or FDA, by state governments, or by other governmental or regulatory bodies and agencies; (ii) typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; (iii) tend to be privately-owned and generally have little publicly available information and, as a result, we may not learn all of the material information we need to know regarding these businesses; (iv) are more likely to depend on the management talents and efforts of a small group of people; and, as a result, the death, disability, resignation or termination of one or more of these people could have an adverse impact on the operations of any business that we may acquire; (v) may have less predictable operating results; (vi) may from time to time be parties to litigation; (vii) may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence; (viii) may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; and (ix) their financial statements may be unaudited, improperly prepared, and/or their internal financial controls may be inadequate or non-existent. Our failure to make acquisitions efficiently and profitably could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.
Future acquisitions may fail to perform as expected
Future acquisitions may fail to perform as expected. The acquisitions may be unaudited and we may be supplied inaccurate or misleading historical financial results. Also, non-financial information supplied to us regarding the acquisitions may be inaccurate or misleading. We may overestimate cash flow, underestimate costs, or fail to understand risks. This could materially adversely affect our Company and the trading price of our common stock.
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Competition may result in overpaying for acquisitions
Other investors with significant capital may compete with us for attractive investment opportunities. These competitors may include publicly traded companies, private equity firms, privately held buyers, individual investors, and other types of investors. Such competition may increase the price of acquisitions, or otherwise adversely affect the terms and conditions of acquisitions. This could materially adversely affect our Company and the trading price of our common stock.
We may have insufficient resources to cover our debts, operating expenses, dividends owed on our preferred stock, and the expenses of raising money and consummating acquisitions
We have limited cash to cover our debts, operating expenses, dividends owed on our preferred stock, and the expenses incurred in connection with money raising and a business combination. It is possible that we could incur substantial costs in connection with money raising or a business combination. If we do not have sufficient proceeds available to cover our expenses, we may be forced to obtain additional financing, either from our management or third parties. We may not be able to obtain additional financing on acceptable terms, if at all, and neither our management nor any third party is obligated to provide any financing. This could have a negative impact on our Company and our common stock price.
We may not be able to identify good acquisitions in the future
There can be no assurance that we will be successful in locating acquisition candidates meeting our criteria in the future. In the event we complete a future merger or acquisition transaction, of which there can be no assurance, our success, if any, will be dependent upon the operations, financial condition and management of the target company, and upon numerous other factors beyond our control. If the operations, financial condition or management of the target company were to be disrupted or otherwise negatively impacted following a transaction, our Company and our common stock price would be negatively impacted.
We may carry out actions that will not require our stockholders’ approval
The terms and conditions of any acquisition could require us to take actions that would not require our stockholders’ approval. In order to acquire certain companies or assets, we may issue additional shares of common or convertible preferred stock, borrow money or issue debt instruments including debt convertible into capital stock. Not all of these actions would require our stockholders’ approval even if these actions dilute our stockholders’ economic or voting interests as shareholders.
Our investigation of potential acquisitions will be limited
Our analysis of new business opportunities will be undertaken by or under the supervision of our Investment Committee. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our Investment Committee, such potential business opportunities or ventures by conducting a “due diligence investigation”. In a due diligence investigation, we intend to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target company’s products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our Investment Committee to personally meet with management and key personnel of target companies, ask questions regarding the target companies’ prospects, tour facilities, and conduct other reasonable investigation of the target companies to the extent of our limited financial resources and management and technical expertise. Any failure of our typical due diligence investigation to uncover issues and problems relating to target companies could materially adversely affect our Company and the trading price of our common stock.
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We will have only a limited ability to evaluate the directors and management of potential acquisitions
We may make a determination that our current directors and Chief Executive Officer should not remain, or should reduce their roles, following money raising or a business combination, based on an assessment of the experience and skill sets of new directors and officers and the management of target companies. We cannot assure you that our assessment of these individuals will prove to be correct. This could have a material adverse effect on our Company and the trading price of our common stock.
We will be dependent on outside advisors to assist us
In order to supplement the business experience of management, we may employ investment bankers, accountants, technical experts, appraisers, attorneys, independent contractors or other consultants or advisors. The selection of any such advisors will be made by management and without any control from shareholders. Additionally, it is anticipated that such persons may be engaged by us on an independent basis without a continuing fiduciary or other obligation to us. This could have a material adverse effect on our Company and the trading price of our common stock.
We may fail to manage our growth effectively
Future growth through acquisitions and organic expansion would place a significant strain on our managerial, operational, technical, training, systems and financial resources. We can give you no assurance that we will be able to manage our expanding operations properly or cost effectively. A failure to properly and cost-effectively manage our expansion could materially adversely affect our Company and the trading price of our common stock.
The management of companies we acquire may lose their enthusiasm or entrepreneurship after the sale of their businesses
We can give no assurance that the management of future companies we acquire will have the same level of enthusiasm for operating their businesses following their acquisition by us; or, if they cease performing services for the acquired businesses, that we will be able to install replacement management with the same skill sets and determination. There also is always a risk that management of companies we acquire will attempt to reenter the market and possibly seek to recruit some of our employees. This could materially adversely affect our business and the trading price of our common stock.
RISK FACTORS RELATING TO ACCOUNTING AND INTERNAL FINANCIAL CONTROLS
New accounting standards could adversely impact us
From time to time, the Financial Accounting Standards Board, the SEC and other regulatory bodies may issue new and revised standards, interpretations and other guidance that change Generally Accepted Accounting Principles in the United States (“GAAP”). The effects of such changes may include prescribing an accounting method where none had been previously specified, prescribing a single acceptable method of accounting from among several acceptable methods that currently exist, or revoking the acceptability of a current method and replacing it with an entirely different method, among others. Such changes to GAAP could adversely impact our results of operations, financial condition and other financial measures. Such changes could materially adversely affect our Company and the trading price of our common stock.
Decreased effectiveness of stock options could adversely affect our ability to attract and retain employees
We expect to use stock options, warrants, and/or rights to purchase warrants to purchase common stocks as key components of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and to provide competitive compensation packages. Volatility or lack of positive performance in our common stock price may adversely affect our ability to retain key employees or to attract additional highly-qualified personnel. At any given time, a portion of our outstanding employee stock options, warrants, and/or rights to purchase warrants, to purchase common stock may have exercise prices in excess of our then-current common stock price, or may have expired worthless. To the extent these circumstances occur, our ability to retain employees may be adversely affected. As a result, we may have to incur increased compensation
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costs, change our equity compensation strategy, or find it difficult to attract, retain and motivate employees. Any of these situations could materially adversely affect our Company and the trading price of our common stock.
This prospectus relates to Shares that may be offered and sold from time to time by the Selling Stockholders. We will not receive any proceeds upon the sale of Shares by the Selling Stockholders in this offering.
We have never declared nor paid any cash dividends on our common stock, and currently intend to retain all of our cash and any earnings for use in our business and, therefore, do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends on our common stock will be at the discretion of the Board of Directors and will be dependent upon our consolidated financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.
DETERMINATION OF OFFERING PRICE
The Selling Stockholders will determine at what price they may sell the offered Shares (if any), and such sales may be made at prevailing market prices, or at privately negotiated prices.
On December 5, 2019, we closed a private placement offering of 66,150 shares of the Company’s Series A Preferred Stock and 100,000 shares of the Company’s Series B Preferred Stock by entering into Stock Purchase Agreements (the “Agreements”) with a group of 32 unaffiliated accredited investors including Thomas W. Hines, who became a member of our Board of Directors on February 27, 2019 (the “Private Placement”).
Each share of Series A Preferred Stock sold to investors was sold at a per unit price of $100. The shares of Series A Preferred Stock are convertible at the option of the holders into shares of newly issued common stock of the Company, at $1.00 per share of common stock of the Company which is 100 common stock shares per share of Series A Preferred Stock. The Series A Preferred Stock pays dividends at the rate of 3% annually. The Series A Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Series A Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock shall have voluntary conversion rights. Shares of Series A Preferred Stock are subject to Mandatory Conversion (in the discretion of the Company) at such time as the Company’s Common Stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
Each share of Series B Preferred Stock sold to investors was sold at a per unit price of $5. The shares of Series B Preferred Stock are convertible at the option of the holders into shares of newly issued common stock of the Company, at $1.00 per share of common stock of the Company which is 1 common stock share per share of Series B Preferred Stock. The Series B Preferred Stock pays dividends at the rate of 3% annually. The Series B Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Series B Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $7.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series B Preferred Stock have no voting rights. The holders of the Series B Preferred Stock shall have voluntary conversion rights. Shares of Series B Preferred Stock are subject to Mandatory Conversion (in the discretion of the Company) at such time as the Company’s Common Stock has closed at $9.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
The investors in the Private Placement purchased a total 66,150 shares of Series A Preferred Stock and a total of 100,000 shares of Series B Preferred Stock.
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To facilitate the transaction, we paid brokers’ fees in regard to the capital being raised for the Company by such brokers in the Private Placement of Preferred Stock. The fees consisted of warrants to purchase 396,900 unregistered shares of common stock of the Company at an exercise price of $1 per share, and warrants to purchase 6,000 unregistered shares of common stock of the Company at an exercise price of $5 per share, exercisable at any time during a five year period. There were no cash fees paid.
This prospectus covers the possible resale by the Selling Stockholders identified below, or its transferee(s), of a total of 1,984,500 shares of common stock into which the Series A Preferred Stock is convertible, and of a total of 30,000 shares of common stock into which the Series B Preferred Stock is convertible. The Selling Stockholders may, from time to time, offer and sell pursuant to this prospectus any or all of the Shares that we have sold to them. The Selling Stockholders may sell some, all or none of their Shares. We do not know how long the Selling Stockholders will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the Selling Stockholders regarding the sale of any of the Shares.
The selling stockholders identified in this prospectus may offer the shares of our common stock at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale or at negotiated prices. See “Plan of Distribution” for additional information.
The table is based on information supplied to us by the Selling Stockholders. The Selling Stockholders have indicated to us that neither they nor any of their affiliates has held any position or office or had any other material relationship with us in the past three years except as described below.
The following table sets forth the number of shares of the common stock beneficially owned by the Selling Stockholders as of June 23, 2020. The percentage of beneficial ownership is based on 6,460,236 shares of our common stock outstanding as of June 23, 2020.
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Selling Stockholder | Beneficial Ownership Prior to the Sale of all Shares Covered by this Prospectus(1) | Percentage of Beneficial Ownership Prior to the Sale of all Shares Covered by this Prospectus | Total Shares Offered By Selling Stockholder in the Offering Covered by this Prospectus | Beneficial Ownership After the Sale of all Shares Covered by this Prospectus | Percentage of Beneficial Ownership After the Sale of all Shares Covered by this Prospectus |
Thomas W. Hines (2) | 540,000 | 8.36% | 162,000 | 378,000 | 4.46% |
Janean Monroe | 150,000 | 2.32% | 45,000 | 105,000 | 1.24% |
Michael Forte | 250,000 | 3.87% | 75,000 | 175,000 | 2.06% |
John Chris Jackson | 250,000 | 3.87% | 75,000 | 175,000 | 2.06% |
Reginald Carnick | 350,000 | 5.42% | 105,000 | 245,000 | 2.89% |
Kristine Breuker | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
John Tuck | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Richard Wasserman | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Charles Flieringa | 150,000 | 2.32% | 45,000 | 105,000 | 1.24% |
Albert S. Lowe IV | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Thomas J. & Karen D. Neckopulos | 250,000 | 3.87% | 75,000 | 175,000 | 2.06% |
William Lowery | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Allen M. Putterman Declaration of Trust (3) | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Dee S. Osborne | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
JCS Family LP (4) | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Elana Knight | 460,000 | 7.12% | 138,000 | 322,000 | 3.80% |
Rafe Christman | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
Cahill Ventures (5) | 200,000 | 3.10% | 60,000 | 140,000 | 1.65% |
George S. Caleel | 50,000 | 0.77% | 15,000 | 35,000 | 0.41% |
KEO Green, LLC (6) | 50,000 | 0.77% | 15,000 | 35,000 | 0.41% |
TSV Investments, LLC (7) | 75,000 | 1.16% | 22,500 | 52,500 | 0.62% |
Michael Schimmel | 50,000 | 0.77% | 15,000 | 35,000 | 0.41% |
Nicholas W. Tiller | 250,000 | 3.87% | 75,000 | 175,000 | 2.06% |
Brendan Cooney | 50,000 | 0.77% | 15,000 | 35,000 | 0.41% |
Paul Lapping | 100,000 | 1.55% | 30,000 | 70,000 | 0.83% |
ZIE Partners LLC (8) | 2,500,000 | 38.70% | 750,000 | 1,750,000 | 20.65% |
The Caleel Foundation (9) | 50,000 | 0.77% | 15,000 | 35,000 | 0.41% |
Hilltopper Warriors LLC (10) | 20,000 | 0.31% | 6,000 | 14,000 | 0.17% |
Herbert A. Getz Trustee, U/A DTD 12/20/1998 | 10,000 | 0.15% | 3,000 | 7,000 | 0.08% |
Michael Mortell | 10,000 | 0.15% | 3,000 | 7,000 | 0.08% |
Totals | 6,715,000 |
| 2,014,500 | 4,700,500 |
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(1)All shares reflect shares of common stock into which preferred shares may be converted.
(2)Thomas W. Hines has been a member of our board of directors since February 27, 2019.
(3)Allen M. Putterman, Trustee
(4)Q.P. Courtney III, President of QPC, Inc. General Partner of JCS Family LP
(5)Benjamin Cahill, President & CEO
(6)Kevin E. O'Reilly (sole shareholder)
(7)Tom Uutala (member)
(8)Christian Zann, Manager
(9)George Sarkis Caleel, President
(10)Kevin Powers, Manager
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We are registering the Shares issued to the Selling Stockholders upon the conversion of their shares of Preferred Stock to permit the resale of these Shares by the Selling Stockholders from time to time after the effective date of this registration statement, of which this prospectus forms a part. The Selling Stockholders may be deemed “underwriters,” within the meaning of the Securities Act.
The Selling Stockholders, or their pledgees, donees, transferees, or any of their successors in interest selling Shares received from the Selling Stockholders as a gift, partnership distribution or other non-sale related transfer after the date of this prospectus, may sell all or a portion of the Shares beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of Common Stock are sold through underwriters or broker-dealers, the Selling Stockholders will be responsible for underwriting discounts or commissions or agent's commissions. The Shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. These sales may be effected in transactions, which may involve crosses or block transactions:
·on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
·in the over-the-counter market;
·in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
·through the writing of options, whether such options are listed on an options exchange or otherwise;
·ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
·purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·an exchange distribution in accordance with the rules of the applicable exchange;
·privately negotiated transactions;
·short sales;
·through the distribution of the common stock by any Selling Stockholders to their partners, members or stockholders;
·through one or more underwritten offerings on a firm commitment or best efforts basis;
·sales pursuant to Rule 144;
·broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
·a combination of any such methods of sale; and
·any other method permitted pursuant to applicable law.
The Selling Stockholders may also transfer the Shares by gift. The Selling Stockholders may engage brokers and dealers, and any brokers or dealers may arrange for other brokers or dealers to participate in effecting sales of the Shares. These brokers, dealers or underwriters may act as principals, or as an agent of a Selling Stockholders. Broker-dealers may agree with the Selling Stockholders to sell a specified number of the Shares at a stipulated price per security. If the broker-dealer is unable to sell the Shares acting as agent for the Selling Stockholders, it may purchase as principal any unsold Shares at the stipulated price. Broker-dealers who acquire Shares as principals may thereafter resell the Shares from time to time in transactions in any stock exchange or automated interdealer quotation system on which the Shares are then listed, at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above.
The Selling Stockholders may also sell the Shares in accordance with Rule 144 under the Securities Act, rather than pursuant to this prospectus, regardless of whether the Shares are covered by this prospectus.
If the Selling Stockholders effects such transactions by selling Shares to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as
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to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the Shares or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Shares in the course of hedging in positions they assume. The Selling Stockholders may also sell Shares short and deliver Shares covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders may also loan or pledge Shares to broker-dealers that in turn may sell such shares.
The Selling Stockholders may pledge or grant a security interest in some or all of the Shares owned by them and, if they default in the performance of its secured obligations, the pledgees or secured parties may offer and sell the Shares from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of Selling Stockholders to include the pledgee, transferee or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer and donate the Shares in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In addition, the Selling Stockholders may, from time to time, sell the Shares short, and, in those instances, this prospectus may be delivered in connection with the short sales and the Shares offered under this prospectus may be used to cover short sales.
The Selling Stockholders and any broker-dealer participating in the distribution of the Shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Shares is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the Shares against certain liabilities, including liabilities arising under the Securities Act.
Under the securities laws of some states, the Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Shares may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that the Selling Stockholders will sell any or all of the Shares registered pursuant to the registration statement, of which this prospectus forms a part.
The Selling Stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the Selling Stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the Shares to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.
We will pay all expenses of the registration of the Shares which is estimated to be $30,000 in total. Once sold under the registration statement, of which this prospectus forms a part, the Shares will be freely tradable in the hands of persons other than our affiliates.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion And Analysis Or Plan Of Operation of Acquired Sales
You should read the following discussion and analysis of our financial condition and plan of operations together with our financial statements and the related notes appearing elsewhere in this registration statement. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this registration statement.
Basis of Presentation
Our Company has a history of recurring losses, which has resulted in an accumulated deficit of $15,392,552 as of December 31, 2019. Additionally, prior to acquisition of Lifted on February 24, 2020, our Company had no sources of revenue. These matters raise substantial doubt about our ability to continue as a going concern.
This MD&A section discusses our Company’s 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 prospectus.
Overview
Please refer to “Description of the Business of Acquired Sales Corp.” 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, 2019 and December 31, 2018, as well as our Company’s cash flows for the years ended December 31, 2019 and 2018:
| December 31, | |
| 2019 | 2018 |
Current Assets | $4,594,512 | $- |
Current Liabilities | 189,243 | 338,622 |
Working Capital | 4,405,269 | (338,622) |
|
| For the Years Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
Net Cash Used in Operating Activities |
| $(611,502) |
| $(32,172) |
Net Cash Used in Investing Activities |
| (2,096,200) |
| - |
Net Cash Provided by Financing Activities |
| 7,092,631 |
| 32,172 |
Comparison of the balance sheet at December 31, 2019 and December 31, 2018
At December 31, 2019, we had cash and cash equivalents of $4,384,929; in comparison, at December 31, 2018, we had cash and cash equivalents of $0.
At December 31, 2019, we had prepaid expenses of $9,583 related to the prepayment of professional services and consulting fees; in comparison, at December 31, 2018, we had no prepaid expenses.
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Total current assets at December 31, 2019 of $4,594,512 were adequate for us to acquire Warrender Enterprise Inc. d/b/a Lifted Liquids, and to fund current operations. In comparison, at December 31, 2018, we had total current assets of $0.
Our other assets include our investments in Ablis, Bendistillery and Bend Spirits, which total $1,896,200. We also have a note receivable of $200,000 due to us from CBD Lion LLC.
Current liabilities of $189,243 at December 31, 2019 consisted of $6,985 in accounts payable for professional fees, $31,500 in accounts payable to CBD Lion LLC for reimbursement of professional fees, $145,017 in Series A convertible preferred stock dividends payable to preferred stockholders, and $5,741 in Series B convertible preferred stock dividends payable to preferred stockholders. Current liabilities at December 31, 2018 of $338,622 primarily consisted of accounts payable to related parties of $193,000 and trade accounts payable of $113,450. Accounts payable to related parties consisted mainly of liabilities for independent contractor fees payable to William C. “Jake” Jacobs, CPA, who now is the Company’s President and Chief Financial Officer and is the son of the Company’s Chief Executive Officer, Gerard M. Jacobs, and expense reimbursements to William C. “Jake” Jacobs and Gerard M. Jacobs.
On June 21, 2016, a company affiliated with Gerard M. Jacobs, our Chief Executive Officer, made a non-interest bearing loan of $4,000 to the Company, which is payable upon demand. The $4,000 note payable to the company affiliated with Gerard M. Jacobs was still outstanding at December 31, 2018.
The Company had an accumulated deficit of $15,392,552 and $14,005,689 as of December 31, 2019 and 2018, respectively.
Comparison of operations for the year ended December 31, 2019 to the year ended December 31, 2018
The Company did not generate revenue from continuing operations during the years ended December 31, 2019 and 2018.
Stock compensation expense of $874,154 was recognized during the year ended December 31, 2019. Of this, $833,446 related to the value of 402,900 warrants to purchase unregistered shares of common stock of the Company issued to brokers for the capital raised for the Company by the brokers. The difference, $40,708, was the value of a total of 14,042 warrants to purchase unregistered shares of common stock of the Company, issued to two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis. In comparison, stock compensation expense of $72,500 was recognized during the year ended December 31, 2018. As background: on April 1, 2018, we issued to director James S. Jacobs and to William C. Jacobs, then an independent contractor and now our President and Chief Financial Officer, rights to purchase warrants, for an aggregate purchase price of $2.00, an aggregate of 250,000 shares of common stock of the Company (40,000 to James S. Jacobs, and 210,000 to William C. Jacobs), at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. We recorded total stock compensation expense of $72,500 related to these rights to purchase warrants; this consists of $11,600 of stock compensation for the rights to purchase warrants issued to James S. Jacobs, and $60,900 of stock compensation for the rights to purchase warrants issued to William C. Jacobs.
Selling, general and administrative expenses primarily consist of advertising, filing fees, travel expenses, phone, office supplies, internet and hotspot expense, meals and entertainment, and other less material accounts. Selling, general and administrative expenses were $64,734 for the year ended December 31, 2019, compared to $11,299 for the year ended December 31, 2018, an increase of $53,435.
Consulting and independent contractor fees consisted of the fees paid to the Company’s CEO Gerard M. Jacobs and to the Company’s President and CFO William C. “Jake” Jacobs. Consulting and independent contractor fees of $112,500 were paid during the year ended December 31, 2019, compared to $60,000 paid during the year ended December 31, 2018, an increase of $52,500.
During the year ended December 31, 2019, the Company incurred a net loss of $1,236,105. During the year ended December 31, 2018, the Company incurred a net loss of $220,621.
Net cash used in operating activities was $611,502 for the year ended December 31, 2019, compared to $32,172 net cash used in operating activities for the year ended December 31, 2018. Net cash used in operating activities in 2019
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was primarily for professional fees and independent contractor and consulting fees. Net cash used in operating activities in 2018 was primarily used for professional fees.
Net cash used in investing activities was $2,096,200 for the year ended December 31, 2019; net cash used in investing activities was $0 for the year ended for the year ended December 31, 2018. Net cash used in investing activities in 2019 related to our $399,200 investment in Ablis, our $1,497,000 investment in Bendistillery and Bend Spirits, and our $300,000 loan to CBD Lion LLC, of which $200,000 was outstanding at December 31, 2019.
Net cash provided by financing activities was $7,092,631 during the year ended December 31, 2019. In comparison, net cash provided by financing activities was $32,172 during the year ended December 31, 2018.
Net cash increased by $4,384,929 during the year ended December 31, 2019; in comparison, during the year ended December 31, 2018, the amount of cash stayed the same, and the Company had $0 in unrestricted cash at December 31, 2018.
As of December 31, 2019, we had no revenue-generating subsidiaries. The Company has a history of losses as evidenced by the accumulated deficit at December 31, 2019 of $15,392,552. We plan to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (2) 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, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company. Please note that on February 24, 2020, we acquired 100% of the ownership interests in Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids).
Critical Accounting Policies
Critical accounting policies are discussed in Note 1 of the financial statements accompanying this annual report.
The Company’s Investments in Ablis, Bendistillery and Bend Spirits
On April 30, 2019, the Company purchased 4.99% of the common stock of each of Ablis, Bendistillery and Bend Spirits, for an aggregate purchase price of $1,896,200. The Company’s investments in Ablis, Bendistillery and Bend Spirits made the Company a minority owner of these companies. As a minority owner, the Company will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements.
Pursuant to US GAAP, the Company is obligated to periodically review its investments. The Company has limited ability to comment on these companies’ operations and financial performance. The Company’s ability to review the financial performance of its investment in these companies is limited: the financial statements of these companies are not audited; the Company is not active in the management of these companies; and these companies have only held one meeting of their boards of directors since the closing of our investment. Consequently, the Company’s assessment of these companies is inherently limited to infrequent and relatively brief conversations with officers of these companies, and to reviews of unaudited financial statements that are delivered to us on an irregular basis.
Based on the financial and non-financial information regarding the year ended December 31, 2019, that the management of Ablis, Bendistillery and Bend Spirits provided to the Company in a conference call held on March 9, 2020, the Company has concluded that an impairment of its investment in these companies as of December 31, 2019 is not warranted. The factors that led the Company to the conclusion that an impairment of its investment in these companies has of December 31, 2019 is not warranted includes, among other things: positive sales trends during recent months; indications of the Companies’ ability to maintain profitability; and certain initiatives that are being undertaken by these companies in regard to leadership, sales representatives, and product distribution and pricing.
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CBD Lion LLC
On August 8, 2019, the Company made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”) in connection with the proposed Merger Agreement with Lion. Per the terms of the Note, if the Transaction did not close and the merger agreement were terminated, then the Loan was to be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement. The Merger Agreement was terminated by the Company on November 14, 2019 and the Note became payable. During December 2019, the principal of the Note was repaid by Lion down to $200,000, and Lion also paid the accrued interest on the Note of $6,945.
Due to termination of the Merger Agreement, and per Section 5.15(b) of the Merger Agreement, as of December 31, 2019 the Company owed CBD Lion $31,500 for reimbursement of professional fees related to the audit of CBD Lion.
This left Lion with a net balance owed to the Company of $168,500 as of December 31, 2019. In March 2020, Lion and the Company agreed that the repayment of such $168,500 will be made in eleven equal monthly installments of principal due and payable by Lion to the Company on the first day of each calendar month starting on April 1, 2020, and that no additional interest will accrue. Imputed interest on the remaining amounts owed by Lion to the Company will be evaluated during the first quarter of 2020.
The William Noyes Webster Foundation, Inc.
The William Noyes Webster Foundation, Inc. (the “Foundation”), a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana dispensary in Dennis, Massachusetts. Heatley is the founder and a member of the board of directors of the Foundation.
Teaming Agreement – We believe it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, we entered into a Teaming Agreement (the "Teaming Agreement") with Heatley, in which, among other things: (1) we and Heatley agreed to use our respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which we will provide capital and expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. We claim that Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that we violated the Teaming Agreement alleging that we failed to lend funds to the Foundation in accordance with the Teaming Agreement. We believe Heatley's claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that we will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.
Promissory Note – On July 14, 2014, the Foundation signed and delivered to us a Secured Promissory Note (the "Note") which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $1,500,000 loan may be advanced in one or more installments as the Foundation and we may mutually agree upon. The Foundation and we mutually agreed that the first installment of this loan would be $602,500. Pursuant to instructions from the Foundation, on July 14, 2014, we paid $2,500 owed by the Foundation to one of its consultants, and we advanced $600,000 directly to the Foundation. The amount and timing of subsequent loan installments under the Note, which could have totaled $897,500, had not yet been mutually agreed upon between the Foundation and us as of the date of the Note.
Between April and July 2015, we loaned an additional $135,350 to the Foundation, evidenced by the Note and secured by the Security Agreement. Following such additional loans, the principal of the loan from us to the Foundation, evidenced by the Note and secured by the Security Agreement, is now $737,850.
The principal balance outstanding under the Note bore interest at the rate of 12.5% per annum, compounded monthly. It was contemplated that the first payment of accrued interest by the Foundation under the Note would be made as soon after the Foundation commences operations of the Plymouth Cultivation Facility and the Dennis
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Dispensary as the Foundation's cash flows shall reasonably permit, but in any event no later than one year after the Foundation commences operations. The principal of the Note would be payable in eight consecutive equal quarterly installments, commencing on the last day of the calendar quarter in which the Foundation commences operations. Principal on the Note and related accrued interest would be considered past due if the aforementioned payments were not received by their due dates.
Uncollectable Note and Interest Receivable – We assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, we concluded that Note and interest receivable would not be collectible. As such, we wrote off the Note totaling $737,850 and interest receivable totaling $97,427 as bad debt expense on September 1, 2015.
Acquisition of Real Estate in Rhode Island
As discussed in our prior public filings, we have attempted to acquire one or more of the Mesolella/Jacobs Properties. The Mesolella/Jacobs Properties are parcels of real estate in Rhode Island that are owned by entities affiliated with Vincent J. Mesolella and his son Derek V. Mesolella, formerly an independent contractor to AQSP. One of the Mesolella/Jacobs Properties was also partly owned by an affiliate of our Chief Executive Officer, Gerard M. Jacobs.
Discussions among Messrs. Mesolella and Jacobs and our independent directors have made it highly likely that we will never purchase any of the Mesolella/Jacobs Properties.
Simultaneous with Vincent J. Mesolella’s agreement to negotiate in good faith regarding the possibility of us acquiring the Mesolella/Jacobs Properties, in November 2014, the officers and directors of the Company were awarded the right to purchase, directly or using a designee, for an aggregate price of $2 per director: (a) warrants to purchase an aggregate of 1.35 million shares of common stock of the Company at an exercise price of $0.01 per share; and (b) warrants to purchase an aggregate of 1.35 million shares of common stock of the Company at an exercise price of $1.85 per share, 100,000 of which warrants are vested, and 1.25 million of which warrants are subject to the condition that the Company shall have acquired at least one of the Mesolella/Jacobs Properties.
Other Matters
We may be subject to other legal proceedings, claims, and litigation arising in the ordinary course of business. We intend to defend vigorously against any such claims. 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 its financial position, results of operations, or cash flows.
IMPACTS OF COVID-19
LIKE NEARLY ALL BUSINESSES IN THE UNITED STATES TODAY, ACQUIRED SALES CORP. IS FACING AN UNPRECEDENTED AND HIGHLY RISKY BUSINESS ENVIRONMENT AND UNCERTAIN FUTURE CAUSED BY THE CORONAVIRUS KNOWN AS COVID-19.
THE IMPACTS OF COVID-19 ON ACQUIRED SALES CORP., ON ITS WHOLLY OWNED SUBSIDIARY LIFTED LIQUIDS, INC. D/B/A LIFTED MADE, AND ON LIFTED MADE'S OFFICERS, EMPLOYEES, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME COULD BE DISASTROUS FOR OUR COMPANY. AMONG THE MANY POTENTIALLY DISASTROUS IMPACTS OF COVID-19:
·THE U.S. ECONOMY MAY BE PUSHED INTO A DEEP RECESSION OR DEPRESSION THAT COULD MATERIALLY ADVERSELY IMPACT ACQUIRED SALES CORP. AND LIFTED MADE
·ACQUIRED SALES CORP. AND LIFTED MADE COULD LOSE SOME OR ALL OF OUR KEY DIRECTORS, OFFICERS AND EMPLOYEES, WHO MAY BE IRREPLACEABLE
·LIFTED MADE COULD BE UNABLE TO OBTAIN HIGH QUALITY RAW GOODS AND
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PACKAGING MATERIALS NEEDED TO MANUFACTURE ITS PRODUCTS
·LIFTED MADE COULD BE UNABLE TO DISTRIBUTE OR SELL ITS PRODUCTS PROFITABLY, IF AT ALL
·U.S. CONSUMERS COULD BE SO FINANCIALLY DISTRESSED THAT THEY CANNOT OR WILL NOT PURCHASE LIFTED MADE'S PRODUCTS
·U.S. FEDERAL, STATE AND LOCAL GOVERNMENTS MAY IMPOSE LAWS, RULES, REGULATIONS AND EXECUTIVE ORDERS THAT EFFECTIVELY PROHIBIT LIFTED MADE FROM OPERATING PROFITABLY, IF AT ALL
·THE U.S. FINANCIAL SYSTEM AND ECONOMY MAY NOT BE ABLE TO CONTINUE TO FUNCTION AS THEY HAVE HISTORICALLY, WHICH MAY HAVE MATERIAL ADVERSE IMPACTS UPON ACQUIRED SALES CORP. AND LIFTED MADE THAT CANNOT PRESENTLY BE ESTIMATED OR PREDICTED
·LIFTED MADE COULD EXPERIENCE SEVERE FINANCIAL LOSSES NOT COVERED BY ANY INSURANCE
NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN THAT ACQUIRED SALES CORP. AND LIFTED MADE WOULD BE ABLE TO AVOID THESE POTENTIALLY DISASTROUS IMPACTS OF COVID-19.
CONSEQUENTLY, ACQUIRED SALES CORP. AND LIFTED MADE COULD RUN OUT OF MONEY AND COULD BECOME INSOLVENT OR BANKRUPT AS A RESULT OF THE IMPACTS OF COVID-19, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR COMPANY AND ON THE PRICE OF OUR COMMON STOCK.
THE IMPACTS OF COVID-19 ARE ALREADY BEING EXPERIENCED BY ACQUIRED SALES CORP. AND LIFTED MADE. ON MARCH 20, 2020, ILLINOIS GOVERNOR J.B. PRITZKER ISSUED EXECUTIVE ORDER 2020-10, ENTITLED "EXECUTIVE ORDER IN RESPONSE TO COVID-19 (COVID-19 EXECUTIVE ORDER NO. 8)", PURSUANT TO WHICH, WITH CERTAIN EXCEPTIONS, ALL INDIVIDUALS CURRENTLY LIVING WITHIN THE STATE OF ILLINOIS ARE ORDERED TO STAY AT HOME OR AT THEIR PLACE OF RESIDENCE, EXCEPT AS ALLOWED IN THE EXECUTIVE ORDER.
NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW SUCH EXECUTIVE ORDER WILL IMPACT ACQUIRED SALES CORP., LIFTED MADE, LIFTED MADE'S OFFICERS, EMPLOYEES, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME, OR THE PRICE OF OUR COMMON STOCK.
DURING THE ONGOING COVID-19 PANDEMIC, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES HAVE BEEN SIGNIFICANTLY DEPENDENT UPON THE RE-SALE OF HAND SANITIZER TO A SMALL NUMBER OF CUSTOMERS, AND UPON THE RECEIPT BY LIFTED MADE OF $149,622.50 BORROWED FROM THE U.S. SMALL BUSINESS ADMINISTRIATION (“SBA”) UNDER THE SBA’S PAYROLL PROTECTION PROGRAM (THE “PPP LOAN”). SUCH RE-SALES OF HAND SANITIZER MAY NOT CONTINUE IN THE FUTURE, AND THE PPP LOAN MAY BE REQUIRED TO BE REPAID. CONSEQUENTLY, LIFTED’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.
PLEASE ALSO CONSIDER "RISK FACTORS RELATING TO LIFTED AND FUTURE ACQUISITIONS - Pandemics or disease outbreaks, such as the novel coronavirus, may disrupt consumption and trade patterns, supply chains, and production processes, which could materially affect Lifted’s and target companies’ operations and results of operations", below.
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Description of the Business of Acquired Sales Corp.
Acquired Sales Corp. (hereinafter sometimes referred to as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986.
Our business involves acquiring all or a portion of operating businesses involving the manufacture, sale and distribution of cannabinoid-infused products such as beverages, lotions, oils, hemp joints and cigarettes, tinctures, bath bombs, balms, body washes, gummies, food, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). Our business also involves selling and distributing hand sanitizer, and potentially other personal protective equipment, during the pendency of the COVID-19 pandemic, and possibly longer.
In order to consummate a particular acquisition of a Canna-Infused Products Company, management of the Company is open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such Canna-Infused Products Company, for example operating businesses and/or assets involving distilled spirits, beer, wine, paraphernalia and real estate. In addition, management of the Company is open-minded to the concept of acquiring all or a portion of one or more operating businesses and/or assets that are considered to be “essential” businesses which are unlikely to be shut down by the government during pandemics such as COVID-19.
To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company d/b/a Lifted Made, 4.99% of the ownership interests in a second Canna-Infused Products Company called Ablis Holding Company ("Ablis"), and 4.99% of the ownership interests in two other businesses that manufacture distilled spirits called Bendistillery Inc. ("Bendistillery") and Bend Spirits, Inc. ("Bend Spirits").
We have also terminated a planned acquisition of Canna-Infused Products Company called CBD Lion LLC.
At this point in time, we are in discussions with several companies in our acquisition pipeline that are involved in cannabinoid businesses of various types. However, our cash on hand is currently limited, so in order to close future acquisitions it is highly likely that it will be necessary for us to raise additional capital, and no guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.
Acquisition of 100% of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids)
On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Warrants").
Pursuant to the Merger, Lifted Liquids, Inc. d/b/a Lifted Made, an Illinois corporation ("Lifted" or "Lifted Made"), is now operating as a wholly-owned subsidiary of the Company, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.
Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.
Ownership of 4.99% of Ablis, Bendistillery and Bend Spirits
On April 30, 2019, we closed on the acquisition of 4.99% of the common stock of each of CBD-infused beverages maker Ablis, and of distilled spirits manufacturers Bendistillery and Bend Spirits, all of Bend, Oregon.
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The Lifted Made Business
Prior to acquiring 100% of Lifted on February 24, 2020, we did not own 100% of any other operating company, so the Lifted Merger was highly significant to our Company.
History
Lifted was originally incorporated in the state of Wisconsin on September 19, 2014. Lifted was created with a passion to build a culture-based organization focused upon quality products and a healthier lifestyle. Lifted produces its own lines of CBD-infused products, as well as numerous CBD-infused products for private label clients. In addition, Lifted has a raw goods supply chain that many customers benefit from: CBD and CBG isolate, full spectrum, broad spectrum water soluble, distillate and more.
Officers and Employees
The executives of Lifted have backgrounds in the vaping industry, graphic design, marketing, and supply chain management, skills that have helped Lifted distinguish itself from the competition. Historically, the Lifted team has frequently attended trade shows throughout the USA to promote Lifted’s products and brand, and in support of Lifted’s private label clients. Lifted sometimes evaluates new products by introducing them to potential customers at certain vape shops in Wisconsin and Illinois which are partly owned by Warrender. The Company holds an option to purchase Warrender's interests in such vape shops for a nominal price.
Lifted currently has 16 full time and part time employees who are engaged in product formulation, design and branding, website development, private label client management, sales, distribution, supply chain management, new business development, warehouse management and order fulfillment, operations management, accounting, new product development, trade shows and evaluation of potential acquisitions and joint ventures. One of Lifted’s part time employees is based in south Florida, and the rest of the Lifted team is based in Zion, Illinois, Lake Forest, Illinois, and New Smyrna Beach, Florida.
Description of Property
Lifted does not own any physical properties. Lifted’s corporate office, manufacturing facility and warehouse is located in Zion, Illinois, where Lifted has rented 3,300 square feet of space under a lease that terminates in June 2021. Lifted is currently temporarily using additional space located adjacent to its rented space and is making payments in lieu of rent therefor.
Sources of Supply
Lifted sources raw goods such as CBD isolate, distillate and water-soluble CBD from independent suppliers. These raw materials are third-party lab tested, something that Lifted believes many of its competitors do not do.
Lifted acquires its disposable vape pens and cartridges from third party manufacturers and, in its clean room, adds Lifted’s proprietary vape solutions into the disposable vape pens and vape cartridges. Lifted also acquires a variety of boxes, packaging and other items from third party manufacturers.
Lifted currently believes that it would be able to find replacement manufacturers with minimal negative impact on its business. However, Lifted's vape pens and cartridges are sourced exclusively from China, and much of Lifted's boxes, packaging and other items are sourced from China. The coronavirus and tariffs imposed on products sourced from China could make it difficult or impossible to source these products cost effectively, or at all, from China. The coronavirus and/or tariffs could make it difficult or impossible for Lifted to manufacture needed quantities of its products, if at all, and could drastically increase Lifted's product costs, all of which could have a serious detrimental impact on Lifted’s sales and profit margins.
Products
Lifted’s focus is manufacturing, sales and distribution of effective, quality products formulated in a clean room. Lifted sources cannabinoids from several suppliers, which are then incorporated into proprietary formulations in house.
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Lifted produces its own lines of cannabinoid-infused products, as well as numerous cannabinoid-infused products for private label clients. Lifted’s current list of products include: lotions, tinctures, bath bombs, oral sprays, lube, gummies, hemp joints, vape e-liquids, vape pens, electronic liquids ("E-Liquids"), electronic cigarettes, food and other edibles, and non-prescription cannabinoid formulations.
Lifted formulates its lotions and then has them manufactured by a third party in accordance with Lifted's specifications. Lifted also produces its edible cannabinoid-infused gummy products, bath bombs and electronic-cigarettes through third party manufacturers.
In addition, Lifted has a raw goods supply chain that many customers benefit from. The ingredients that go into Lifted’s products are third-party lab tested.
Product Risks
Some of Lifted's inhalable products currently contain nicotine. However, according to the U.S. Surgeon General, besides nicotine, inhalable products in some cases can contain harmful and potentially harmful ingredients, including, ultrafine particles that can be inhaled deep into the lungs, flavorants such as diacetyl, a chemical linked to serious lung disease, volatile organic compounds, and heavy metals, such as nickel, tin, and lead. There is a risk that Lifted could be targeted by regulators or consumers with claims that its products are unsafe.
The market for CBD vapes and cartridges is currently subjected to prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping. These various prohibitions and regulations may have a material adverse effect on Lifted's financial condition, operating results, liquidity, cash flow and operational performance.
Intellectual Property
Lifted maintains proprietary formulations and other trade secrets. However, Lifted owns no registered patents and has no patent applications pending.
R&D expenditures
Lifted's research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products. Lifted spent less than $10,000 on research and development efforts over the past two years. Research and development costs are expensed as they are incurred.
Marketing
Lifted markets itself by networking throughout the industry, through word of mouth, its websites, and by attending trade shows. During 2020, Lifted has also begun public relations and search engine optimization efforts. There can be no guarantee or assurance that these efforts will be successful or result in any additional sales or profits for Lifted.
Distribution
Lifted’s distribution is done internally and through third party distributors who distribute throughout the U.S. Lifted and these distributors distribute Lifted’s products to vape shops, physical therapy clinics, convenience stores, natural food stores, and other locations. Lifted believes but cannot guarantee that in the event that it lost its relationship with one or more of its current distributors that other replacement distributors could be found without significant disruption to Lifted’s business.
Online Sales
Lifted sells its products online primarily through www.LiftedMade.com, www.UrbFlower.com, www.eLiquidRetail.com, www.LiftedLiquids.com, and www.LiftedDose.com.
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Commissions on Sales
Lifted has agreed to pay 7% commissions on certain sales to certain individuals, some of whom are affiliated with the Company and some of whom are relatives of affiliates of the company.
Description of Legal Proceedings
Lifted currently is involved in three pending lawsuits, two as the plaintiff and one as the defendant:
(a)Warrender Enterprise, Inc. d/b/a Lifted Liquids, a Wisconsin corporation, Plaintiff, v. Merkabah Labs, LLC, a Colorado limited liability company; Merkabah Technologies, LLC, a Colorado limited liability company; Ryan Puddy, an individual; and Ralph L. Taylor III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
(b)Martha, Edgar v. Lifted Liquids – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage.
(c)Lifted Liquids, Inc., Plaintiff, v. Luxvoni LLC d/b/a Luxvoni Marketing Solutions; Does I through X, inclusive; and Roe Business Entities I through X, inclusive, Defendants (United States District Court for Clark County, Nevada; Civil Case No. A-20-817416-C) On July 1, 2020, Lifted filed a lawsuit against Luxvoni LLC d/b/a Luxvoni Marketing Solutions (“Luxvoni”) in regard to Luxvoni’s money back guarantee of a $25,000 upfront fee paid by Lifted to Luxvoni for digital marketing services which were never provided to Lifted.
During June 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following two lawsuits:
(1)Mile High Labs, Inc., Plaintiff, v. Warrender Enterprise, Inc. d/b/a Lifted Liquids, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW); and
(2)Accelerated Analytical, Inc., et al. v. Lifted Liquids, Inc. d/b/a Lifted Made, et al., Case No. 3:20-cv-442-wmc (United States District Court for the Western District of Wisconsin)
Lifted Financials
Lifted's audited net sales increased from $1,777,641 during 2018 up to $4,179,420 during 2019.
Lifted's audited net income increased from $524,446 during 2018 up to $529,864 during 2019.
Costs and effects of compliance with environmental laws
To Liquid's knowledge, Lifted does not currently use or generate any hazardous materials in its operations.
The Lifted Made Merger
The terms of the Lifted Merger were as follows:
·The Company acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration (the "Promissory Note") of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing
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of the Merger (the "Deferred Contingent Stock"), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Corporation at the closing of the Merger (the "Warrants").
·The Promissory Note, payable jointly by the Company and Lifted to Nicholas S. Warrender, is in the principal amount of $3,750,000. The Promissory Note is secured by all of the assets of the Company and Lifted, and by a pledge of all of the common stock of Lifted, Ablis, Bendistillery and Bend Spirits that are owned by the Company. The Promissory Note accrues interest at the rate of 2% annually, and has a term of five years, subject to mandatory partial prepayment using 50% of all capital raised by the Company other than capital raised in connection with two potential acquisitions in Wisconsin, and subject to mandatory full prepayment if and when Lifted achieves an aggregate post-Closing EBITDA of $7,500,000.
·The purpose of the 645,000 shares of unregistered common stock of Acquired Sales that constitutes the Deferred Contingent Stock is to incentivize certain persons whom Nicholas S. Warrender considers necessary to allow Lifted and the Company to succeed going forward. Among other persons, Nicholas S. Warrender designated as recipients of shares of the Deferred Contingent Stock certain employees of Lifted and William C. "Jake" Jacobs, the Company's President and CFO. The vesting of certain shares of the Deferred Contingent Stock is subject to certain terms and conditions, and if any of such terms and conditions are not met then any unvested Deferred Contingent Stock will be issued and delivered to Nicholas S. Warrender as additional Merger consideration.
·The purpose of the Warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share is to incentivize certain persons whom Nicholas S. Warrender considers necessary to allow Lifted and the Company to succeed going forward. Among other persons, Nicholas S. Warrender designated as recipients of Warrants certain employees, officers and directors of Lifted and the Company. The vesting of certain of the Warrants will be subject to certain terms and conditions, and if any of such terms and conditions are not met then any unvested Warrants will be terminated.
·Nicholas S. Warrender was granted certain registration rights for the 3,900,455 shares of the Company’s unregistered common stock that he received in the Merger, pursuant to the terms and conditions of a Registration Rights Agreement.
·Nicholas S. Warrender, the Company's President and CFO William C. “Jake” Jacobs, and the Company's Chairman and CEO Gerard M. Jacobs, who together as a group have stockholder and managerial control of the Company, entered into a Stockholders Agreement to vote in concert regarding the election of directors of the Company and on certain other matters.
·The Company has entered into a long-term employment agreements with Nicholas S. Warrender, William C. "Jake" Jacobs, and Gerard M. Jacobs, pursuant to which each of them is entitled to $100,000 in base salary and an annual bonus stemming from the Company’s cash management bonus pool.
·The effects of the Merger are that all assets, property, rights, privileges, immunities, powers, franchises, licenses, and authority of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) and Lifted have vested in Lifted as the surviving entity in the Merger, and all debts, liabilities, obligations, restrictions, and duties of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) have become the debts, liabilities, obligations, restrictions, and duties of Lifted as the surviving entity in the Merger. Lifted is operating as a wholly-owned subsidiary of the Company.
·The articles of incorporation of Lifted are the articles of incorporation of the surviving entity in the Merger, and the by-laws of Lifted are the by-laws of the surviving entity of the Merger.
·Upon the Closing of the Merger, the number of directors of the Corporation has been increased from seven to nine: Gerard M. Jacobs, J.D. (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead outside director), Joshua A. Bloom, M.D., Thomas W. Hines, CPA CFA, James S. Jacobs, M.D., Michael D. McCaffrey, J.D., Richard E. Morrissy, and Kevin J. Rocio.
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·Upon the Closing of the Merger, the officers of the Corporation are as follows, each to hold office until his successor is duly elected or appointed and qualified or until his earlier death, resignation, or removal in accordance with applicable Law: Gerard M. Jacobs, J.D. - Chairman, CEO and Secretary; William C. "Jake" Jacobs, CPA - President, CFO and Treasurer; and Nicholas S. Warrender - Co-Founder, Vice Chairman, and Chief Operating Officer.
Source of Funds for the Lifted Merger
The source of funds for the $3,750,000 cash component of the acquisition of Lifted was proceeds from previous sales of Acquired Sales Corp.’s Series A Convertible Preferred Stock (convertible at $1 per share of common stock of the Company) and Series B Convertible Preferred Stock (convertible at $5 per share of common stock of the Company). We anticipate that the source of funds to repay the $3,750,000 Promissory Note component of the acquisition of Lifted will be proceeds from future sales of Acquired Sales Corp.’s equity securities, and revenue from Lifted's business. Professional costs in connection with the Merger were paid using cash on hand that was sourced from previous sales of Acquired Sales Corp.’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock.
Post-Merger Shareholder Rights and Accounting Treatment of the Merger
There are no material differences in the rights of the Company’s shareholders as a result of the Merger, as the nature of the shares of common stock of the Company has not changed due to the Merger. However, there has been stockholder dilution with additional shares and warrants outstanding.
The accounting treatment of the Merger is that the Company is deemed to be the accounting acquirer of Lifted, and Lifted is deemed to be the accounting acquiree, under the acquisition method of accounting.
The federal income tax consequences of the Merger are as follows: The transaction is expected to be booked as a tax-free exchange of stock pursuant to Internal Revenue Code Section 368, resulting in no federal income tax consequences of the stock portion of the transaction.
OLCC Review of New Directors of the Company
To our knowledge, our directors Nicholas S. Warrender and Kevin J. Rocio still need to be formally approved by the Oregon Liquor Control Commission ("OLCC"), in light of the Company's ownership of common stock of distilled spirits manufacturers Bendistillery and Bend Spirits, Bend, Oregon. Pursuant to the OLCC’s procedures, the Company has submitted to the OLCC Personal History Forms for Nicholas S. Warrender and Kevin J. Rocio, and to the Company’s knowledge, neither of Nicholas S. Warrender nor Kevin J. Rocio has any personal history that would disqualify him from serving as a director of the Company. The Company would plan to consult with Oregon legal counsel in the event that the OLCC were to object to either Nicholas S. Warrender or Kevin J. Rocio serving as a director of the Company, a situation that the Company presently has no grounds to expect to occur.
Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement
Registration Rights Agreement
In connection with the Merger, the Company signed a Registration Rights Agreement granting Nicholas S. Warrender, or his assigns, “piggyback” and “demand” registration rights in regard to any and all Company registration statements filed with the SEC on or prior to a termination date set out in the agreement, in order to permit the registration of all 3,900,455 shares of Common Stock issued to Mr. Warrender as Stock Consideration in the Merger ("Registrable Shares"). The Registration Rights Agreement can be summarized as follows:
Subject to certain limitations, Mr. Warrender, or his assigns, may demand registration of all or any portion of the Registrable Shares at any time beginning on the 120th day following the closing of the Merger Agreement. The Company must then file a registration statement within ten days. The Company may postpone for up to 180 days the filing or effectiveness of a registration statement for a demand registration if the board of directors determines in its reasonable good faith judgment that such demand registration would (i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar transaction involving the
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Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act. The Company may delay a demand registration hereunder only once in any period of 12 consecutive months.
No demand registration shall be required where in the judgment of the Company, its legal counsel, and/or SEC guidance and comments the registration would be deemed a primary offering pursuant to Securities Act Rule 415, which is interpreted by the SEC staff to prohibit registrations of stock for resale where the seller is deemed to be engaged in a primary offering of behalf of the issuer. The registration rights agreement shall terminate when no Registrable Shares remain outstanding.
Secured Promissory Note
At the closing of the Merger, the Company executed a secured promissory note of $3,750,000 payable to Nicholas S. Warrender (the “Promissory Note”) which can be summarized as follows:
Interest on the Promissory Note shall be 2% per year. The maturity date of the Promissory Note is the earlier of (a) the date which is 30 days after the last day of the calendar quarter during which Lifted's aggregate EBITDA (aggregate earnings before interest, taxes, depreciation and amortization ) since the Closing Date of the Merger exceeds $7.5 million, or (b) the date which is the fifth anniversary of the closing date of the Merger.
The Promissory Note shall have mandatory prepayments, subject to certain limitations, within five business days following the closing of any equity or debt capital raise by the Company or Lifted following the date of the Merger Agreement wherein Mr. Warrender is entitled to be paid at least 50% of the net proceeds of such capital raise toward a prepayment of the principal and accrued interest on the Promissory Note, excluding only the capital raise for the potential Wisconsin Acquisitions referred to in Section 5.23(a) of the Merger Agreement. See “Obligation to Pursue Two Opportunities” below.
The Promissory Note is secured by (a) a first lien security interest in all of the assets of the Company and Lifted; and (b) a pledge of: (i) all of the capital stock of Lifted; (ii) all of the common stock of Bendistillery, Bend Spirits and Ablis that is owned by the Company; and (iii) all of the capital stock of any other entity owned by the Company, Lifted or any of their subsidiaries, pursuant to a Collateral Stock Pledge Agreement between Mr. Warrender, as Secured Party, and the Company and Lifted, as Pledgors.
Stockholders Agreement
At the closing of the Merger Agreement, our COO Nicholas S. Warrender, our CEO Gerard M. Jacobs, and our President William C. "Jake" Jacobs entered into a Stockholders Agreement which can be summarized as follows: Each of them will vote all shares of our common stock now or hereafter owned or controlled by him as unanimously agreed upon by all three of them, including as to the following matters: election, removal and filling vacancies on our Board of directors; our charter and bylaws; employment agreements, consulting agreements, fee agreements, base salaries, bonuses, management bonus pools amounts and calculations, management bonus pool allocations and payments, future stock options or warrants issuances, and any other direct or indirect compensation or benefits of any nature whatsoever; acquisitions; divestitures; and capital raises.
Executive Employment Agreements
At the closing of the Merger, the Company entered into employment agreements with Nicholas S. Warrender to serve as Co-Founder, Vice Chairman and Chief Operating Officer of the Company and as Chief Executive Officer of Lifted, with Gerard M. Jacobs, J.D., to serve as Chairman, Chief Executive Officer and Secretary of the Company, and with William C. "Jake" Jacobs, CPA to serve as President, Chief Financial Officer and Treasurer of the Company (collectively the “Executive Employment Agreements”), which can be summarized as follows:
Each of the Executive Employment Agreements is a "rolling" five year employment agreement wherein the executive's employment is effective and shall continue until the fifth anniversary of the commencement of such Executive Employment Agreement, unless terminated. Each of the Executive Employment Agreements shall be deemed to be automatically extended, upon the same terms and conditions, for additional periods of one year (extending the term of such Executive Employment Agreement to five years after each such extension date), unless
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either party provides written notice of such party’s intention not to extend the term of such Executive Employment Agreement at least 90 days’ prior to the applicable extension date.
During the employment term, each executive shall devote substantially all of his business time and attention to the performance of his duties under his Executive Employment Agreement and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the board of directors of the Company; provided, that such executive shall be permitted to continue to participate as an officer of any corporation that owns real estate as of the date of his Executive Employment Agreement with the Company and that is owned by a family trust of which such executive is a grantor or beneficiary, and provided further that such executive, with the prior written consent of the board of directors of the Company shall be permitted to act as a director, trustee, committee member or principal of any type of business, civic or charitable organization and to purchase or own less than 5% of the publicly traded securities of any corporation provided, however, that such ownership represents a passive investment and that such executive is not a controlling person of, or a member of a group that controls, such corporation, and that such activities do not interfere with the performance of such executive's duties and responsibilities to the Company.
The annual rate of each executive's base salary under his Executive Employment Agreement is $100,000.
Each executive shall participate in the Company’s annual company-wide management bonus pool, which can be generally described as a cash set-aside for management bonuses of an amount equal to 33% of the amount (if any) by which the Company's actual annual consolidated EBITDA exceeds an annual consolidated EBITDA target amount that is mutually agreed upon between the Chairman of the Compensation Committee of the board of directors, on the one hand, and Nicholas S. Warrender, Gerard M. Jacobs and William C. "Jake" Jacobs, on the other hand, with the allocation of such management bonus pool to be determined by unanimous written agreement of such three executives.
The Company will provide to each executive an employee benefits package including fully paid Blue Cross/Blue Shield or equivalent family health, vision and dental insurance. The Company will also provide to each executive prompt reimbursement for all documented business related expenses paid or incurred by such executive in connection with Acquired Sales, including but not limited to airfare, rail, taxi, rental cars, parking, tolls, gasoline for business trips, meals, entertainment, hotel, office supplies, mobile phone, internet, hotspot, and postage expenses.
Each executive's employment may be terminated by either the Company or such executive at any time and for any reason, provided that any termination of such executive's employment by the Company without cause will trigger significant payment obligations by the Company to such executive.
Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement
The Company entered into a Compensation Agreement dated as of June 19, 2019, with our CEO Gerard M. Jacobs and our President and CFO William C. "Jake" Jacobs. The material terms of the Compensation Agreement can be summarized as follows:
(1) Starting during June 2019 until the closing of the Lifted Merger on February 24, 2020, we paid Gerard M. Jacobs and William C. "Jake" Jacobs consulting fees of $7,500 and $5,000 per month, respectively. Upon the closing of the Lifted Merger, we entered into Executive Employment Agreements with Gerard M. Jacobs and William C. "Jake" Jacobs as described in the section above entitled "Executive Employment Agreements";
(2) The closing of the Lifted Merger triggered obligations of the Company to pay cash bonuses to the Company's CEO Gerard M. Jacobs and the to the Company's President and CFO William C. "Jake" Jacobs of $250,000 and $100,000, respectively, which bonuses have not yet been paid.
(3) Upon the earlier of December 1, 2020, or the first date when we have raised a total of at least $15 million after January 1, 2019, we will pay Gerard M. Jacobs and William C. "Jake" Jacobs cash bonuses of $250,000 and $100,000, respectively;
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(4) Upon the earlier of December 1, 2021, or the first date when we have raised a total of at least $25 million after January 1, 2019, we will pay Gerard M. Jacobs and William C. "Jake" Jacobs cash bonuses of $250,000 and $100,000, respectively;
(5) The terms of Gerard M. Jacobs' stock options granted by us to purchase shares of common stock of AQSP which were set to expire (unless previously exercised) during November 2020 or during September 2021, respectively, have been extended so that all of such stock options may be exercised by Gerard M. Jacobs at any time on or before December 31, 2024;
(6) We granted to Gerard M. Jacobs and to William C. "Jake" Jacobs so-called "tag along" registration rights for all of our shares owned by Gerard M. Jacobs, by William C. "Jake" Jacobs, or by any of their respective affiliates, and for all of our shares issuable to Gerard M. Jacobs, to William C. "Jake" Jacobs, or to any of their respective affiliates upon the exercise of his or their options or warrants to purchase shares of common stock of Acquired Sales; and
(7) We issued to Gerard M. Jacobs and William C. "Jake" Jacobs five-year warrants containing a "cashless exercise" feature giving Gerard M. Jacobs and William C. "Jake" Jacobs (or his designee(s)) the right to purchase 250,000 and 225,000 shares, respectively, of common stock of Acquired Sales exercisable at $5.00 per share.
Obligation to Pursue Two Opportunities
The Merger Agreement obligates us to use good faith efforts to pursue two potential opportunities in the cannabinoid industry:
(a) Nicholas S. Warrender's father, Robert Warrender II, has introduced us to a potential business opportunity to process CBD from hemp using a system that is currently undergoing proof of concept operational testing and that incorporates particular filtration and pump equipment and technology identified by Robert Warrender II. Robert Warrender II believes that this advanced hemp processing system has the potential to allow significantly higher throughput, and lower per unit costs of production. We have agreed to analyze the results of the proof of concept's construction, operating costs, and operating results. If such analysis is favorable and is approved by our Board in its discretion, then we will use good faith efforts to attempt to proceed forward, in a joint venture or other arrangement involving Robert Warrender II, with a project(s) consisting of one or more of such hemp processing systems, subject to various conditions including a capital raise associated therewith, and any equity compensation received by Robert Warrender II from the financing, construction, operation, leasing and/or sale of such project(s) shall be structured in the form of shares of common stock of Acquired Sales valued at the then-current trading price per share of common stock of Acquired Sales but in no event at higher than $5.00 per share of common stock of Acquired Sales; and
(b) Nicholas S. Warrender has introduced us to two companies in Wisconsin that are potential acquisition candidates. One company plans to manufacture and sell products incorporating a unique cannabinoid delivery system, and the other company plans to test and remediate hemp and hemp oils. Acquired Sales has agreed and covenanted to use good faith efforts to attempt to proceed forward to close acquisitions of these two Wisconsin companies on the following terms and conditions, among others: (1) a capital raise must be completed, on terms acceptable to us and Nicholas S. Warrender, in an amount sufficient to fund a pre-closing loan to the two Wisconsin companies and the cash portion of the acquisition consideration; (2) a pre-closing loan may be made by us to the two Wisconsin companies, on terms and conditions mutually acceptable to us, to Nicholas S. Warrender, and to the owners of the two Wisconsin companies; (3) our due diligence investigation of the two Wisconsin companies must be acceptable to us and to Nicholas S. Warrender; (4) the audits of the two Wisconsin companies must be acceptable to us and to Nicholas S. Warrender; (5) the definitive acquisition documentation must be mutually acceptable to us, to Nicholas S. Warrender, and to the owners of the two Wisconsin companies; (6) all necessary third party approvals must be obtained, including approvals by our Board and by a majority of our shareholders; (7) all necessary securities filings must be made; and (8) the merger consideration paid by us to acquire the two Wisconsin companies shall be $2,000,000 in cash, plus 1,000,000 shares of unregistered common stock of Acquired Sales, plus so-called "earnout" consideration of up to an additional $2,000,000 in cash and up to an additional 3,000,000 shares of unregistered common stock of Acquired Sales contingent upon the two Wisconsin companies having achieved, during an "earnout" period of 24-30 months following the closing, an annualized EBITDA run rate of $4,000,000 or more.
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Post-Merger Business
We have escrowed $213,450 which is earmarked for the payment of 3% annual dividends on our Series A and Series B convertible preferred stock during 2020, and our remaining funds are expected to be sufficient to allow us to pay the post-closing salaries of Gerard M. Jacobs, our CEO, and of William C. "Jake" Jacobs, our President and CFO during 2020, the fees and expenses of our securities lawyer and auditors during 2020, and certain other operational expenses.
However, beyond those payments, our available capital is limited. We have not yet paid an aggregate of $350,000 of bonuses owed to our CEO Gerard M. Jacobs, our CEO, and of William C. "Jake" Jacobs, our President and CFO, because we currently do not have the funds to do so. And we do not have available capital to fund further acquisitions.
Nevertheless, we still intend to continue post-closing our strategy of acquiring Canna-Infused Products Companies. In order to continue our acquisition strategy, we will need to raise a significant amount of additional capital to pay the cash portion of the consideration paid in our acquisitions, and to inject growth capital into the acquired companies. We anticipate that additional capital will need to be raised in some combination of the following: (1) Private placements of shares of our Series B Convertible Preferred Stock convertible at $5 per share; (2) Private placements of shares of newly declared series of convertible preferred stock convertible at to-be-negotiated price(s) per share, which may be significantly less than the current trading price per share of our common stock, depending upon the financial performance of Lifted, market conditions, and cannabinoid industry conditions; (3) Private placements of newly issued shares of our common stock, at to-be-negotiated price(s) per share, which may be significantly less than the current trading price per share of our common stock, depending upon the financial performance of Lifted, market conditions, and cannabinoid industry conditions; (4) Borrowings from banks or other third parties, which may not be available, or which may be expensive if available at all; (5) Structuring potential acquisitions either as all stock deals, or as a combination of stock plus notes; (6) Using cash flow generated by Lifted's business to pay the cash portion of merger consideration; and/or (7) Merging into Acquired Sales an entity or entities that have cash on hand or cash flow that would allow other acquisitions to be completed.
The Market
CBD is an acronym for cannabidiol, a chemical compound from the hemp plant. On December 20, 2018, President Donald J. Trump signed the Agricultural Improvement Act of 2018, which is more commonly known as the “2018 Farm Bill”. The 2018 Farm Bill legalizes hemp cultivation and declassifies hemp as a Schedule I controlled substance. The US Food and Drug Administration (“FDA”) has stated that although hemp is no longer an illegal substance under federal law, the FDA continues to regulate cannabis products under the Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act. In addition, several states have enacted laws and regulations that negatively impact the sale of cannabinoid-infused products.
Reportedly the entire CBD market in 2018 was approximately $620 million. According to Brightfield Group, a predictive analysis and market research company based in Illinois, CBD sales in 2019 had the potential to reach as high as $5 billion, based largely due to the 2018 Farm Bill passed at the end of 2018.
Lifted’s hemp products, cannabinoid-infused products, e-liquid and hand sanitizer sales are typically made through distributors and wholesalers, online, at natural food stores and at smoke and vape shops. Lifted believes that mass retailers will commence or increase cannabinoid-related product offerings.
Nevertheless, the manufacture and sale of Canna-Infused Products involve significant risks that have the potential to bankrupt Lifted and the Company.
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Government Regulation
Lifted is subject to a variety of laws in the United States and elsewhere. In the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult recreational use in a number of states, cannabis, other than plants of the same genus that meet the definition of industrial hemp, continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act (“CSA”), and subject to the Controlled Substances Import and Export Act (“CSIEA”). As of December 20, 2018, the 2018 Farm Bill, formally known as the Agriculture Improvement Act of 2018, has reclassified hemp for commercial use by removing it from its Schedule I Status under the CSA, and Lifted seeks to operate in compliance with the legislation.
Canna-Infused Products Companies are subject to regulation by federal government state and local governments. The health and safety impacts of CBDs have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that CBDs can have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. The regulation of hemp, hemp oil, CBDs, and cannabinoid-infused products is evolving. Lifted may become subject to new rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon Canna-Infused Products Companies from U.S. federal agencies, such as the US Food and Drug Administration (the “FDA”), and/or state and local governments. The FDA sometimes appears to believe that CBDs are drugs, and that the sale of most cannabinoid-infused products without FDA approval is illegal. In deference to the FDA’s position, various states and municipalities have similarly declared that the sale of certain cannabinoid-infused products are illegal.
Hemp and cannabinoid-infused products which exceed a delta-9-THC concentration of 0.3% are illegal. Any failure to keep the delta-9-THC concentration in hemp or cannabinoid-infused products below 0.3% could subject us to action by regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon our Company's business and the trading price of our common stock.
In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the delta-9-THC levels reflected in consumers’ blood tests are the result of CBD-infused products or delta-9-THC-infused products. This may result in regulatory actions or lawsuits against the Company.
Also, certain hemp products may, over time, gradually increase their delta-9-THC concentration, and this may ultimately cause such products to exceed the 0.3% delta-9-THC concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon our Company.
Lifted is attempting to only conduct business related to manufacturing and commercializing cannabis products to the extent permitted in jurisdictions where it may operate. Lifted intends to ensure regulatory compliance in each jurisdiction in which it operates.
Lifted faces intense competition in the cannabinoid industry from both existing and emerging companies that offer similar products to Lifted. Some of Lifted's current and potential competitors may have longer operating histories, greater financial, marketing and other resources and larger customer bases. Given the rapid changes affecting the cannabinoid industry nationally and locally, Lifted may not be able to create and maintain a competitive advantage in the marketplace. Lifted’s success will depend on its ability to keep pace with any changes in local and national markets, especially in light of legal and regulatory changes. Lifted’s success will depend on its ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on Lifted’s financial condition, operating results, liquidity, cash flow and operational performance. In addition, there is massive competition in all aspects of the sanitizer sale and resale business.
Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series A Convertible Preferred Stock (“Series A Preferred Stock”)
Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Preferred Stock for an aggregate purchase price of $6,615,000 in
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cash. These 66,150 shares of Series A Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Series A Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock.
Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series B Convertible Preferred Stock (“Series B Preferred Stock”)
Between July 24, 2019 and December 5, 2019, the Company accepted subscriptions from accredited investors to purchase 100,000 shares of newly issued Series B Preferred Stock for an aggregate purchase price of $500,000 in cash. These 100,000 shares of Series B Preferred Stock are convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company. The Series B Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series B Preferred Stock.
Acquisition Process
The structure of the Company’s participation in business opportunities and ventures will continue to be situational. The Company is likely to structure future acquisitions as a purchase of 19.99% or less, or 100%, of a target company’s equity ownership interest, or as a so-called tax-free reorganization. It is likely that the anticipated value of the business and/or securities that the Company acquires relative to the current value of the Company’s securities will result in the issuance of a relatively large number of newly issued shares of the Company, and, as a result, substantial additional dilution to the percentage ownership of our current stockholders. Moreover, the Company’s present management and shareholders may not have control of a majority of our voting shares following a merger or purchase of stock. It is possible that the shareholders of the acquired entity or the persons who provide the capital to the Company to finance a merger or purchase of stock will gain control of the Company’s voting stock and the Company’s directors may resign and new directors may be appointed without any vote by the shareholders. Those directors are entitled to replace the Company’s officers without stockholder vote.
In regard to nearly all of the Company’s potential acquisitions, the Company is typically focused upon acquiring 19.99% or less, or 100%, of existing privately held businesses whose owners are willing to consider selling a percentage of the equity ownership interest of their businesses, or merging their entire businesses into the Company or a wholly-owned subsidiary of the Company in a so-called tax-free reorganization, and whose management teams are enthusiastic about continuing to operate their businesses following the transactions with the Company.
Closing such purchases of stock or so-called tax-free reorganizations will likely require the Company to raise millions of dollars of capital, in order to pay the cash portion of the transaction consideration. The Company can provide no assurance or guaranty whatsoever that it will be able to raise such millions of dollars of capital on acceptable terms and conditions, if at all.
An Investment Committee appointed by the Company’s Board of Directors, currently consisting of our CEO Gerard M. Jacobs, J.D., our Chief Operating Officer Nicholas S. Warrender, our director Thomas W. Hines, CPA CFA, and our President and CFO William C. "Jake" Jacobs, CPA, will review material furnished to it and will vote whether or not the Investment Committee believes a potential acquisition is in the Company’s best interests and the interests of the Company’s shareholders. If the Investment Committee votes unanimously to approve a potential acquisition, then such acquisition will be presented to the Board of Directors of the Company for their review and a vote. The Company does not intend to proceed forward with a potential acquisition without the unanimous approval of the Investment Committee and approval by a majority of the Company’s Board of Directors.
The Company intends to source acquisition opportunities through Gerard M. Jacobs, Nicholas S. Warrender, William C. "Jake" Jacobs, and directors and their contacts, and in some cases through finders. These contacts include professional advisors such as attorneys and accountants, securities broker dealers, other members of the financial community, other businesses and others who may present solicited and unsolicited proposals. Management believes that business opportunities may become available to us due to a number of factors, including, among others: (1) the Company’s ownership of shares in Lifted and other Canna-Infused Products Companies; (2) management’s historical experience building large public companies; (3) management’s contacts and acquaintances; and (4) the Company’s flexibility with respect to the manner in which the Company may be able to structure, finance, merge with or acquire any business opportunity.
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The analysis of new business opportunities will be undertaken by or under the supervision of the Investment Committee appointed by our Board of Directors. Inasmuch as the Company will have limited funds available to search for business opportunities, the Company will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. The Company will, however, investigate, to the extent believed reasonable by the Investment Committee, such potential business opportunities by conducting a so-called “due diligence investigation”.
In a due diligence investigation, the Company intends to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, the Company intends to cause the Investment Committee to meet personally with management and key personnel of target businesses, ask questions regarding the target businesses’ prospects, tour facilities, and conduct other reasonable investigation of the target businesses to the extent of the Company’s limited financial resources and management and technical expertise.
There is no guarantee that the Company can obtain or maintain the funding needed for its operations, including the funds necessary to search for and investigate acquisition candidates, and to close an acquisition including paying the substantial costs of legal, accounting and other relevant professional services.
As of June 23, 2020, the Company has cash on hand of approximately $269,573, which are the remaining proceeds from the sale of Series A Convertible Preferred Stock between February 27, 2019 and May 13, 2019, and proceeds from the sale of Series B Convertible Preferred Stock between July 24, 2019 and December 5, 2019. As of June 23, 2020, Lifted has cash on hand of approximately $286,000. In prior years, the Company’s payables have been greater than their cash on hand. Historically, the Company has had inconsistent income generating ability and is therefore reliant on raising money from loans or stock sales.
Offices
Our CEO lives in Illinois, our President and CFO lives in Florida, and our COO lives in Wisconsin. We currently do not have a dedicated corporate office for our Company. There are no agreements or understandings with respect to any office facility subsequent to the completion of any acquisition. We may lease a corporate headquarters in connection with a change in the management of our Company, or in connection with the completion of a merger or acquisition, or otherwise.
Employees
Gerard M. Jacobs, our Chairman, Chief Executive Officer and Secretary, manages the Company’s operations with the assistance of William C. "Jake" Jacobs, our President, Chief Financial Officer and Treasurer, and Nicholas S. Warrender, our Chief Operating Officer, under the Executive Employment Agreements described above.
We expect to continue to use consultants, attorneys, accountants and independent contractors as necessary.
Corporate Information
We were organized under the laws of the State of Nevada on January 2, 1986 as Cornerstone Capital Corporation. In July 1992, the Company changed its name to GS International Technologies and then to Protective Technologies International Marketing in November 1996 to reflect business development efforts at that time.
1999 Change In Control and Name-Armed Alert Security
The Company reorganized its debt, equity and management in 1999. In June 1999, the Company acquired Armed Alert Security, a commercial and residential security products and services to individuals, families, and businesses. The owners of Armed Alert Security were issued shares in connection with the acquisition of Armed Alert Security by the Company giving them control over the Company. In connection with the acquisition of Armed Alert Security, the Company changed its name on July 3, 1999 to better reflect its business. In addition, the Company completed a 1-for-5 reverse stock split on June 4, 1999.
In August 2001, we ceased all of our prior operations and remained dormant from then until May 27, 2004 when we began development stage activities.
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2006-2007 Change In Control and Name-Acquired Sales Corp.
Commencing in 2006, we entered into activities to propose to seek, investigate and, if warranted, acquire an interest in one or more businesses. In connection with these changes, we changed our name to Acquired Sales Corp. As a part of this restructuring, the Company completed a 1-for-10 reverse stock split on March 1, 2006. On November 5, 2007, control of the stock of the company was transferred to Gerard M. Jacobs and control of the management was changed to Gerard M. Jacobs as well, with the appointment of 6 new officers and directors and the resignation of L. Dee Hall, the sole officer and director as of that time.
2011-2013 Defense Sector
Cogility Software Corporation
On November 4, 2010, we entered into an agreement with Cogility Software Corporation (“Cogility”) that was closed on September 29, 2011, whereby Cogility was merged with and into a newly-formed subsidiary of Acquired Sales. To effect the merger, Cogility shareholders owning 100% of the 11,530,493 Cogility common shares outstanding received 2,175,564 Acquired Sales common shares, or one Acquired Sales common share for each 5.3 Cogility common shares outstanding. Acquired Sales reverse split its common shares outstanding on a 1-for-20 basis, which resulted in the 5,832,482 Acquired Sales pre-split common shares outstanding before the merger becoming 291,760 common shares. In addition, Cogility had stock options outstanding that would have permitted the holders thereof to purchase 5,724,666 Cogility common shares at prices ranging from $0.001 to $1.40 per share. In the merger transaction, the Cogility option holders exchanged these stock options for 1,080,126 Acquired Sales stock options exercisable at prices ranging from $0.001 to $5.00 per share.
On January 12, 2013, we entered into an agreement with Drumright Group, LLC (“Drumright”) that was closed on February 11, 2013, wherein we sold 100% of the capital stock of our subsidiary Cogility to Drumright in exchange for $3,675,000 in cash and a $3,000,000 receivable, less an estimated $32,258 in connection with a certain military contract delay. Under the terms of the agreement, we were required to transfer Cogility to Drumright without any liabilities. To accomplish this requirement, the $3,675,000 down payment was placed into an escrow account and to the extent necessary was used to pay Cogility’s liabilities remaining at the closing date including liabilities that were secured by Cogility’s assets or its capital stock. We were entitled to all accounts receivable earned prior to January 31, 2013.
Defense & Security Technology Group, Inc. ("DSTG”)
On February 13, 2012 (the "Acquisition Date"), pursuant to the terms and conditions of the Agreement and Plan of Merger dated as of January 12, 2012 (“the "Merger Agreement") among Defense & Security Technology Group, Inc. ("DSTG”), a Virginia corporation and Acquired Sales Corp. (“Acquired Sales), a Nevada corporation and a newly-formed, wholly-owned subsidiary, named Acquired Sales Corp. Merger Sub, Inc., a Virginia corporation (“Merger Sub”), we completed our acquisition of DSTG, which held no material assets other than its pipeline of future work and the expertise of its sole shareholder, through the merger of Merger Sub with and into DSTG, with DSTG as the surviving corporation (the “Merger”). Upon completion of the Merger, the separate corporate existence of Merger Sub ceased and DSTG became our wholly-owned subsidiary.
As part of the Merger Agreement the 100 shares of DSTG stock were converted into 100,000 shares of Acquired Sales shares at a price of $3.18 per share. Acquired Sales issued options to purchase 300,000 shares of newly issued Acquired Sales stock vesting immediately and exercisable at any time on or before the fifth anniversary of the Closing Date at an exercise price of $3.18 per share. Acquired Sales also issued additional options to purchase 100,000 shares of newly issued Acquired Sales stock vesting immediately and exercisable at any time on or before the 21st full calendar quarter following the Closing Date at an exercise price of $8.00 per share. The total consideration that we paid in connection with the Merger, totaled $679,302. On September 30, 2013, we sold 100% of the common stock of DSTG back to the previous shareholder for $1. The Company recognized a loss on sale of $104,946.
CBD Sector 2018-present
Commencing in 2018, our management began focusing on exploring potential acquisitions of all or a portion of one or more operating businesses involving the manufacture and sale of cannabidiol (CBD)-infused products such as
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beverages, muscle/joint rubs, oils, crystals, tinctures, bath bombs, isolate, relief balms, elixirs, body washes, med sticks, lotions, vape pens and cartridges, shatter, and gummies (a “CBD-Infused Products Company”). In 2019, we acquired a minority interest in CBD-infused beverage maker Ablis Holding Company (“Ablis HC” or “Ablis”), and of craft distillers Bendistillery Inc. d/b/a Crater Lake Spirits and Bend Spirits, Inc. We also acquired Warrender Enterprise Inc. d/b/a Lifted Liquids.
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Executive Officers and Directors
The following table sets forth certain information regarding our current Directors and Executive Officers as of June 23, 2020.
Name | Age | Position |
Gerard M. Jacobs, JD | 65 | Chairman of the Board, Chief Executive Officer and Secretary |
Nicholas S. Warrender | 30 | Vice Chairman of the Board and Chief Operating Officer |
Vincent J. Mesolella | 71 | Lead Outside Director |
Joshua A. Bloom, MD | 64 | Director |
Thomas W. Hines, CPA, CFA | 61 | Director |
James S. Jacobs, MD | 66 | Director |
William C. "Jake" Jacobs, CPA | 32 | President, Chief Financial Officer and Treasurer |
Michael D. McCaffrey, JD | 74 | Director |
Richard E. Morrissy | 65 | Director |
Kevin J. Rocio | 56 | Director |
Our Directors serve in such capacity until the next annual meeting of our shareholders and until their successors have been elected and qualified.
Gerard M. Jacobs, J.D., age 65, is Chairman of our Board of Directors, Chief Executive Officer and Secretary of the Company. Mr. Jacobs has been a private investor since 2006. In 2001, Mr. Jacobs took control of CGI Holding Corporation, and served as its Chief Executive Officer and member of its board of directors until 2006. Under Mr. Jacobs’ guidance, CGI Holding Corporation changed its name to Think Partnership Inc., made 15 acquisitions primarily of businesses involved in online marketing and advertising, and succeeded in having its common stock listed on the American Stock Exchange. The company is now known as Inuvo Inc. (NYSE:MKT: INUV). Previously, in 1995, Mr. Jacobs took control of General Parametrics Corporation, and served as its Chief Executive Officer and member of its board of directors until 1999. Under Mr. Jacobs’ guidance, General Parametrics changed its name to Metal Management Inc., made 37 acquisitions primarily of businesses involved in scrap metal recycling, and succeeded in building one of the largest scrap metal recycling companies in the world. The company is now part of Sims Metal Management Ltd. (ASX trading symbol: SGM). Mr. Jacobs has also served as the lead outside director for America’s Car-Mart, Inc. (NASDAQ: CRMT) and Patient Home Monitoring Corp. (Toronto: PHM). We believe that Mr. Jacobs’ experience serving as the Chief Executive Officer of three publicly traded companies and as a director of two other publicly traded companies, his work as an investment banker and as an attorney, and his intelligence and educational background, qualifies him to serve as a director of the Corporation.
Mr. Jacobs received a law degree from the University of Chicago Law School, which he attended as a Weymouth Kirkland Law Scholar, in 1978; and an A.B from Harvard College, in 1976, where he was elected to Phi Beta Kappa. Mr. Jacobs’ brother, James S. Jacobs, M.D., is also a member of our board of directors and William C. Jacobs, our President and Chief Financial Officer and Treasurer, is Gerard M. Jacobs’ son.
Gerard M. Jacobs earns base compensation from the Company at the rate of $100,000 per year. He is also entitled to participate in a company-wide management bonus pool. He is also entitled to certain bonuses and warrants pursuant to his compensation agreement with the Company. He is also entitled to reimbursement for all of his business-related expenses.
Nicholas S. Warrender, age 30, is Vice Chairman of our Board of Directors and Chief Operating Officer of the Company. Nicholas S. Warrender founded Lifted Made in 2015 and has served as CEO since. Nicholas S. Warrender is an expert in brand design and development and has a degree in Communications with a focus on Business and Cinematography from Carthage College. Previously, Nicholas S. Warrender was a recruited high school basketball player and successful DJ, performing music shows at prestigious clubs, such as the Viper Room.
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Vincent J. Mesolella, age 71, has been a member of our board of directors since October 2010. He has served for many years as the Chairman of the Narragansett Bay Commission, Providence, Rhode Island, one of the largest wastewater treatment utilities in the U.S. Mr. Mesolella also served for over twenty years as a member of the Rhode Island House of Representatives, including serving as the Majority Whip. Mr. Mesolella is the founder, President and Chief Executive Officer of MVJ Realty, LLC, a diversified real estate investment firm. Mr. Mesolella has served on the board of directors of Think Partnership Inc., an American Stock Exchange company. Mr. Mesolella has raised a great deal of money for charities including the Make-A-Wish Foundation. Mr. Mesolella resides in Rhode Island. We believe that Vincent J. Mesolella’s experience serving as a director of two publicly traded companies including service as Chairman of the Audit Committee of both, his work as a developer and business owner, his experience as an elected public official, his Chairmanship of a major wastewater treatment organization that has been nationally recognized for its excellence, his intelligence and educational background, and his familiarity with the real estate industry which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.
Joshua A. Bloom, M.D., age 64, has been a member of our board of directors since July 2007. He has been a practicing physician in Kenosha, Wisconsin since completion of his training in 1988. He is board Certified in Internal Medicine, Pulmonary Diseases, Critical Care Medicine and in Hospice and Palliative Care. He has been employed by Froedtert South (formerly known as United Hospital System) in the Clinical Practice Division from 1995 to present. He had been in private practice at the same address from 1988 to 1995. Dr. Bloom served on the board of directors of Kenosha Health Services Corporation from 1993 to approximately 2010 and the board of Hospice Alliance, Inc. since 1994 and Medical Director there since 1998. He also served on the board of the Beth Israel Sinai Congregation 1998 to 2014, where he served as the President from 2004 until 2010. We believe that Dr. Bloom’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.
Dr. Bloom received a medical degree from the University of Illinois in 1982 and completed his residency in internal medicine in 1985 and fellowship in Respiratory & Critical Care Medicine in 1988; both at the University of Illinois. He received an MS in Organic Chemistry from the University of Chicago in 1978 and a BS in Chemistry from Yale College in 1977.
Thomas W. Hines, CPA, CFA, age 61, has been a member of our board of directors since February 2019. Mr. Hines is a Vice President with Lowery Asset Consulting. Previously, Mr. Hines served as the Executive Vice President at Good Harbor Financial, as the National Director of Financial Planning at The Northern Trust Company, and as a tax partner at Ernst & Young in the financial planning group. Mr. Hines is a Certified Public Accountant (CPA) and a Chartered Financial Analyst (CFA). Mr. Hines holds a Bachelor of Science degree in Accounting from Marquette University, and a Master of Science in Taxation from the University of Wisconsin-Milwaukee. Mr. Hines has been featured in publications including Fortune, American Banker, and the Premier edition of Wealth magazine. We believe that Mr. Hines’ experience as a CPA and CFA, his intelligence and educational background, qualifies him to serve as a director of the Corporation. Mr. Hines has completed over 120 Triathlons, including the Hawaii Ironman World Championship.
James S. Jacobs, M.D., age 66, has been a member of our board of directors since July 2007. He is a Physician in the Department of Radiation Oncology, at St. Joseph Hospital in Denver, Colorado. He was previously the Resident Physician in Radiation Oncology at Rush Medical Center in Chicago, Illinois. We believe that Dr. Jacobs’ experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.
Dr. Jacobs did a residency in Radiation Oncology at Rush Medical Center in Chicago, Illinois and an internal medicine internship and residency at the University of Colorado Medical Center in Denver, Colorado. Dr. Jacobs received a BA in Neuroscience from Amherst College in Amherst, Massachusetts in 1976.
William C. “Jake” Jacobs, CPA, age 32, is President, Chief Financial Officer and Treasurer of the Company. Effective as of February 27, 2019, the Board appointed Mr. Jacobs, the son of our Company’s Chief Executive Officer Gerard M. Jacobs, to serve as the President, Chief Financial Officer and Treasurer of the Company. Prior to becoming President, Chief Financial Officer and Treasurer of the Company, Mr. Jacobs served as an independent contractor for the Company for the past several years. Previously, Mr. Jacobs worked in the Assurance Division of
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Ernst & Young (doing business as EY), auditing both publicly traded and privately held companies. Mr. Jacobs graduated from the University of Southern California, with a double major in Accounting and Business Administration with a concentration in Finance. In 2015, Mr. Jacobs won a Gold Medal at the United States of America Snowboard and Freeski Association (USASA) National Championships in the Boardercross Snowboard Senior (23-29) Men’s division.
William C. Jacobs earns base compensation from the Company at the rate of $100,000 per year. He is also entitled to participate in a company-wide management bonus pool. He is also entitled to certain bonuses and warrants pursuant to his compensation agreement with the Company. He is also entitled to reimbursement for all of his business-related expenses.
Michael D. McCaffrey, J.D., age 74, has been a member of our board of directors since July 2007. He is an attorney practicing in Irvine, California and specializing in commercial and business litigation. Mr. McCaffrey has tried more than 100 jury and non-jury trials, representing numerous large companies, institutional lenders, real estate developers, contractors and various public and private corporations, partnerships and sole proprietorships. He has had sole or primary responsibility for defense and prosecution of significant matters including real property secured transactions; real estate syndication/fraud; partnership disputes/accounting/dissolution actions; corporate control; insurance (policyholders’ interests and insurers’ interests); employment litigation; prosecution, defense and expert witness on professional liability claims involving attorneys and accountants; construction, including prosecution and defense of major defect cases; and various business tort cases. We believe that Michael D. McCaffrey’s experience serving as a litigator and advisor to corporations, and his intelligence and educational background, qualifies him to serve as a director of the Corporation.
Mr. McCaffrey received his Juris Doctor in 1974 from the University of Denver College of Law where he was a member of the University of Denver Law Review (qualified by class rank, top 5%) and received a B.S. in Engineering from UCLA in 1968.
Richard E. Morrissy, age 65, has been a member of our board of directors since July 2007. Since August 2016, Mr. Morrissy has been working at the UIC Department of Medicine’s Section of Infectious Disease in a research clinic called Project WISH as Clinical Coordinator in Regulatory Affairs. Previously, Mr. Morrissy was the Senior Research Specialist at the Department of Surgery – CS within the UIC College of Medicine. Mr. Morrissy was a project coordinator for the School of Pharmacy. His duties included serving as project coordinator on four clinical trial research projects funded by the National Institutes of Health’s National Cancer Institute. The School of Pharmacy projects have involved multiple research projects utilizing Lycopene in restoring DNA damage in men’s prostates. The project at UIC’s internationally acclaimed Occupational Therapy School involved the setup and running of focus groups with impaired individuals to create a movement and activity computer survey for the World Health Organization. During his tenure, Mr. Morrissy managed clinical research trials including the submission of institutional review board documents and grant proposals, recruitment of subjects and data management and storage. He also designed and led focus groups, designed and critiqued research surveys, and edited manuscripts and scientific journals. We believe that Mr. Morrissy’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation. He received a B.A. in History from Western Illinois University in 1976.
Kevin J. Rocio, age 56, has been a member of our board of directors since February 2020. Mr. Rocio is a seasoned award-winning real estate professional, including commercial, residential, finance and development. Mr. Rocio is a graduate of Elmhurst College and an immediate past board member of the Albany Park Community Center. In 2014, Mr. Rocio was accepted into the CCIM (Certified Commercial Investment Member) Institute, a recognized group of experts in the commercial and investment real estate industry. Most recent accolades received by Mr. Rocio include: the Chicago Defenders “Men of Excellence Award”, the Chicago Association of REALTORS Commercial Award, and the National Association of Realtors “National Commercial Award.”
There are no agreements or understandings for our officers or directors to resign at the request of another person, and neither our officers nor directors are acting on behalf of nor will any of them act at the direction of any other person. Directors are elected until their successors are duly elected and qualified.
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Family Relationships
William C. “Jake” Jacobs, CPA, is the son of Gerard M. Jacobs, J.D. Gerard M. Jacobs, J.D. and James S. Jacobs, M.D. are brothers. There are no other family relationships among any of our officers or directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officer has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in Item 13, “Certain Relationships and Related Transactions, and Director Independence,” none of our directors, director nominees or executive officer has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Board Composition and Committees
Our board of directors is currently composed of nine members: Messrs. Gerard M. Jacobs, J.D. (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead Outside Director), Joshua A. Bloom, M.D., Thomas W. Hines, CPA CFA, James S. Jacobs, M.D., Michael D. McCaffrey, J.D., Richard E. Morrissy, and Kevin J. Rocio. Our board of directors has determined that Joshua A. Bloom, M.D., Thomas W. Hines, CPA, CFA, Michael D. McCaffrey, J.D., Richard E. Morrissy, Vincent J. Mesolella and Kevin J. Rocio are independent directors at this time, under the rules of the American Stock Exchange Company Guide, or the AMEX Company Guide, because they do not currently own a significant percentage our shares, are not currently employed by the Company, have not been actively involved in the management of the Company and do not fall into any of the enumerated categories of people who cannot be considered independent directors under the AMEX Company Guide.
Audit Committee and Audit Committee Financial Expert
We have an audit committee consisting of Joshua A. Bloom, M.D., Thomas W. Hines, CPA, CFA, Michael D. McCaffrey, J.D., Vincent J. Mesolella, Richard E. Morrissy and Kevin J. Rocio as members. We have not adopted an Audit Committee charter. Vincent J. Mesolella serves as our audit committee chairman and financial expert. Our audit committee performs the following functions including: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (3) engaging outside advisors. Our Board of Directors has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member’s financial sophistication. Accordingly, the Board of Directors believes that each of its members has the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee member should have for a business such as the Company.
Board Meetings
Due to the current size and scope of our operations and size and geographic diversity of our Board of Directors, much of the Board’s decision making is made through telephone calls and intermittent informal meetings; when formalization is necessary, the Board conducts formal meetings or acts by written consent. In the year ended December 31, 2019, we held only telephonic Board Meetings and there were no in-person Board Meetings attended by all directors.
Nominating Committee
We have a nominating committee consisting of the following members: Joshua A. Bloom, M.D., Thomas W. Hines, CPA, CFA, Michael D. McCaffrey, J.D., Vincent J. Mesolella, Richard E. Morrissy. and Kevin J. Rocio. Michael D. McCaffrey, J.D., is the nominating committee Chairman.
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Investment Committee
Our board of directors has appointed an Investment Committee currently consisting of our Chief Executive Officer Gerard M. Jacobs, J.D., our President and Chief Financial Officer William C. Jacobs, CPA, our Chief Operating Officer Nicholas S. Warrender, and our director Thomas W. Hines, CPA, CFA. Future acquisitions by the Company of direct equity ownership interests in any entity other than Lifted, Ablis, Bendistillery and Bend Spirits will be subject to unanimous approval by such Investment Committee and to majority approval by the Board of Directors of the Company, provided that the requirement of unanimous approval by such Investment Committee will be terminated if the investors in the Series A Convertible Preferred Stock no longer hold 25% or more of their investment in the form of Preferred Stock or common stock of the Company following conversion, or if the Company’s common stock has closed at $10.00 per share or higher for 20 consecutive trading days and there have been on average at least 50,000 shares traded on each of those 20 consecutive trading days, or if 84 months have passed since the first date that the Series A Registration Statement is effective.
Code of Ethics
We currently have not adopted a code of ethics due to our limited size and operations. We have considered adopting a Code of Business Conduct and Ethics (the “Code”) in the past. We expect to adopt the Code or something similar in the future. The purpose of the Code is to assist the Company and its employees, officers and directors with the Company’s goals of conducting its business and affairs in accordance with applicable laws, rules and regulations and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. The Company expects that any consultants or other service providers it retains will adhere to the Code.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file.
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Compensation of Executives
As of December 31, 2019, we did experience cash flow events as a result of cash payments to our CEO, Gerard M. Jacobs, and to payments to our President and CFO William C. "Jake" Jacobs. We did not experience cash flow events as a result of cash payments to our Chief Operating Officer Nicholas S. Warrender, who joined our company on February 24, 2020. We have not provided retirement benefits or severance or change of control benefits to Gerard M. Jacobs, William C. "Jake" Jacobs, or Nicholas S. Warrender.
Name | Year | Fees Earned or Paid in Cash ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
Gerard M. Jacobs, JD, CEO (1) | 2019 | $ 52,500 |
| - | - | - | - | - | $ 52,500 |
| 2018 | - |
| - | - | - | - | - | - |
William C. "Jake" Jacobs, CPA | 2019 | $ 220,000 |
| - | - | - | - | - | $ 220,000 |
President and CFO (2) | 2018 | - |
| $ 60,900 | - | - | - | - | $ 60,900 |
Nicholas S. Warrender, COO (3) | 2019 | - | - | - | - | - | - | - | $ - |
| 2018 | - | - | - | - | - | - | - | $ - |
(1) Historically, our Chief Executive Officer Gerard M. Jacobs did not receive cash compensation. Effective as of June 19, 2019 through the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) on February 24, 2020, the Company paid Gerard M. Jacobs consulting fees of $7,500 per month. Effective February 24, 2020, Gerard M. Jacobs runs the Company’s operations on a full time basis as the Company's Chief Executive Officer pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above. Gerard M. Jacobs is also entitled to certain warrants and bonuses pursuant to his compensation agreement with the Company. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement" above.
As of December 31, 2018, we did not experience any cash flow events as a result of any payments to our Chief Executive Officer, Gerard M. Jacobs. We have not provided retirement benefits or severance or change of control benefits to Mr. Gerard M. Jacobs. Unexercised options or warrants issued as compensation held by our Chief Executive Officer at the years ended December 31, 2018 and 2019 are set out in the table below title “Outstanding Equity Awards At Fiscal Year End”. No equity awards were made to Gerard M. Jacobs during 2018 and 2019.
There were financing warrants issued to Gerard M. Jacobs in 2018 and 2019 for working capital loans that Gerard M. Jacobs made to the Company in those years. Please refer to the sections “Operating Loans 2018” and “Operating Loans 2019” below under the section titled “ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE”.
(2) Historically, our President and CFO William C. “Jake” Jacobs has worked for $5,000 per month. Effective as of June 19, 2019 through the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) on February 24, 2020, the Company paid William C. "Jake" Jacobs consulting fees of $5,000 per month. Effective February 24, 2020, William C. "Jake" Jacobs serves as the Company's President and CFO on a full time basis pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above. William C. "Jake" Jacobs is also entitled to certain warrants and bonuses pursuant to his compensation agreement with the Company, described above. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement" above.
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William C. "Jake" Jacobs was an independent contractor of the Company from May 2014 until February 4, 2019, when he was promoted to President, CFO and Treasurer of the Company. As an independent contractor, William C. "Jake" Jacobs earned fees of $5,000 per month, plus reimbursement for all of his business-related expenses. However, from May 2016 through 2018, William C. "Jake" Jacobs was not paid the independent contractor fees that he had earned, and he was not reimbursed for any of his business-related expenses, because the Company did not have the cash to pay him. All of the independent contractor fees that were owed to William C. "Jake" Jacobs but were not paid because the Company did not have the cash to pay him, plus reimbursement for all of his business related expenses, were fully paid to him during 2019 out of the proceeds of the sale of the Company's Series A convertible preferred stock. These independent contractor fees totaled $40,000 for May 2016 through December 2016, $60,000 for 2017, $60,000 for 2018 and $60,000 for 2019, for a grand total of $220,000.
On April 1, 2018, we issued to William C. "Jake" Jacobs the right to purchase warrants, for an aggregate purchase price of $1.00, an aggregate of 210,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. We recorded stock compensation expense of $60,900 for the rights to purchase warrants issued to William C. "Jake" Jacobs.
(3) We did not experience any cash flow events during 2018 or 2019 as a result of payments to our Chief Operating Officer, Nicholas S. Warrender, who joined our Company on February 24, 2020. Effective February 24, 2020, Nicholas S. Warrender serves as the Company's COO on a full time basis pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above.
BOARD OF DIRECTORS COMPENSATION
The table below sets forth the compensation of our directors for the fiscal years ended December 31, 2019 and 2018.
Name | Year | Fees earned or paid in cash ($) | Stock awards ($) | Option awards | Non-equity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) |
Joshua A. Bloom, MD | 2019 | - | - | - | - | - | - | - |
| 2018 | - | - | - | - | - | - | - |
Gerard M. Jacobs, JD (1) | 2019 | $ 52,500 | - | - | - | - | - | $ 52,500 |
| 2018 | - | - | - | - | - | - | - |
James S. Jacobs, MD (2) | 2019 | - | - | - | - | - | - | - |
| 2018 | - | $ 11,600 | - | - | - | - | $ 11,600 |
Michael D. McCaffrey, JD | 2019 | - | - | - | - | - | - | - |
| 2018 | - | - | - | - | - | - | - |
Vincent J. Mesolella | 2019 | - | - | - | - | - | - | - |
| 2018 | - | - | - | - | - | - | - |
Richard E. Morrissy | 2019 | - | - | - | - | - | - | - |
| 2018 | - | - | - | - | - | - | - |
Thomas W. Hines, CPA, CFA | 2019 | - | - | - | - | - | - | - |
| 2018 | - | - | - | - | - | - | - |
(1) Please refer to the section above “Compensation of Executives” for information about Gerard M. Jacobs’ compensation.
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(2) On April 1, 2018, we issued to director James S. Jacobs the right to purchase warrants, for an aggregate purchase price of $1.00, an aggregate of 40,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. We recorded stock compensation expense of $11,600 for the rights to purchase warrants issued to James S. Jacobs.
Compensation Discussion and Analysis
Employment Agreements
At December 31, 2019, we had no full-time paid employees and had not yet entered into long term executive or non-executive employment agreements.
Historically, the Company’s CEO Gerard M. Jacobs ran the Company’s operations on a part-time basis and was compensated with equity. Gerard M. Jacobs had not historically received cash compensation, and, historically, the Company’s President and CFO William C. “Jake” Jacobs had worked for $5,000 per month. Effective as of June 19, 2019 through the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) on February 24, 2020, the Company paid Gerard M. Jacobs and William C. "Jake" Jacobs consulting fees of $7,500 and $5,000 per month, respectively, in addition to reimbursing Gerard M. Jacobs and William C. "Jake" Jacobs for business-related expenses. Beginning February 24, 2002, upon the closing of the acquisition of Lifted, Gerard M. Jacobs, William C. "Jake" Jacobs and Nicholas S. Warrender have been compensated pursuant to the terms of their Executive Employment Agreements with the Company. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above. In addition, Gerard M. Jacobs and William C. "Jake" Jacobs are entitled to compensation pursuant to their compensation agreement with the Company. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement" above.
The Company regularly engages outside consultants, accountants, independent contractors and other professional service providers for purposes of providing services to the Company. The Company endeavors, where able, to issue warrants in lieu of cash compensation, so as to preserve capital where needed and limit cash risk exposure.
Historically, funding for the Company was sourced from management affiliates and their contacts, who collectively loaned several hundred thousands of dollars in the past many years. The Company limits cash compensation to directors and does not have a cash compensation policy. The Company believes that, given the extensive experience of Gerard M. Jacobs, and the rest of the board of directors, and the current opportunity cost factor for each of them, that the amount of historical compensation provided in the form of options and rights to purchase warrants to purchase shares of common stock is fair and reasonable for the Company.
Compensation Committee
Two of our directors, Chief Executive Officer Gerard M. Jacobs and Chief Operating Officer Nicholas S. Warrender, and our President and CFO William C. "Jake" Jacobs, have entered into employment agreements with the Company. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above. In the future, it is possible that other directors may serve us in another capacity and may receive compensation from us in connection with that service. We have a compensation committee consisting of Joshua A. Bloom, M.D., Thomas W. Hines, CPA, CFA, Michael D. McCaffrey, J.D., Vincent J. Mesolella, Richard E. Morrissy, and Kevin J. Rocio as members. Joshua A. Bloom, M.D. serves as the committee’s chairman.
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Aggregate Option Exercise of Last Fiscal year and Fiscal Year-End Option Values
The table below sets forth unexercised options, stock that has not yet vested and equity incentive plan awards for our Chief Executive Officer outstanding as of December 31, 2019. The options are exercisable at the respective prices listed below.
Outstanding Equity Awards At Fiscal Year End (see description of columns (a) through (j) below)
|
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Gerard M. Jacobs, 605,000 - - $2.00 9/29/2021(k) - - - - CEO 471,698 - - $2.00 11/4/2020(k) - - - - |
Description of Columns (a) Through (j):
(a) The name of the named executive officer;
(b) On an award-by-award basis, the number of securities underlying unexercised options, including awards that have been transferred other than for value, that are exercisable and that are not reported in column (d);
(c) On an award-by-award basis, the number of securities underlying unexercised options, including awards that have been transferred other than for value, that are unexercisable and that are not reported in column (d);
(d) On an award-by-award basis, the total number of shares underlying unexercised options awarded under any equity incentive plan that have not been earned;
(e) For each instrument reported in columns (b), (c) and (d), as applicable, the exercise or base price;
(f) For each instrument reported in columns (b), (c) and (d), as applicable, the expiration date;
(g) The total number of shares of stock that have not vested and that are not reported in column (i);
(h) The aggregate market value of shares of stock that have not vested and that are not reported in column (j);
(i) The total number of shares of stock, units or other rights awarded under any equity incentive plan that have not vested and that have not been earned, and, if applicable the number of shares underlying any such unit or right; and
(j) The aggregate market or payout value of shares of stock, units or other rights awarded under any equity incentive plan that have not vested and that have not been earned.
(k) Triggered by the closing of the acquisition of Lifted on February 24, 2020, the terms of Gerard M. Jacobs' stock options granted by the Company to purchase shares of common stock of the Company which were set to expire (unless previously exercised) during November 2020 or during September 2021, respectively, were extended so that all of such stock options may be exercised by Gerard M. Jacobs at any time on or before December 31, 2024. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement" above.
Also, simultaneously with the execution of an employment agreement on February 24, 2020, the Company issued to Gerard M. Jacobs or his designee(s) five-year warrants giving Gerard M. Jacobs or his designee(s) the right to purchase 250,000 shares of common stock of Acquired Sales Corp. exercisable at $5.00 per share, vesting upon the closing of Acquired Sales Corp.'s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids).
Also, simultaneously with the execution of an employment agreement, Acquired Sales Corp. issued to William C. Jacobs or his designee(s) five-year warrants giving William C. Jacobs or his designee(s) the right to purchase 225,000 shares of common stock of Acquired Sales Corp. exercisable at $5.00 per share, vesting upon the closing of Acquired Sales Corp.'s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids).
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MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The following tables set forth the high and low sale prices for our common stock as reported by the OTC PINK Marketplace for the periods covered by this prospectus.
Sales Prices (1) | |||||||
|
| High |
| Low |
| ||
Year 2020 |
|
|
|
|
|
|
|
2nd Quarter |
| $ | 2.85 |
| $ | 1.28 |
|
1st Quarter |
| $ | 4.15 |
| $ | 2.25 |
|
Year Ended December 31, 2019 |
|
|
|
|
|
|
|
4th Quarter |
| $ | 3.80 |
| $ | 2.50 |
|
3rd Quarter |
| $ | 10.20 |
| $ | 3.75 |
|
2nd Quarter |
| $ | 13.50 |
| $ | 1.49 |
|
1st Quarter |
| $ | 1.75 |
| $ | 1.31 |
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018 |
|
|
|
|
|
|
|
4th Quarter |
| $ | 1.80 |
| $ | 0.27 |
|
3rd Quarter |
| $ | 0.47 |
| $ | 0.20 |
|
2nd Quarter |
| $ | 0.30 |
| $ | 0.15 |
|
1st Quarter |
| $ | 0.43 |
| $ | 0.30 |
|
(1)The above table sets forth the range of high and low closing sales prices per share of our common stock as reported by Google Finance, Yahoo! Finance or Barchart.com for the periods indicated.
Shareholders
As of June 23, 2020, there were an estimated 246 holders of record of our common stock. A certain amount of the shares of common stock are held in street name and may, therefore, be held by additional beneficial owners.
Dividends
Dividends on Series A Convertible Preferred Stock – The Company has authorized 400,000 shares of its Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock may be converted into 100 shares of common stock. The Series A Convertible Preferred Stock pays dividends at the rate of 3% annually. The Series A Convertible Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Series A Convertible Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the Series A Registration Statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series A Convertible Preferred Stock have no voting rights. The holders of the Series A Convertible Preferred Stock have voluntary conversion rights. Shares of Series A Convertible Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the Series A Registration Statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Convertible Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Series A Convertible Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company.
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As of December 31, 2019, the Company has accrued a liability of $145,018 as dividends payable to holders of the Series A Convertible Preferred Stock. Dividends have been declared by the Board of Directors, and the Company fully intends on paying the annual dividends to the holders of the Series A Convertible Preferred Stock, and as such, the Company has accrued the liability and has set aside in a separate bank account an amount that is sufficient to cover the estimated dividends payable on the Series A Convertible Preferred Stock during 2020.
Dividends on Series B Convertible Preferred Stock – The Company has authorized 5,000,000 shares of its Series B Convertible Preferred Stock. Each share of Series B Convertible Preferred Stock may be converted into one share of common stock. The Series B Convertible Preferred Stock pays dividends at the rate of 3% annually. The Series B Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Series B Convertible Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $7.00 per share or higher for 20 consecutive trading days after the first date that the Series B Registration Statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series B Convertible Preferred Stock have no voting rights. The holders of the Series B Convertible Preferred Stock shall have voluntary conversion rights. Shares of Series B Convertible Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $9.00 per share or higher for 20 consecutive trading days after the first date that the Series B Registration Statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
Between July 24, 2019 and December 5, 2019, the Company accepted subscriptions from accredited investors to purchase 100,000 shares of newly issued Series B Convertible Preferred Stock for an aggregate purchase price of $500,000 in cash. These 100,000 shares of Series B Convertible Preferred Stock are convertible at the option of the holders into 100,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company.
As of December 31, 2019, the Company has accrued a liability of $5,741 as dividends payable to holders of the Series B Convertible Preferred Stock. Dividends have been declared by the Board of Directors, and the Company fully intends on paying the annual dividends to the holders of the Series B Convertible Preferred Stock, and as such, the Company has accrued the liability and has set aside in a separate bank account an amount that is sufficient to cover the estimated dividends payable on the Series B Convertible Preferred Stock during 2020.
Dividends on Common Stock – We have never declared or paid a cash dividend to common stock holders, and do not foresee paying one in the near future. Any future decisions regarding dividends to our common stockholders will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends to our common stockholders in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends to our common stockholders, subject to the approval of our stockholders. Even if our board of directors decides to pay dividends to our common stockholders, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The following describes transactions since January 1, 2018 to which we have been a party and, in which:
·the amounts involved exceeded or will exceed $120,000; and
·any of our directors, executive officer, or beneficial holders of more than 5% of our voting securities, or their affiliates or immediate family members, had or will have a direct or indirect material interest.
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, from unrelated third parties. Compensation arrangements for our directors and named executive officers are described in “Compensation of Executive” and “Compensation of Directors”.
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Purchase of Warrants and Exercise of Such Warrants
On April 1, 2018, we issued to director Dr. James S. Jacobs, brother of Chief Executive Officer Gerard M. Jacobs, rights to purchase warrants, for a purchase price of $1.00, an aggregate of 40,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. Dr. James S. Jacobs purchased such warrants and immediately exercised such warrants on September 23, 2019.
On November 28, 2014, we granted director Dr. James S. Jacobs the right to purchase warrants, for a purchase price of $1.00, an aggregate of 25,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be fully exercisable on or prior to December 31, 2024. Dr. James S. Jacobs purchased such warrants and immediately exercised such warrants on September 23, 2019.
On November 28, 2014, we granted director Mr. Richard E. Morrissy the right to purchase warrants, for a purchase price of $1.00, an aggregate of 25,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be fully exercisable on or prior to December 31, 2024. Mr. Richard E. Morrissy purchased such warrants and immediately exercised such warrants on September 23, 2019.
On November 28, 2014, we granted director Dr. Joshua A. Bloom the right to purchase warrants, for a purchase price of $1.00, an aggregate of 25,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be fully exercisable on or prior to December 31, 2024. Dr. Joshua A. Bloom purchased such warrants and immediately exercised such warrants on September 23, 2019.
On April 1, 2018, we issued to then independent contractor and now our President and Chief Financial Officer William C. Jacobs, son of chief executive officer Gerard M. Jacobs, rights to purchase warrants, for a purchase price of $1.00, an aggregate of 210,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. On March 13th, 2019, William C. Jacobs exercised these warrants to purchase 200,000 shares of common stock of the company, and assigned the remaining 10,000 warrants to a third party.
Operating Loans 2018
On July 16, 2018 and November 12, 2018, Dr. Joshua A. Bloom, a member of our Board of Directors, loaned the Company $10,025 and $10,000, respectively, for working capital needs. The loans bear interest at 15% per annum. The loans are payable on demand by lender. There is a default rate of 18% interest in the event that the loans are not paid on demand. The loans are secured by all of the assets of the Company. These loans were fully repaid by the Company on March 13, 2019. In addition, the loan terms grant Dr. Bloom a total of 25,000 financing warrants to purchase shares of common stock of Acquired Sales Corp., exercisable at $0.03 per share at any time through July 16, 2023. Dr. Bloom exercised such financing warrants on September 23, 2019.
On July 18, 2018 and November 8, 2018, Gerard M. Jacobs, our Chief Executive Officer and a member of our Board of Directors, loaned the Company $4,766 and $6,000, respectively, for working capital needs. The loans bear interest at 15% per annum. The loans are payable on demand by lender. There is a default rate of 18% interest in the event that the loans are not paid on demand. The loans are secured by all of the assets of the Company. Such loans were fully repaid by the Company on March 13, 2019. In addition, the loan terms grant Mr. Jacobs a total of 12,500 financing warrants to purchase shares of common stock of Acquired Sales Corp., exercisable at $0.03 per share at any time through July 16, 2023.
Operating Loans 2019
On January 7, 2019, January 21, 2019 and February 6, 2019, Gerard M. Jacobs, our Chief Executive Officer and a member of our board of directors, loaned the Company $5,968, $804, and $8,000, respectively, for working capital needs. The loans bear interest at 15% per annum. The loans are payable on demand by lender. There is a default rate of 18% interest in the event that the loans are not paid on demand. The loans are secured by all of the assets of the Company. Such loans were fully repaid by the Company on March 13, 2019. In addition, the loan terms grant Mr. Jacobs a total of 18,750 financing warrants to purchase shares of common stock of Acquired Sales Corp., exercisable at $0.03 per share at any time through July 16, 2023.
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Investment in Series A Preferred Stock
On February 27, 2019, director Thomas W. Hines purchased 5,400 shares of our Series A Preferred Stock convertible into 540,000 shares of our common stock at $1.00 per share.
Compensation Agreement and Executive Employment Agreements of Gerard M. Jacobs and William C. "Jake" Jacobs
Historically, our Chief Executive Officer Gerard M. Jacobs did not receive cash compensation. Historically, William C. "Jake" Jacobs was an independent contractor of the Company from May 2014 until February 4, 2019, when he was promoted to President, CFO and Treasurer of the Company. As an independent contractor, William C. "Jake" Jacobs earned fees of $5,000 per month, plus reimbursement for all of his business-related expenses. However, from May 2016 through 2018, William C. "Jake" Jacobs was not paid the independent contractor fees that he had earned, and he was not reimbursed for any of his business-related expenses, because the Company did not have the cash to pay him. All of the independent contractor fees that were owed to William C. "Jake" Jacobs but were not paid because the Company did not have the cash to pay him, plus reimbursement for all of his business related expenses, were fully paid to him during 2019 out of the proceeds of the sale of the Company's Series A convertible preferred stock. These independent contractor fees totaled $40,000 for May 2016 through December 2016, $60,000 for 2017, $60,000 for 2018 and $60,000 for 2019, for a grand total of $220,000.
Effective as of June 19, 2019 through the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) on February 24, 2020, the Company paid Gerard M. Jacobs and William C. "Jake" Jacobs consulting fees of $7,500 and $5,000 per month, respectively.
Effective February 24, 2020, Gerard M. Jacobs runs the Company’s operations on a full time basis as the Company's Chief Executive Officer pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. Effective February 24, 2020, William C. "Jake" Jacobs serves as the Company's President and CFO on a full time basis pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above.
Gerard M. Jacobs and William C. "Jake" Jacobs are also entitled to certain warrants and bonuses pursuant to their compensation agreement with the Company. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement" above.
Effective February 24, 2020, Nicholas S. Warrender serves as the Company's COO on a full time basis pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See "Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements" above.
Acquisition of Real Estate in Rhode Island
As discussed in our prior public filings, we have attempted to acquire one or more parcels of real estate in Rhode Island, referred to as the Mesolella/Jacobs Properties that are owned by entities affiliated with Vincent J. Mesolella and his son Derek V. Mesolella, formerly an independent contractor to the Company. One of the Mesolella/Jacobs Properties was also partly owned by an affiliate of our Chief Executive Officer, Gerard M. Jacobs. Discussions among Messrs. Mesolella and Jacobs and our independent directors have made it highly likely that we will never purchase any of the Mesolella/Jacobs Properties.
Indemnification of Officers and Directors
Our bylaws specifically limit the liability of our officers and directors to the fullest extent permitted by law. As a result, aggrieved parties may have a more limited right to action than they would have had if such provisions were not present. The bylaws also provide for indemnification of our officers and directors for any losses or liabilities they may incur as a result of the manner in which they operated our business or conducted internal affairs, provided
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that in connection with these activities they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest. In the ordinary course of business, we also may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, independent contractors and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. We may also agree to indemnify former officers, directors, employees and independent contractors of acquired companies in connection with the acquisition of such companies.
Director Independence
We are not listed on a national exchange, such as NASDAQ, at this time. As such, we are not required to have independent directors. Our management believes that, consistent with Rule 5605(a)(2) of the NASDAQ Listing Rules that a director will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our management has reviewed the composition of our Board of Directors and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that each of our directors, with the exceptions of Gerard M. Jacobs, J.D., Dr. James S. Jacobs, and Nicholas S. Warrender, is an “independent director”.
The following table sets forth certain information regarding the beneficial ownership of common stock of the Company by (i) each person who, to the Company’s knowledge, owns more than 5% of its common stock, (ii) each of the Company’s named executive officers and directors, and (iii) all of the Company’s named executive officers and directors as a group. Shares of the Company’s Common Stock subject to options, warrants, or other rights currently exercisable, or exercisable within 60 days of the date hereof, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. As of the date hereof, the Company has 6,460,236 shares of common stock issued and outstanding.
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Name | Number of Series A Preferred Stock Shares Owned | Beneficial Ownership Percentage | Number of Series B Preferred Stock Shares Owned | Beneficial Ownership Percentage | Number of Common Stock Shares Owned or Controlled | Beneficial Ownership Percentage | Options/ Warrants Owned | Overall Voting Power | Overall Voting Power (%) |
Nicholas S. Warrender (1) | - | 0.00% | - | - | 3,900,455 | 68.81% | 200,000 | 4,100,455 | 30.96% |
Gerard M. Jacobs (2) | - | 0.00% | - | - | 451,823 | 7.97% | 2,307,948 | 2,759,771 | 20.83% |
ZIE Partners LLC (3) | 25,000 | 72.67% | - | - | - | 0.00% | - | 2,500,000 | 18.87% |
William C. "Jake" Jacobs, CPA (4) | - | 0.00% | - | - | 400,000 | 7.06% | 450,000 | 850,000 | 6.42% |
Thomas W. Hines, CPA CFA (5) | 5,400 | 15.70% | - | - | - | 0.00% | 100,000 | 640,000 | 4.83% |
Vincent J. Mesolella (6) | - | 0.00% | - | - | 7,862 | 0.14% | 630,000 | 637,862 | 4.82% |
Daniel F. Terry, Jr. (7) | - | 0.00% | - | - | 572,000 | 10.09% | - | 572,000 | 4.32% |
Elana Knight (8) | 4,000 | 11.63% | 60,000 | 100.00% | - | 0.00% | - | 460,000 | 3.47% |
Roberti Jacobs Family Trust (9) | - | 0.00% | - | - | 181,623 | 3.20% | - | 181,623 | 1.37% |
James S. Jacobs, M.D. (10) | - | 0.00% | - | - | 79,500 | 1.40% | 75,000 | 154,500 | 1.17% |
Joshua A. Bloom, M.D. (11) | - | 0.00% | - | - | 50,000 | 0.88% | 80,000 | 130,000 | 0.98% |
Michael D. McCaffrey (12) | - | 0.00% | - | - | - | 0.00% | 105,000 | 105,000 | 0.79% |
Richard E. Morrissy (13) | - | 0.00% | - | - | 25,000 | 0.44% | 80,000 | 105,000 | 0.79% |
Kevin J. Rocio (14) | - | 0.00% | - | - | - | 0.00% | 50,000 | 50,000 | 0.38% |
Total of All Officers, Directors, and Affiliates as a group (14 persons and/or entities) | 34,400 | 100.00% | 60,000 | 100.00% | 5,668,263 | 100.00% | 4,077,948 | 13,246,211 | 100.00% |
Total Officers and Directors as a group (10 persons) (15) | 5,400 |
| 0 |
| 5,486,640 |
| 4,077,948 | 10,104,588 |
|
(1)Nicholas S. Warrender serves as Vice Chairman and Chief Operating Officer, and he owns 3,900,455 shares of Acquired Sales Corp.'s common stock. The address for Nicholas S. Warrender is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Warrender also owns a five year warrant to purchase 200,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. At the closing of the Lifted Merger, 645,000 shares of unregistered common stock of the Corporation were designated as contingent deferred compensation (the "Deferred Contingent Stock") to certain persons specified by Mr. Warrender in a schedule delivered by him to the Corporation at the closing of the Merger (the "Deferred Contingent Stock Recipients"); Mr. Warrender was not one of the specified Deferred Contingent Stock Recipients, but subject to certain conditions and contingencies, some or all of such Deferred Contingent Stock may be forfeited by the Deferred Contingent Stock Recipients, and in such case such forfeited Deferred Contingent Stock will be issued to Mr. Warrender as additional Merger consideration.
(2)The address for Mr. Gerard M. Jacobs is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Gerard M. Jacobs, our Chairman, Chief Executive Officer, Secretary, and Treasurer has voting control over the following: (a) 181,623 Company shares owned by the Roberti Jacobs Family Trust, over which Mr. Gerard M. Jacobs has voting control via a 2007 shareholders agreement; (b) 100,000 Company shares owned by his affiliate Miss Mimi Corporation; (c) 170,000 Company shares owned by unrelated shareholders of the Company, over which Mr. Gerard M. Jacobs has voting control via a 2007 shareholders agreement; (d) 200 shares owned by his wife; (e) 605,000 options at $2.00 per share, the vesting of which occurred upon the closing of the merger with Cogility; (f) 471,698 options at $2.00 per share (originating from Cogility); (g) 750,000 warrants at $0.01 per share, which Mr. Jacobs or his designee have the right to purchase from the Company for an aggregate purchase price of $1.00; and (h) 31,250 financing warrants at $0.03 per share. Also, simultaneously with the execution of an employment agreement, Acquired Sales Corp. issued to Gerard M. Jacobs or his designee(s) five-year warrants giving Gerard M. Jacobs or his designee(s) the right to purchase 250,000 shares of common stock of Acquired Sales Corp. exercisable at $5.00 per share, vesting upon the closing of Acquired Sales Corp.'s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids). The Company has issued to Mr. Jacobs rights to purchase 750,000 warrants at $1.85 per share, which Mr. Jacobs or his designee have the right to purchase from the Company for an aggregate purchase price of $1.00 subject to the condition that the Company shall have acquired at least one of certain real estate properties owned by entities controlled by Vincent J. Mesolella, a Director of the Company; the Company has no intention to acquire any of such real estate properties, so these warrants are not included in the table above. Gerard M. Jacobs was also one of the specified Warrant Recipients, and received a five year warrant to purchase 200,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
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(3)Christian Zann is the Manager of ZIE Partners LLC. The address for ZIE Partners LLC is 31 N. Suffolk Lane, Lake Forest, IL 60045. ZIE Partners LLC owns 25,000 shares of Acquired Sales Corp.'s Series A Preferred Stock, convertible into 2,500,000 shares of Acquired Sales Corp.'s common stock.
(4) The address of William C. “Jake” Jacobs, CPA, is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Jacobs owns 200,000 shares of common stock of the Company. Also, simultaneously with the execution of an employment agreement, Acquired Sales Corp. issued to William C. Jacobs or his designee(s) five-year warrants giving William C. Jacobs or his designee(s) the right to purchase 225,000 shares of common stock of Acquired Sales Corp. exercisable at $5.00 per share, vesting upon the closing of Acquired Sales Corp.'s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids). William C. Jacobs was one of the specified Deferred Contingent Stock Recipients and received 200,000 shares of Deferred Contingent Stock. William C. Jacobs was also one of the specified Warrant Recipients, and received a five year warrant to purchase 225,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(5)The address for Thomas W. Hines, CPA CFA, is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Hines owns 5,400 shares of preferred stock convertible into 540,000 shares of our common stock at $1.00 per share. Thomas W. Hines was also one of the specified Warrant Recipients, and received a five year warrant to purchase 100,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(6)The address for Mr. Vincent J. Mesolella is 27 Paddock Drive, Lincoln, Road Island 02865. Mr. Mesolella has voting control over the following: (a) 7,862 shares of our common stock; (b) 5,000 options at $2.00 per share; (c) 25,000 options exercisable at $0.001 per share, and (d) the right to purchase from the Company 500,000 warrants at $0.01 per share for an aggregate consideration of $1.00. The Company has issued to Mr. Mesolella rights to purchase 500,000 warrants at $1.85 per share, which Mr. Mesolella or his designee have the right to purchase from the Company for an aggregate purchase price of $1.00 subject to the condition that the Company shall have acquired at least one of certain real estate properties owned by entities controlled by Mr. Mesolella; the Company has no intention to acquire any of such real estate properties, so these warrants are not included in the table above. Vincent J. Mesolella was also one of the specified Warrant Recipients, and received a five year warrant to purchase 100,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(7) The address for Mr. Daniel F. Terry, Jr., is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. Mr. Daniel F. Terry owns 572,000 shares of our stock.
(8)The address for Elana Knight is 31 N. Suffolk Lane, Lake Forest, IL 60045. Elana Knight owns 4,000 shares of Acquired Sales Corp.'s Series A Preferred Stock, convertible into 400,000 shares of Acquired Sales Corp.'s common stock. Elana Knight also owns 60,000 shares of Acquired Sales Corp.'s Series B Preferred Stock, convertible into 60,000 shares of Acquired Sales Corp.'s common stock.
(9)The address for the Roberti Jacobs Family Trust is 31 N. Suffolk Lane, Lake Forest, Illinois 60045. The Roberti Jacobs Family Trust irrevocably conveyed all of its voting power to Mr. Gerard M. Jacobs pursuant to the 2007 shareholder agreement described above. Mr. Gerard M. Jacobs is one of the grantors of the trust corpus, Gerard M. Jacobs and his spouse Grace A. Roberti-Jacobs currently are the co-trustees, and Gerard M. Jacobs’ children are the beneficiaries. The trust is irrevocable. The Trust owns 181,623 shares.
(10) The address for Dr. James S. Jacobs is 1785 Krameria Street, Denver, Colorado 80220. Dr. James S. Jacobs owns 79,500 shares of stock. He or his designee has the right to purchase from the Company 25,000 warrants at $1.85 per share for a purchase price of $1.00. Dr. James S. Jacobs was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(11) The address for Dr. Joshua A. Bloom is 1520 South Main Street, Racine, Wisconsin 53403. Dr. Joshua A. Bloom owns 50,000 shares of stock. He also owns: (a) he holds options to purchase 5,000 shares of our common stock at $2.00 per share; and (b) he or his designee has the right to purchase from the Company 25,000 warrants at $1.85 per share for a purchase price of $1.00. Dr. Joshua A. Bloom was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(12) The address for Mr. Michael D. McCaffrey is 10 Celano Court, Newport Coast, California 92657. Mr. Michael D. McCaffrey does not own any shares of stock. However: (a) he holds options to purchase 5,000 shares of our common stock at $2.00 per share; and (b) he or his designee has the right to purchase from the Company 50,000 warrants at between $0.01 and $1.85 per share for an aggregate purchase price of $2.00. Mr. Michael D. McCaffrey was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(13) The address for Mr. Richard E. Morrissy is 117 South Euclid Avenue, Oak Park, Illinois 60302. Mr. Richard E. Morrissy owns 25,000 shares of stock. He also owns: (a) options to purchase 5,000 shares of our common stock at $2.00 per share; and (b) he or his designee has the right to purchase from the Company 25,000 warrants at
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$1.85 per share for a purchase price of $1.00. Mr. Richard E. Morrissy was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(14) The address for Mr. Kevin J. Rocio is 31 N. Suffolk Lane, Lake Forest, IL 60045. Mr. Kevin J. Rocio was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share.
(15) Due to the combination of proxies and a shareholder agreement, all of the shares of the Roberti Jacobs Family Trust and Mr. Gerard M. Jacobs and his affiliate Miss Mimi Corporation, and his spouse, collectively total 2,759,771 shares (which total includes unexercised options, warrants and the right to purchase warrants to purchase shares of our common stock, all of which may be exercised at any time in the discretion of the holder or his designee; but which total excludes the right to purchase warrants to purchase an aggregate of 750,000 shares of our common stock, which may not be exercised until a required performance contingency is met, which the Corporation does not expect will occur) which may be voted together (without any double counting). The other directors hold a total of 5,922,817 shares (which total includes unexercised options, warrants and rights to purchase warrants to purchase shares of our common stock which may be exercised at any time in the discretion of the holder or his designee; but which total excludes the right to purchase warrants to purchase an aggregate of 500,000 shares of our common stock, which may not be exercised until a required performance contingency is met, and which the Corporation does not expect will occur) which may be voted together (without any double counting).
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General
The following description summarizes the most important terms of our capital stock, as they will be in effect upon the closing of this offering. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this “Description of Capital Stock,” you should refer to our Articles of Incorporation, as amended, and Bylaws, each of which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Nevada law. Our authorized capital stock consists of 100,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share. As of June 23, 2020, 6,460,236 shares of our common stock were issued and outstanding, held by 246 holders of record. As of June 23, 2020, 66,150 shares of our Series A Preferred Stock were issued and outstanding, and 100,000 shares of our Series B Preferred Stock were issued and outstanding. Under Nevada law, stockholders are not generally liable for our debts or obligations.
On August 25, 2011 we amended our certificate of incorporation to authorize the issuance of up to 100,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, $0.001 par value per share.
On March 1, 2006, we completed a 1 for 10 reverse split of our common stock.
On June 4, 1999, we completed a 1 for 5 reverse split of our common stock.
Each share of our common stock entitles the holder to receive notice of and to attend all meetings of our stockholders with the entitlement to one vote. Holders of common stock are entitled, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares ranking in priority to the common stock, to receive any dividend declared by the board of directors. If the Company is voluntarily or involuntarily liquidated, dissolved or wound-up, the holders of common stock will be entitled to receive, after distribution in full of preferential amounts, if any, all the remaining assets available for distribution ratably in proportion to the number of shares of common stock held by them. Holders of common stock have no redemption or conversion rights. The rights, preferences and privileges of holders of shares of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of our outstanding preferred stock and any series of preferred stock that we may designate and issue in the future. All of our outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable.
Approximately 6,115,686 shares of the 6,460,236 shares of common stock presently issued and outstanding are "restricted securities" as that term is defined in Rule 144 adopted under the Securities Act. The remaining 344,550 shares are believed to be free-trading.
Common Stock
Holders of common stock are entitled to one vote per share on each matter submitted to a vote at any meeting of stockholders. Shares of common stock do not carry cumulative voting rights and, therefore, holders of a majority of the outstanding shares of common stock will be able to elect the entire board of directors, and, if they do so, minority stockholders would not be able to elect any members to the board of directors. Our board of directors has authority, without action by the stockholders, to issue all or any portion of the authorized but unissued shares of common stock, which would reduce the percentage ownership of the stockholders and which may dilute the book value of the common stock.
Shareholders have no pre-emptive rights to acquire additional shares of common stock. The common stock is not subject to redemption and carries no subscription or conversion rights. In the event of liquidation, the shares of common stock are entitled to share equally in corporate assets after satisfaction of all liabilities. The shares of common stock, when issued, will be fully paid and non-assessable. We currently do not accumulate money on a regular basis in a separate custodial account, commonly referred to as a sinking fund, to be used to redeem debt securities.
Holders of common stock are entitled to receive dividends as the board of directors may from time to time declare out of funds legally available for the payment of dividends. We have not paid dividends on common stock and do not anticipate that we will pay dividends on common stock in the foreseeable future.
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Series A Preferred Stock
We have designated 400,000 shares of Series A Preferred Stock of which 66,150 shares are currently issued and outstanding. Each share of Series A Preferred Stock may be converted into 100 shares of common stock. The Series A Preferred Stock pays dividends at the rate of 3% annually. The Series A Preferred Stock dividends are cumulative if we do not have the necessary cash to pay the dividend when due. The Series A Preferred Stock dividends shall cease to accrue at such time as our Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the Series A Registration Statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock have voluntary conversion rights. Shares of Series A Preferred Stock are subject to Mandatory Conversion (in the discretion of the Company) at such time as our Common Stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the Series A Registration Statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
Series B Preferred Stock
We have designated 5,000,000 shares of Series B Preferred Stock of which 100,000 shares are currently issued and outstanding. Each share of Series B Preferred Stock may be converted into one share of common stock. The Series B Preferred Stock pays dividends at the rate of 3% annually. The Series B Preferred Stock dividends are cumulative if we do not have the necessary cash to pay the dividend when due. The Series B Preferred Stock dividends shall cease to accrue at such time as our Common Stock has closed at $7.00 per share or higher for 20 consecutive trading days after the first date that the registration statement covering the common shares of the company into which the Company's Series B Preferred Stock can be converted (the "Series B Registration Statement") is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series B Preferred Stock have no voting rights. The holders of the Series B Preferred Stock have voluntary conversion rights. Shares of Series B Preferred Stock are subject to Mandatory Conversion (in the discretion of the Company) at such time as the Company’s Common Stock has closed at $9.00 per share or higher for 20 consecutive trading days after the first date that the Series B Registration Statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
Our board of directors has the authority, without further action by the stockholders, to issue up to the 9,833,850 balance of 10,000,000 shares of authorized preferred stock. Preferred stock could be issued quickly with terms calculated to delay or prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of our common stock, and may adversely affect the voting and other rights of the holders of common stock.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Warrants
As of June 23, 2020, there are outstanding warrants to purchase up to 6,537,869 shares of our common stock at a weighted average exercise price of $2.56 per share.
Anti-Takeover Effects
Certain provisions of our Articles of Incorporation, Bylaws, and the Nevada Revised Statutes (“NRS”) may be deemed to have an anti-takeover effect. Such provisions may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in that stockholder’s best interests, including attempts that might result in a premium over the market price for the shares held by stockholders.
The NRS permits, if authorized by the Articles of Incorporation, the issuance of Blank Check Preferred Stock with preferences, limitations and relative rights determined by a corporation’s board of directors without stockholder approval.
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Our Articles of Incorporation currently authorizes the issuance of Blank Check Preferred Stock, of which 9,833,850 preferred shares are available for future issuance in one or more series to be issued from time to time.
Each of the foregoing may have the effect of preventing or rendering more difficult or costly, the completion of a takeover transaction that stockholders might view as being in their best interests.
Potential Effects of Authorized but Unissued Stock
We have shares of common stock and preferred stock available for future issuance without stockholder approval. We may utilize these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock.
The existence of unissued and unreserved common stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. In addition, the Board of Directors has the discretion to determine designations, rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the fullest extent permissible under the Nevada Law and subject to any limitations set forth in our Articles of Incorporation, as amended. The purpose of authorizing the board of directors to issue preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock.
Board of Directors Vacancies
Our bylaws authorize our Board of Directors to fill any vacancy occurring on the board by a majority of the remaining members of the Board of Directors.
No Cumulative Voting. The Nevada Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation's certificate of incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting.
Transfer Agent
The transfer agent and registrar for our common stock is Colonial Stock Transfer Company, Inc. Its address is 66 Exchange Place, 1st floor, Salt Lake City, UT 84111 and its telephone number is 801-355-5740.
Listing
Our common stock is traded on the OTC PINK under the symbol AQSP.
The validity of the securities being offered by this prospectus will be passed upon for us by David S. Hunt, P.C. Salt Lake City, Utah.
The financial statements of Lifted Liquids, Inc. d/b/a Lifted Made and for Acquired Sales Corp. as of December 31, 2019 and 2018 and for each of the years then ended included in this Registration Statement, of which this Prospectus forms a part, have been so included in reliance on the report of Fruci & Associates II, PLLC, an independent registered public accounting firm appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes a part of the registration statement on Form S-1 that we have filed with the SEC under the Securities Act, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the securities offered by this prospectus, you should refer to the registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. We also maintain a website at http://www.acquiredsalescorp.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.
You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by telephone or writing us at: Acquired Sales Corp., 31 N. Suffolk Lane, Lake Forest, Illinois 60045, (847) 915-2446.
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FINANCIAL AND OTHER INFORMATION
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
None.
Management Discussion and Analysis
Please refer to the section of this registration statement entitled “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations” for an analysis of our business.
Financial Statements
The full text of our audited consolidated and pro forma financial statements begins on page F-1 of this Registration statement and include the following:
Lifted Liquids
Balance Sheets
December 31, 2019 and 2018
Lifted Liquids
Statements of Operations
For the Years Ended December 31, 2019 and 2018
Lifted Liquids
Statements of Cash Flows
For the Years Ended December 31, 2019 and 2018
Lifted Liquids
Statements of Shareholders’ Equity (Deficit)
For the Years Ended December 31, 2019 and 2018
Acquired Sales Corp. and Lifted Liquids
Pro Forma Consolidated Balance Sheet
As of December 31, 2019
Acquired Sales Corp. and Lifted Liquids
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2019
Acquired Sales Corp.
Balance Sheets
December 31, 2019 and 2018
Acquired Sales Corp.
Statements of Operations
For the Years Ended December 31, 2019 and 2018
Acquired Sales Corp.
Statements of Shareholders' Equity (Deficit)
For the Years Ended December 31, 2019 and 2018
Acquired Sales Corp.
Statements of Cash Flows
For the Years Ended December 31, 2019 and 2018
Acquired Sales Corp. and Lifted Liquids
Condensed Consolidated Balance Sheets
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March 31, 2020 (Unaudited) and December 31, 2019
Acquired Sales Corp. and Lifted Liquids
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2020 and 2019 (Unaudited)
Acquired Sales Corp. and Lifted Liquids
Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
For the Three Months Ended March 31, 2019 and 2020 (Unaudited)
Acquired Sales Corp. and Lifted Liquids
Condensed Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 2020 and 2019 (Unaudited)
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stakeholders of Warrender Enterprise, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Warrender Enterprise, Inc. (“the Company”) as of December 31, 2019 and 2018, and the related statements of operations, shareholder’s equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the current business climate and COVID-19 risks have significant adverse impacts on the Company’s operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2019. Spokane, Washington | |
May 7, 2020 |
|
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LIFTED LIQUIDS | |||
BALANCE SHEETS | |||
| |||
| December 31, | ||
| 2019 |
| 2018 |
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and Cash Equivalents | $738,804 |
| $144,284 |
Accounts Receivable, net of $49,329 allowance in 2019 and $24,088 in 2018 | 201,230 |
| 165,029 |
Inventory | 320,594 |
| 223,878 |
Total Current Assets | 1,260,628 |
| 533,191 |
Fixed Assets, less accumulated depreciation of $31,266 in 2019 and $14,830 in 2018 | 82,549 |
| 95,242 |
Intangible Assets, less accumulated amortization of $278 in 2019 and $0 in 2018 | 4,722 |
| 0 |
Security Deposit | 1,600 |
| 3,880 |
Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $17,336 in 2019 | 26,019 |
| 0 |
Total Assets | $1,375,518 |
| $632,313 |
LIABILITIES AND EQUITY |
|
|
|
Current Liabilities: |
|
|
|
Accounts Payable and Accrued Expenses | 190,234 |
| 8,760 |
Operating Lease Liability | 18,230 |
| 0 |
Deferred Revenue | 64,696 |
| 3,801 |
Total Current Liabilities | 273,160 |
| 12,561 |
Non-Current Operating Lease Liability | 7,672 |
| 0 |
Total Liabilities | 280,832 |
| 12,561 |
|
|
|
|
Commitments and Contingencies | 0 |
| 0 |
|
|
|
|
Shareholders' Equity: |
|
|
|
Common Stock, no par value; 100 shares authorized; 100 shares outstanding | 1,000 |
| 1,000 |
Shareholder's Equity | 1,093,686 |
| 618,752 |
Total Shareholders' Equity | 1,094,686 |
| 619,752 |
Total Liabilities and Shareholders' Equity | $1,375,518 |
| $632,313 |
The accompanying notes are an integral part of these financial statements.
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LIFTED LIQUIDS | |||
STATEMENTS OF OPERATIONS | |||
|
|
|
|
|
|
|
|
| For the Years Ended | ||
| December 31, | ||
| 2019 |
| 2018 |
Net Sales | $4,179,420 |
| $1,777,641 |
Cost of Goods Sold | 2,402,851 |
| 795,369 |
Gross Profit | 1,776,569 |
| 982,272 |
Selling, General and Administrative Expenses | 56,637 |
| 61,115 |
Auto Expense | 5,622 |
| 9,287 |
Bank Charges and Merchant Fees | 49,133 |
| 29,723 |
Bad Debt | 25,241 |
| 17,455 |
Payroll Expenses | 667,717 |
| 257,705 |
Professional Fees | 130,854 |
| 7,540 |
Advertising and Marketing | 2,757 |
| 8,022 |
Depreciation and Amortization | 16,714 |
| 9,203 |
Website | 663 |
| 11,793 |
Rent Expense | 19,200 |
| 21,881 |
Utilities | 4,506 |
| 10,033 |
Travel | 8,055 |
| 13,029 |
Income From Operations | 789,470 |
| 525,486 |
Other Income / (Expenses) |
|
|
|
Worker's Compensation Settlement | (5,000) |
| 0 |
Interest Expense | (1,051) |
| (1,040) |
Loss From Purchase of Inventory | (253,750) |
| 0 |
Interest Income | 195 |
| 0 |
Net Income | $529,864 |
| $524,446 |
|
|
|
|
Basic and Diluted Net Income Per Common Share | $5,299 |
| $5,244 |
|
|
|
|
Basic and Diluted Weighted Average Number of Common Shares Outstanding: | 100 |
| 100 |
The accompanying notes are an integral part of these financial statements.
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LIFTED LIQUIDS |
|
| ||
STATEMENTS OF CASH FLOWS |
|
| ||
|
|
|
|
|
|
| For the Years Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
Net Income/(Loss) |
| $529,864 |
| $524,446 |
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
Bad Debt Expense |
| 25,241 |
| 17,455 |
Depreciation and Amortization |
| 16,714 |
| 9,203 |
Effect on cash of changes in operating assets and liabilities |
|
|
|
|
Accounts receivable |
| (61,442) |
| (155,401) |
Inventory |
| (96,716) |
| (218,099) |
Security deposit |
| 2,280 |
| (1,600) |
Accounts Payable and Accrued Expenses |
| 181,474 |
| (2,600) |
Accrued Interest on ROU Asset |
| (118) |
| 0 |
Deferred Revenue |
| 60,895 |
| (1,962) |
Net cash provided by operating activities |
| $658,192 |
| $171,442 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
Purchase of fixed assets |
| (3,742) |
| (36,295) |
Purchase of intangible asset |
| (5,000) |
| 0 |
Net cash used in investing activities |
| $(8,742) |
| $(36,295) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
Distributions |
| (54,930) |
| (54,357) |
Net cash used in financing activities |
| $(54,930) |
| $(54,357) |
Net cash increase/(decrease) for period |
| $594,520 |
| $80,790 |
Cash at beginning of period |
| 144,284 |
| 63,494 |
Cash at end of period |
| $738,804 |
| $144,284 |
|
|
|
|
|
|
|
|
|
|
|
| For the Years Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
Supplemental Cash Flow Information |
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest |
| 1,051 |
| 1,040 |
Income taxes |
| 0 |
| 0 |
The accompanying notes are an integral part of these financial statements.
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LIFTED LIQUIDS | |||||||||
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) | |||||||||
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019 | |||||||||
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Common Stock |
|
| Aggregate | Retained |
| Shareholders' | ||
| Shares |
| Amount |
|
| Distributions | Earnings |
| Equity (Deficit) |
Balance, December 31, 2017 | 100 |
| $1,000 |
|
| $(6,471) | $155,134 |
| $149,663 |
Net Income |
|
|
|
|
|
| $524,446 |
| $524,446 |
Shareholder Distributions |
|
|
|
|
| $(54,357) |
|
| $(54,357) |
Balance, December 31, 2018 | 100 |
| $1,000 |
|
| $(60,828) | $679,580 |
| $619,752 |
Net Income |
|
|
|
|
|
| $529,864 |
| $529,864 |
Shareholder Distributions |
|
|
|
|
| $(54,930) |
|
| $(54,930) |
Balance, December 31, 2019 | 100 |
| $1,000 |
|
| $(115,758) | $1,209,444 |
| $1,094,686 |
The accompanying notes are an integral part of these financial statements.
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LIFTED LIQUIDS
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Organization – Warrender Enterprise Inc. d/b/a Lifted Liquids (hereinafter sometimes referred to as “Lifted Liquids,” “Lifted” or the “Company”) was incorporated in the state of Wisconsin on September 19, 2014.
Nature of Operations – Lifted was created with a passion to build a culture-based organization focused upon quality products and a healthier lifestyle. Lifted produces its own lines of cannabinoid-infused products, as well as numerous cannabinoid-infused products for private label clients. In addition, Lifted has a raw goods supply chain that many customers benefit from: CBD and CBG isolate, full spectrum, broad spectrum water soluble, distillate and more.
Basis of Presentation – The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates – The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Key estimates in these financial statements include the allowance for doubtful accounts, estimated useful lives of property, plant and equipment, valuation allowance on deferred income tax assets and the fair value of stock options.
Cash and Cash Equivalents – The Company considers all highly liquid investments with an original maturity date within 90 days. Cash equivalents are carried at cost. The Company maintains its cash balance at a credit-worthy financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.
Fair Value of Financial Instruments – The historical carrying amount of the financial instruments, which principally include cash, trade receivables, historical accounts payable and accrued expenses, approximates fair value due to the relative short maturity of such instruments.
Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quotes prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent
98
loss history and an overall assessment of past due trade accounts receivable outstanding. Allowances for bad debts of $49,329 and $24,088 were recorded at December 31, 2019 and at December 31, 2018, respectively.
Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at December 31, 2019 and 2018:
| December 31, 2019 | December 31, 2018 |
Raw Goods | $282,238 | $200,250 |
Finished Goods | $38,356 | $23,628 |
Total Inventory | $320,594 | $223,878 |
Monthly overhead costs such as payments for rent, electric, gas and labor are allocated to finished goods based on the estimated percentage cost toward the finished goods.
Fixed Assets – Fixed assets are recorded and stated at cost. Fixed assets that cost less than $2,500 are expensed, and fixed assets that cost $2,500 or more are capitalized. Depreciation of machinery and equipment, leasehold improvements, and computer equipment, is based on the asset’s estimated useful life and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.
Management regularly reviews property and equipment and other long-lived assets for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks.
Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.
Security Deposit – The Company has paid a security deposit to its lessor for the Company’s current office, manufacturing and warehouse space.
Revenue
The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 606.
Revenue Recognition on the Sale of Raw Materials to Customers
The Company sells water soluble CBD, distillate and isolate (“Raw Materials”) to various customers. The Company does not offer terms to customers buying Raw Materials. In the majority of sales of Raw Materials to customers, customers are required to pay the full price before receiving the Raw Materials. In some cases, with the sale of large quantities of Raw Materials to customers with whom the Company has established relationships, the Company may allow the customer to pay 50% of the purchase up front, and then, after delivery of the product, the customer is required to pay the remaining 50% of the purchase price.
Revenue Recognition on the Sale of Products to Private Label Clients
In the majority of cases, private label clients are required to pay up front for the goods that they order. If the private label client orders more than ten stock keeping units (“SKUs”) in an order, the Company will collect a down payment of at least 50% of the total purchase order, and then will collect the remaining amount upon delivery of the purchased goods.
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Revenue Recognition on the Sale of Lifted Liquids-Branded Products to Wholesalers, Distributors and End Users
The Company sells its own branded products to distributors, which then sell Lifted’s products to vape shops, CBD stores, convenience stores, health food stores, and other outlets. The Company also sells its own branded products to wholesalers and directly to consumers online.
The Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements.
The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Promotional and other allowances (variable consideration) recorded as a reduction to gross sales, primarily include consideration given to the Company’s distributors or retail customers including, but not limited to discounted or free products.
The Company’s promotional and other allowance accruals are established during the year for its anticipated liabilities. These accruals require management’s judgment. Differences between such estimated expenses and actual expenses for promotional and other allowance costs are recognized in earnings in the period such differences are determined.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
Described below are some of the reasons why an end customer may want to return an ordered item, and how the Company responds in each situation:
1) The ordered item breaks in transit to the customer. In this case, the Company will replace the broken item at no cost to the customer.
2) The Company sent the wrong item to the customer. In this case, the Company will allow the customer to keep, at no cost to the customer, the item that was mistakenly sent to the customer. The Company will also send the correct product to the customer, at no cost to the customer.
3) The customer ordered the wrong product. In this case, the customer, at his/her own expense, must mail the mistakenly ordered product back to the Company, and the Company will mail the correct product to the customer.
The three scenarios described above do not occur frequently, and occurrences are immaterial.
In the event that a wholesaler or distributor wants to return a purchase, the Company will exchange the wholesaler’s or distributor’s purchase for store credit or for items of the same value so long as the purchase is not open or damaged; as such, any difference in sale price is immaterial.
Disaggregation of Revenue
Nearly all of the Company’s sales occur inside the United States of America.
Contract Liabilities
Amounts received from distributors at inception of their distribution contracts or at the inception of certain sales or marketing programs would be accounted for as deferred revenue. Cash received from a customer before the purchased product is shipped to the customer is treated as deferred revenue. There was deferred revenue of $64,696 and $3,801 recognized at December 31, 2019 and at December 31, 2018, respectively. All of the deferred revenue outstanding at December 31, 2018 was recognized in 2019.
Cost of Goods Sold – Cost of goods sold consists of the costs of raw materials utilized in the manufacture of products, direct labor, co-packing fees, repacking fees, in-bound freight charges, as well as internal transfer costs, warehouse expenses incurred prior to the manufacture of Lifted’s finished products and certain quality control costs.
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Raw materials account for the largest portion of cost of sales. Raw materials include ingredients, product components and packaging materials.
Operating Expenses – Operating expenses include payroll costs, travel costs, professional service fees, insurance, utility charges, advertising and marketing, depreciation and other general and administrative costs.
Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the years ended December 31, 2019 and 2018:
|
| For the Year Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
Net Income |
| $529,864 |
| $524,446 |
Weighted-Average Shares Outstanding |
| 100 |
| 100 |
|
|
|
|
|
Basic and Diluted Earnings per Share |
| $5,299 |
| $5,244 |
There were no options or warrants outstanding at December 31, 2019 or 2018.
Recently Issued Accounting Pronouncements – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact of ASU 2019-12 on its financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. The accounting for any hosting contract is unchanged. ASU 2018-15 is effective on January 1, 2020 with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact of ASU 2019-12 on its financial statements.
Advertising and Marketing Expenses – Advertising costs are expensed as incurred. During the year ended December 31, 2019, the Company incurred $2,757 in advertising and marketing expenses, of which were primarily online advertising. In comparison, during the year ended December 31, 2018, the Company incurred $8,022 in advertising expenses, of which were primarily online advertisements.
Compensated Absences – Paid time off (“PTO”) is provided to employees and subcontractors that obtain approval for it from Nicholas S. Warrender, CEO of Lifted. Any approved PTO is granted at Mr. Warrender’s discretion, and mandatory PTO is zero days, thus no accrual is necessary.
Off-Balance Sheet Arrangements – We have no off-balance sheet arrangements.
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NOTE 3 – RISKS AND UNCERTAINTIES
Going Concern – The COVID-19 pandemic and its ramifications, combined with the expenses and potential liabilities associated with litigation involving Lifted, have created significant adverse risks to the Company, which cause substantial doubt about the Company’s ability to continue as a going concern. In addition, factors that could materially affect future operating results include, but are not limited to, changes to laws and regulations, especially those related to vaping, vendor concentration risk, customer concentration risk, customer credit risk, and counterparty risk. The Company maintains levels of cash in a bank deposit account that, at times, may exceed federally insured limits. The Company has not experienced any losses in such account and it believes it is not exposed to any significant credit risk on cash.
Management plans to sustain the Company by taking the following actions: (1) closely monitoring legislation or regulations that may affect the Company’s business; (2) anticipating consumer demands to manufacture products that consumers will buy; (3) developing more vendor and customer relationships; (4) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (5) completing private placements of the Company’s common stock and/or preferred stock. However, there can be no assurances or guarantees whatsoever that the Company 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.
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and Equipment consist of the following:
Asset Class |
| December 31, 2019 | December 31, 2018 |
Machinery & Equipment |
| $73,777 | $73,777 |
Computer Equipment |
| $7,024 | $3,281 |
Leasehold Improvements |
| $33,014 | $33,014 |
Sub-total: |
| $113,815 | $110,072 |
|
|
|
|
Less: accumulated depreciation |
| $(31,266) | $(14,830) |
|
| $82,549 | $95,242 |
Estimated useful lives per asset class are:
Asset Class | Estimated Useful Life |
Machinery & Equipment | 120 months |
Computer Equipment | 60 months |
Leasehold Improvements | 48 months |
Total depreciation expense of $16,436 and $9,203 was recognized during the years ended December 31, 2019 and 2018, respectively.
NOTE 5 – INTANGIBLE ASSETS, NET
www.LiftedMade.com Website – During the year ended December 31, 2019, Lifted paid a third party to develop a new website, www.LiftedMade.com, with new features and functionality. A total of $5,000 was spent developing the website during the year ended December 31, 2019. The website is being amortized over 36 months, and $278 in amortization related to the website was recognized during the year ended December 31, 2019.
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NOTE 6 – RELATED PARTY TRANSACTIONS
Commissions Paid – In 2019, $34,972 in commissions were paid to Robert Warrender, who is Nicholas S. Warrender’s brother. In comparison, in 2018, $800 in commissions were paid to Robert Warrender.
Shipping Costs – Lifted shares a shipping account with a company operated by Nicholas S. Warrender’s father. Lifted does this in an effort to reduce shipping costs, as the shipper gives a price discount based on volume. The cost of shipping Lifted’s products are paid for by Nicholas S. Warrender’s father’s company, and Lifted reimburses Nicholas S. Warrender’s father’s company.
NOTE 7 – SHAREHOLDERS’ EQUITY
Ownership – As of December 31, 2019, Nicholas S. Warrender was the sole owner of Lifted.
Equity Structure – There were 100 shares of common stock authorized and outstanding at December 31, 2019 and 2018. There is no par value to the common stock shares. There was no preferred stock authorized or outstanding at December 31, 2019 and 2018.
Distributions to Owner – During the year ended December 31, 2019, Lifted was an S corporation, and distributions of $54,930 and $54,357 were paid to Nicholas S. Warrender during the years ended December 31, 2019 and 2018, respectively. Of the $54,930 distributed to Nicholas S. Warrender during the year ended December 31, 2019, $11,391 of this consisted of medical expenses, and $43,539 were expenses paid on behalf of Nicholas S. Warrender. Of the $54,358 distributed to Nicholas S. Warrender during the year ended December 31, 2018, $13,495 of this consisted of medical expenses, and $40,863 were expenses paid on behalf of Nicholas S. Warrender.
NOTE 8 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Operating Lease Right-of-Use Asset – In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”). The amended guidance, which is effective for the Company on January 1, 2019, requires the recognition of lease assets and lease liabilities on the balance sheet for those leases with terms in excess of 12 months and currently classified as operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet; lease expense for these types of leases are recognized on a straight-line basis over the lease term. Options to extend or terminate a lease are not included in the determination of the right-of-use asset or lease liability unless it is reasonably certain to be exercised. Lifted adopted ASU 2016-02 using the modified retrospective approach, electing the package of practical expedients.
Lifted does not own any physical properties. Lifted’s corporate office, manufacturing facility and warehouse is located in Zion, Illinois, where Lifted has rented 3,300 square feet of space. The lease started June 1, 2018, and terminates on June 1, 2021. Lifted has plans to expand its operations in Zion as opportunities arise. The Company’s lease agreement does not contain any material residual value guarantees or materially restrictive covenants.
As the Company's lease does not provide an implicit rate, the Company used an incremental borrowing rate based on the information provided by a banker in determining the present value of lease payments. The discount rate used in the computations was 5.5%.
Balance Sheet Classification of Operating Lease Assets and Liabilities
Asset |
| Balance Sheet Line |
| December 31, 2019 | |||
| Operating Lease Right-of-Use Asset | Non-Current Assets |
| $26,019 | |||
|
|
|
|
|
|
|
|
Liability |
| Balance Sheet Line |
| December 31, 2019 | |||
| Current Operating Lease Liability | Current Liabilities |
| $18,230 | |||
| Operating Lease Liability |
| Non-Current Liabilities | $7,672 | |||
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Lease Cost
The table below summarizes the components of lease costs for the year ended December 31, 2019.
|
|
|
|
|
|
| Year Ended December 31, 2019 |
Operating lease costs |
|
|
|
| $19,200 | ||
|
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|
|
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|
|
Maturities of Lease Liabilities |
|
|
|
|
| ||
|
|
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|
|
|
Maturities of lease liabilities as of December 31, 2019 are as follows: | |||||||
|
|
|
|
|
|
|
|
2020 fiscal year |
|
|
|
|
| 19,200 | |
Total lease payments |
|
|
|
| 19,200 | ||
Less: Interest |
|
|
|
|
| (970) | |
Present value of lease liabilities |
|
|
|
| 18,230 | ||
|
|
|
|
|
|
|
|
The following table presents the Company’s future minimum lease obligation under ASC 840 as of December 31, 2019: |
|
| |||||
|
|
|
|
|
|
|
|
2020 fiscal year |
|
|
|
|
| 19,200 | |
Processing Services Agreement Between the Company and Merkabah Labs LLC – On May 9, 2019, Lifted entered into a one year Processing Services Agreement with Merkabah Labs, LLC ("Merkabah Labs"). Pursuant to such Processing Services Agreement, among other things, Merkabah Labs agreed to produce and sell a water soluble CBD nano product to Lifted, and so long as Lifted was not in breach of certain specified minimum quantity purchase requirements, Lifted shall be Merkabah Labs' exclusive supplier of such product for the duration of the Processing Services Agreement. In addition, among other things, Lifted and Merkabah Labs each agreed in such Processing Services Agreement not to disclose, directly or indirectly, to any person or entity the other party's confidential information, and the receiving party agreed that is shall not use the other party's confidential information for its private benefit, but only in furtherance of the purposes of such Processing Services Agreement. Lifted has filed a lawsuit against Merkabah Labs, its majority owner Ryan Puddy, Merkabah Technologies, LLC, and Ralph L. Taylor III (collectively, the "defendants") alleging, among other things: that the defendants' orchestrated and deliberately misappropriated Lifted's confidential business, proprietary, and trade secret information, in breach of contract and breach of fiduciary duties; that the defendants wrongfully acquired, disclosed, and used Lifted's information through unauthorized access to Lifted's internal email communications and other improper means in violation of federal, state and common law; that defendants consciously conspired and deliberately pursued a fraudulent and malicious scheme to pick apart Lifted's business from within and steal Lifted's confidential business, proprietary, and trade secret information to further their own economic or corporate interests, to the detriment of Lifted; and that defendants knowingly benefitted from their colluded misappropriation of Lifted's confidential business, proprietary, and trade secret information, and unfair competition enabling defendants to quickly create a competing company using Lifted's resources and personnel and reap the associated awards in the marketplace without contributing or expending any of their own time, money, resources, knowledge or experience.
Loss on Purchase of Inventory – During the year ended December 31, 2019, the Company incurred a loss of $253,750 from the purchase of CBD isolate. In January 2019, a former independent contractor of Lifted and another gentleman tried to broker the sale of 50 kilos of CBD isolate from an Oregon-based company to Lifted. In February 2020, Lifted made two payments totaling $253,750 for the CBD isolate. As of the date of this prospectus, Lifted has still not received any of the CBD isolate for which it had paid. Nor has Lifted been refunded the $253,750 that Lifted had paid for the CBD isolate. Lifted has not yet decided whether to file lawsuits against the parties involved in this debacle.
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NOTE 9 – INCOME TAX PROVISION
The Company is treated as an S corporation for income tax purposes. As such, income flows through to the Company’s owner, and no tax provision has been recorded as of December 31, 2019.
The Company filed its federal and state income tax return for 2018. The Company has not yet filed its federal or state income tax returns for 2019. The Company is current on its tax filing obligations and has filed an extension for the 2019 tax year. The state income tax returns for 2018 were filed in Illinois and Wisconsin. The state income tax returns for 2019 will be filed in Illinois and Wisconsin.
NOTE 10 – LEGAL PROCEEDINGS
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Except for income tax contingencies, the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
Lifted is involved in two pending lawsuits, one as a defendant (described below), and the other as the plaintiff (please refer to Note 12 – Subsequent Events) for information.
During the year ended December 31, 2019, Lifted became involved in following pending lawsuit, as the defendant:
MILE HIGH LABS, INC., Plaintiff, v. WARRENDER ENTERPRISE, INC. d/b/a LIFTED LIQUIDS, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW) – In August 2019, Mile High Labs, Inc. sued Lifted in federal court in Colorado, alleging that Lifted reneged on an alleged purchase of $825,000 worth of CBD isolate. Lifted has challenged the jurisdiction of the Colorado court, arguing that Lifted does not conduct business in Colorado. When appropriate, Lifted intends to deny the material allegations of the complaint. However, no assurance or guarantee can be given regarding the disposition of this lawsuit. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit. The Company has recorded an accrual for the use of $60,000 worth of the CBD isolate in question.
NOTE 11 – WORKER’S COMPENSATION CLAIM
During the year ended December 31, 2019, Lifted became involved in the following pending worker’s compensation claim, as the defendant:
MARTHA, EDGAR v. LIFTED LIQUIDS – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage.
NOTE 12 – SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of filing this Current Report on Form 8-K and we have identified the following for disclosure:
Description of Legal Proceeding
Subsequent to the year ended December 31, 2019, Lifted became involved in following pending lawsuit, as the plaintiff:
WARRENDER ENTERPRISE, INC. d/b/a LIFTED LIQUIDS, a Wisconsin corporation, Plaintiff, v. MERKABAH LABS, LLC, a Colorado limited liability company; MERKABAH TECHNOLOGIES, LLC, a Colorado limited liability company; RYAN PUDDY, an individual; and RALPH L. TAYLOR III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted
105
filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
Acquisition of 100% of Lifted by Acquired Sales Corp.
Pursuant to an Agreement and Plan of Merger by and among Acquired Sales Corp., Lifted Liquids, Inc. (“Lifted”), Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc., and Nicholas S. Warrender, dated as of January 7, 2020, on February 24, 2020 Warrender Enterprise Inc. merged with and into Lifted, with Lifted being the survivor of the merger.
On February 24, 2020, 100% of the ownership of Lifted was acquired by Acquired Sales Corp. (“Acquired Sales”) of Lake Forest, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of Acquired Sales (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of Acquired Sales that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to Acquired Sales at the closing of the Merger, and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of Acquired Sales at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to Acquired Sales at the closing of the Merger.
Pursuant to the Merger, Lifted is now operating as a wholly-owned subsidiary of Acquired Sales, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.
Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.
From the date of acquisition (February 24, 2020) on, Lifted will be fully consolidated within Acquired Sales’ financial statements.
Distributions to Nicholas S. Warrender to Cover the Income Taxes Owed by Nicholas S. Warrender in Regard to the Net Income of Lifted Prior to February 24, 2020
Pursuant to Section 5.11 of the Agreement and Plan of Merger by and among the Company, Lifted, Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc. and Nicholas S. Warrender dated January 7, 2020, certain Estimated Tax Distributions were to be made to Nicholas S. Warrender to cover estimated income tax obligations of Nicholas S. Warrender in regard to the net income of Warrender Enterprise Inc. during 2019 and during the short taxable year commencing on January 1, 2020 and ending on February 23, 2020, the date before the closing date of the Merger. The parties orally agreed that these Estimated Tax Distributions would be made to Nicholas S. Warrender as promptly as feasible following the closing date. On March 6, 2020, Lifted distributed a total of $193,767 of Estimated Tax Distributions based upon good faith estimates of such federal and state income tax obligations of Nicholas S. Warrender calculated by a third party tax preparation firm.
Receipt of Loans under the Economic Injury Disaster Loan Program and the Paycheck Protection Program
In response to the coronavirus (COVID-19) pandemic the U.S. Small Business Administration (the “SBA”) is making small business owners eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000 under its Economic Injury Disaster Loan program (the “EIDL”). This advance provides economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. Lifted applied for and received a $10,000 loan advance under the EIDL (“EIDL Advance”). Lifted also applied for and received a loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. The PPP Loan was issued by BMO Harris Bank (the “Lender”) in the aggregate principal amount of $149,622.50 and evidenced by a promissory note (the “Note”), dated April 14, 2020 issued by Lifted to the Lender. The Note matures on April 14, 2022. The Note bears interest at a rate of 1.00% per annum, payable monthly commencing on November 14, 2020, following an initial deferral period as specified under the PPP. The Note may be prepaid by Lifted at any time prior
106
to maturity with no prepayment penalties. Proceeds from the PPP Loan will be available to Lifted to fund designated expenses, including certain payroll costs and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent that at least 75% of the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the SBA under the PPP. Acquired Sales Corp. intends that Lifted would use at least 75% of the PPP Loan amount for designated qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the PPP. No assurance can be given that Lifted will obtain forgiveness of the PPP Loan in whole or in part.
With respect to any portion of the PPP Loan that is not forgiven, the PPP Loan will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, and breaches of the provisions of the Note.
Section 9.1. The following financial statements represent the Pro Forma Consolidated Balance Sheet of the Company and Lifted Liquids, Inc. (formerly Warrender Enterprise Inc.) as of December 31, 2019, and the Pro Forma Consolidated Statement of Operations of the Company and Lifted Liquids, Inc. (formerly Warrender Enterprise Inc.) for the year ended December 31, 2019:
107
ACQUIRED SALES CORP. | ||||||||||||
PRO FORMA CONSOLIDATED BALANCE SHEET | ||||||||||||
As of December 31, 2019 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lifted Liquids |
| Acquired Sales Corp. |
| Combined Totals |
| Pro Forma Adjustments |
| Ref |
| Adjusted Pro Forma Totals |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ 738,804 |
| $ 4,384,929 |
| $ 5,123,733 |
| $ 0 |
|
|
| $ 5,123,733 |
Prepaid Expenses |
| 0 |
| 9,583 |
| 9,583 |
| 0 |
|
|
| 9,583 |
Note Receivable from CBD Lion |
| 0 |
| 200,000 |
| 200,000 |
| 0 |
|
|
| 200,000 |
Accounts Receivable, net of $49,329 allowance in 2019 |
| 201,230 |
| 0 |
| 201,230 |
| 0 |
|
|
| 201,230 |
Inventory |
| 320,594 |
| 0 |
| 320,594 |
| 0 |
|
|
| 320,594 |
Total Current Assets |
| 1,260,628 |
| 4,594,512 |
| 5,855,140 |
| 0 |
|
|
| 5,855,140 |
Investment in Ablis |
| 0 |
| 399,200 |
| 399,200 |
| 0 |
|
|
| 399,200 |
Investment in Bendistillery and Bend Spirits |
| 0 |
| 1,497,000 |
| 1,497,000 |
| 0 |
|
|
| 1,497,000 |
Fixed Assets, less accumulated depreciation of $31,266 in 2019 and $14,830 in 2018 |
| 82,549 |
| 0 |
| 82,549 |
| 0 |
|
|
| 82,549 |
Intangible Assets, less accumulated amortization of $278 in 2019 and $0 in 2018 |
| 4,722 |
|
|
| 4,722 |
| 0 |
|
|
| 4,722 |
Security Deposit |
| 1,600 |
| 0 |
| 1,600 |
| 0 |
|
|
| 1,600 |
Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $17,336 in 2019 |
| 26,019 |
| 0 |
| 26,019 |
| 0 |
|
|
| 26,019 |
Total Assets |
| $ 1,375,518 |
| $ 6,490,712 |
| $ 7,866,230 |
| $ 0 |
|
|
| $ 7,866,230 |
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade Accounts Payable |
| 0 |
| 38,485 |
| 38,485 |
| 0 |
|
|
| 38,485 |
Accounts Payable and Accrued Expenses |
| 190,234 |
| 0 |
| 190,234 |
| 0 |
|
|
| 190,234 |
Operating Lease Liability |
| 18,230 |
| 0 |
| 18,230 |
| 0 |
|
|
| 18,230 |
Deferred Revenue |
| 64,696 |
| 0 |
| 64,696 |
| 0 |
|
|
| 64,696 |
Series A Convertible Preferred Stock Dividends Payable |
| 0 |
| 145,017 |
| 145,017 |
| 0 |
|
|
| 145,017 |
Series B Convertible Preferred Stock Dividends Payable |
| 0 |
| 5,741 |
| 5,741 |
| 0 |
|
|
| 5,741 |
Total Current Liabilities |
| 273,160 |
| 189,243 |
| 462,403 |
| 0 |
|
|
| 462,403 |
Non-Current Operating Lease Liability |
| 7,672 |
| 0 |
| 7,672 |
| 0 |
|
|
| 7,672 |
Total Liabilities |
| 280,832 |
| 189,243 |
| 470,075 |
| 0 |
|
|
| 470,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
| 0 |
| 0 |
| 0 |
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value; 10,000,000 total shares authorized; |
| 0 |
| 166 |
| 166 |
| 0 |
|
|
| 166 |
Common Stock, $0.001 par value; 100,000,000 shares authorized; 2,726,669 shares outstanding at December 31, 2019 |
| 0 |
| 2,727 |
| 2,727 |
| 4,545 |
| Ref 1 |
| 7,272 |
Additional Paid-in Capital |
| 0 |
| 21,691,128 |
| 21,691,128 |
| (3,545) |
| Ref 1 |
| 21,687,583 |
Accumulated Earnings/(Deficit) |
|
|
| (15,392,552) |
| (15,392,552) |
| 1,093,686 |
| Ref 2 |
| (14,298,866) |
Common Stock, no par value; 100 shares authorized; 100 shares outstanding |
| 1,000 |
| 0 |
| 1,000 |
| (1,000) |
| Ref 1 |
| 0 |
Shareholder's Equity |
| 1,093,686 |
| 0 |
| 1,093,686 |
| (1,093,686) |
| Ref 2 |
| 0 |
Total Equity |
| 1,094,686 |
| 6,301,469 |
| 7,396,155 |
| 0 |
|
|
| 7,396,155 |
Total Liabilities and Equity |
| $ 1,375,518 |
| $ 6,490,712 |
| $ 7,866,230 |
| $ 0 |
|
|
| $ 7,866,230 |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
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|
|
References: |
|
|
|
|
|
|
|
|
|
|
|
|
Ref 1: Acquired Sales Corp. acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Corporation at the closing of the Merger (the "Warrants"). Please note that the Warrants are not factored into the proforma calculation. | ||||||||||||
Ref 2: Eliminate Lifted Liquids' Shareholder's Equity. | ||||||||||||
108
ACQUIRED SALES CORP. | ||||||||||||
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||
FOR THE YEAR ENDED DECEMBER 31, 2019 | ||||||||||||
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|
|
|
|
|
|
| Lifted Liquids |
| Acquired Sales Corp. |
| Combined Totals |
| Pro Forma Adjustments |
| Ref |
| Adjusted Pro Forma Totals |
Net Sales |
| $ 4,179,420 |
| $ 0 |
| $ 4,179,420 |
| $ 0 |
|
|
| $ 4,179,420 |
Cost of Goods Sold |
| 2,402,851 |
| 0 |
| 2,402,851 |
| 0 |
|
|
| 2,402,851 |
Gross Profit |
| 1,776,569 |
| 0 |
| 1,776,569 |
| 0 |
|
|
| 1,776,569 |
Stock Compensation Expense |
| 0 |
| 874,154 |
| 874,154 |
| 0 |
|
|
| 874,154 |
Selling, General and Administrative Expenses |
| 56,637 |
| 64,734 |
| 121,371 |
| 0 |
|
|
| 121,371 |
Consulting and Independent Contractor Fees |
| 0 |
| 112,500 |
| 112,500 |
| 0 |
|
|
| 112,500 |
Auto Expense |
| 5,622 |
| 0 |
| 5,622 |
| 0 |
|
|
| 5,622 |
Bank Charges and Merchant Fees |
| 49,133 |
| 0 |
| 49,133 |
| 0 |
|
|
| 49,133 |
Bad Debt |
| 25,241 |
| 0 |
| 25,241 |
| 0 |
|
|
| 25,241 |
Payroll Expenses |
| 667,717 |
| 0 |
| 667,717 |
| 0 |
|
|
| 667,717 |
Professional Fees |
| 130,854 |
| 211,543 |
| 342,397 |
| 0 |
|
|
| 342,397 |
Advertising and Marketing |
| 2,757 |
| 0 |
| 2,757 |
| 0 |
|
|
| 2,757 |
Depreciation and Amortization |
| 16,714 |
| 0 |
| 16,714 |
| 0 |
|
|
| 16,714 |
Website |
| 663 |
| 0 |
| 663 |
| 0 |
|
|
| 663 |
Rent Expense |
| 19,200 |
| 0 |
| 19,200 |
| 0 |
|
|
| 19,200 |
Utilities |
| 4,506 |
| 0 |
| 4,506 |
| 0 |
|
|
| 4,506 |
Travel |
| 8,055 |
| 0 |
| 8,055 |
| 0 |
|
|
| 8,055 |
Income (Loss) From Operations |
| 789,470 |
| (1,262,931) |
| (473,461) |
| 0 |
|
|
| (473,461) |
Other Income / (Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Settlement |
| 0 |
| 29,196 |
| 29,196 |
| 0 |
|
|
| 29,196 |
Worker's Compensation Settlement |
| (5,000) |
| 0 |
| (5,000) |
| 0 |
|
|
| (5,000) |
Interest Expense |
| (1,051) |
| (27,998) |
| (29,049) |
| 0 |
|
|
| (29,049) |
Loss From Purchase of Inventory |
| (253,750) |
| 0 |
| (253,750) |
| 0 |
|
|
| (253,750) |
Interest Income |
| 195 |
| 25,628 |
| 25,823 |
| 0 |
|
|
| 25,823 |
Net Income/(Loss) |
| $ 529,864 |
| $ (1,236,105) |
| $ (706,241) |
| $ - |
|
|
| $ (706,241) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per common share, basic and diluted: |
|
|
| $ (0.48) |
|
|
|
|
|
|
| $ (0.10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average number of common shares outstanding: |
|
|
| 2,577,349 |
|
|
| 4,545,455 |
| Ref 1 |
| 7,122,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
References: |
|
|
|
|
|
|
|
|
|
|
|
|
Ref 1: Acquired Sales Corp. acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Corporation at the closing of the Merger (the "Warrants"). Please note that the Warrants are not factored into the proforma calculation. | ||||||||||||
109
ACQUIRED SALES CORP.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On February 24, 2020, 100% of the ownership of Lifted was acquired by Acquired Sales Corp. (“Acquired Sales”) of Lake Forest, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of Acquired Sales (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of Acquired Sales that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to Acquired Sales at the closing of the Merger, and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of Acquired Sales at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to Acquired Sales at the closing of the Merger.
Lifted produces its own lines of cannabinoid-infused products, as well as numerous cannabinoid-infused products for private label clients. In addition, Lifted has a raw goods supply chain that many customers benefit from: CBD and CBG isolate, full spectrum, broad spectrum water soluble, distillate and more.
The following unaudited pro forma financial information includes adjustments to the historical financial statements of Acquired Sales and Lifted that give effect to events that are directly attributable to the transaction and factually supportable. The following unaudited pro forma consolidated balance sheet has been prepared to present the effects on the historical financial position of Acquired Sales and Lifted as though the Merger had occurred on December 31, 2019. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2019 has been prepared to present the effects on the historical results of operations of Acquired Sales and Lifted assuming the Merger had occurred at the beginning of the period.
The accompanying pro forma financial information includes only the issuance of securities issued through December 31, 2019, and management has no obligation to update this pro forma information for events or transactions occurring after that date. However, if additional securities are issued, the effects of those issuances would affect the pro forma information included herein. The unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the combined results of operations to be expected in any future period or the results that actually would have been realized had the entities been combined during the year ended December 31, 2019.
ACQUIRED SALES CORP.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
Acquisition of 100% of Lifted by Acquired Sales Corp.
Pursuant to an Agreement and Plan of Merger by and among Acquired Sales Corp., Lifted Liquids, Inc. (“Lifted”), Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc., and Nicholas S. Warrender, dated as of January 7, 2020, on February 24, 2020 Warrender Enterprise Inc. merged with and into Lifted, with Lifted being the survivor of the merger.
On February 24, 2020, 100% of the ownership of Lifted was acquired by Acquired Sales Corp. (“Acquired Sales”) of Lake Forest, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of Acquired Sales (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of Acquired Sales that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to Acquired Sales at the closing of the Merger, and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of Acquired Sales at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to Acquired Sales at the closing of the Merger.
Pursuant to the Merger, Lifted is now operating as a wholly-owned subsidiary of Acquired Sales, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.
110
Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.
From the date of acquisition (February 24, 2020) on, Lifted will be fully consolidated within Acquired Sales’ financial statements.
Proposed Transaction Accounting Treatment
These pro forma consolidated financial statements have been compiled from and include:
a)A pro forma consolidated balance sheet combining the audited balance sheet of Lifted and the audited balance sheet of Acquired Sales as of December 31, 2019, giving the effect to the transaction as if it had occurred on December 31, 2019; and
b)A pro forma consolidated statement of operations combining the audited statement of operation of Lifted and the audited statement of operation of Acquired Sales for the year ended December 31, 2019, giving the effect to the transaction as if it had occurred on January 1, 2019.
The pro forma financial consolidated statements have been compiled using the significant accounting policies as set out in the audited financial statements of Acquired Sales and Lifted for the periods presented.
There are no material differences in the rights of the Company’s shareholders as a result of the Merger, as the nature of the shares of common stock of the Company has not changed due to the Merger. However, there has been stockholder dilution with additional shares and warrants outstanding.
The accounting treatment of the Merger is that the Company is deemed to be the accounting acquirer of Lifted, and Lifted is deemed to be the accounting acquiree, under the acquisition method of accounting.
The federal income tax consequences of the Merger are as follows: The transaction is expected to be booked as a tax-free exchange of stock pursuant to Internal Revenue Code Section 368, resulting in no federal income tax consequences of the stock portion of the transaction.
The unaudited pro forma consolidated financial statements give effect to the following adjustments (“References” or “Ref”):
References:
Ref 1: Acquired Sales Corp. acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Corporation at the closing of the Merger (the "Warrants"). Please note that the Warrants are not factored into the proforma calculation.
Ref 2: Eliminate Lifted Liquids' Shareholder's Equity.
111
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Acquired Sales Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Acquired Sales Corp. (“the Company”) as of December 31, 2019 and 2018, and the related statements of operations, changes in shareholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two-year then ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit, net losses, and did not generate revenue during 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2018.
Spokane, Washington
March 30, 2020
112
ACQUIRED SALES CORP. | ||||
BALANCE SHEETS | ||||
| December 31, | |||
|
| 2019 |
| 2018 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and Cash Equivalents |
| $4,384,929 |
| - |
Prepaid Expenses |
| 9,583 |
| - |
Note Receivable from CBD LION |
| 200,000 |
|
|
Total Current Assets |
| 4,594,512 |
| - |
Investment in Ablis |
| 399,200 |
| - |
Investment in Bendistillery and Bend Spirits |
| 1,497,000 |
| - |
Total Assets |
| $6,490,712 |
| $- |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts Payable - Related Party |
|
|
|
|
Accounts Payable - Related Party - Payable to William C. Jacobs |
| $- |
| $164,417 |
Accounts Payable - Related Party - Payable to Gerard M. Jacobs |
| - |
| 24,583 |
Accounts Payable - Related Party - Payable to Other Related Party |
| - |
| 4,000 |
Accounts Payable - Related Party |
| - |
| 193,000 |
Accounts Payable |
| 38,485 |
| 113,450 |
Notes Payable - Related Party |
|
|
|
|
Notes Payable - Payable to Joshua A. Bloom |
| - |
| 20,025 |
Notes Payable - Payable to Gerard M. Jacobs |
| - |
| 10,766 |
Notes Payable - Related Party |
| - |
| 30,791 |
Interest Payable - Related Party |
|
|
|
|
Interest - Payable to Joshua A. Bloom |
| - |
| 914 |
Interest - Payable to Gerard M. Jacobs |
| - |
| 467 |
Interest Payable - Related Party |
| - |
| 1,381 |
Preferred Stock Dividends Payable |
|
|
|
|
Series A Convertible Preferred Stock Dividends Payable |
| 145,017 |
| - |
Series B Convertible Preferred Stock Dividends Payable |
| 5,741 |
| - |
Preferred Stock Dividends Payable |
| 150,758 |
| - |
Total Current Liabilities |
| $189,243 |
| $338,622 |
Commitments and Contingencies |
| - |
| - |
Shareholders' Equity |
|
|
|
|
Preferred Stock, $0.001 par value; 10,000,000 total shares authorized; |
| 166 |
| - |
Common Stock, $0.001 par value; 100,000,000 shares authorized; 2,726,669 and 2,369,648 shares outstanding at December 31, 2019 and December 31, 2018, respectively |
| 2,727 |
| 2,370 |
Additional Paid-in Capital |
| 21,691,128 |
| 13,664,697 |
Accumulated Deficit |
| (15,392,552) |
| (14,005,689) |
Total Shareholders' Equity (Deficit) |
| 6,301,469 |
| (338,622) |
Total Liabilities and Shareholders' Equity |
| $6,490,712 |
| $- |
The accompanying notes are an integral part of these financial statements. | ||||
113
ACQUIRED SALES CORP. | |||
STATEMENTS OF OPERATIONS | |||
| For the Years Ended | ||
| December 31, | ||
| 2019 |
| 2018 |
Selling, General and Administrative Expenses | $(64,734) |
| $(11,299) |
Stock Compensation Expense | (874,154) |
| (72,500) |
Consulting and Independent Contractor Fees | (112,500) |
| (60,000) |
Professional Fees | (211,543) |
| (37,767) |
Loss From Operations | (1,262,931) |
| (181,566) |
Gain on Settlement | 29,196 |
| - |
Interest Income | 25,628 |
| - |
Interest Expense | (27,998) |
| (39,055) |
Total Other Income | 26,826 |
| (39,055) |
Loss Before Provision for Income Taxes |
|
|
|
Provision for Income Taxes | - |
| - |
Net Loss | $(1,236,105) |
| $(220,621) |
|
|
|
|
Basic and Diluted Net Loss per Share | $(0.48) |
| $(0.09) |
|
|
|
|
Basic and Diluted Weighted Average Number of Common Shares Outstanding: | 2,577,349 |
| 2,369,648 |
The accompanying notes are an integral part of these financial statements.
114
ACQUIRED SALES CORP. | |||||||||||||
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) | |||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2019 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
| Total |
| Preferred Stock |
| Common Stock |
| Paid-in |
| Accumulated |
| Shareholders' | ||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity |
Balance, December 31, 2017 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,554,524 |
| $(13,785,068) |
| $(228,174) |
Net Loss |
|
|
|
|
|
|
|
|
|
| $(20,068) |
| $(20,068) |
Balance, March 31, 2018 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,554,524 |
| $(13,805,136) |
| $(248,242) |
Stock Compensation Expense |
|
|
|
|
|
|
|
| $72,500 |
|
|
| $72,500 |
Net Loss |
|
|
|
| - |
| - |
| - |
| $(91,401) |
| $(91,401) |
Balance, June 30, 2018 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,627,024 |
| $(13,896,537) |
| $(267,143) |
Issuance of warrants to purchase common stock |
|
|
|
|
|
|
|
| $4,550 |
|
|
| $4,550 |
Net Loss |
|
|
|
|
|
|
|
|
|
| $(34,807) |
| $(34,807) |
Balance, September 30, 2018 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,631,574 |
| $(13,931,344) |
| $(297,400) |
Net Loss |
|
|
|
|
|
|
|
| $33,123 |
| $(74,345) |
| $(41,222) |
Balance, December 31, 2018 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,664,697 |
| $(14,005,689) |
| $(338,622) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,664,697 |
| $(14,005,689) |
| $(338,622) |
Exercise of rights to purchase warrants to purchase shares of common stock |
|
|
|
| 210,000 |
| $210 |
| $1,892 |
|
|
| $2,102 |
Issuance of warrants to purchase common stock |
|
|
|
|
|
|
|
| $26,773 |
|
|
| $26,773 |
Issuance of Series A Convertible Preferred Stock for cash | 29,900 |
| $30 |
|
|
|
|
| $2,989,970 |
|
|
| $2,990,000 |
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(18,552) |
| $(18,552) |
Net Loss |
|
|
|
| - |
| - |
|
|
| $(44,440) |
| $(44,440) |
Balance, March 31, 2019 | 29,900 |
| $30 |
| 2,579,648 |
| $2,580 |
| $16,683,332 |
| $(14,068,681) |
| $2,617,261 |
Issuance of Series A Convertible Preferred Stock for cash | 36,250 |
| $36 |
|
|
|
|
| $3,624,964 |
|
|
| $3,625,000 |
Stock Compensation Expense |
|
|
|
|
|
|
|
| $834,186 |
|
|
| $834,186 |
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(26,425) |
| $(26,425) |
Net Loss |
|
|
|
| - |
| - |
|
|
| $(896,815) |
| $(896,815) |
Balance, June 30, 2019 | 66,150 |
| $66 |
| 2,579,648 |
| $2,580 |
| $21,142,482 |
| $(14,991,921) |
| $6,153,207 |
Exercise of warrants |
|
|
|
| 147,021 |
| $147 |
| $8,778 |
|
|
| $8,925 |
Issuance of Series B Convertible Preferred Stock for cash | 90,000 |
| $90 |
|
|
|
|
| $449,910 |
|
|
| $450,000 |
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(50,020) |
| $(50,020) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(2,232) |
| $(2,232) |
Stock Compensation Expense |
|
|
|
|
|
|
|
| $37,961 |
|
|
| $37,961 |
Net Loss |
|
|
|
|
|
|
|
|
|
| $(146,466) |
| $(146,466) |
Balance, September 30, 2019 | 156,150 |
| $156 |
| 2,726,669 |
| $2,727 |
| $21,639,131 |
| $(15,190,639) |
| $6,451,375 |
Issuance of Series B Convertible Preferred Stock for cash | 10,000 |
| $10 |
|
|
|
|
| $49,990 |
|
|
| $50,000 |
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(50,020) |
| $(50,020) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(3,509) |
| $(3,509) |
Stock Compensation Expense |
|
|
|
|
|
|
|
| $2,007 |
|
|
| $2,007 |
Net Loss |
|
|
|
|
|
|
|
|
|
| $(148,384) |
| $(148,384) |
Balance, December 31, 2019 | 166,150 |
| $166 |
| 2,726,669 |
| $2,727 |
| $21,691,128 |
| $(15,392,552) |
| $6,301,469 |
The accompanying notes are an integral part of these financial statements.
115
ACQUIRED SALES CORP. | ||||
STATEMENTS OF CASH FLOWS | ||||
| ||||
|
| For the Years Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
Cash Flows From Operating Activities |
|
|
|
|
Net Loss |
| $(1,236,105) |
| $(220,621) |
Adjustments to Reconcile Loss to Net Cash Used in Operating Activities: |
|
|
|
|
Stock Compensation Expense |
| 874,154 |
| 72,500 |
Financing Cost - Issuance of Warrants to Purchase Common Stock |
| 26,773 |
| 37,673 |
Changes in Operating Assets and Liabilities: |
|
|
|
|
Prepaid Expenses |
| (9,583) |
| - |
Accounts Payable to Related Parties |
| (191,776) |
| 71,251 |
Accounts Payable |
| (74,965) |
| 7,025 |
Net Cash Used in Operating Activities |
| (611,502) |
| (32,172) |
Cash Flows From Investing Activities |
|
|
|
|
Investment in Ablis |
| (399,200) |
| - |
Investment in Bendistillery and Bend Spirits |
| (1,497,000) |
| - |
Receipt of CBD Lion Loan Repayments |
| 100,000 |
|
|
Loan to CBD Lion |
| (300,000) |
| - |
Net Cash Used in Investing Activities |
| (2,096,200) |
| - |
Cash Flows From Financing Activities |
|
|
|
|
Financing Cost - Proceeds From Borrowing Under Notes Payable to Related Parties |
| 14,772 |
| 30,791 |
Financing Cost - Repayment of Borrowings Under Notes Payable to Related Parties |
| (45,562) |
| - |
Financing Cost - Repayment of Interest Payable to Related Parties |
| (2,606) |
| - |
Financing Cost - Interest Payable to Related Parties |
| - |
| 1,381 |
Exercise of Warrants |
| 11,027 |
| - |
Issuance of Series A Convertible Preferred Stock |
| 6,615,000 |
| - |
Issuance of Series B Convertible Preferred Stock |
| 500,000 |
| - |
Net Cash Provided by Financing Activities |
| 7,092,631 |
| 32,172 |
Net Increase/(Decrease) in Cash |
| 4,384,929 |
| - |
Cash and Cash Equivalents at Beginning of Year |
| - |
| - |
Cash and Cash Equivalents at End of Year |
| $4,384,929 |
| $- |
|
|
|
|
|
|
| For the Years Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
Supplemental Cash Flow Information |
|
|
|
|
Cash paid for interest |
| $2,606 |
| $- |
Cash paid for income taxes |
| $- |
| $- |
The accompanying notes are an integral part of these financial statements.
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NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – Acquired Sales Corp. (hereinafter sometimes referred to as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986.
Our business involves acquiring all or a portion of operating businesses involving the manufacture, sale and distribution of cannabinoid-infused products such as beverages, lotions, oils, hemp joints and cigarettes, tinctures, bath bombs, balms, body washes, gummies, food, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). In order to consummate a particular acquisition of a Canna-Infused Products Company, management of the Company is open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such Canna-Infused Products Company, for example operating businesses and/or assets involving distilled spirits, beer, wine, paraphernalia and real estate.
To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company d/b/a Lifted Made, 4.99% of the ownership interests in a second Canna-Infused Products Company called Ablis Holding Company ("Ablis"), and 4.99% of the ownership interests in two other businesses that manufacture distilled spirits called Bendistillery Inc. ("Bendistillery") and Bend Spirits, Inc. ("Bend Spirits").
For more information, please refer to “Description of the Business of Acquired Sales Corp.” and to "The Lifted Made Business" under the section “ITEM 1. BUSINESS” above.
Use of Estimates – The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Key estimates in these financial statements include the allowance for doubtful accounts, inventory write-downs, estimated useful lives of property, plant and equipment, valuation allowance on deferred income tax assets and the fair value of stock options.
Cash and Cash Equivalents – Cash and cash equivalents as of December 31, 2019 and 2018 included cash on-hand. Cash equivalents are considered all accounts with an original maturity date within 90 days. Cash equivalents are carried at cost.
Notes Receivable – Notes receivable are classified on the balance sheet based on their maturity date.
Fair Value of Financial Instruments – The carrying amount of the financial instruments, which principally include cash, notes receivables, accounts payable and accrued expenses, approximates fair value due to the relative short maturity of such instruments.
Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities
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Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quotes prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Investments – Under US GAAP, the Company uses the cost method to account for our minority equity ownership interests in businesses in which the Company owns less than 20% of equity ownership, and have no substantial influence over the management of the businesses. Under the cost method of accounting, the Company reports the historical costs of the investments as assets on its balance sheet. However, US GAAP does not permit the consolidation of its financial statements with the financial statements of companies in which the Company owns minority equity ownership interests. US GAAP also requires the Company to record these types of investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As such, the Company will not be allowed to consolidate into its financial statements any portion of the revenues, earnings or assets of companies in which it owns minority equity ownership interests such as Ablis, Bendistillery and Bend Spirits. Moreover, even if there is evidence that the fair market values of the investments have increased above their historical costs, US GAAP does not allow increasing the recorded values of the investments. Under US GAAP, the only adjustments that may be made to the historical costs of the investments are write downs of the values of the investments, which must be made if there is evidence that the fair market values of the investments have declined to below the recorded historical costs.
Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.
Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the years ended December 31, 2019 and 2018.
|
| For the Year Ended | ||
|
| December 31, | ||
|
| 2019 |
| 2018 |
Net Loss |
| $ (1,236,105) |
| $ (220,621) |
Weighted-Average Shares Outstanding |
| 2,577,349 |
| 2,369,648 |
|
|
|
|
|
Basic and Diluted Earnings Loss per Share |
| $ (0.48) |
| $ (0.09) |
At December 31, 2019, there were outstanding options to purchase 1,586,619 shares of common stock at between $0.001 and $2.00 per share, (b) rights to purchase warrants to purchase 2,625,000 shares of common stock at between $0.01 and $1.85 per share, and (c) financing warrants to purchase 31,250 shares of common stock at $0.03. As of the date of this prospectus, none of these outstanding options, rights to purchase warrants or financing warrants have been exercised into shares of common stock. However, all of them may be exercised at any time in
118
the sole discretion of the holder except for the rights to purchase warrants to purchase 1.25 million shares of our commons stock, are not exercisable until a performance contingency is met.
At December 31, 2019, the Company had Series A Preferred Stock outstanding convertible into 6,615,000 shares of common stock. In addition, the Company has accepted subscriptions from four accredited investors to purchase 100,000 shares of Series B Preferred Stock for an aggregate purchase price of $500,000 in cash, convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company, or $5.00 per share of common stock of the Company. None of these are including in the diluted earnings calculation, given they are considered antidilutive.
In comparison, at December 31, 2018, there were outstanding options to purchase 1,186,132 shares of common stock at between $0.001 and $0.60 per share, (b) rights to purchase warrants to purchase 2,950,000 shares of common stock at between $0.01 and $1.85 per share, and (c) financing warrants to purchase 37,500 shares of common stock at $0.03. As of the date of this prospectus, none of these outstanding options, rights to purchase warrants or financing warrants have been exercised into shares of common stock. However, all of them may be exercised at any time in the sole discretion of the holder except for the rights to purchase warrants to purchase 1.25 million shares of our commons stock, are not exercisable until a performance contingency is met.
Recent Accounting Pronouncements – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact of ASU 2019-12 on its financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. The accounting for any hosting contract is unchanged. ASU 2018-15 is effective on January 1, 2020 with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact of ASU 2019-12 on its financial statements.
Off Balance Sheet Arrangements – We have no off balance sheet arrangements.
NOTE 2 - RISKS AND UNCERTAINTIES
Going Concern – The Company has a history of recurring losses which have resulted in an accumulated deficit of $15,392,552 as of December 31, 2019. During the year ended December 31, 2019, the Company recognized a net loss of $1,236,105.
As of December 31, 2019, the Company did not have any business or any sources of revenue. As a result, there is substantial doubt that the Company will be able to continue as a going concern. Bankruptcy of the Company at some point in the future is a possibility. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company currently has no revenue-generating subsidiaries. Management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.
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The Company’s investments in Ablis, Bendistillery and Bend Spirits made the Company a minority owner of these companies. As a minority owner, the Company is not able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements. The Company monitors its investments in Ablis, Bendistillery and Bend Spirits, and from time to time and will evaluate whether there has been a potential impairment of value.
NOTE 3 – THE COMPANY’S INVESTMENTS IN ABLIS, BENDISTILLERY AND BEND SPIRITS
On April 30, 2019, the Company purchased 4.99% of the common stock of each of Ablis Holding Company, Bendistillery Inc., and Bend Spirits, Inc. for an aggregate purchase price of $1,896,200. The Company’s investments in Ablis, Bendistillery and Bend Spirits made the Company a minority owner of these companies. As a minority owner, the Company will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements.
Pursuant to US GAAP, the Company is obligated to periodically review its investments. The Company has limited ability to comment on these companies’ operations and financial performance. The Company’s ability to review the financial performance of its investment in these companies is limited: the financial statements of these companies are not audited; the Company is not active in the management of these companies; and these companies have not held meetings of their boards of directors since the closing of our investment. Consequently, the Company’s assessment of these companies is inherently limited to infrequent and relatively brief conversations with officers of these companies, and to reviews of unaudited financial statements that are delivered to us on an irregular basis.
Based on the financial and non-financial information regarding the year ended December 31, 2019, that the management of Ablis, Bendistillery and Bend Spirits provided to the Company in a conference call held on March 9, 2020, the Company has concluded that an impairment of its investment in these companies as of December 31, 2019 is not warranted. The factors that led the Company to the conclusion that an impairment of its investment in these companies has of December 31, 2019 is not warranted includes, among other things: positive sales trends during recent months; indications of the Companies’ ability to maintain profitability; and certain initiatives that are being undertaken by these companies in regard to leadership, sales representatives, and product distribution and pricing.
NOTE 4 – NOTES RECEIVABLE
CBD Lion LLC
On August 8, 2019, the Company made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”) in connection with the proposed Merger Agreement with Lion. Per the terms of the Note, if the Transaction did not close and the merger agreement were terminated, then the Loan was to be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement. The Merger Agreement was terminated by the Company on November 14, 2019 and the Note became payable. During December 2019, the principal of the Note was repaid by Lion down to $200,000, and Lion also paid the accrued interest on the Note of $6,945.
Due to termination of the Merger Agreement, and per Section 5.15(b) of the Merger Agreement, as of December 31, 2019 the Company owed CBD Lion $31,500 for reimbursement of professional fees related to the audit of CBD Lion.
This left Lion with a net balance owed to the Company of $168,500 as of December 31, 2019. In March 2020, Lion and the Company agreed that the repayment of such $168,500 will be made in eleven equal monthly installments of principal due and payable by Lion to the Company on the first day of each calendar month starting on April 1, 2020, and that no additional interest will accrue. Imputed interest on the remaining amounts owed by Lion to the Company will be evaluated during the first quarter of 2020.
120
The William Noyes Webster Foundation, Inc.
The Foundation, a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana dispensary in Dennis, Massachusetts. Jane W. Heatley (“Heatley”) is the founder and a member of the board of directors of the Foundation.
Teaming Agreement – The Company believes it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, the Company entered into a Teaming Agreement (the "Teaming Agreement") with Heatley, in which, among other things: (1) the Company and Heatley agreed to use their respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which the Company will provide capital and expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. The Company claims that Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that the Company violated the Teaming Agreement alleging that the Company failed to lend funds to the Foundation in accordance with the Teaming Agreement. The Company believes Heatley's claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that the Company will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.
Promissory Note – On July 14, 2014, the Foundation signed and delivered to the Company a Secured Promissory Note (the "Note") which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $1,500,000 loan may be advanced in one or more installments as the Foundation and the Company may mutually agree upon. The Foundation and the Company mutually agreed that the first installment of this loan would be $602,500. Pursuant to instructions from the Foundation, on July 14, 2014, the Company paid $2,500 owed by the Foundation to one of its consultants, and the Company advanced $600,000 directly to the Foundation. The amount and timing of subsequent loan installments under the Note, which could have totaled $897,500, had not yet been mutually agreed upon between the Foundation and the Company as of the date of the Note.
Between April and July 2015, the Company loaned an additional $135,350 to the Foundation, evidenced by the Note and secured by the Security Agreement. Following such additional loans, the principal of the loan from the Company to the Foundation, evidenced by the Note and secured by the Security Agreement, is now $737,850. The principal balance outstanding under the Note bore interest at the rate of 12.5% per annum, compounded monthly. It was contemplated that the first payment of accrued interest by the Foundation under the Note would be made as soon after the Foundation commences operations of the Plymouth Cultivation Facility and the Dennis Dispensary as the Foundation's cash flows shall reasonably permit, but in any event no later than one year after the Foundation commences operations. The principal of the Note would be payable in eight consecutive equal quarterly installments, commencing on the last day of the calendar quarter in which the Foundation commences operations. Principal on the Note and related accrued interest would be considered past due if the aforementioned payments were not received by their due dates.
Uncollectable Note and Interest Receivable – The Company assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, the Company concluded that Note and interest receivable would not be collectible. As such, the Company wrote off the Note totaling $737,850 and interest receivable totaling $97,427 as bad debt expense on September 1, 2015.
NOTE 5 – TRANSACTIONS WITH RELATED PARTIES
On June 21, 2016, a company affiliated with Gerard M. Jacobs, Chief Executive Officer of Acquired Sales, made a non-interest bearing loan of $4,000 to the Company, which is payable upon demand.
At December 31, 2019, there are no expense reimbursements owed to Gerard M. Jacobs. In comparison, at December 31, 2018, there were expense reimbursements owed to Gerard M. Jacobs totaling $24,583.
121
At December 31, 2019, there was a prepaid consulting fee of $7,500 paid to Gerard M. Jacobs. In comparison, at December 31, 2018, there were no prepaid consulting fees paid to Gerard M. Jacobs.
At December 31, 2019, there are no independent contractor fees or expense reimbursements owed to William C. Jacobs. In comparison, at December 31, 2018, there were independent contractor fees of $160,000 and expense reimbursements of $4,417 owed to William C. Jacobs totaling $164,417. William C. Jacobs is the son of Gerard M. Jacobs, Chief Executive Officer of Acquired Sales, and the nephew of director James S. Jacobs.
Financing Warrants – On July 13, 2018, the Audit Committee, Compensation Committee, and full Board of Directors of AQSP approved by unanimous written consent borrowings by AQSP on the following terms:(1) proceeds of the borrowings will be used to pay professional fees owed to our outside auditors, our stock transfer agent, and our securities counsel, and to pay other obligations of AQSP; (2) the borrowings will be evidenced by promissory notes of AQSP, accruing interest at the rate of 15% annually; (3) the notes will be jointly secured by a first lien security interest in all of the assets of AQSP, pursuant to a security agreement signed by AQSP in favor of the lenders, UCC filings in favor of the lenders, and a pledge to the lenders of the note payable by the William Noyes Webster Foundation Inc. to AQSP; (4) the notes shall be due and payable upon demand by the lenders delivered to AQSP; and (5) for each $1,000 loaned by AQSP on these terms, the lender of such $1,000 shall receive warrants to purchase 1,250 shares of common stock of AQSP, at an exercise price of $0.03 per share, exercisable at the discretion of such lender any time on or before July 16, 2023.
As of December 31, 2018, a total of $30,791 had been borrowed by AQSP on such terms, and warrants to purchase 25,000 shares of common stock of AQSP had been issued to Joshua A. Bloom and warrants to purchase 12,500 shares of common stock of AQSP had been issued to Gerard M. Jacobs. These loans were fully repaid by the Company on March 13, 2019.
The warrants to purchase common stock that were issued to Joshua A. Bloom and Gerard M. Jacobs on July 16, 2018 and July 18, 2018 were valued using the Black-Scholes valuation model as of the date they were issued. The values of these warrants were fully expensed because the notes were payable upon demand. The expense recognized related to the issuance of the warrants to Joshua A. Bloom on July 16, 2018 was $3,250. Gerard M. Jacobs’ warrants were issued to him on July 18, 2018, and the expense recognized related to the issuance of these warrants was $1,300.
The warrants to purchase common stock that were issued to Gerard M. Jacobs on November 8, 2018, and to Joshua A. Bloom on November 12, 2018, were valued using the Black-Scholes valuation model, which incorporated the following assumptions: expected future stock volatility 465%; risk-free interest rates of 2.98% and 2.94%, respectively; dividend yield of 0% and an expected terms of 2.38 years and 2.37 years, respectively. The expected future stock volatility was based on the volatility of Acquired Sales Corp.’s historical stock prices. The risk-free interest rate was based on the U.S. Federal treasury rate for instruments due over the expected term of the warrants. The expected term of each warrant was based on the midpoint between the date the warrant vests and the contractual term of the warrant. The values of the warrants were fully expensed as of the date of issuance because they are payable upon demand. The expense recognized related to the issuance of the warrants to Gerard M. Jacobs on November 8, 2018 was $11,250. The expense recognized related to the issuance of the warrants to Joshua A. Bloom on November 12, 2018 was $21,874.
NOTE 6 – SHAREHOLDERS’ EQUITY
Share-Based Compensation – Share-based compensation expense recognized during the years ended December 31, 2019 and 2018 was $874,154 and $72,500, respectively.
Share-Based Compensation in 2019
During the year ended December 31, 2019, we issued warrants to purchase a total of 416,942 unregistered shares of our common stock at $1.00 per share to our investment bankers and finders. Using the Black-Scholes valuation model for each issuance, we recorded total share-based compensation expense of $874,154 for the issuances of these warrants.
122
The following is a summary of share-based compensation, stock option and warrant activity as of December 31, 2019 and changes during the year then ended:
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value |
Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, December 31, 2018 | 2,923,632 | $ 0.87 | 4.93 | $ 2,410,100 |
Financing Warrants Issued During Q1 2019 | 18,750 |
|
|
|
Warrants Granting the Right to Purchase Shares of Common Stock Issued During Q2 2019 | 410,942 |
|
|
|
Options that Expired During Q2 2019 | (9,434) |
|
|
|
Rights to Purchase Warrants to Purchase Shares of Common Stock Exercised During Q1 2019 | (210,000) |
|
|
|
Warrants Granting the Right to Purchase Shares of Common Stock Issued During Q3 2019 | 5,400 |
|
|
|
Warrants exercised during Q3 2019 | (147,021) |
|
|
|
Warrants Granting the Right to Purchase Shares of Common Stock Issued During Q4 2019 | 600 |
|
|
|
Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, December 31, 2019 | 2,992,869 | $ 0.97 | 3.47 | $ 4,570,144 |
Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, December 31, 2019 | 4,242,869 | $ 1.23 | 3.92 | $ 5,382,644 |
Share-Based Compensation in 2018
On April 1, 2018, we issued to director James S. Jacobs and to William C. Jacobs, then an independent contractor and now our President and CFO, rights to purchase warrants, for an aggregate purchase price of $2.00, an aggregate of 250,000 shares of common stock of the Company (40,000 to James S. Jacobs, and 210,000 to William C. Jacobs), at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. Using the Black-Scholes valuation model, we recorded total stock compensation expense of $72,500 related to these rights to purchase warrants; this consists of $11,600 of stock compensation for the rights to purchase warrants issued to James S. Jacobs, and $60,900 of stock compensation for the rights to purchase warrants issued to William C. Jacobs.
NOTE 7 – INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduced the U.S. federal statutory tax rate, broadened the corporate tax base through the elimination or reduction of deductions, exclusions, and credits, limited the ability of U.S. corporations to deduct interest expense, and transitioned to a territorial tax system which allows for the repatriation of foreign earnings to the U.S. with a 100% federal dividends received deduction prospectively. In addition, the Tax Act required a one-time transitional tax on foreign cash equivalents and previously unremitted earnings. Several of the new provisions enacted as part of the Tax Act require clarification and guidance from the U.S. Internal Revenue Service (“IRS”) and Treasury Department. These or other changes in U.S. tax laws could impact our profits, effective tax rate, and cash flows.
123
During the years ended December 31, 2019 and 2018, the Company did not incur any current tax on its continuing operations and there was no deferred tax provision or benefit from continuing operations. At December 31, 2019, the Company has total U.S. Federal net operating loss carry forwards of $2,440,592. $1,968,244 of the total net operating loss carryforwards were generated from tax years prior to January 1, 2018 and expire between December 31, 2029 and December 31, 2037. The remaining $472,349 in net operating loss carryforwards have an indefinite carryforward period and can only offset 80% of taxable income.
As of December 31, 2019, the Company had no unrecognized tax benefits that, if recognized, would affect the Company’s effective income tax rate over the next 12 months. The Company currently believes that all significant filing positions are highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions and no adjustments to such reserves were required by generally accepted accounting principles. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company’s tax returns are subject to examination for the years ended December 31, 2014 through 2018. A reconciliation of the amount of tax benefit computed using the U.S. federal statutory income tax rate to the provision for income taxes on continuing operations is as follows:
|
|
| For the Years Ended | |
|
|
| December 31, | |
|
|
| 2019 | 2018 |
Tax expenses (benefit) at statutory rate (21%) | $(254,542) | $(46,330) | ||
Non-deductible expenses |
| $2,606 | 276 | |
Revision of prior years' deferred tax assets | $12,600 | (30,034) | ||
Change in valuation allowance |
| $239,337 | (1,488,585) | |
Provision for Income Taxes |
| $- | $- | |
The decrease in the valuation allowance in 2018 was the result of the decrease in corporate tax rate as a result of the Tax Act; had the corporate tax rate stayed the same in 2018 as it were in 2017, the valuation allowance would have increased by $111,835 in 2018. The tax effects of temporary differences and carry forwards that gave rise to the net deferred income tax asset as of December 31, 2019 and 2018 were as follows:
|
| December 31, | |||
|
| 2019 | 2018 | ||
Operating loss carry forwards |
| $ | 484,157 |
| $428,393 |
Stock-based compensation |
|
| 1,816,938 |
| 2,874,127 |
Other |
|
| 0 |
| 233 |
Less: Valuation allowance |
|
| (2,301,095) |
| (2,061,891) |
Net Deferred Income Tax Asset |
| $ | - |
| $- |
The deferred tax asset valuation allowance increased by $239,204 and decreased by $1,488,585 during the years ended December 31, 2019 and 2018, respectively.
NOTE 8 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Payment of Finders’ Fees Related to Ablis
The Company has agreed to pay finders’ fees to two finders in regard to the potential purchase of an additional 15% of the stock of Ablis. The Company has agreed to pay those two finders additional warrants to purchase shares of common stock of the Company at an exercise price of $1 per share exercisable at any time on or before April 30, 2024; in the event that the Company closes on the purchase of up to an additional 15% of the common stock of Ablis, then the total amount of such warrants will be 2,814 unregistered shares of common stock of AQSP at an exercise price of $1 per share for each additional one percent of Ablis’ common stock so purchased (a maximum issuance of warrants to purchase an aggregate of 42,210 unregistered shares of common stock of the Company at an exercise price of $1 per share).
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Previously, on April 30, 2019, the Company issued warrants to purchase 14,042 unregistered shares of common stock of the Company, issued to the two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis. Using the Black-Scholes valuation model, these warrants were valued and expensed as being worth $40,708.
Payment of Brokers’ Fees Related to the Sale of Preferred Stock
The Company has committed to pay brokers’ fees in regard to the capital being raised for the Company by such brokers in the Company’s private placements of preferred stock, such fee to consist of warrants to purchase unregistered shares of common stock of the Company at an exercise price equal to the conversion price per share of such preferred stock, exercisable at any time during a five year period; the number of such shares will be calculated as six percent of the aggregate capital raised by such brokers in the private placement of preferred stock divided by the conversion price per share of such preferred stock.
In 2019, warrants to purchase 402,900 unregistered shares of common stock of the Company were issued to these brokers. Using the Black-Scholes valuation model, these warrants were valued and expensed as being worth $833,446.
Potential Issuance of Warrants to Purchase Shares of Common Stock of the Company
The Compensation Committee of the Company's Board of Directors may, from time to time, recommend that certain warrants to purchase shares of common stock of the Company should be issued to new or current members of the Company’s Board of Directors, to officers and employees of the Company and its subsidiaries, or to members of any advisory board or consultants to the Company.
Amounts Payable to Gerard M. Jacobs and William C. Jacobs
The Company’s CEO Gerard M. Jacobs runs the Company’s operations on a part-time basis and is compensated with equity. Gerard M. Jacobs has not historically received cash compensation, and, historically, the Company’s President and CFO William C. “Jake” Jacobs has worked for $5,000 per month. Effective as of June 19, 2019 through the earlier of the closing of the Company’s acquisition of CBD Lion LLC, which is now terminated or the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) (“Lifted”), the Company has agreed to pay Gerard M. Jacobs and William C. “Jake” Jacobs consulting fees of $7,500 and $5,000 per month, respectively. In addition, upon the closing of the acquisition described herein, their salaries, equity incentives, expense reimbursements and bonuses will increase. There are also to be significant bonuses awarded to Gerard M. Jacobs and William C. “Jake” Jacobs in the event that the Company closes on the acquisition of Lifted, and in the event that the Company raises $15 million and $25 million, as described in the current report on Form 8-K, and its exhibit, filed with the SEC on or about June 25, 2019. Please note that as of December 31, 2019, the Company had not yet closed on its acquisition of Lifted, and the Company had not raised $15 million and $25 million, so no accruals for the bonuses triggered by these events had been made. As of March 22, 2020, the Company has closed on the acquisition of Lifted, and the bonuses have been accrued for but have not yet paid. The Company has not yet raised $15 million or $25 million.
Professional Contracts
In June 2019, the Company executed annual engagement contracts with its stock transfer agent and its securities attorney; the Company has a prepaid balance with its stock transfer agent.
NOTE 9 – SUBSEQUENT EVENTS
Subsequent to the 12 month period ended December 31, 2019, all necessary Board approvals, Board Investment Committee approvals and stockholder approvals for the Lifted transaction were given on January 4, 2020, and January 10, 2020, respectively.
Acquisition of 100% of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids)
On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for
125
consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger, and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger.
Pursuant to the Merger, Lifted Liquids, Inc. d/b/a Lifted Made, an Illinois corporation ("Lifted" or "Lifted Made"), is now operating as a wholly-owned subsidiary of the Company, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.
Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.
From the date of acquisition (February 24, 2020) on, Lifted will be fully consolidated within the Company’s financial statements.
Remaining Payment Obligations of CBD Lion to the Company
On August 8, 2019, the Company made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”) in connection with the proposed Merger Agreement with Lion. Per the terms of the Note, if the Transaction did not close and the merger agreement were terminated, then the Loan was to be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement. The Merger Agreement was terminated by the Company on November 14, 2019 and the Note became payable. During December 2019, the principal of the Note was repaid by Lion down to $200,000, and Lion also paid the accrued interest on the Note of $6,945.
Due to termination of the Merger Agreement, and per Section 5.15(b) of the Merger Agreement, as of December 31, 2019 the Company owed CBD Lion $31,500 for reimbursement of professional fees related to the audit of CBD Lion.
This left Lion with a net balance owed to the Company of $168,500 as of December 31, 2019. In March 2020, Lion and the Company agreed that the repayment of such $168,500 will be made in eleven equal monthly installments of principal due and payable by Lion to the Company on the first day of each calendar month starting on April 1, 2020, and that no additional interest will accrue. Imputed interest on the remaining amounts owed by Lion to the Company will be evaluated during the first quarter of 2020.
Payment of Dividends to Holders of Series A Preferred Stock
Between February 28, 2020 and March 21, 2020, the Company made payments of dividends totaling $89,700 to holders of the Company’s Series A Convertible Preferred Stock.
126
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(UNAUDITED) | ||||
|
|
|
|
|
|
| March 31, |
| December 31, |
|
| 2020 |
| 2019 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and Cash Equivalents |
| $822,782 |
| $4,384,929 |
Prepaid Expenses |
| 42,426 |
| 9,583 |
Interest Receivable |
| 370 |
| - |
Note Receivable from CBD LION |
| 168,500 |
| 200,000 |
Accounts Receivable, net of $29,048 allowance in 2020 |
| 362,578 |
| - |
Sales Tax Receivable |
| 797 |
| - |
Sales Tax Refund Receivable |
| 41,290 |
| - |
Inventory |
| 261,896 |
| - |
Total Current Assets |
| 1,700,639 |
| 4,594,512 |
Goodwill |
| 22,292,767 |
| - |
Investment in Ablis |
| 399,200 |
| 399,200 |
Investment in Bendistillery and Bend Spirits |
| 1,497,000 |
| 1,497,000 |
Fixed Assets, less accumulated depreciation of $1,738 in 2020 |
| 93,658 |
| - |
Intangible Assets, less accumulated amortization of $139 in 2020 |
| 4,305 |
| - |
Security Deposit |
| 1,600 |
| - |
Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $21,821 in 2020 |
| 21,535 |
| - |
Total Assets |
| $26,010,704 |
| $6,490,712 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
Current Liabilities |
|
|
|
|
Operating Lease Liability |
| 18,482 |
| - |
Deferred Revenue |
| 43,463 |
| - |
Management Bonuses Payable - Related Party |
|
|
|
|
Management Bonus Payable - Related Party - Payable to William C. Jacobs |
| 100,000 |
| - |
Management Bonus Payable - Related Party - Payable to Gerard M. Jacobs |
| 250,000 |
| - |
Management Bonuses Payable - Related Party |
| 350,000 |
| - |
Accounts Payable and Accrued Expenses |
| 135,412 |
| 38,485 |
Accounts Payable to Nicholas S. Warrender |
| 840 |
| - |
Interest Payable - Related Party |
|
|
|
|
Interest - Payable to Nicholas S. Warrender |
| 7,603 |
| - |
Interest Payable - Related Party |
| 7,603 |
| - |
Preferred Stock Dividends Payable |
|
|
|
|
Series A Convertible Preferred Stock Dividends Payable |
| 89,497 |
| 145,017 |
Series B Convertible Preferred Stock Dividends Payable |
| 9,481 |
| 5,741 |
Preferred Stock Dividends Payable |
| 98,978 |
| 150,758 |
Total Current Liabilities |
| $654,778 |
| $189,243 |
Non-Current Liabilities |
|
|
|
|
Notes Payable - Related Party |
|
|
|
|
Notes Payable - Payable to Nicholas S. Warrender |
| $3,750,000 |
| $- |
Non-Current Operating Lease Liability |
| 2,954 |
| - |
Total Non-Current Liabilities |
| $3,752,954 |
| $- |
Total Liabilities |
| $4,407,732 |
| $189,243 |
Commitments and Contingencies |
| - |
| - |
Shareholders' Equity |
|
|
|
|
Preferred Stock, $0.001 par value; 10,000,000 total shares authorized; |
| 166 |
| 166 |
|
|
|
|
|
Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,627,124 shares issued and outstanding and 645,000 deferred contingent stock committed to be issued, subject to conditions, as part of the Lifted Made merger, outstanding at March 31, 2020, and 2,726,669 shares outstanding at December 31, 2019 |
| 6,627 |
| 2,727 |
|
|
|
|
|
Additional Paid-in Capital |
| 38,787,277 |
| 21,691,128 |
|
|
|
|
|
Accumulated Deficit |
| (17,191,098) |
| (15,392,552) |
Total Shareholders' Equity (Deficit) |
| 21,602,972 |
| 6,301,469 |
Total Liabilities and Shareholders' Equity |
| $26,010,704 |
| $6,490,712 |
Please see the accompanying notes to the condensed consolidated financial statements for more information.
127
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC. | |||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||
(UNAUDITED) | |||
|
|
|
|
|
|
|
|
| For the Three Months Ended | ||
| March 31, | ||
| 2020 |
| 2019 |
Net Sales | $370,424 |
| $0 |
Cost of Goods Sold | 198,109 |
| 0 |
Gross Profit | 172,315 |
| 0 |
Stock Compensation Expense | 1,393,648 |
| 0 |
Selling, General and Administrative Expenses | 24,703 |
| 11,473 |
Management Bonuses | 350,000 |
| 0 |
Bad Debt Expense | 728 |
| 0 |
Payroll and Independent Contractor Expenses | 83,217 |
| 15,000 |
Professional Fees | 66,554 |
| 21,467 |
Advertising and Marketing | 10,286 |
| 0 |
Depreciation and Amortization | 1,877 |
| 0 |
Loss From Operations | (1,758,698) |
| (47,940) |
Other Income/(Expenses) |
|
|
|
Gain on Settlement | 0 |
| 29,196 |
Interest Expense | (7,605) |
| (27,998) |
Interest Income | 5,676 |
| 2,302 |
Net Loss | $(1,760,627) |
| $(44,440) |
|
|
|
|
Basic and Diluted Net Loss Per Common Share | $(0.41) |
| $(0.02) |
|
|
|
|
Basic and Diluted Weighted Average Number of Common Shares Outstanding: | 4,312,568 |
| 2,405,777 |
Please see the accompanying notes to the condensed consolidated financial statements for more information.
128
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC. | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) | |||||||||||||
(UNAUDITED) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
| Total |
| Preferred Stock |
| Common Stock |
| Paid-in |
| Accumulated |
| Shareholders' | ||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity |
Balance, December 31, 2018 | - |
| $- |
| 2,369,648 |
| $2,370 |
| $13,664,697 |
| $(14,005,689) |
| $(338,622) |
Exercise of rights to purchase warrants to purchase shares of common stock |
|
|
|
| 210,000 |
| $210 |
| $1,892 |
|
|
| $2,102 |
Issuance of warrants to purchase common stock |
|
|
|
|
|
|
|
| $26,773 |
|
|
| $26,773 |
Issuance of Series A Convertible Preferred Stock for cash | 29,900 |
| $30 |
|
|
|
|
| $2,989,970 |
|
|
| $2,990,000 |
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(18,552) |
| $(18,552) |
Net Loss |
|
|
|
| - |
| - |
|
|
| $(44,440) |
| $(44,440) |
Balance, March 31, 2019 | 29,900 |
| $30 |
| 2,579,648 |
| $2,580 |
| $16,683,332 |
| $(14,068,681) |
| $2,617,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 | 166,500 |
| $166 |
| 2,726,669 |
| $2,727 |
| $21,691,128 |
| $(15,392,552) |
| $6,301,469 |
Issuance of warrants to Gerard M. Jacobs upon execution of employment agreement |
|
|
|
|
|
|
|
| $733,499 |
|
|
| $733,499 |
Issuance of warrants to William C. Jacobs upon execution of employment agreement |
|
|
|
|
|
|
|
| $660,149 |
|
|
| $660,149 |
Issuance of common stock consideration as part of the acquisition of Lifted Liquids, Inc. |
|
|
|
| 3,900,455 |
| $3,900 |
| $10,722,351 |
|
|
| $10,726,251 |
Issuance of warrants to purchase shares of common stock as part of the acquisition of Lifted Liquids, Inc. |
|
|
|
|
|
|
|
| $4,980,150 |
|
|
| $4,980,150 |
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(34,179) |
| $(34,179) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
| $(3,740) |
| $(3,740) |
Net Loss |
|
|
|
| - |
| - |
|
|
| $(1,760,627) |
| $(1,760,627) |
Balance, March 31, 2020 | 166,500 |
| $166 |
| 6,627,124 |
| $6,627 |
| $38,787,277 |
| $(17,191,098) |
| $21,602,972 |
Please see the accompanying notes to the condensed consolidated financial statements for more information.
129
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(Unaudited) | ||||
|
| For the Three Months Ended | ||
|
| March 31, | ||
|
| 2020 |
| 2019 |
Cash Flows From Operating Activities |
|
|
|
|
Net Loss |
| $(1,760,627) |
| $(44,440) |
Adjustments to Reconcile Loss to Net Cash Used in Operating Activities: |
|
|
|
|
Stock Compensation Expense |
| 1,393,648 |
| - |
Bad Debt Expense |
| 728 |
| - |
Depreciation and Amortization |
| 1,877 |
| - |
Financing Cost - Issuance of Warrants to Purchase Common Stock |
| - |
| 26,773 |
Effect on Cash of Changes in Operating Assets and Liabilities |
|
|
|
|
Accounts Receivable |
| (21,919) |
| - |
Sales Tax Receivable |
| (797) |
| - |
Sales Tax Refund Receivable |
| (41,290) |
| - |
Pre-Paid Expenses |
| (32,843) |
| - |
Interest Receivable |
| (370) |
| - |
Inventory |
| 5,578 |
| - |
Loan to Shareholder |
| 9,000 |
| - |
Accounts Payable and Accrued Expenses |
| 110,284 |
| (144,124) |
Change in ROU Asset |
| 4,485 |
| - |
Change in Lease Liability |
| (4,464) |
| - |
Deferred Revenue |
| (21,233) |
| - |
Net Cash Used in Operating Activities |
| (357,944) |
| (161,791) |
Cash Flows From Investing Activities |
|
|
|
|
Net Cash Paid as Part of Lifted Liquids, Inc. Acquisition |
| (3,130,610) |
| - |
Reduction of CBD Lion Note Receivable |
| 31,500 |
| - |
Purchase of Fixed Assets |
| (15,393) |
| - |
Net Cash Used in Investing Activities |
| (3,114,503) |
| - |
Cash Flows From Financing Activities |
|
|
|
|
Payments of Dividends to Series A Convertible Preferred Stock Holders |
| (89,700) |
| - |
Financing Cost - Proceeds From Borrowings Under Notes Payable to Related Parties | - |
| 14,772 | |
Financing Cost - Repayment of Borrowings Under Notes Payable to Related Parties |
| - |
| (45,562) |
Financing Cost - Repayment of Interest Payable to Related Parties |
| - |
| (2,606) |
Exercise of Rights to Purchase Warrants to Purchase Shares of Common Stock |
| - |
| 2,102 |
Issuance of Series A Convertible Preferred Stock |
| - |
| 2,990,000 |
Net Cash Provided by/ (Used in) Financing Activities |
| (89,700) |
| 2,958,706 |
Net Increase/(Decrease) in Cash |
| (3,562,147) |
| 2,796,915 |
Cash and Cash Equivalents at Beginning of Period |
| 4,384,929 |
| - |
Cash and Cash Equivalents at End of Period |
| $822,782 |
| $2,796,915 |
|
|
|
|
|
|
| For the Three Months Ended | ||
|
| March 31, | ||
|
| 2020 |
| 2019 |
Supplemental Cash Flow Information |
|
|
|
|
Cash Paid For Interest |
| $2 |
| $2,606 |
Cash Paid For Income Taxes |
| $- |
| $- |
Please see the accompanying notes to the condensed consolidated financial statements for more information.
130
Acquired Sales Corp.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – DESCRIPTION OF THE BUSINESS OF ACQUIRED SALES CORP.
Acquired Sales Corp. (hereinafter sometimes referred to as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986.
Our business involves acquiring all or a portion of operating businesses involving the manufacture, sale and distribution of cannabinoid-infused products such as beverages, lotions, oils, hemp joints and cigarettes, tinctures, bath bombs, balms, body washes, gummies, food, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). Our business also involves selling and distributing hand sanitizer, and potentially other personal protective equipment, during the pendency of the COVID-19 pandemic, and possibly longer.
In order to consummate a particular acquisition of a Canna-Infused Products Company, management of the Company is open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such Canna-Infused Products Company, for example operating businesses and/or assets involving pumps, distilled spirits, beer, wine, paraphernalia and real estate.
To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company now called Lifted Liquids, Inc. d/b/a Lifted Made (formerly Warrender Enterprise Inc. d/b/a Lifted Liquids), 4.99% of the ownership interests in a second Canna-Infused Products Company called Ablis Holding Company ("Ablis"), and 4.99% of the ownership interests in two other businesses that manufacture distilled spirits called Bendistillery Inc. ("Bendistillery") and Bend Spirits, Inc. ("Bend Spirits").
We have also terminated a planned acquisition of Canna-Infused Products Company called CBD Lion LLC.
At this point in time, we are in discussions with several companies in our acquisition pipeline that are involved in cannabinoid businesses and related businesses of various types. However, our cash on hand is currently limited, so in order to close future acquisitions it is highly likely that it will be necessary for us to raise additional capital, and no guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.
Acquisition of 100% of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids)
On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Warrants").
Pursuant to the Merger, Lifted Liquids, Inc. d/b/a Lifted Made, an Illinois corporation ("Lifted" or "Lifted Made"), is now operating as a wholly-owned subsidiary of the Company, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.
Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.
131
Ownership of 4.99% of Ablis, Bendistillery and Bend Spirits
On April 30, 2019, we closed on the acquisition of 4.99% of the common stock of each of CBD-infused beverages maker Ablis, and of distilled spirits manufacturers Bendistillery and Bend Spirits, all of Bend, Oregon.
The Lifted Made Business
Prior to acquiring 100% of Lifted on February 24, 2020, we did not own 100% of any other operating company, so the Lifted Merger was highly significant to our Company.
History
Lifted was originally incorporated in the state of Wisconsin on September 19, 2014. Lifted was created with a passion to build a culture-based organization focused upon quality products and a healthier lifestyle. Lifted produces its own lines of CBD-infused products, as well as numerous CBD-infused products for private label clients. In addition, Lifted has a raw goods supply chain that many customers benefit from: CBD and CBG isolate, full spectrum, broad spectrum water soluble, distillate and more.
Officers and Employees
The executives of Lifted have backgrounds in the vaping industry, graphic design, marketing, and supply chain management, skills that have helped Lifted distinguish itself from the competition. Historically, the Lifted team has frequently attended trade shows throughout the USA to promote Lifted’s products and brand, and in support of Lifted’s private label clients. Lifted sometimes evaluates new products by introducing them to potential customers at certain vape shops in Wisconsin and Illinois which are partly owned by Warrender. The Company holds an option to purchase Warrender's interests in such vape shops for a nominal price.
Lifted currently has 23 full time and part time employees who are engaged in product formulation, design and branding, website development, private label client management, sales, distribution, supply chain management, new business development, warehouse management and order fulfillment, operations management, accounting, new product development, trade shows and evaluation of potential acquisitions and joint ventures. One of Lifted’s part time employees is based in south Florida, one is based in Colorado, and the rest of the Lifted team is based in Zion, Illinois, Lake Forest, Illinois, and New Smyrna Beach, Florida.
Description of Property
Lifted does not own any physical properties. Lifted’s corporate office, manufacturing facility and warehouse is located in Zion, Illinois, where Lifted has rented 3,300 square feet of space under a lease that terminates in June 2021. Lifted has plans to expand its operations in Zion as opportunities arise. Some of Lifted’s equipment is temporarily located in a third party’s rented space that is adjacent to Lifted’s space.
Sources of Supply
Lifted sources raw goods such as CBD isolate, distillate and water-soluble CBD from independent suppliers. These raw materials are third-party lab tested, something that Lifted believes many of its competitors do not do.
Lifted acquires its disposable vape pens and cartridges from third party manufacturers and, in its clean room, adds Lifted’s proprietary vape solutions into the disposable vape pens and vape cartridges. Lifted also acquires a variety of boxes, packaging and other items from third party manufacturers.
Lifted currently believes that it would be able to find replacement manufacturers with minimal negative impact on its business. However, Lifted's vape pens and cartridges are sourced exclusively from China, and much of Lifted's boxes, packaging and other items are sourced from China. COVID-19 and tariffs imposed on products sourced from China could make it difficult or impossible to source these products cost effectively, or at all, from China. COVID-19 and/or tariffs could make it difficult or impossible for Lifted to manufacture needed quantities of its products, if at all, and could drastically increase Lifted's product costs, all of which could have a serious detrimental impact on Lifted’s sales and profit margins.
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Products
Lifted’s focus is manufacturing, sales and distribution of effective, quality products formulated in a clean room. Lifted sources cannabinoids from several suppliers, which are then incorporated into proprietary formulations in house.
Lifted produces its own lines of cannabinoid-infused products, as well as numerous cannabinoid-infused products for private label clients. Lifted’s current list of products include: lotions, tinctures, bath bombs, oral sprays, lube, gummies, hemp joints, vape e-liquids, vape pens, electronic cigarettes, electronic cigarette e-liquid, food and other edibles, and non-prescription cannabinoid formulations.
Lifted formulates its lotions and then has them manufactured by a third party in accordance with Lifted's specifications. Lifted also produces its edible cannabinoid-infused gummy products, bath bombs and electronic-cigarettes through third party manufacturers.
In addition, Lifted has a raw goods supply chain that many customers benefit from. The ingredients that go into Lifted’s products are third-party lab tested.
Product Risks
Some of Lifted's inhalable products currently contain nicotine. However, according to the U.S. Surgeon General, besides nicotine, inhalable products in some cases can contain harmful and potentially harmful ingredients, including, ultrafine particles that can be inhaled deep into the lungs, flavorants such as diacetyl, a chemical linked to serious lung disease, volatile organic compounds, and heavy metals, such as nickel, tin, and lead. There is a risk that Lifted could be targeted by regulators or consumers with claims that its products are unsafe.
The market for CBD vapes and cartridges is currently subjected to prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping. These various prohibitions and regulations may have a material adverse effect on Lifted's financial condition, operating results, liquidity, cash flow and operational performance.
Intellectual Property
Lifted Liquids is a registered trademark in the United States. The trademark covers body lotion, dietary and nutritional supplements in the form of tinctures and drops and edible form, gummies, electronic cigarettes, vape pens, cartridges sold filled with flavorings in liquid form, other than essential oils, for electronic cigarettes, vaping e-liquid in the nature of flavorings, other than essential oils, for use in electronic cigarettes; cannabidiol (CBD) concentrate and extracts for use in electronic cigarettes, smokeless vaporizer pipes, disposable electronic cigarettes, and electronic liquid containing nicotine. Lifted is seeking trademark protection on certain other words and phrases.
Lifted also maintains proprietary formulations and other trade secrets. However, Lifted owns no registered patents and has no patent applications pending.
R&D expenditures
Lifted's research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products. Lifted spent less than $10,000 on research and development efforts over the past two years. Research and development costs are expensed as they are incurred.
Marketing
Lifted markets itself by networking throughout the industry, through word of mouth, its websites, and by attending trade shows. During 2020, Lifted began public relations and digital marketing efforts. These efforts are expensive, and there can be no guarantee or assurance that these efforts will be successful or result in any additional sales or profits for Lifted.
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Distribution
Lifted’s distribution is done internally and through third party distributors who distribute throughout the U.S. Lifted and these distributors distribute Lifted’s products to vape shops, physical therapy clinics, convenience stores, natural food stores, and other locations. Lifted believes but cannot guarantee that in the event that it lost its relationship with one or more of its current distributors that other replacement distributors could be found without significant disruption to Lifted’s business.
Online Sales
Lifted sells its products online primarily through www.LiftedMade.com, www.LiftedMadeSanitizer.com, www.UrbFlower.com, www.eLiquidRetail.com, www.LiftedLiquids.com, and www.LiftedDose.com.
Description of Legal Proceedings
Lifted is involved in three pending lawsuits, two as a defendant, and the other as the plaintiff:
(a) MILE HIGH LABS, INC., Plaintiff, v. WARRENDER ENTERPRISE, INC. d/b/a LIFTED LIQUIDS, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW)– In August 2019, Mile High Labs, Inc. sued Lifted in federal court in Colorado, alleging that Lifted reneged on an alleged purchase of $825,000 worth of CBD isolate. Lifted has challenged the jurisdiction of the Colorado court, arguing that Lifted does not conduct business in Colorado. When appropriate, Lifted intends to deny the material allegations of the complaint. However, no assurance or guarantee can be given regarding the disposition of this lawsuit. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
(b) WARRENDER ENTERPRISE, INC. d/b/a LIFTED LIQUIDS, a Wisconsin corporation, Plaintiff, v. MERKABAH LABS, LLC, a Colorado limited liability company; MERKABAH TECHNOLOGIES, LLC, a Colorado limited liability company; RYAN PUDDY, an individual; and RALPH L. TAYLOR III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
(c) False Advertising Matter – On or about May 11, 2020, Accelerated Analytical, Inc. and Act Laboratories, LLC d/b/a Accelerated Cannabis Laboratories (together “Accelerated” or “Plaintiff”) filed a lawsuit against our wholly owned subsidiary Lifted Liquids, Inc. (“Lifted”) and member of our Board of Directors, Nicholas Warrender, in the US District Court, Western District of Wisconsin (Case #3:20-cv-00442). Accelerated provided certificates of analysis (“COAs) for a number of the ingredients and formulations used in Lifted’s products. Plaintiff’s complaint alleged that the defendants have, among other things, modified and/or misused Plaintiff’s COAs in connection with the sale of Lifted’s products. The Plaintiffs allege that Defendants’ actions constituted “false advertising” under the US trademark law and “deceptive trade practices” under Wisconsin state law. The Plaintiff does not quantify any alleged damages in its complaint but, in addition to attorneys' fees and costs, seeks injunctive relief to, among other things, prohibit Defendants from distributing any COAs that purport to be from Accelerated, refrain from selling certain products alleged to have been associated with false or misleading COA(s), provide Accelerated with copies of altered and/or fabricated COAs, and provide customer lists to Accelerated. Plaintiffs sought a temporary restraining order which was denied by the Court. We expect Plaintiffs to attempt to obtain a preliminary injunction. Defendants dispute that Plaintiffs have suffered any damages as a result of the alleged actions by Defendants and intend to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action. The alleged actions by Defendants appear to have occurred prior to the closing of the Agreement and Plan of Merger (“Merger Agreement”) pursuant to which Lifted became our wholly owned subsidiary on February 24, 2020. Pursuant to the Merger Agreement, Mr. Warrender is required to indemnify our subsidiary Lifted for damages or costs incurred as a result of any malfeasance on his part.
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The Merger Agreement also requires both Lifted and Mr. Warrender to indemnify Acquired Sales Corp. for damages or costs that we incur as a result of this lawsuit.
Lifted expects to file a lawsuit soon against a digital marketing company in regard to that company’s money back guarantee of a $25,000 upfront fee paid by Lifted.
Description of Worker’s Compensation Claim
During the year ended December 31, 2019, Lifted became involved in the following pending worker’s compensation claim, as the defendant:
MARTHA, EDGAR v. LIFTED LIQUIDS – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage.
Costs and effects of compliance with environmental laws
To Lifted’s knowledge, Lifted does not currently use or generate any hazardous materials in its operations.
The Lifted Made Merger
The terms of the Lifted Merger were as follows:
·The Company acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration (the "Promissory Note") of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Corporation at the closing of the Merger (the "Warrants").
·The Promissory Note, payable jointly by the Company and Lifted to Nicholas S. Warrender, is in the principal amount of $3,750,000. The Promissory Note is secured by all of the assets of the Company and Lifted, and by a pledge of all of the common stock of Lifted, Ablis, Bendistillery and Bend Spirits that are owned by the Company. The Promissory Note accrues interest at the rate of 2% annually, and has a term of five years, subject to mandatory partial prepayment using 50% of all capital raised by the Company other than capital raised in connection with two potential acquisitions in Wisconsin, and subject to mandatory full prepayment if and when Lifted achieves an aggregate post-Closing EBITDA of $7,500,000. Lifted will not be using any of the loan or grant money that Lifted has received from the SBA to make any payments on the Promissory Note payable jointly by the Company and Lifted to Nicholas S. Warrender.
·The purpose of the 645,000 shares of unregistered common stock of Acquired Sales that constitutes the Deferred Contingent Stock is to incentivize certain persons whom Nicholas S. Warrender considers necessary to allow Lifted and the Company to succeed going forward. Among other persons, Nicholas S. Warrender designated as recipients of shares of the Deferred Contingent Stock certain current employees of Lifted and William C. "Jake" Jacobs, the Company's President and CFO. The vesting of certain shares of the Deferred Contingent Stock is subject to certain terms and conditions, and if any of such terms and conditions are not met then any unvested Deferred Contingent Stock will be issued and delivered to Nicholas S. Warrender as additional Merger consideration.
·The purpose of the Warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share is to incentivize certain persons whom Nicholas S. Warrender considers necessary to allow Lifted Warrants certain current employees, officers and directors of Lifted and the Company. The vesting of certain of the Warrants will be subject to certain terms and
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conditions, and if any of such terms and conditions are not met then any unvested Warrants will be terminated.
·Nicholas S. Warrender was granted certain registration rights for the 3,900,455 shares of the Company’s unregistered common stock that he received in the Merger, pursuant to the terms and conditions of a Registration Rights Agreement.
·Nicholas S. Warrender, the Company's President and CFO William C. “Jake” Jacobs, and the Company's Chairman and CEO Gerard M. Jacobs, who together as a group have stockholder and managerial control of the Company, entered into a Stockholders Agreement to vote in concert regarding the election of directors of the Company and on certain other matters.
·The Company has entered into a long-term employment agreements with Nicholas S. Warrender, William C. "Jake" Jacobs, and Gerard M. Jacobs, pursuant to which each of them is entitled to $100,000 in base salary and an annual bonus stemming from the Company’s cash management bonus pool.
·The effects of the Merger are that all assets, property, rights, privileges, immunities, powers, franchises, licenses, and authority of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) and Lifted have vested in Lifted as the surviving entity in the Merger, and all debts, liabilities, obligations, restrictions, and duties of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) have become the debts, liabilities, obligations, restrictions, and duties of Lifted as the surviving entity in the Merger. Lifted is operating as a wholly-owned subsidiary of the Company.
·The articles of incorporation of Lifted are the articles of incorporation of the surviving entity in the Merger, and the by-laws of Lifted are the by-laws of the surviving entity of the Merger.
·Upon the Closing of the Merger, the number of directors of the Corporation has been increased from seven to nine: Gerard M. Jacobs, JD (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead outside director), Joshua A. Bloom, MD, Thomas W. Hines, CPA, CFA, James S. Jacobs, MD, Michael D. McCaffrey, JD, Richard E. Morrissy, and Kevin J. Rocio.
·Upon the Closing of the Merger, the officers of the Corporation are as follows, each to hold office until his successor is duly elected or appointed and qualified or until his earlier death, resignation, or removal in accordance with applicable Law: Gerard M. Jacobs, JD - Chairman, CEO and Secretary; William C. "Jake" Jacobs, CPA - President, CFO and Treasurer; and Nicholas S. Warrender - Co-Founder, Vice Chairman, and Chief Operating Officer.
Source of Funds for the Lifted Merger
The source of funds for the $3,750,000 cash component of the acquisition of Lifted was proceeds from previous sales of Acquired Sales Corp.’s Series A Convertible Preferred Stock (convertible at $1 per share of common stock of the Company) and Series B Convertible Preferred Stock (convertible at $5 per share of common stock of the Company). We anticipate that the source of funds to repay the $3,750,000 Promissory Note component of the acquisition of Lifted will be proceeds from future sales of Acquired Sales Corp.’s equity securities, and revenue from Lifted's business. Professional costs in connection with the Merger were paid using cash on hand that was sourced from previous sales of Acquired Sales Corp.’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock.
Post-Merger Shareholder Rights and Accounting Treatment of the Merger
There are no material differences in the rights of the Company’s shareholders as a result of the Merger, as the nature of the shares of common stock of the Company has not changed due to the Merger. However, there has been stockholder dilution with additional shares and warrants outstanding.
As of the date of acquisition (February 24, 2020), the Merger was considered a business combination. The accounting treatment of the Merger is that the Company is deemed to be the accounting acquirer of Lifted, and
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Lifted is deemed to be the accounting acquiree, under the acquisition method of accounting. From February 24, 2020 forward, Lifted’s financial statements are consolidated with the Company’s financial statements.
The federal income tax consequences of the Merger are as follows: The transaction is expected to be booked as a tax-free exchange of stock pursuant to Internal Revenue Code Section 368, resulting in no federal income tax consequences of the stock portion of the transaction.
The following table presents the purchase price allocation:
Consideration: |
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| Cash and cash equivalents |
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| $ | 3,750,000 | ||
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| Note consideration |
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| $ | 3,750,000 | |
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| 3,900,455 shares of unregistered common stock of the Company valued as of January 7, 2020 (date of entering into an Agreement and Plan of Merger) | $ | 10,726,251 | ||||
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| Warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share | $ | 4,980,150 | ||||
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| Total merger consideration |
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| $ | 23,206,401 | ||
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Assets acquired: |
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| Cash and cash equivalents |
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| $ | 619,390 | |
| Accounts Receivable |
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| $ | 341,387 | |
| Inventory |
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| $ | 267,474 | |
| Loan to Shareholder |
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| $ | 9,000 | |
| Fixed Assets |
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| $ | 80,003 | |
| Intangible Assets |
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| $ | 4,444 | |
| Security Deposit |
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| $ | 1,600 | |
| Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $20,010 in 2020 and $17,336 in 2019 | $ | 23,346 | ||||
| Goodwill |
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| $ | 22,292,767 | |
| Total assets acquired |
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| $ | 23,639,411 | |
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Liabilities assumed: |
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| Accounts Payable and Accrued Expenses |
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| $ | 345,075 | ||
| Operating Lease Liability |
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| $ | 15,569 | |
| Deferred Revenue |
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| $ | 64,696 | |
| Non-Current Operating Lease Liability |
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| $ | 7,670 | ||
| Total Liabilities assumed |
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| $ | 433,010 | |
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Net Assets Acquired |
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| $ | 23,206,401 | ||
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| Net Assets Acquired (Excluding Goodwill) | $ | 913,634 | ||
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OLCC Review of New Directors of the Company
Our new directors Nicholas S. Warrender and Kevin J. Rocio need to be approved by the Oregon Liquor Control Commission ("OLCC"), in light of the Company's ownership of common stock of distilled spirits manufacturers Bendistillery and Bend Spirits, Bend, Oregon. Pursuant to the OLCC’s procedures, the Company has submitted to the OLCC Personal History Forms for Nicholas S. Warrender and Kevin J. Rocio, and to the Company’s knowledge, neither of Nicholas S. Warrender nor Kevin J. Rocio has any personal history that would disqualify him from serving as a director of the Company. The Company would plan to consult with Oregon legal counsel in the event that the OLCC were to object to either Nicholas S. Warrender or Kevin J. Rocio serving as a director of the Company, a situation that the Company presently has no grounds to expect to occur.
Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement
Registration Rights Agreement
In connection with the Merger, the Company signed a Registration Rights Agreement granting Nicholas S. Warrender, or his assigns, “piggyback” and “demand” registration rights in regard to any and all Company registration statements filed with the SEC on or prior to a termination date set out in the agreement, in order to permit the registration of all 3,900,455 shares of Common Stock issued to Mr. Warrender as Stock Consideration in the Merger ("Registrable Shares"). The Registration Rights Agreement can be summarized as follows:
Subject to certain limitations, Mr. Warrender, or his assigns, may demand registration of all or any portion of the Registrable Shares at any time beginning on the 120th day following the closing of the Merger Agreement. The Company must then file a registration statement within ten days. The Company may postpone for up to 180 days the filing or effectiveness of a registration statement for a demand registration if the board of directors determines in its reasonable good faith judgment that such demand registration would (i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act. The Company may delay a demand registration hereunder only once in any period of 12 consecutive months.
No demand registration shall be required where in the judgment of the Company, its legal counsel, and/or SEC guidance and comments the registration would be deemed a primary offering pursuant to Securities Act Rule 415, which is interpreted by the SEC staff to prohibit registrations of stock for resale where the seller is deemed to be engaged in a primary offering of behalf of the issuer. The registration rights agreement shall terminate when no Registrable Shares remain outstanding.
Secured Promissory Note
At the closing of the Merger, the Company executed a secured promissory note of $3,750,000 payable to Nicholas S. Warrender (the “Promissory Note”) which can be summarized as follows:
Interest on the Promissory Note shall be 2% per year. The maturity date of the Promissory Note is the earlier of (a) the date which is 30 days after the last day of the calendar quarter during which Lifted's aggregate EBITDA (aggregate earnings before interest, taxes, depreciation and amortization ) since the Closing Date of the Merger exceeds $7.5 million, or (b) the date which is the fifth anniversary of the closing date of the Merger.
The Promissory Note shall have mandatory prepayments, subject to certain limitations, within five business days following the closing of any equity or debt capital raise by the Company or Lifted following the date of the Merger Agreement wherein Mr. Warrender is entitled to be paid at least 50% of the net proceeds of such capital raise toward a prepayment of the principal and accrued interest on the Promissory Note, excluding only the capital raise for the potential Wisconsin Acquisitions referred to in Section 5.23(a) of the Merger Agreement. See “Obligation to Pursue Two Opportunities” below. Lifted will not be using any of the loan or grant money that Lifted has received from the SBA to make any payments on the Promissory Note payable jointly by the Company and Lifted to Nicholas S. Warrender.
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The Promissory Note is secured by (a) a first lien security interest in all of the assets of the Company and Lifted; and (b) a pledge of: (i) all of the capital stock of Lifted; (ii) all of the common stock of Bendistillery, Bend Spirits and Ablis that is owned by the Company; and (iii) all of the capital stock of any other entity owned by the Company, Lifted or any of their subsidiaries, pursuant to a Collateral Stock Pledge Agreement between Mr. Warrender, as Secured Party, and the Company and Lifted, as Pledgors.
Stockholders Agreement
At the closing of the Merger Agreement, our COO Nicholas S. Warrender, our CEO Gerard M. Jacobs, and our President William C. "Jake" Jacobs entered into a Stockholders Agreement which can be summarized as follows: each of them will vote all shares of our common stock now or hereafter owned or controlled by him as unanimously agreed upon by all three of them, including as to the following matters: election, removal and filling vacancies on our board of directors; our charter and bylaws; employment agreements, consulting agreements, fee agreements, base salaries, bonuses, management bonus pools amounts and calculations, management bonus pool allocations and payments, future stock options or warrants issuances, and any other direct or indirect compensation or benefits of any nature whatsoever; acquisitions; divestitures; and capital raises.
Executive Employment Agreements
At the closing of the Merger, the Company entered into employment agreements with Nicholas S. Warrender to serve as Co-Founder, Vice Chairman and Chief Operating Officer of the Company and as Chief Executive Officer of Lifted, with Gerard M. Jacobs, JD, to serve as Chairman, Chief Executive Officer and Secretary of the Company, and with William C. "Jake" Jacobs, CPA to serve as President, Chief Financial Officer and Treasurer of the Company (collectively the “Executive Employment Agreements”), which can be summarized as follows:
Each of the Executive Employment Agreements is a "rolling" five year employment agreement wherein the executive's employment is effective and shall continue until the fifth anniversary of the commencement of such Executive Employment Agreement, unless terminated. Each of the Executive Employment Agreements shall be deemed to be automatically extended, upon the same terms and conditions, for additional periods of one year (extending the term of such Executive Employment Agreement to five years after each such extension date), unless either party provides written notice of such party’s intention not to extend the term of such Executive Employment Agreement at least 90 days’ prior to the applicable extension date.
During the employment term, each executive shall devote substantially all of his business time and attention to the performance of his duties under his Executive Employment Agreement and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the board of directors of the Company; provided, that such executive shall be permitted to continue to participate as an officer of any corporation that owns real estate as of the date of his Executive Employment Agreement with the Company and that is owned by a family trust of which such executive is a grantor or beneficiary, and provided further that such executive, with the prior written consent of the board of directors of the Company shall be permitted to act as a director, trustee, committee member or principal of any type of business, civic or charitable organization and to purchase or own less than 5% of the publicly traded securities of any corporation provided, however, that such ownership represents a passive investment and that such executive is not a controlling person of, or a member of a group that controls, such corporation, and that such activities do not interfere with the performance of such executive's duties and responsibilities to the Company.
The annual rate of each executive's base salary under his Executive Employment Agreement is $100,000.
Each executive shall participate in the Company’s annual company-wide management bonus pool, which can be generally described as a cash set-aside for management bonuses of an amount equal to 33% of the amount (if any) by which the Company's actual annual consolidated EBITDA exceeds an annual consolidated EBITDA target amount that is mutually agreed upon between the Chairman of the Compensation Committee of the board of directors, on the one hand, and Nicholas S. Warrender, Gerard M. Jacobs and William C. "Jake" Jacobs, on the other hand, with the allocation of such management bonus pool to be determined by unanimous written agreement of such three executives.
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The Company will provide to each executive an employee benefits package including fully paid Blue Cross/Blue Shield or equivalent family health, vision and dental insurance. The Company will also provide to each executive prompt reimbursement for all documented business related expenses paid or incurred by such executive in connection with Acquired Sales, including but not limited to airfare, rail, taxi, rental cars, parking, tolls, gasoline for business trips, meals, entertainment, hotel, office supplies, mobile phone, internet, hotspot, and postage expenses.
Each executive's employment may be terminated by either the Company or such executive at any time and for any reason, provided that any termination of such executive's employment by the Company without cause will trigger significant payment obligations by the Company to such executive.
Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement
The Company entered into a Compensation Agreement dated as of June 19, 2019, with our CEO Gerard M. Jacobs and our President and CFO William C. "Jake" Jacobs. The material terms of the Compensation Agreement can be summarized as follows:
(1) Starting during June 2019 until the closing of the Lifted Merger on February 24, 2020, we paid Gerard M. Jacobs and William C. "Jake" Jacobs consulting fees of $7,500 and $5,000 per month, respectively. Upon the closing of the Lifted Merger, we entered into Executive Employment Agreements with Gerard M. Jacobs and William C. "Jake" Jacobs as described in the section above entitled "Executive Employment Agreements";
(2) The closing of the Lifted Merger triggered obligations of the Company to pay cash bonuses to the Company's CEO Gerard M. Jacobs and the to the Company's President and CFO William C. "Jake" Jacobs of $250,000 and $100,000, respectively, which bonuses have not yet been paid.
(3) Upon the earlier of December 1, 2020, or the first date when we have raised a total of at least $15 million after January 1, 2019, we will pay Gerard M. Jacobs and William C. "Jake" Jacobs cash bonuses of $250,000 and $100,000, respectively;
(4) Upon the earlier of December 1, 2021, or the first date when we have raised a total of at least $25 million after January 1, 2019, we will pay Gerard M. Jacobs and William C. "Jake" Jacobs cash bonuses of $250,000 and $100,000, respectively;
(5) The terms of Gerard M. Jacobs' stock options granted by us to purchase shares of common stock of AQSP which were set to expire (unless previously exercised) during November 2020 or during September 2021, respectively, have been extended so that all of such stock options may be exercised by Gerard M. Jacobs at any time on or before December 31, 2024;
(6) We granted to Gerard M. Jacobs and to William C. "Jake" Jacobs so-called "tag along" registration rights for all of our shares owned by Gerard M. Jacobs, by William C. "Jake" Jacobs, or by any of their respective affiliates, and for all of our shares issuable to Gerard M. Jacobs, to William C. "Jake" Jacobs, or to any of their respective affiliates upon the exercise of his or their options or warrants to purchase shares of common stock of Acquired Sales; and
(7) We issued to Gerard M. Jacobs and William C. "Jake" Jacobs five-year warrants containing a "cashless exercise" feature giving Gerard M. Jacobs and William C. "Jake" Jacobs (or his designee(s)) the right to purchase 250,000 and 225,000 shares, respectively, of common stock of Acquired Sales exercisable at $5.00 per share.
Obligation to Pursue a Hemp Processing System Deal
The Merger Agreement obligates us to use good faith efforts to pursue an opportunity in the cannabinoid industry.
Nicholas S. Warrender's father, Robert Warrender II, has introduced us to a potential business opportunity to process CBD from hemp using a system that is currently undergoing proof of concept operational testing and that incorporates particular filtration and pump equipment and technology identified by Robert Warrender II. Robert Warrender II believes that this advanced hemp processing system has the potential to allow significantly higher throughput, and lower per unit costs of production. We have agreed to analyze the results of the proof of concept's construction, operating costs, and operating results. If such analysis is favorable and is approved by our Board in its discretion, then we will use good faith efforts to attempt to proceed forward, in a joint venture or other arrangement
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involving Robert Warrender II, with a project(s) consisting of one or more of such hemp processing systems, subject to various conditions including a capital raise associated therewith, and any equity compensation received by Robert Warrender II from the financing, construction, operation, leasing and/or sale of such project(s) shall be structured in the form of shares of common stock of Acquired Sales valued at the then-current trading price per share of common stock of Acquired Sales but in no event at higher than $5.00 per share of common stock of Acquired Sales.
Post-Merger Business
We have escrowed $123,895 which is earmarked for the payment of 3% annual dividends on our Series A and Series B convertible preferred stock during 2020, and our remaining funds are expected to be sufficient to allow us to pay the post-closing salaries of Gerard M. Jacobs, our CEO, and of William C. "Jake" Jacobs, our President and CFO during 2020, the fees and expenses of our securities lawyer and auditors during 2020, and certain other operational expenses.
However, beyond those payments, our available capital is limited. We have not yet paid an aggregate of $350,000 of bonuses owed to our CEO Gerard M. Jacobs, our CEO, and of William C. "Jake" Jacobs, our President and CFO, because we currently do not have the funds to do so. Also, we do not have available capital to fund further acquisitions.
Nevertheless, we still intend to continue post-closing our strategy of acquiring Canna-Infused Products Companies. In order to continue our acquisition strategy, we will need to raise a significant amount of additional capital to pay the cash portion of the consideration paid in our acquisitions, and to inject growth capital into the acquired companies. We anticipate that additional capital will need to be raised in some combination of the following: (1) Private placements of shares of our Series B Convertible Preferred Stock convertible at $5 per share; (2) Private placements of shares of newly declared series of convertible preferred stock convertible at to-be-negotiated price(s) per share, which may be significantly less than the current trading price per share of our common stock, depending upon the financial performance of Lifted, market conditions, and cannabinoid industry conditions; (3) Private placements of newly issued shares of our common stock, at to-be-negotiated price(s) per share, which may be significantly less than the current trading price per share of our common stock, depending upon the financial performance of Lifted, market conditions, and cannabinoid industry conditions; (4) Borrowings from banks or other third parties, which may not be available, or which may be expensive if available at all; (5) Structuring potential acquisitions either as all stock deals, or as a combination of stock plus notes; (6) Using cash flow generated by Lifted's business to pay the cash portion of merger consideration; and/or (7) Merging into Acquired Sales an entity or entities that have cash on hand or cash flow that would allow other acquisitions to be completed.
The Market
CBD is an acronym for cannabidiol, a chemical compound from the hemp plant. Lifted is involved in the manufacture and sale of various products infused with CBD, and also in the manufacture and sale of products involving certain other cannabinoids such as CBG. On December 20, 2018, President Donald J. Trump signed the Agricultural Improvement Act of 2018, which is more commonly known as the “2018 Farm Bill”. The 2018 Farm Bill legalizes hemp cultivation and declassifies hemp as a Schedule I controlled substance. The US Food and Drug Administration (“FDA”) has stated that although hemp is no longer an illegal substance under federal law, the FDA continues to regulate cannabis products under the Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act.
According to Brightfield Group, a predictive analysis and market research company based in Illinois, CBD sales in 2019 had the potential to reach as high as $5 billion, based largely due to the 2018 Farm Bill passed at the end of 2018. Lifted’s CBD sales are typically made through distributors and wholesalers, online, at natural food stores and at smoke and vape shops.
Government Regulation
Lifted is subject to a variety of laws in the United States and elsewhere. In the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult recreational use in a number of states, cannabis, other than plants of the same genus that meet the definition of industrial hemp, continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act (“CSA”), and subject to the Controlled Substances Import and Export Act (“CSIEA”). As of December 20, 2018, the 2018 Farm Bill,
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formally known as the Agriculture Improvement Act of 2018, has reclassified hemp for commercial use by removing it from its Schedule I Status under the CSA, and Lifted seeks to operate in compliance with the legislation.
Canna-Infused Products Companies are subject to regulation by federal government state and local governments. The health and safety impacts of cannabinoids have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that CBDs can have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. The regulation of hemp, hemp oil, CBDs, and cannabinoid-infused products is evolving. Lifted may become subject to new rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon Canna-Infused Products Companies from U.S. federal agencies, such as the US Food and Drug Administration (the “FDA”), and/or state and local governments. The FDA sometimes appears to believe that CBDs are drugs, and that the sale of most cannabinoid-infused products without FDA approval is illegal. In deference to the FDA’s position, various states and municipalities have similarly declared that the sale of certain cannabinoid-infused products are illegal.
Hemp and cannabinoid-infused products which exceed a THC concentration of 0.3% are illegal. Any failure to keep the THC concentration in hemp or cannabinoid-infused products below 0.3% could subject us to action by regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon our Company's business and the trading price of our common stock.
In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the THC levels reflected in consumers’ blood tests are the result of CBD-infused products or THC-infused products. This may result in regulatory actions or lawsuits against the Company.
Also, certain hemp products may, over time, gradually increase their THC concentration, and this may ultimately cause such products to exceed the 0.3% THC concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon our Company.
Lifted is attempting to only conduct business related to manufacturing and commercializing cannabis products to the extent permitted in jurisdictions where it may operate. Lifted intends to ensure regulatory compliance in each jurisdiction in which it operates intends to operate.
Competition
Lifted faces intense competition in the cannabinoid industry from both existing and emerging companies that offer similar products to Lifted. Some of Lifted's current and potential competitors may have longer operating histories, greater financial, marketing and other resources and larger customer bases. Given the rapid changes affecting the cannabinoid industry nationally and locally, Lifted may not be able to create and maintain a competitive advantage in the marketplace. Lifted’s success will depend on its ability to keep pace with any changes in local and national markets, especially in light of legal and regulatory changes. Lifted’s success will depend on its ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on Lifted’s financial condition, operating results, liquidity, cash flow and operational performance.
Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series A Convertible Preferred Stock (“Series A Preferred Stock”)
Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Series A Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Company filed a registration statement covering the shares of newly issued common stock of the Company into which the Series A Preferred Stock can be converted (the "Registration Statement"), but the Registration Statement has never been approved by the SEC. The Series A Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock.
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Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series B Convertible Preferred Stock (“Series B Preferred Stock”)
On June 28, 2019, the Company commenced a private placement to accredited investors, offering to sell up to 5,000,000 shares of Series B Preferred Stock convertible into 5,000,000 shares of our common stock at an exercise price of $5.00 per share. As of the date of this prospectus, the Company has accepted subscriptions from three accredited investors to purchase 100,000 shares of Series B
Preferred Stock for an aggregate purchase price of $500,000 in cash, convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company, or $5.00 per share of common stock of the Company.
Acquisition Process
The structure of the Company’s participation in business opportunities and ventures will continue to be situational. The Company is likely to structure future acquisitions as a purchase of 19.99% or less, or 100%, of a target company’s equity ownership interest, or as a so-called tax-free reorganization. It is likely that the anticipated value of the business and/or securities that the Company acquires relative to the current value of the Company’s securities will result in the issuance of a relatively large number of newly issued shares of the Company, and, as a result, substantial additional dilution to the percentage ownership of our current stockholders. Moreover, the Company’s present management and shareholders may not have control of a majority of our voting shares following a merger or purchase of stock. It is possible that the shareholders of the acquired entity or the persons who provide the capital to the Company to finance a merger or purchase of stock will gain control of the Company’s voting stock and the Company’s directors may resign and new directors may be appointed without any vote by the shareholders. Those directors are entitled to replace the Company’s officers without stockholder vote.
In regard to nearly all of the Company’s potential acquisitions, the Company is typically focused upon acquiring 19.99% or less, or 100%, of existing privately held businesses whose owners are willing to consider selling a percentage of the equity ownership interest of their businesses, or merging their entire businesses into the Company or a wholly-owned subsidiary of the Company in a so-called tax-free reorganization, and whose management teams are enthusiastic about continuing to operate their businesses following the transactions with the Company.
Closing such purchases of stock or so-called tax-free reorganizations will likely require the Company to raise millions of dollars of capital, in order to pay the cash portion of the transaction consideration. The Company can provide no assurance or guaranty whatsoever that it will be able to raise such millions of dollars of capital on acceptable terms and conditions, if at all.
An Investment Committee appointed by the Company’s Board of Directors, currently consisting of our CEO Gerard M. Jacobs, JD, our Chief Operating Officer Nicholas S. Warrender, our director Thomas W. Hines, CPA, CFA, and our President and CFO William C. "Jake" Jacobs, CPA, will review material furnished to it and will vote whether or not the Investment Committee believes a potential acquisition is in the Company’s best interests and the interests of the Company’s shareholders. If the Investment Committee votes unanimously to approve a potential acquisition, then such acquisition will be presented to the Board of Directors of the Company for their review and a vote. The Company does not intend to proceed forward with a potential acquisition without the unanimous approval of the Investment Committee and approval by a majority of the Company’s Board of Directors.
The Company intends to source acquisition opportunities through Gerard M. Jacobs, Nicholas S. Warrender, William C. "Jake" Jacobs, and directors and their contacts, and in some cases through finders. These contacts include professional advisors such as attorneys and accountants, securities broker dealers, other members of the financial community, other businesses and others who may present solicited and unsolicited proposals. Management believes that business opportunities may become available to us due to a number of factors, including, among others: (1) the Company’s ownership of shares in Lifted and other Canna-Infused Products Companies; (2) management’s historical experience building large public companies; (3) management’s contacts and acquaintances; and (4) the Company’s flexibility with respect to the manner in which the Company may be able to structure, finance, merge with or acquire any business opportunity.
The analysis of new business opportunities will be undertaken by or under the supervision of the Investment Committee appointed by our Board of Directors. Inasmuch as the Company will have limited funds available to search for business opportunities, the Company will not be able to expend significant funds on a complete and
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exhaustive investigation of such business or opportunity. The Company will, however, investigate, to the extent believed reasonable by the Investment Committee, such potential business opportunities by conducting a so-called “due diligence investigation”.
In a due diligence investigation, the Company intends to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, the Company intends to cause the Investment Committee to meet personally with management and key personnel of target businesses, ask questions regarding the target businesses’ prospects, tour facilities,
and conduct other reasonable investigation of the target businesses to the extent of the Company’s limited financial resources and management and technical expertise.
There is no guarantee that the Company can obtain or maintain the funding needed for its operations, including the funds necessary to search for and investigate acquisition candidates, and to close an acquisition including paying the substantial costs of legal, accounting and other relevant professional services.
As of May 11, 2020, Acquired Sales Corp. has cash on hand of approximately $325,779, which are the remaining proceeds from the sale of Series A Convertible Preferred Stock between February 27, 2019 and May 13, 2019, and proceeds from the sale of Series B Convertible Preferred Stock starting on June 28, 2019.
As of May 11, 2020, Lifted had cash on hand of approximately $533,000, of which $114,145 consists of loans and grants from the SBA. All of the SBA PPP money has been put into a segregated bank account, and so far, $33,645 of that money has been used to pay payroll, $1,600 has been used for rent, and $233 has been used for utilities. In prior years, the Company’s payables have been greater than their cash on hand. Historically, the Company has had inconsistent income generating ability and is therefore reliant on raising money from loans or stock sales.
Offices
Our CEO lives in Illinois, our President and CFO lives in Florida, and our COO lives in Wisconsin. We currently do not have a dedicated corporate office for our Company. There are no agreements or understandings with respect to any office facility subsequent to the completion of any acquisition. We may lease a corporate headquarters in connection with a change in the management of our Company, or in connection with the completion of a merger or acquisition, or otherwise.
Employees
Gerard M. Jacobs, our Chairman, Chief Executive Officer and Secretary, manages the Company’s operations with the assistance of William C. "Jake" Jacobs, our President, Chief Financial Officer and Treasurer, and Nicholas S. Warrender, our Chief Operating Officer, under the Executive Employment Agreements described above.
We expect to continue to use consultants, attorneys, accountants and independent contractors as necessary.
Reports to Security Holders
Acquired Sales Corp. is subject to reporting obligations under the Exchange Act. These obligations include an annual report under cover of Form 10-K, with audited financial statements, unaudited quarterly reports under cover of Form 10-Q, occasional reports under cover of Form 8-K, and other required filings. The public may read and copy any materials Acquired Sales Corp. files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information of the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying financial statements include the accounts and operations of the Company for all periods presented.
Consolidated Financial Statements – The accompanying financial statements are consolidated and do not include all disclosures normally required by generally accepted accounting principles. These statements should be read in conjunction with the annual financial statements included in Form 10-K filed with the U.S. Securities and Exchange Commission on March 30, 2020. In particular, the basis of presentation and significant accounting principles were presented in Note 1 to the annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements and consist of only normal recurring adjustments, except as disclosed herein. As part of the consolidation, all significant intercompany transactions are eliminated, and on the Condensed Consolidated Statements of Operations, certain expense categories less than $10,000 are consolidated into the Selling, General and Administrative Expenses category. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.
Use of Estimates – The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Key estimates in these financial statements include the allowance for doubtful accounts, estimated useful lives of property, plant and equipment, valuation allowance on deferred income tax assets and the fair value of stock options.
Cash and Cash Equivalents – Cash and cash equivalents as of March 31, 2020 included cash on-hand. The Company considers all highly liquid investments with an original maturity date within 90 days. Cash equivalents are carried at cost. The Company maintains its cash balance at a credit-worthy financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.
Notes Receivable – Notes receivable are classified on the balance sheet based on their maturity date.
Fair Value of Financial Instruments – The historical carrying amount of the financial instruments, which principally include cash, trade receivables, historical accounts payable and accrued expenses, approximates fair value due to the relative short maturity of such instruments.
Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quotes prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to
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specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. Allowances for bad debts of $29,048 and $49,329 were recorded at March 31, 2020 and December 31, 2019, respectively.
Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at March 31, 2020 and December 31, 2019:
|
|
| March 31, 2020 |
|
| December 31, 2019 |
Raw Goods |
| $ | 227,370 |
|
| - |
Finished Goods |
| $ | 34,527 |
|
| - |
Total Inventory |
| $ | 261,897 |
|
| - |
Monthly overhead costs such as payments for rent, electric, gas and labor are allocated to finished goods based on the estimated percentage cost toward the finished goods.
Fixed Assets – Fixed assets are recorded and stated at cost. Fixed assets that cost less than $2,500 are expensed, and fixed assets that cost $2,500 or more are capitalized. Depreciation of machinery and equipment, leasehold improvements, and computer equipment, is based on the asset’s estimated useful life and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.
Management regularly reviews property and equipment and other long-lived assets for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks.
Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.
Security Deposit – The Company has paid a security deposit to its lessor for the Company’s current office, manufacturing and warehouse space.
Investments – Under US GAAP, the Company uses the cost method to account for our minority equity ownership interests in businesses in which the Company owns less than 20% of equity ownership, and have no substantial influence over the management of the businesses. Under the cost method of accounting, the Company reports the historical costs of the investments as assets on its balance sheet. However, US GAAP does not permit the consolidation of its financial statements with the financial statements of companies in which the Company owns minority equity ownership interests. US GAAP also requires the Company to record these types of investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As such, the Company will not be allowed to consolidate into its financial statements any portion of the revenues, earnings or assets of companies in which it owns minority equity ownership interests such as Ablis, Bendistillery and Bend Spirits. Moreover, even if there is evidence that the fair market values of the investments have increased above their historical costs, US GAAP does not allow increasing the recorded values of the investments. Under US GAAP, the only adjustments that may be made to the historical costs of the investments are write downs of the values of the investments, which must be made if there is evidence that the fair market values of the investments have declined to below the recorded historical costs.
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Revenue
The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 606.
Revenue Recognition on the Sale of Raw Materials to Customers
The Company sells water soluble CBD, distillate and isolate (“Raw Materials”) to various customers. The Company does not offer terms to customers buying Raw Materials. In the majority of sales of Raw Materials to customers, customers are required to pay the full price before receiving the Raw Materials. In some cases, with the sale of large quantities of Raw Materials to customers with whom the Company has established relationships, the Company may allow the customer to pay 50% of the purchase up front, and then, after delivery of the product, the customer is required to pay the remaining 50% of the purchase price.
Revenue Recognition on the Sale of Products to Private Label Clients
In the majority of cases, private label clients are required to pay up front for the goods that they order. If the private label client orders more than ten stock keeping units (“SKUs”) in an order, the Company will collect a down payment of at least 50% of the total purchase order, and then will collect the remaining amount upon delivery of the purchased goods.
Revenue Recognition on the Sale of Lifted Liquids-Branded Products to Wholesalers, Distributors and End Users
The Company sells its own branded products to distributors, which then sell Lifted’s products to vape shops, CBD stores, convenience stores, health food stores, and other outlets. The Company also sells its own branded products to wholesalers and directly to consumers online.
The Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements.
The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Promotional and other allowances (variable consideration) recorded as a reduction to gross sales, primarily include consideration given to the Company’s distributors or retail customers including, but not limited to discounted or free products.
The Company’s promotional and other allowance accruals are established during the year for its anticipated liabilities. These accruals require management’s judgment. Differences between such estimated expenses and actual expenses for promotional and other allowance costs are recognized in earnings in the period such differences are determined.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
Described below are some of the reasons why an end customer may want to return an ordered item, and how the Company responds in each situation:
1) The ordered item breaks in transit to the customer. In this case, the Company will replace the broken item at no cost to the customer.
2) The Company sent the wrong item to the customer. In this case, the Company will allow the customer to keep, at no cost to the customer, the item that was mistakenly sent to the customer. The Company will also send the correct product to the customer, at no cost to the customer.
3) The customer ordered the wrong product. In this case, the customer, at his/her own expense, must mail the mistakenly ordered product back to the Company, and the Company will mail the correct product to the customer.
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The three scenarios described above do not occur frequently, and occurrences are immaterial.
In the event that a wholesaler or distributor wants to return a purchase, the Company will exchange the wholesaler’s or distributor’s purchase for store credit or for items of the same value so long as the purchase is not open or damaged; as such, any difference in sale price is immaterial.
Disaggregation of Revenue
Nearly all of the Company’s sales occur inside the United States of America.
Contract Liabilities
Amounts received from distributors at inception of their distribution contracts or at the inception of certain sales or marketing programs would be accounted for as deferred revenue. Cash received from a customer before the purchased product is shipped to the customer is treated as deferred revenue. There was deferred revenue of $43,463 at March 31, 2020, and deferred revenue of $64,696 at December 31, 2019.
Cost of Goods Sold – Cost of goods sold consists of the costs of raw materials utilized in the manufacture of products, direct labor, co-packing fees, repacking fees, freight and shipping charges, as well as internal transfer costs, warehouse expenses incurred prior to the manufacture of Lifted’s finished products and certain quality control costs. Raw materials account for the largest portion of cost of sales. Raw materials include ingredients, product components and packaging materials.
Operating Expenses – Operating expenses include payroll costs, travel costs, professional service fees, insurance, utility charges, advertising and marketing, depreciation and other general and administrative costs.
Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.
Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the three months ended March 31, 2020 and 2019:
|
| For the Three Months Ended | ||
|
| March 31, | ||
|
| 2020 |
| 2019 |
Net Loss |
| $(1,760,627) |
| $(44,440) |
Weighted Average Shares Outstanding |
| 4,312,568 |
| 2,405,777 |
|
|
|
|
|
Basic and Diluted Loss per Share |
| $(0.41) |
| $(0.02) |
At March 31, 2020, there were outstanding options to purchase 1,586,619 shares of common stock exercisable at between $0.001 and $2.00 per share, (b) rights to purchase warrants to purchase 2,625,000 shares of common stock exercisable at between $0.01 and $1.85 per share, (c) financing warrants to purchase 31,250 shares of common stock
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exercisable at $0.03 per share, (d) warrants to purchase 1,820,000 shares of common stock at $5.00 per share, and (e) and warrants to purchase 475,000 shares at $5.00 per share. As of the date of this prospectus, none of these outstanding options, rights to purchase warrants or financing warrants have been exercised into shares of common stock. However, all of them may be exercised at any time in the sole discretion of the holder except for certain rights to purchase warrants to purchase 1.25 million shares of our common stock, which are not exercisable until a performance contingency is met, and except for 745,000 of the 1,820,000 warrants exercisable at $5.00 per share which are not yet vested and subject to certain performance contingencies. Also outstanding at March 31, 2020 was Series A Preferred Stock outstanding convertible into 6,615,000 shares of common stock. In addition, the Company has accepted subscriptions from four accredited investors to purchase 100,000 shares of Series B Preferred Stock for an aggregate purchase price of $500,000 in cash, convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company, or $5.00 per share of common stock of the Company. None of these are including in the diluted earnings calculation, given they are considered antidilutive.
In comparison, at March 31, 2019, there were outstanding options to purchase 1,186,132 shares of common stock exercisable at between $0.001 and $3.18 per share, (b) rights to purchase warrants to purchase 2,740,000 shares of common stock exercisable at between $0.01 and $1.85 per share, and (c) financing warrants to purchase 56,250 shares of common stock exercisable at $0.03 per share. All of them were exercisable at any time in the sole discretion of the holder except for certain rights to purchase warrants to purchase 1.25 million shares of our commons stock, which are not exercisable until a performance contingency is met. Also outstanding at March 31, 2019 were 29,900 shares of Preferred Stock, convertible into 2,990,000 shares of the Company’s common stock at an exercise price of $1.00 per common stock share pursuant to the Series A Preferred Stock’s voluntary conversion rights. All of these options, rights to purchase warrants to purchase shares of common stock, financing warrants and Preferred Stock shares were excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive.
Recent Accounting Pronouncements – In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (codified as Accounting Standards Codification (“ASC”) Topic 326). ASC 326 adds to US GAAP the current expected credit loss model, a measurement model based on expected losses rather than incurred losses. Under this new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022, though early adoption is permitted. The Company believes the adoption will modify the way the Company analyzes financial instruments. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. The accounting for any hosting contract is unchanged. ASU 2018-15 is effective on January 1, 2020 with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements.
Advertising and Marketing Expenses – Advertising costs are expensed as incurred. During the three months ended March 31, 2020, the Company incurred $10,286 in advertising and marketing expenses, of which were primarily public relations and digital marketing. During the year ended December 31, 2019, the Company incurred $2,757 in advertising and marketing expenses, of which were primarily online advertising.
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Compensated Absences – Paid time off (“PTO”) is provided to employees and subcontractors that obtain approval for it from Nicholas S. Warrender, CEO of Lifted. Any approved PTO is granted at Mr. Warrender’s discretion, and mandatory PTO is zero days, thus no accrual is necessary.
Off Balance Sheet Arrangements – The Company has no off balance sheet arrangements.
Reclassifications – Some items from the prior period have been reclassified within the financial statements to conform with the current presentation.
NOTE 3 – RISKS AND UNCERTAINTIES
Going Concern – The COVID-19 pandemic and its ramifications, combined with the expenses and potential liabilities associated with litigation involving Lifted, have created significant adverse risks to the Company, which cause substantial doubt about the Company’s ability to continue as a going concern. Also, the Company has Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year. In addition, factors that could materially affect future operating results include, but are not limited to, changes to laws and regulations, especially those related to vaping, vendor concentration risk, customer concentration risk, customer credit risk, and counterparty risk. The Company maintains levels of cash in a bank deposit account that, at times, may exceed federally insured limits. The Company has not experienced any losses in such account and it believes it is not exposed to any significant credit risk on cash.
No assurance or guarantee whatsoever can be given that the net income of the Company’s wholly-owned subsidiary Lifted Made will be sufficient to allow the Company to pay all of its operating expenses and the dividends accruing on the Company’s preferred stock. As a result, there is substantial doubt that the Company will be able to continue as a going concern. Bankruptcy of the Company at some point in the future is a possibility. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company currently has one revenue-generating subsidiary, Lifted Made. If and to the extent that the revenue generated by Lifted Made is not adequate to pay the Company’s operating expenses and the dividends accruing on its preferred stock, then Management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing additional profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.
NOTE 4 – THE COMPANY’S INVESTMENTS IN ABLIS, BENDISTILLERY AND BEND SPIRITS
On April 30, 2019, the Company purchased 4.99% of the common stock of each of Ablis Holding Company, Bendistillery Inc., and Bend Spirits, Inc. for an aggregate purchase price of $1,896,200. The Company’s investments in Ablis, Bendistillery and Bend Spirits made the Company a minority owner of these companies. As a minority owner, the Company will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements.
Pursuant to US GAAP, the Company is obligated to periodically review its investments. The Company has limited ability to comment on these companies’ operations and financial performance. The Company’s ability to review the financial performance of its investment in these companies is limited: the financial statements of these companies are not audited and the Company is not active in the management of these companies. Consequently, the Company’s assessment of these companies is inherently limited to infrequent and relatively brief conversations with officers of these companies, and to reviews of unaudited financial statements that are delivered to us on an irregular basis.
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NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and Equipment consist of the following:
Asset Class |
| March 31, 2020 | December 31, 2019 |
Machinery & Equipment |
| $69,900 | $- |
Computer Equipment |
| $5,407 | $- |
Leasehold Improvements |
| $20,089 | $- |
Sub-total: |
| $95,396 | $- |
|
|
|
|
Less: accumulated depreciation |
| $1,738 | $- |
|
| $93,658 | $- |
Estimated useful lives per asset class are:
Asset Class | Estimated Useful Life |
Machinery & Equipment | 120 months |
Computer Equipment | 60 months |
Leasehold Improvements | 48 months |
Depreciation expense of $1,738 was recognized during the quarter ended March 31, 2020.
NOTE 6 – NOTES RECEIVABLE
CBD Lion LLC
On August 8, 2019, the Company made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”) in connection with the proposed Merger Agreement with Lion. Per the terms of the Note, if the Transaction did not close and the merger agreement were terminated, then the Loan was to be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement. The Merger Agreement was terminated by the Company on November 14, 2019 and the Note became payable. During December 2019, the principal of the Note was repaid by Lion down to $200,000, and Lion also paid the accrued interest on the Note of $6,945.
Due to termination of the Merger Agreement, and per Section 5.15(b) of the Merger Agreement, as of December 31, 2019 the Company owed CBD Lion $31,500 for reimbursement of professional fees related to the audit of CBD Lion.
This left Lion with a net balance owed to the Company of $168,500 as of December 31, 2019. On March 2, 2020, Lion and the Company agreed that the repayment of such $168,500 will be made in eleven equal monthly installments of principal due and payable by Lion to the Company on the first day of each calendar month starting on April 1, 2020, and that no additional interest will accrue. During the quarter ended March 31, 2020, The Company wrote off as bad debt interest of $2,006 that was receivable from the CBD Lion for the period January 1, 2020 through March 1, 2020. The Company calculated imputed interest receivable of $370 from CBD Lion for the period March 2, 2020 through March 31, 2020.
The William Noyes Webster Foundation, Inc.
The Foundation, a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana dispensary in Dennis, Massachusetts. Jane W. Heatley (“Heatley”) is the founder and a member of the board of directors of the Foundation.
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Teaming Agreement – The Company believes it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, the Company entered into a Teaming Agreement (the "Teaming Agreement") with Heatley, in which, among other things: (1) the Company and Heatley agreed to use their respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which the Company will provide capital and expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. The Company claims that Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that the Company violated the Teaming Agreement alleging that the Company failed to lend funds to the Foundation in accordance with the Teaming Agreement. The Company believes Heatley's claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that the Company will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.
Promissory Note – On July 14, 2014, the Foundation signed and delivered to the Company a Secured Promissory Note (the "Note") which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $1,500,000 loan may be advanced in one or more installments as the Foundation and the Company may mutually agree upon. The Foundation and the Company mutually agreed that the first installment of this loan would be $602,500. Pursuant to instructions from the Foundation, on July 14, 2014, the Company paid $2,500 owed by the Foundation to one of its consultants, and the Company advanced $600,000 directly to the Foundation. The amount and timing of subsequent loan installments under the Note, which could have totaled $897,500, had not yet been mutually agreed upon between the Foundation and the Company as of the date of the Note.
Between April and July 2015, the Company loaned an additional $135,350 to the Foundation, evidenced by the Note and secured by the Security Agreement. Following such additional loans, the principal of the loan from the Company to the Foundation, evidenced by the Note and secured by the Security Agreement, is now $737,850. The principal balance outstanding under the Note bore interest at the rate of 12.5% per annum, compounded monthly. It was contemplated that the first payment of accrued interest by the Foundation under the Note would be made as soon after the Foundation commences operations of the Plymouth Cultivation Facility and the Dennis Dispensary as the Foundation's cash flows shall reasonably permit, but in any event no later than one year after the Foundation commences operations. The principal of the Note would be payable in eight consecutive equal quarterly installments, commencing on the last day of the calendar quarter in which the Foundation commences operations. Principal on the Note and related accrued interest would be considered past due if the aforementioned payments were not received by their due dates.
Uncollectable Note and Interest Receivable – The Company assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, the Company concluded that Note and interest receivable would not be collectible. As such, the Company wrote off the Note totaling $737,850 and interest receivable totaling $97,427 as bad debt expense on September 1, 2015.
NOTE 7 – INTANGIBLE ASSETS, NET
www.LiftedMade.com Website – During the year ended December 31, 2019, Lifted paid a third party to develop a new website, www.LiftedMade.com, with new features and functionality. A total of $5,000 was spent developing the website during the year ended December 31, 2019. The website is being amortized over 32 months, and $139 in amortization related to the website was recognized during the quarter ended March 31, 2020.
NOTE 8 – RELATED PARTY TRANSACTIONS
Commissions Paid – During the three months ended March 31, 2020, $3,777 in commissions were paid to Robert Warrender, who is Nicholas S. Warrender’s brother. In 2019, $34,972 in commissions were paid to Robert Warrender.
Shipping Costs – Lifted shares a shipping account with a company operated by Nicholas S. Warrender’s father. Lifted does this in an effort to reduce shipping costs, as the shipper gives a price discount based on volume. The cost
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of shipping Lifted’s products are paid for by Nicholas S. Warrender’s father’s company, and Lifted reimburses Nicholas S. Warrender’s father’s company.
Amounts Owed to Related Parties
Amounts Owed to GJacobs
At March 31, 2020, there was a management bonus payable of $250,000 owed to the Company's CEO GJacobs; there were no other payables owed to GJacobs. In comparison, at March 31, 2019, there are expense reimbursements owed to the Company's CEO GJacobs, CEO totaling $3,555. At December 31, 2019, there were no expense reimbursements owed to GJacobs.
On June 21, 2016, a company affiliated with GJacobs, made a non-interest-bearing loan of $4,000 to the Company, which was payable upon demand. The $4,000 note payable to the company affiliated with GJacobs was repaid during the quarter ended March 31, 2019.
Amounts Owed to WJacobs
At March 31, 2020, there was a management bonus payable of $100,000 owed to WJacobs; there were no other payables owed to WJacobs. In comparison, at March 31, 2019, there were independent contractor fees of $130,000, salary of $5,000, and expense reimbursements of $1,825 owed to WJacobs, who is now the Company's President and CFO, totaling $136,825. At December 31, 2019, there were no payables owed to WJacobs. WJacobs is the son of GJacobs, our Chief Executive Officer, and the nephew of director James S. Jacobs.
During the quarter ended March 31, 2019, WJacobs was paid $40,000 for independent contractor fees he was owed for May 2016 through December 2016. He was also reimbursed $4,417 for expenses he incurred from January 2016 through November 2018.
Amounts Owed to Nicholas S. Warrender
On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Warrants").
As such, as of March 31, 2020, in addition to the Promissory Note of $3,750,000 owed to Nicholas S. Warrender, there was also related interest payable of $7,603 owed to Nicholas S. Warrender.
Total reimbursements of $840 were also payable to Nicholas S. Warrender at March 31, 2020.
Financing Warrants – On July 13, 2018, the Audit Committee, Compensation Committee, and full Board of Directors of the Company approved by unanimous written consent borrowings by the Company on the following terms:(1) proceeds of the borrowings will be used to pay professional fees owed to our outside auditors, our stock transfer agent, and our securities counsel, and to pay other obligations of the Company; (2) the borrowings will be evidenced by promissory notes of the Company, accruing interest at the rate of 15% annually; (3) the notes will be jointly secured by a first lien security interest in all of the assets of the Company, pursuant to a security agreement signed by the Company in favor of the lenders, UCC filings in favor of the lenders, and a pledge to the lenders of the note payable by the William Noyes Webster Foundation Inc. to the Company; (4) the notes shall be due and payable upon demand by the lenders delivered to the Company; and (5) for each $1,000 loaned by the Company on these terms, the lender of such $1,000 shall receive warrants to purchase 1,250 shares of common stock of the Company, at an exercise price of $0.03 per share, exercisable at the discretion of such lender any time on or before July 16, 2023.
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As of December 31, 2018, a total of $30,791 had been borrowed by the Company on such terms, and warrants to purchase 25,000 shares of common stock of the Company had been issued to director Joshua A. Bloom and warrants to purchase 12,500 shares of common stock of the Company had been issued to the Company's CEO GJacobs. As of December 31, 2018, there was also a total of $1,381 in interest payable to Joshua A. Bloom and GJacobs, related to these borrowings.
Between January 7, 2019 and February 6, 2019, an additional $14,772 was lent by GJacobs to the Company on such terms, and warrants to purchase 18,750 shares of common stock of the Company were issued to GJacobs.
On March 13, 2019, all of these borrowings and the related interest payable to Joshua A. Bloom and GJacobs was repaid. In total, $21,540 was paid to Joshua A. Bloom, and $26,628 was paid to GJacobs.
Amounts Owed to Third Parties
On March 15, 2019, the Company settled and paid its debt of $61,500 to its previous independent registered public accounting firm, Eide Bailly LLP.
NOTE 9 – DISTRIBUTIONS TO NICHOLAS S. WARRENDER
Distributions to Nicholas S. Warrender to Cover the Income Taxes Owed by Nicholas S. Warrender in Regard to the Net Income of Lifted Prior to February 24, 2020
Pursuant to Section 5.11 of the Agreement and Plan of Merger by and among the Company, Lifted, Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc. and Nicholas S. Warrender dated January 7, 2020, certain Estimated Tax Distributions were to be made to Nicholas S. Warrender to cover estimated income tax obligations of Nicholas S. Warrender in regard to the net income of Warrender Enterprise Inc. during 2019 and during the short taxable year commencing on January 1, 2020 and ending on February 23, 2020, the date before the closing date of the Merger. The parties orally agreed that these Estimated Tax Distributions would be made to Nicholas S. Warrender as promptly as feasible following the closing date. On March 6, 2020, Lifted distributed a total of $193,767 of Estimated Tax Distributions based upon good faith estimates of such federal and state income tax obligations of Nicholas S. Warrender calculated by a third party tax preparation firm.
NOTE 10 – SHAREHOLDERS’ EQUITY
Issuance of Preferred Stock – The Company has authorized 400,000 shares of its Preferred Stock. Each share of Preferred Stock may be converted into 100 shares of common stock. The Preferred Stock pays dividends at the rate of 3% annually. The Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Preferred Stock have no voting rights. The holders of the Preferred Stock shall have voluntary conversion rights. Shares of Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.
Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Company has committed to file a registration statement covering the shares of newly issued common stock of the Company into which the Preferred Stock can be converted (the "Registration Statement"). The Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Preferred Stock.
Issuance of Financing Warrants – On July 13, 2018, the Audit Committee, Compensation Committee, and full Board of Directors of AQSP approved by unanimous written consent borrowings by AQSP on the following
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terms:(1) proceeds of the borrowings will be used to pay professional fees owed to our outside auditors, our stock transfer agent, and our securities counsel, and to pay other obligations of AQSP; (2) the borrowings will be evidenced by promissory notes of AQSP, accruing interest at the rate of 15% annually; (3) the notes will be jointly secured by a first lien security interest in all of the assets of AQSP, pursuant to a security agreement signed by AQSP in favor of the lenders, UCC filings in favor of the lenders, and a pledge to the lenders of the note payable by the William Noyes Webster Foundation Inc. to AQSP; (4) the notes shall be due and payable upon demand by the lenders delivered to AQSP; and (5) for each $1,000 loaned by AQSP on these terms, the lender of such $1,000 shall receive warrants to purchase 1,250 shares of common stock of AQSP, at an exercise price of $0.03 per share, exercisable at the discretion of such lender any time on or before July 16, 2023.
During the quarter ended March 31, 2019, a total of $14,772 was borrowed by AQSP on such terms from GJacobs, and warrants to purchase 18,750 shares of common stock of AQSP were issued to GJacobs.
The warrants to purchase common stock that were issued to GJacobs during the quarter ended March 31, 2019 were valued using the Black-Scholes valuation model as of the date they were issued. The values of these warrants were fully expensed because the notes are payable upon demand. The expense recognized related to the issuance of the warrants to GJacobs during the quarter ended March 31, 2019 was $26,773, which was a debit to interest expense and credit to additional paid-in capital.
Share-Based Compensation – During the period ended March 31, 2020, the Company recognized $733,530 in share-based compensation related to the issuance of warrants to GJacobs. The Company also recognized $660,177 in share-based compensation related to the issuance of warrants to WJacobs. These warrants were issued to GJacobs and WJacobs pursuant to the June 19, 2019 Compensation Agreement, which authorized the issuance of certain warrants to GJacobs and WJacobs upon the execution of employment agreements, which were signed on February 24, 2020 upon the closing of the acquisition of Lifted. The five-year warrants give GJacobs the right to purchase 250,000 shares of common stock of AQSP exercisable at $5.00 per share. The five-year warrants give WJacobs the right to purchase 225,000 shares of common stock of AQSP exercisable at $5.00 per share. The warrants were valued using the Black-Scholes valuation model as of the date of issuance, assuming an estimated life of 2.5 years and estimated future volatility of 361.49%.
There was no share-based compensation expense recognized during the period ended March 31, 2019.
Stock Option and Warrant Activity – The following is a summary of stock option and warrant activity as of March 31, 2020 and changes during the period then ended:
|
|
| Weighted-Average | Aggregate |
|
| Weighted-Average | Remaining Contractual | Intrinsic |
| Shares | Exercise Price | Term (Years) | Value |
Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, December 31, 2019 | 4,242,869 | $1.23 | 3.92 | $5,382,644 |
Warrants to Purchase Common Stock Issued in the Lifted Made merger during Q1 2020 | 1,820,000 |
|
|
|
Warrants Issued to GJacobs and WJacobs | 475,000 |
|
|
|
Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, March 31, 2020 | 4,542,869 | $2.35 | 4.66 | $5,158,518 |
Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, March 31, 2020 | 6,537,869 | $2.56 | 4.71 | $6,221,018 |
Upon the execution of GJacobs’ employment agreement on February 24, 2020, the terms of GJacobs’ stock options granted by the Company to purchase shares of common stock of the Company which were set to expire on November 4, 2020 and September 29, 2021 were extended so that all of such stock options may be exercised by GJacobs at any time on or before December 31, 2024. GJacobs owns 471,698 options that were originally set to expire on November 4, 2020, and 605,000 options that were originally to expire on September 29, 2021; the expiration dates for all of these options were extended to December 31, 2024.
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NOTE 11 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Operating Lease Right-of-Use Asset – In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”). The amended guidance, which is effective for the Company on January 1, 2019, requires the recognition of lease assets and lease liabilities on the balance sheet for those leases with terms in excess of 12 months and currently classified as operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet; lease expense for these types of leases are recognized on a straight-line basis over the lease term. Options to extend or terminate a lease are not included in the determination of the right-of-use asset or lease liability unless it is reasonably certain to be exercised. Lifted adopted ASU 2016-02 using the modified retrospective approach, electing the package of practical expedients.
Lifted does not own any physical properties. Lifted’s corporate office, manufacturing facility and warehouse is located in Zion, Illinois, where Lifted has rented 3,300 square feet of space. The lease started June 1, 2018, and terminates on June 1, 2021. Lifted has plans to expand its operations in Zion as opportunities arise. Some of Lifted’s equipment is temporarily located in a third party’s rented space that is adjacent to Lifted’s space. The Company’s lease agreement does not contain any material residual value guarantees or materially restrictive covenants.
As the Company's lease does not provide an implicit rate, the Company used an incremental borrowing rate based on the information provided by a banker in determining the present value of lease payments. The discount rate used in the computations was 5.5%.
Balance Sheet Classification of Operating Lease Assets and Liabilities
Asset |
|
| Balance Sheet Line |
|
| March 31, 2020 | ||
Operating Lease Right-of-Use Asset | Non-Current Assets |
| $ | 21,535 | ||||
|
|
|
|
|
|
|
|
|
Liability |
|
| Balance Sheet Line |
|
| March 31, 2020 | ||
Current Operating Lease Liability |
| Current Liabilities |
| $ | 18,482 | |||
Operating Lease Liability |
| Non-Current Liabilities | $ | 2,954 | ||||
Lease Cost
The table below summarizes the components of lease costs for the period ended March 31, 2020.
|
|
|
|
|
|
| March 31, 2020 |
Operating lease costs for March 2020. Please note: as described in Note 2, a portion of monthly overhead costs such as this rent are allocated to finished goods. Utility costs such as this rent are included in the total Selling, General and Administrative Expenses account. | $ | 1,600 | |||||
|
|
|
|
|
|
|
|
Maturities of lease liabilities as of March 31, 2020 are as follows: |
|
| |||||
|
|
|
|
|
|
|
|
Remaining lease payments in 2020 |
|
|
| $ | 14,400 | ||
Less: Interest for remaining 2020 fiscal year |
|
|
|
| $ | (571) | |
Present value of lease liabilities |
|
|
| $ | 13,829 | ||
Processing Services Agreement Between the Company and Merkabah Labs LLC – On May 9, 2019, Lifted entered into a one year Processing Services Agreement with Merkabah Labs, LLC ("Merkabah Labs"). Pursuant to such Processing Services Agreement, among other things, Merkabah Labs agreed to produce and sell a water soluble CBD nano product to Lifted, and so long as Lifted was not in breach of certain specified minimum quantity purchase requirements, Lifted shall be Merkabah Labs' exclusive supplier of such product for the duration of the Processing Services Agreement. In addition, among other things, Lifted and Merkabah Labs each agreed in such Processing Services Agreement not to disclose, directly or indirectly, to any person or entity the other party's
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confidential information, and the receiving party agreed that is shall not use the other party's confidential information for its private benefit, but only in furtherance of the purposes of such Processing Services Agreement. Lifted has filed a lawsuit against Merkabah Labs, its majority owner Ryan Puddy, Merkabah Technologies, LLC, and Ralph L. Taylor III (collectively, the "defendants") alleging, among other things: that the defendants' orchestrated and deliberately misappropriated Lifted's confidential business, proprietary, and trade secret information, in breach of contract and breach of fiduciary duties; that the defendants wrongfully acquired, disclosed, and used Lifted's information through unauthorized access to Lifted's internal email communications and other improper means in violation of federal, state and common law; that defendants consciously conspired and deliberately pursued a fraudulent and malicious scheme to pick apart Lifted's business from within and steal Lifted's confidential business, proprietary, and trade secret information to further their own economic or corporate interests, to the detriment of Lifted; and that defendants knowingly benefitted from their colluded misappropriation of Lifted's confidential business, proprietary, and trade secret information, and unfair competition enabling defendants to quickly create a competing company using Lifted's resources and personnel and reap the associated awards in the marketplace without contributing or expending any of their own time, money, resources, knowledge or experience.
Payment of Finders’ Fees Related to Ablis
The Company has agreed to pay finders’ fees to two finders in regard to the potential purchase of an additional 15% of the stock of Ablis. The Company has agreed to pay those two finders additional warrants to purchase shares of common stock of the Company at an exercise price of $1 per share exercisable at any time on or before April 30, 2024; in the event that the Company closes on the purchase of up to an additional 15% of the common stock of Ablis, then the total amount of such warrants will be 2,814 unregistered shares of common stock of AQSP at an exercise price of $1 per share for each additional one percent of Ablis’ common stock so purchased (a maximum issuance of warrants to purchase an aggregate of 42,210 unregistered shares of common stock of the Company at an exercise price of $1 per share).
Previously, on April 30, 2019, the Company issued warrants to purchase 14,042 unregistered shares of common stock of the Company, issued to the two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis. Using the Black-Scholes valuation model, these warrants were valued and expensed as being worth $40,708.
Payment of Brokers’ Fees Related to the Sale of Preferred Stock
The Company has committed to pay brokers’ fees in regard to the capital being raised for the Company by such brokers in the Company’s private placements of preferred stock, such fee to consist of warrants to purchase unregistered shares of common stock of the Company at an exercise price equal to the conversion price per share of such preferred stock, exercisable at any time during a five year period; the number of such shares will be calculated as six percent of the aggregate capital raised by such brokers in the private placement of preferred stock divided by the conversion price per share of such preferred stock.
In 2019, warrants to purchase 402,900 unregistered shares of common stock of the Company were issued to these brokers. Using the Black-Scholes valuation model, these warrants were valued and expensed as being worth $833,446.
Potential Issuance of Warrants to Purchase Shares of Common Stock of the Company
The Compensation Committee of the Company's Board of Directors may, from time to time, recommend that certain warrants to purchase shares of common stock of the Company should be issued to new or current members of the Company’s Board of Directors, to officers and employees of the Company and its subsidiaries, or to members of any advisory board or consultants to the Company.
Amounts Payable to Gerard M. Jacobs and William C. Jacobs
Gerard M. Jacobs has not historically received cash compensation, and, historically, the Company’s President and CFO William C. “Jake” Jacobs has worked for $5,000 per month. Effective as of June 19, 2019 through the earlier of the closing of the Company’s acquisition of CBD Lion LLC, which is now terminated or the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) (“Lifted”), the Company has agreed to pay Gerard M. Jacobs and William C. “Jake” Jacobs consulting fees of $7,500 and
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$5,000 per month, respectively. In addition, upon the closing of the acquisition described herein, their salaries, equity incentives, expense reimbursements and bonuses will increase. There are also to be significant bonuses awarded to Gerard M. Jacobs and William C. “Jake” Jacobs for closing on the acquisition of Lifted, and upon the earlier of December 1, 2020 or the first date when the Company has raised a total of at least $15 million, and upon the earlier of December 1, 2021 or the first date when the Company has raised a total of at least $25 million, as described in the current report on Form 8-K, and its exhibit, filed with the SEC on or about June 25, 2019. Please note that as of December 31, 2019, the Company had not yet closed on its acquisition of Lifted, and the Company had not raised $15 million and $25 million, so no accruals for the bonuses triggered by these events had been made. As of April 23, 2020, the Company has closed on the acquisition of Lifted, and the bonuses triggered by the acquisition of Lifted have been accrued for but have not yet been paid. As of the date of this prospectus, the Company has not yet raised $15 million or $25 million.
NOTE 12 – LEGAL PROCEEDINGS
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Except for income tax contingencies, the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
Lifted is involved in three pending lawsuits, two as a defendant, and the other as the plaintiff, described below:
MILE HIGH LABS, INC., Plaintiff, v. WARRENDER ENTERPRISE, INC. d/b/a LIFTED LIQUIDS, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW) – In August 2019, Mile High Labs, Inc. sued Lifted in federal court in Colorado, alleging that Lifted reneged on an alleged purchase of $825,000 worth of CBD isolate. Lifted has challenged the jurisdiction of the Colorado court, arguing that Lifted does not conduct business in Colorado. When appropriate, Lifted intends to deny the material allegations of the complaint. However, no assurance or guarantee can be given regarding the disposition of this lawsuit. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit. The Company has recorded an accrual for the use of $60,000 worth of the CBD isolate in question.
WARRENDER ENTERPRISE, INC. d/b/a LIFTED LIQUIDS, a Wisconsin corporation, Plaintiff, v. MERKABAH LABS, LLC, a Colorado limited liability company; MERKABAH TECHNOLOGIES, LLC, a Colorado limited liability company; RYAN PUDDY, an individual; and RALPH L. TAYLOR III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit.
False Advertising Matter – On or about May 11, 2020, Accelerated Analytical, Inc. and Act Laboratories, LLC d/b/a Accelerated Cannabis Laboratories (together “Accelerated” or “Plaintiff”) filed a lawsuit against our wholly owned subsidiary Lifted Liquids, Inc. (“Lifted”) and member of our Board of Directors, Nicholas Warrender, in the US District Court, Western District of Wisconsin (Case #3:20-cv-00442). Accelerated provided certificates of analysis (“COAs) for a number of the ingredients and formulations used in Lifted’s products. Plaintiff’s complaint alleged that the defendants have, among other things, modified and/or misused Plaintiff’s COAs in connection with the sale of Lifted’s products. The Plaintiffs allege that Defendants’ actions constituted “false advertising” under the US trademark law and “deceptive trade practices” under Wisconsin state law. The Plaintiff does not quantify any alleged damages in its complaint but, in addition to attorneys' fees and costs, seeks injunctive relief to, among other things, prohibit Defendants from distributing any COAs that purport to be from Accelerated, refrain from selling certain products alleged to have been associated with false or misleading COA(s), provide Accelerated with copies of altered and/or fabricated COAs, and provide customer lists to Accelerated. Plaintiffs sought a temporary restraining order which was denied by the Court. We expect Plaintiffs to attempt to obtain a preliminary injunction. Defendants dispute that Plaintiffs have suffered any damages as a result of the alleged actions by Defendants and intend to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the
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legal standards that must be met for, among other things, success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action. The alleged actions by Defendants appear to have occurred prior to the closing of the Agreement and Plan of Merger (“Merger Agreement”) pursuant to which Lifted became our wholly owned subsidiary on February 24, 2020. Pursuant to the Merger Agreement, Mr. Warrender is required to indemnify our subsidiary Lifted for damages or costs incurred as a result of any malfeasance on his part. The Merger Agreement also requires both Lifted and Mr. Warrender to indemnify Acquired Sales Corp. for damages or costs that we incur as a result of this lawsuit.
Lifted expects to file a lawsuit soon against a digital marketing company in regard to that company’s money back guarantee of a $25,000 upfront fee paid by Lifted.
NOTE 13 – WORKER’S COMPENSATION CLAIM
During the year ended December 31, 2019, Lifted became involved in the following pending worker’s compensation claim, as the defendant:
MARTHA, EDGAR v. LIFTED LIQUIDS – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage.
NOTE 14 – SUBSEQUENT EVENTS
Cancellation of Shares of Common Stock
Several years ago, pursuant to a fully signed settlement agreement (the "Settlement Agreement"), the Company purchased for $50,000 (the "Purchase") all of the shares of the Company’s common stock (the "Shares") owned by Matthew Ghourdjian ("Ghourdjian") and by the Deborah Sue Ghourdjian Separate Property Trust ("Ghourdjian Trust").
Prior to the closing of the Purchase, Ghourdjian and the Ghourdjian Trust orally expressed uncertainty as to whether or not certain of the Shares totaling 166,888 shares (the "166,888 Shares") had already been orally sold by Ghourdjian and the Ghourdjian Trust to a third party. With Ghourdjian and the Ghourdjian Trust being unable to find any evidence of such a sale of the 166,888 Shares but also being unable to locate the physical stock certificates evidencing the 166,888 Shares, the Settlement Agreement was written so that the Company purchased from Ghourdjian and the Ghourdjian Trust all of the Shares owned by Ghourdjian or by the Ghourdjian Trust, and stipulated that the aggregate number of the Shares without the 166,888 Shares was a minimum of 690,796 shares (the "690,796 Shares").
At the closing of the Purchase, the Company paid $50,000 for the Shares and Ghourdjian and the Ghourdjian Trust delivered to the Company certificates evidencing the 690,796 Shares.
The 166,888 Shares continued to be shown on the books of Colonial Stock Transfer ("Colonial") as being owned by Ghourdjian and the Ghourdjian Trust. On April 2, 2020 the 166,888 Shares were cancelled.
Receipt of Loans under the Economic Injury Disaster Loan Program and the Paycheck Protection Program
In response to the coronavirus (COVID-19) pandemic the U.S. Small Business Administration (the “SBA”) is making small business owners eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000 under its Economic Injury Disaster Loan program (the “EIDL”). This advance provides economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. Lifted applied for and received a $10,000 loan advance under the EIDL (“EIDL Advance”). Lifted also applied for and received a loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. The PPP Loan was issued by BMO Harris Bank (the “Lender”) in the aggregate principal amount of $149,622.50 and evidenced by a promissory note (the “Note”), dated April 14, 2020 issued by Lifted to the Lender. The Note matures on April 14, 2022. The Note bears interest at a rate of 1.00% per annum, payable monthly commencing on November 14, 2020,
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following an initial deferral period as specified under the PPP. The Note may be prepaid by Lifted at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loan will be available to Lifted to fund designated expenses, including certain payroll costs and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent that at least 75% of the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the SBA under the PPP. Acquired Sales Corp. intends that Lifted would use at least 75% of the PPP Loan amount for designated qualifying expenses and to apply for forgiveness of the PPP Loan in accordance with the terms of the PPP. No assurance can be given that Lifted will obtain forgiveness of the PPP Loan in whole or in part.
With respect to any portion of the PPP Loan that is not forgiven, the PPP Loan will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, and breaches of the provisions of the Note.
All of the SBA PPP money has been put into a segregated bank account, and so far, $33,645 of that money has been used to pay payroll, $1,600 has been used for rent, and $233 has been used for utilities. In prior years, the Company’s payables have been greater than their cash on hand. Historically, the Company has had inconsistent income generating ability and is therefore reliant on raising money from loans or stock sales.
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ACQUIRED SALES CORP.
SERIES A AND SERIES B PREFERRED STOCK CONVERTIBLE INTO 2,014,500 SHARES OF COMMON STOCK
PROSPECTUS
JULY 6, 2020
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PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with the distribution described in this registration statement (other than brokerage commissions, discounts or other expenses relating to the sale of the shares by the selling security holders) will be as set forth below. We will pay all of the expenses with respect to the distribution, and such amounts, with the exception of the Securities and Exchange Commission registration fee, are estimates.
Accounting fees and expenses | $5,500 |
Legal fees and expenses | $20,000 |
Printing and related expenses | $1,000 |
Transfer agent fees and expenses | $1,500 |
SEC registration fee | $433 |
Miscellaneous | $1,557 |
Total | $30,000 |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law provides that a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed proceeding, except an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with the proceeding, if such person:
·is not liable for breach of his or her fiduciary duties to the corporation; or
·acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In addition, a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by such person in connection with the defense or settlement of the action, if he or she:
·is not liable for breach of his or her fiduciary duties to the corporation; or
·acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation.
Under Nevada law, indemnification may not be made for any claim as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that a court of competent jurisdiction determines that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any non-derivative proceeding or any derivative proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify such person against expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense.
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Further, Nevada law permits a Nevada corporation to purchase and maintain insurance or to make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other enterprise for any liability asserted against him or her and liability and expenses incurred by him or her in his or her capacity as a director, officer, employee or agent, or arising out of his or her status as such, whether or not the corporation has the authority to indemnify such person against such liability and expenses.
Our Articles of Incorporation require us to indemnify any and all persons who may serve or who have served at any time as directors or officers or who at the request of the Board of Directors of the Corporation, may serve or any time have served as directors or officers of another corporation in which the Corporation at such time owned or may own shares of stock or of which it was or may be a creditor, and their respective heirs, administrators, successors and assigns.
The scope of the indemnity set out in the Articles of Incorporation includes any and all expenses, including amounts paid upon judgment, counsel fees and amounts paid in settlement (before of after suit is commenced), actually and necessarily by such persons in connection with the defense or settlement of any claim, action, suit or proceeding in which they, or any of them, are made parties, or a party, or which may be asserted against them or any of them, by reason of being or having been our directors, or of such other corporation. Such indemnification shall be in addition to any other rights to which those indemnified may be entitled under any law, by law, agreement, vote of shareholder or otherwise.
Our bylaws, as amended, require us to indemnify our directors to the fullest extent authorized by Nevada law, against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by a director. The right to indemnification set out in our bylaws, as amended are a contract right and include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information with respect to all securities that we have sold during the last three years.
Prior to June 2019, Gerard M. Jacobs had not received any salary or consulting fees for his services as our Chief Executive Officer for more than ten years. And, our directors have not received any monthly or annual fees for their service as directors of Acquired Sales for more than ten years. In November 2014, the officers and directors of the Company were awarded the right to purchase, directly or using a designee, for an aggregate price of $2 per director: (a) warrants to purchase an aggregate of 1.35 million shares of common stock of the Company at an exercise price of $0.01 per share all of which are vested; and (b) warrants to purchase an aggregate of 1.35 million shares of common stock of the Company at an exercise price of $1.85 per share, 100,000 of which warrants are vested, and 1.25 million of which warrants are subject to the condition that the Company shall have acquired at least one of certain properties beneficially owned by Vincent J. Mesolella and/or Gerard M. Jacobs (the “Mesolella/Jacobs Properties”).
As discussed in our prior public filings, we have attempted to acquire one or more of the Mesolella/Jacobs Properties. The Mesolella/Jacobs Properties are parcels of real estate in Rhode Island that are owned by entities affiliated with Vincent J. Mesolella and his son Derek V. Mesolella, formerly an independent contractor to AQSP. One of the Mesolella/Jacobs Properties was also partly owned by an affiliate of our Chief Executive Officer, Gerard M. Jacobs. Discussions among Messrs. Mesolella and Jacobs and our independent directors have made it highly likely that we will never purchase any of the Mesolella/Jacobs Properties.
Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Convertible Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Series A Convertible Preferred Stock are convertible at the option of the
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holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Series A Convertible Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Convertible Preferred Stock.
Between July 24, 2019 and December 5, 2019, the Company accepted subscriptions from accredited investors to purchase 100,000 shares of newly issued Series B Convertible Preferred Stock for an aggregate purchase price of $500,000 in cash. These 100,000 shares of Series B Convertible Preferred Stock are convertible at the option of the holders into 100,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Series B Convertible Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series B Convertible Preferred Stock.
All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. Each investor represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities. We made available to each investor disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information. All securities issued were restricted with an appropriate restrictive legend on certificates for notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No.
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
5.1 | |
10.53 | |
10.56 | Merger Agreement between Acquired Sales Corp., Gerard M. Jacobs, William C. “Jake” Jacobs and Warrender Enterprise Inc. d/b/a Lifted Liquids and its owners and exhibits A through D (Executive A: Executive Employment Agreement; Exhibit B: Stockholders Agreement; Exhibit C: Registration Rights Agreement; and Exhibit D: Promissory Note) |
23.1 | |
23.2 | |
23.3 | Consent David S. Hunt, P.C. (included in Exhibit 5.1) |
24.1 | Power of Attorney (included on signature page) |
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | to include any prospectus required by Section 10(a)(3) of the Securities Act; |
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| (ii) | to reflect in the prospectus any acts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement (notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and |
| (iii) | to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; provided, however, that subparagraphs (i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those subparagraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration, by means of a post-effective amendment, any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
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other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(7) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a Registrant of expenses incurred or paid by a director, officer or controlling person of a Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, that Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(8) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on the Amendment No. 1 to Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lake Forest, State of Illinois, on the 23rd day of June, 2020.
ACQUIRED SALES CORP.
By: /s/ Gerard M. Jacobs
Gerard M. Jacobs, Chief Executive Officer and Chairman
Date: July 6, 2020
POWER OF ATTORNEY
Each of the undersigned officers and directors of Acquired Sales Corp. hereby constitutes and appoints Gerard M. Jacobs and William C. “Jake” Jacobs, and each of them any of whom may act without joinder of the other, the individual’s true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign this registration statement on Form S-1, and any other registration statement relating to the same offering (including any registration statement, or amendment thereto, that is to become effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended), and any and all amendments thereto (including post-effective amendments to the registration statement), and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities set forth opposite their names and on the date indicated above.
By: /s/ Gerard M. Jacobs
Gerard M. Jacobs, Chief Executive Officer and Chairman
Principal Executive Officer
Date: July 6, 2020
By: /s/ Nicholas S. Warrender
Nicholas S. Warrender, Chief Operating Officer and Vice Chairman
Principal Executive Officer
Date: July 6, 2020
By: /s/ William C. “Jake” Jacobs, CPA
William C. “Jake” Jacobs, CPA, President, Chief Financial Officer and Treasurer
Principal Financial Officer
Date: July 6, 2020
/s/ Joshua A. Bloom, M.D.
Joshua A. Bloom, M.D.
Director
Date: July 6, 2020
/s/ James S. Jacobs, M.D.
James S. Jacobs, M.D.
Director
Date: July 6, 2020
167
/s/ Michael D. McCaffrey
Michael D. McCaffrey
Director
Date: July 6, 2020
/s/ Richard E. Morrissy
Richard E. Morrissy
Director
Date: July 6, 2020
/s/ Vincent J. Mesolella
Vincent J. Mesolella
Director
Date: July 6, 2020
/s/ Thomas W. Hines, CPA CFA
Thomas W. Hines, CPA CFA
Director
Date: July 6, 2020
/s/ Kevin J. Rocio
Kevin J. Rocio
Director
Date: July 6, 2020
168
David S. Hunt, P.C.
July 6, 2020 |
| David S. Hunt |
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| +1 801 355 7878 (t) |
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| +1 801 906 6164 (f) |
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| dh@hunt-pc.com |
Acquired Sales Corp.
31 N. Suffolk Lane
Lake Forest, Illinois 60045
Re: Registration Statement on Form S-1
Gentlemen:
This opinion is furnished to you in connection with a Registration Statement on Form S-1 (the “Registration Statement”) being filed by Acquired Sales Corp., a Nevada corporation (the “Company”), with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), for the registration of an aggregate of 2,014,500 shares of Company’s Common Stock to be sold, from time to time, by the selling stockholders identified in the Company’s Registration Statement under the heading “Selling Stockholders,” which consist of shares of Company’s Common Stock (the “Shares”) issuable upon conversion of certain Series A and Series B Preferred Stock which was purchased in private placements in 2019.
We are acting as counsel for Company in connection with the Registration Statement. We have examined signed copies of the Registration Statement, the Series A and Series B Preferred Stock, and have also examined and relied upon minutes of meetings of the Board of Directors of the Company as provided to us by the Company, the Articles of Incorporation and By-Laws of the Company, each as restated and/or amended to date (collectively the “Charter Documents”), and such other documents as we have deemed necessary for purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, the authenticity of the originals of such latter documents and the legal competence of all signatories to such documents. Other than our examination of the documents indicated above, we have made no other examination in connection with this opinion.
The opinions rendered herein are limited to the Nevada Revised State Statutes and the federal laws of the United States. For purposes of our opinion, we have examined an official compilation of "Title 7 - Business Associations; Securities; Commodities, Chapter - 78 - Private Corporations" of the Nevada Revised Statutes. Such examination was limited to the provisions of such statute only, and did not include any annotations or commentary related thereto. We do not purport to be experts on the laws of the State of Nevada and our opinion is based upon such limited experience. We express no opinion herein concerning the federal laws of the United States of America or any state securities or blue sky laws.
Based upon and subject to the foregoing, we are of the opinion that:
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| (1) | The Selling Stockholder Shares are duly authorized, validly issued, fully paid and non-assessable securities of the Company; and |
| (2) | When the Shares are issued and sold as contemplated by the terms of the Series A and Series B Preferred Stock and as contemplated by the Registration Statement, the Shares will be validly issued, fully paid and nonassessable. |
The opinions set forth herein are rendered as of the date hereof, and we assume no obligation to update such opinions to reflect any facts or circumstances which may hereafter come to our attention or any changes in the law which may hereafter occur (which may have retroactive effect).
This opinion is rendered to you in connection with the filing of the Registration Statement. This opinion may not be relied upon for any other purpose, or furnished to, quoted or relied upon by any other person, firm or corporation for any purpose, without our prior written consent, except that (A) this opinion may be furnished or quoted to judicial or regulatory authorities having jurisdiction over you, and (B) this opinion may be relied upon by purchasers and holders of the securities covered by the Registration Statement currently entitled to rely on it pursuant to applicable provisions of federal securities law.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption “Legal Matters” in the Registration Statement. In giving such consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.
Very truly yours, |
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/s/ David S. Hunt |
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David S. Hunt |
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Consent of Independent Registered Public Accounting Firm
We consent to the inclusion in this Registration Statement on Form S-1/A of our audit report dated March 30, 2020, with respect to the balance sheets of Acquired Sales Corp. as of December 31, 2019 and 2018, and the related statements of operations, shareholders’ equity (deficit), and cash flows for each of the years then ended, appearing in the Annual Report on Form 10-K for the year December 31, 2019. Our report dated March 30, 2020, relating to aforementioned financial statements, includes an emphasis paragraph relating to substantial doubt as to the Company's ability to continue as a going concern.
We also consent to the references to us under the heading “Experts” within the Registration Statement.
Fruci & Associates II, PLLC
July 2, 2020
Consent of Independent Registered Public Accounting Firm
We consent to the inclusion in this Registration Statement on Form S-1/A of our audit report dated May 7, 2020, with respect to the balance sheets of Warrender Enterprise, Inc.. as of December 31, 2019 and 2018, and the related statements of operations, shareholder’s equity (deficit), and cash flows for each of the years then ended. Our report dated May 7, 2020, relating to aforementioned financial statements, includes an emphasis paragraph relating to substantial doubt as to the Company's ability to continue as a going concern.
We also consent to the references to us under the heading “Experts” within the Registration Statement.
Fruci & Associates II, PLLC
July 2, 2020