FORM
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
OR
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission
file number
LFTD PARTNERS INC.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12 of the Act:
| Common Stock, $0.001 par value | AQSP | OTC Markets | ||
| Title of each class | Trading symbol(s) | Name of exchange on which registered |
Indicate
by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 9, 2021, there were shares of the registrant’s common stock outstanding.
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ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS
IMPACTS OF COVID-19
LIKE MANY BUSINESSES IN THE UNITED STATES TODAY, ACQUIRED SALES CORP. (SOMETIMES “AQSP” OR “ACQUIRED SALES”) AND ITS WHOLLY OWNED SUBSIDIARY LIFTED LIQUIDS, INC. D/B/A LIFTED MADE (SOMETIMES “LIFTED” OR “LIFTED MADE”) ARE FACING AN UNPRECEDENTED AND HIGHLY RISKY BUSINESS ENVIRONMENT AND UNCERTAIN FUTURE CAUSED BY THE CORONAVIRUS KNOWN AS COVID-19 AND ITS VARIANTS (“COVID-19”).
THE IMPACTS OF COVID-19 ON ACQUIRED SALES CORP., ON 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 MADE’S EMPLOYEES FROM PERFORMING THEIR WORK FOR LIFTED MADE 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. 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 SIGNIFICANTLY DISRUPTED ACQUIRED SALES CORP. AND LIFTED MADE DURING 2020. AMONG OTHER THINGS, VARIOUS FEDERAL, STATE AND LOCAL EXECUTIVE ORDERS SIGNIFICANTLY DISRUPTED DISTRIBUTION CHANNELS IN THE CANNABINOID INDUSTRY DURING 2020. WHILE LIFTED MADE’S DISTRIBUTION CHANNELS PERFORMED BETTER DURING THE THIRD AND FOURTH QUARTERS OF 2020, AND DURING THE FIRST AND SECOND QUARTERS OF 2021, COMPARED TO DURING THE FIRST AND SECOND QUARTERS OF 2020, NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW LIFTED MADE’S DISTRIBUTION CHANNELS WILL PERFORM DURING THE REMAINDER OF 2021. CERTAIN DISTRIBUTORS, RETAILERS AND CONSUMERS IN THE CANNABINOID AND VAPE INDUSTRIES APPEAR TO BE FINANCIALLY DISTRESSED, AND THE TERMS AND CONDITIONS ASSOCIATED WITH CERTAIN DISTRIBUTORS’ AND RETAILERS’ PURCHASES AND PAYMENTS FOR LIFTED MADE’S PRODUCTS HAVE BEEN MATERIALLY ADVERSELY IMPACTED.
WHILE DISTRIBUTION OF CERTAIN VACCINES IN REGARD TO COVID-19 HAS BEGUN, NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO WHAT IMPACT THESE VACCINES WILL HAVE. IN PARTICULAR, NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW “FUTURE WAVES” OF COVID-19, AND HOW EMERGING/MUTATED VARIANTS OF THE COVID-19 VIRUS, WILL PLAY OUT AND IMPACT ACQUIRED SALES CORP., LIFTED MADE, LIFTED MADE'S OFFICERS, EMPLOYEES AND INDEPENDENT CONTRACTORS, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME, OR THE PRICE OF OUR COMMON STOCK.
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DURING THE SECOND AND THIRD QUARTERS OF 2020, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES WERE 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”) AND UPON THE RECEIPT BY LIFTED MADE OF $10,000 GRANTED TO IT BY THE SBA UNDER THE SBA’S ECONOMIC INJURY DISASTER LOAN PROGRAM. SUCH RE-SALES OF HAND SANITIZER ARE NOT EXPECTED TO CONTINUE IN THE FUTURE. CONSEQUENTLY, LIFTED MADE’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED MADE AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.
DURING THE THIRD AND FOURTH QUARTERS OF 2020, AND DURING THE FIRST AND SECOND QUARTERS OF 2021, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES WERE SIGNIFICANTLY DEPENDENT UPON THE SALE OF HEMP-DERIVED DELTA-8-THC PRODUCTS. U.S. FEDERAL, STATE AND LOCAL GOVERNMENTS AND AGENCIES MAY IMPOSE LAWS, RULES, REGULATIONS AND EXECUTIVE ORDERS THAT EFFECTIVELY PROHIBIT LIFTED MADE FROM SELLING DELTA-8-THC PRODUCTS. CONSEQUENTLY, LIFTED MADE’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED MADE AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.
NOTWITHSTANDING THE FOREGOING DESCRIBED RISKS, AS DISTRIBUTION CHANNELS IN THE CANNABINOID INDUSTRY HAVE PERFORMED BETTER, AND AS LIFTED MADE’S SALES OF DELTA-8-THC PRODUCTS HAVE ACCELERATED DURING THE THIRD AND FOURTH QUARTERS OF 2020 AND THE FIRST AND SECOND QUARTERS OF 2021 , COMPARED TO DURING THE FIRST AND SECOND QUARTERS OF 2020, THE CONSOLIDATED CASH ON HAND OF ACQUIRED SALES CORP. AND LIFTED MADE HAS IMPROVED SIGNIFICANTLY AND AS OF AUGUST 6, 2021, WAS A TOTAL OF $3,305,068. TO DATE, LIFTED MADE HAS ALSO INVESTED CASH OF $587,500 INTO A COMPANY CALLED SMPLYLIFTED LLC, WHICH SMPLYLIFTED LLC HAS PRIMARLY USED TO PURCHASE INVENTORY CONSISTING OF TOBACCO-FREE NICOTINE POUCHES. LIFTED MAY INVEST ADDITIONAL CASH INTO SMPLYLIFTED LLC, ALSO TO BE USED TO PRIMARILY PURCHASE INVENTORY OF TOBACCO-FREE NICOTINE POUCHES. LIFTED MADE HAS A 50% MEMBERSHIP INTEREST IN SMPLYLIFTED LLC. LIFTED MADE MAY ALSO INVEST CASH INTO OTHER COMPANIES.
Material Damage to Lifted's Business Resulting From the Ongoing COVID-19 Pandemic:
The COVID-19 pandemic and its ramifications, including Illinois Governor Pritzker's Executive Order in response to the pandemic, have materially damaged Lifted's business, among other things by disrupting Lifted's access to its employees, suppliers, packaging, distributors and customers. That is why Lifted applied for and received funding under the federal Economic Injury Disaster Loan program and the federal Paycheck Protection Program (collectively the "Federal Financial Assistance").
Expectations to Continue as a Going Concern:
Notwithstanding the material damage to our business described above, the management of Lifted currently expects Lifted to continue as a going concern during the 12 months following the date of this report, for the following reasons:
| • | Lifted’s sales over the past few quarters has significantly increased Lifted's liquidity. As of August 6, 2021, the consolidated cash on hand of Acquired Sales Corp. and Lifted Made was a total of $3,305,068, which is significant. To date, Lifted has also invested cash of $587,500 into a company called SmplyLifted LLC, which SmplyLifted LLC has used to purchase inventory of tobacco-free nicotine pouches. Lifted expects to invest additional cash into SmplyLifted LLC, also to be primarily used to purchase inventory of tobacco-free nicotine pouches. Lifted has a 50% membership interest in SmplyLifted LLC. |
| • | As of today, Lifted’s current assets significantly outweigh Lifted's current liabilities. However, we do owe a total of $300,000 in management bonuses to Gerard M. Jacobs, Acquired Sales Corp.’s CEO, and to William C. “Jake” Jacobs, Acquired Sales Corp.’s President and CFO, which management bonuses are payable upon demand. We currently do not have the money to pay these bonuses without adversely impacting Lifted’s working capital. At any time on or after January 1, 2021, Gerard M. Jacobs and William C. “Jake” Jacobs also have the right to demand payment of a total of an additional $350,000 in management bonuses (for a total of $650,000 in management bonuses), plus accrued interest at 2% annually commencing January 1, 2021, and we currently do not have the money to pay these bonuses either without adversely impacting Lifted’s working capital. Gerard M. Jacobs and William C. “Jake” Jacobs are entitled to these bonuses and could demand payment of them at any time. |
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| • | When Lifted's core business of manufacturing, packaging, selling and distributing cannabinoid-infused products was materially damaged by the COVID-19 pandemic and its ramifications, Lifted diverted a significant portion of its available human and financial capital toward a new line of business selling, re-selling, brokering and distributing hand sanitizer. This hand sanitizer business was significant for Lifted during the second and third quarters of 2020. However, the national supply of hand sanitizer has increased, and this business is not expected to be significant for Lifted going forward. |
| • | During the third and fourth quarters of 2020 and during the first and second quarters of 2021, the demand by distributors for Lifted’s Urb Finest Flowers (“Urb”) brand of hemp and hemp-derived products has gradually increased. However, other companies may attempt to copy the Urb brand's innovative and colorful packaging and products and thus create more competition against Lifted's Urb products, over time. |
| • | Lifted has commenced selling hemp-derived delta-8-THC and delta-10-THC cartridges, gummies, chocolate, dabs, caviar cones, saucy dmnds, delta-8-THC-infused flower, and disposable delta-8-THC vapes. During the third and fourth quarters of 2020 and the first and second quarters of 2021, Lifted’s sales of hemp-derived delta-8-THC products has accelerated, and has become a very significant percentage of Lifted’s business. However, the competition against Lifted’s hemp-derived delta-8-THC and delta-10-THC products is increasing, and pricing is under pressure. In addition, hemp-derived delta-8-THC products may be illegal in certain states, and additional federal, state and/or local prohibitions or restrictions may be imposed on hemp-derived delta-8-THC products. In particular, a recent DEA statement has been interpreted by some as prohibiting the sale of certain hemp-derived delta-8-THC products. Any inability to sell hemp-derived delta-8-THC products would have a material adverse impact on Lifted’s business and on the trading price of Acquired Sales Corp.’s common stock. |
| • | Lifted is involved in the distribution of disposable e-cigarettes containing synthetic nicotine, and Lifted owns 50% of SmplyLifted LLC, which sells tobacco-free nicotine pouches. Tobacco-based nicotine products and non-tobacco based nicotine products are subject to extensive regulations and in some cases are subject to federal, state and/or local prohibitions or restrictions. |
| • | Lifted is taking proactive steps to attempt to gain brand awareness and drive more direct-to-consumer sales online. Lifted has used public relations firms to assist with Lifted’s public relations efforts. Lifted has also hired a firm specializing in SEO to assist with Lifted’s organic search engine rankings. However, Lifted has also experienced outages of its website, which may be due hacking and/or sabotage, which has hurt Lifted’s online sales and presumably has also negatively impacted Lifted’s perception with certain consumers. In addition, the recently amended federal PACT act may make the online sale of certain of Lifted’s products difficult or impossible. |
| • | Some of the products that Lifted sells or re-sells are manufactured by third parties who, in certain instances, have experienced significant challenges in manufacturing high quality products. This has negatively impacted Lifted’s perception with certain distributors, retailers and consumers. |
Lifted plans to take actions to continue as a going concern, if necessary:
If the COVID-19 pandemic and its ramifications, or if other events and circumstances adverse to Lifted's business, challenge Lifted’s ability to continue as a going concern within one year after the date that AQSP’s consolidated financial statements are issued, then we would plan to sustain Lifted as a going concern by taking one or more of the following actions:
| • | causing Lifted’s parent company AQSP to complete private placements of AQSP's common stock and/or preferred stock |
| • | borrowing from banks and/or private investors |
| • | acquiring and/or developing profitable businesses that will create positive income from operations |
| • | causing Lifted’s parent company AQSP to accrue rather than pay dividends on AQSP's outstanding preferred stock |
| • | selling the 4.99% of the ownership of Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc. that is owned by Acquired Sales Corp. |
We believe that by taking some combination of these actions, Lifted should be able to be provided with sufficient capital, future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees that Lifted will be successful in consummating such actions on acceptable terms, if at all, and that is why in AQSP's filings with the SEC we are careful to include a "going concern" risk.
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 31, 2021 for the period ended December 31, 2020.
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Description of the Business of Acquired Sales Corp.
On May 18, 2021, the Company amended its articles of incorporation with the State of Nevada to change its name to LFTD Partners Inc. from Acquired Sales Corp. In connection with the name change to LFTD Partners Inc. the Company filed a required notification with the Financial Industry Regulatory Authority, Inc. (“FINRA”), a self-regulatory organization that is involved with the coordination of the clearing, settling and processing of transactions in equity securities, including our common stock. The Company’s name change notification to FINRA included a request for a new stock trading symbol. The change of the Company’s name to LFTD Partners Inc. and the change of trading symbol to reflect our common stock in the clearing, settling and processing of transactions in equity securities is pending, subject to FINRA clearance. As a result, we continue to refer to the Company in this report as Acquired Sales Corp. (and sometimes referred to in the body of this report as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.). The Company was organized under the laws of the State of Nevada on January 2, 1986. Shares of the Company’s common stock are currently traded on the OTCQX Best Market under the trading symbol AQSP. We expect OTC Markets, Inc. to change the Company’s tier to the OTCQB Venture Market from the OTCQX Best Market within the next 30 days because we do not meet the OTCQX Best Market qualifications. We do not believe that the transition to the OTCQB market tier will have a material impact on our stock price or our trading volume.
Our business 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, sale and distribution of products infused with hemp-derived cannabinoids (including but not limited to delta-8-THC, delta-9-THC, delta-10-THC, CBD, CBG and CBN) such as beverages, shots, water, other liquids, water soluble nano drops or liquids, lotions, sprays, conditioners, creams, oils, pre-rolled hemp joints and hemp cigarettes, caviar cones, dabs, cartridges, gummies, saucy dmnds, flower, disposable vapes, tinctures, powder, water packets, effervescent tablets, capsules, bath bombs, balms, body washes, gummies, food, chocolate, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). Our business also involves selling and distributing products containing synthetic nicotine. During 2020, our business also involved selling and distributing hand sanitizer, but it is unlikely that this hand sanitizer business will continue going forward.
Management of the Company is open-minded to the concept of also acquiring operating businesses and/or assets involving products containing marijuana, distilled spirits, beer, wine, 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 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").
Lifted Made owns 50% of SmplyLifted LLC.
We have also terminated a planned acquisition of a Canna-Infused Products Company called CBD Lion LLC.
At this point in time, we have entered into a Letter of Intent relating to the proposed acquisition of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC, which Letter of Intent is described below. We also are in discussions with certain other companies in our acquisition pipeline. 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.
At this point in time, we are working with an investment banking firm regarding the potential for a $30 million capital raise, in conjunction with a potential listing of our common stock on a Canadian stock exchange. However, there can be no guarantee or assurance that any such capital raise or listing will be completed on acceptable terms, if at all.
Letter of Intent relating to the proposed acquisition of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC
On June 15, 2021, we, along with our Chairman and CEO Gerard M. Jacobs, our President and CFO William C. “Jake” Jacobs, and our Vice Chairman and COO Nicholas S. Warrender, entered into a Letter of Intent (the “LOI”) with Savage Enterprises, a Wyoming corporation (“Savage”), Premier Greens LLC, a California limited liability company (“Premier Greens”), MKRC Holdings, LLC, a Wyoming limited liability company (“MKRC”), Christopher G. Wheeler (“Wheeler”), and Matt Winters (“Winters”), in connection with our proposed acquisition of Savage, Premier Greens and MKRC as described below.
The terms of the proposed transactions (“Transactions”) must be set forth in a definitive agreement. There are no assurances that we will be successful in negotiating an acceptable definitive agreement, when or whether a definitive agreement will be reached between the parties, or that the proposed purchase will be consummated. Even if a definitive agreement is executed, the terms of the proposed purchase may change materially from the terms set forth in the Letter of Intent. There will be many conditions to closing, many of which are outside of the parties’ control and we cannot predict whether these conditions will be satisfied. There are no assurances when or if closing will occur, even if the parties successfully negotiate and sign a definitive agreement.
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The Proposed Transactions
In the proposed Transactions:
| (a) | We will acquire One Hundred Percent (100%) of the ownership interests in Savage in a reorganization (the “Merger”), for the following consideration (“Merger Consideration”): Fifteen Million Eight Hundred Forty Thousand Dollars ($15,840,000) in cash, plus Eight Million Six Hundred Ninety-One Thousand Three Hundred Fifty-Eight (8,691,358) shares of unregistered common stock of AQSP (“AQSP Stock”) with a value of Twenty-Eight Million One Hundred Sixty Thousand Dollars ($28,160,000) based upon the closing trade price of AQSP Stock on the date of the LOI (the “Stock Consideration”); |
| (b) | We will purchase One Hundred Percent (100%) of the ownership interests in Premier Greens, for the following consideration: Nine Hundred Twenty Thousand Dollars ($920,000) in cash; and |
| (c) | Using cash provided by us (in addition to the Merger Consideration), Savage will purchase from the other owners of MKRC (the “Other MKRC Owners”) the remaining Fifty-Four Percent (54%) of the ownership interests in MKRC that Savage does not currently own, for the following consideration: One Million Eighty Thousand Dollars ($1,080,000) in cash. |
Following the closing of the Transactions (the “Closing”), Savage will own: One Hundred Percent (100%) of the ownership interests in MKRC; Fifty Percent (50%) of the ownership interests in LftdXSvg LLC, a Delaware limited liability company (“LftdXSvg”); Fifty-One Percent (51%) of the ownership interests in RJMC Brands, LLC (“RJMC”); Six Percent (6%) of the ownership interests in AAA Brands, LLC (“‘AAA”); and Thirty-Three Percent (33%) of Remediez, a corporation (“Remediez”).
Following the Closing, we will continue to own One Hundred Percent (100%) of the common stock of Lifted Liquids, Inc. d/b/a Lifted Made, an Illinois corporation (“Lifted Made”), Four Point Nine Percent (4.9%) of the common stock of each of Ablis Holding Company (“Ablis”), Bendistillery Inc. (“Bendistillery”), and Bend Spirits, Inc. (“Bend Spirits”), each an Oregon corporation, and Fifty Percent (50%) of the ownership interests in SmplyLifted LLC (“SmplyLifted”) and in LftdXSvg, each a Delaware limited liability company, and we will be the new owner of One Hundred Percent (100%) of the ownership interests in Premier Greens, and of One Hundred Percent (100%) of the ownership interests in Savage.
Conditions
The Closing will be subject to the following conditions:
Audits. As promptly as possible following the execution of the LOI: Savage, Premier Greens, MKRC, and RJMC shall, and Savage shall use commercially reasonable efforts to cause Remediez to, prepare their respective financial statements for calendar years 2019 and 2020, and for the first and second quarters of calendar year 2021, including statements of income, balance sheets and cash flows (the “‘Financial Statements”). Savage, Premier Greens, MKRC, and RJMC shall, and Savage shall use commercially reasonable efforts to cause Remediez to, engage our PCAOB-qualified independent firm of certified public accountants, Fruci & Associates II PLLC, Spokane, Washington (“Fruci”), to audit the Financial Statements (and, if necessary to comply with U.S. Securities and Exchange Commission (“SEC”) rules and regulations, to audit or review Savage’s, Premier Greens’, MKRC’s, RJMC’s and Remediez’s financial statements for subsequent calendar quarters) in accordance with U.S. generally accepted accounting principles, and to provide all opinion letters and other documents as shall be necessary to allow Savage and Premier Greens to be acquired by us in the Transactions pursuant to all applicable SEC and FASB rules and regulations, and to allow us to timely file all necessary securities filings with the SEC (collectively, the “Audit”). If the results of the Audit are not acceptable to us in our discretion, then the Transaction shall be abandoned. Fruci’s fees and expenses for conducting the Audit shall be paid one-half (50%) by us and one-half (50%) by Savage, regardless of whether or not the Transactions close or are abandoned for any reason.
Mutual “Due Diligence”.
Savage, Premier Greens, MKRC, and RJMC shall allow us to conduct a confidential so-called “due diligence” investigation of Savage’s, Premier Greens’, MKRC’s, and RJMC’s business, permits, leases, contracts, books and records, financials, historical operations, business practices, computer systems, prospects, legal, taxes, and other matters. If the results of such “due diligence” investigation are not acceptable to us in our discretion, then the Transactions shall be abandoned.
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We shall allow Savage, Premier Greens and MKRC to conduct a confidential so-called “due diligence” investigation of our and Lifted Made’s business, permits, leases, contracts, books and records, financials, historical operations, business practices, computer systems, prospects, legal, taxes, and other matters. If the results of such “due diligence” investigation are not acceptable to Savage in its discretion, then the Transactions shall be abandoned.
Closing Documentation. If the Audit and the “due diligence” investigation of Savage, Premier Greens, MKRC, RJMC, AAA and Remediez are acceptable to us, and if the Audit and the “due diligence” investigation of us and Lifted Made are acceptable to Savage, then the Parties shall enter into a merger agreement (the “Merger Agreement”) and a purchase agreement (the “Purchase Agreement”) each containing representations, warranties, covenants, conditions, and indemnifications customary to transactions like the Transactions. The Closing shall be conditioned upon the execution and delivery by the Parties of mutually acceptable, legally binding, definitive Closing documentation (the “Definitive Documents”) including:
| (a) | The Merger Agreement |
| (b) | The Purchase Agreement |
| (c) | Wheeler Employment Agreement: A five-year ‘“rolling’’ employment agreement between us and Wheeler, for Wheeler to serve as Savage’s and Premier Greens’ CEO and as our Co-Founder and Chief Sales Officer, and to serve alongside Winters, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs as a member of our internal corporate steering committee called the Office of the President, with an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) and an annual bonus through the company-wide management bonus pool expected to be at least Four Hundred Thousand Dollars ($400,000) subject to us/Lifted/Savage/Premier Greens meeting certain financial performance criteria (the “Wheeler Employment Agreement”); |
| (d) | Winters Employment Agreement: A five-year “rolling” employment agreement between us and Winters, for Winters to serve as Savage’s and Premier Greens’ President and CFO and as our Co-Founder and Chief Risk Officer, and to serve alongside Wheeler, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs as a member of our internal corporate steering committee called the Office of the President, with an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) and an annual bonus through the company-wide management bonus pool expected to be at least Four Hundred Thousand Dollars ($400,000) subject to us/Lifted/Savage/Premier Greens meeting certain financial performance criteria (the “Winters Employment Agreement”); |
| (e) | Amended Employment Agreements: Amendments to the existing employment agreements between us and Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs, respectively, on terms and conditions as are mutually acceptable to the Compensation Committee of our Board of Directors, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs, Wheeler and Winters, to be effective upon the Closing; |
| (f) | Shareholders Agreement: A shareholders agreement (the “Shareholders Agreement”) among Wheeler, Winters, Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs (collectively the “Parties to the Shareholders Agreement”), it being understood that the Shareholders Agreement shall include, among other things, agreements by each of the Parties to the Shareholders Agreement: |
| (1) | to nominate, support and vote in favor of slates of nominees for the Boards of Directors of us, Lifted and Savage who are mutually acceptable to the Parties to the Shareholders Agreement; |
| (2) | to support and vote in favor of base salaries, a management bonus pool, and future stock options or warrants, for our key executives including Wheeler, Winters, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs, that are mutually acceptable to the Parties to the Shareholders Agreement; |
| (3) | to support and vote in favor of future acquisitions and divestitures, capital raises, and other lawful corporate transactions from time to time, that are mutually acceptable to the Parties to the Shareholders Agreement; and |
| (4) | not to directly or indirectly sell or transfer any of their Acquired Sales Corp. stock, options or warrants as part of an agreement, contract, plan or arrangement of any nature that is intended to result in a change of control of us, unless such agreement, contract, plan or arrangement is mutually acceptable to the Parties to the Shareholders Agreement and is approved by a majority of our Board of Directors; |
| (g) | Working Capital/Liquidity: Evidence, satisfactory to us in our discretion, that as of the Closing the aggregate value of Savage’s inventory, cash on hand, and accounts receivables exceed Savage’s accounts payable and other short-term liabilities by at least Two Million Dollars ($2,000,000), less any amounts contributed by Savage to MKRC to fund additional building commitments prior to the Closing; and |
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| (h) | Payoff or Termination of Certain Obligations: Evidence, satisfactory to us in our discretion, that Savage, Premier Greens, MKRC, Wheeler and Winters have paid off or otherwise terminated certain obligations including but not limited to all obligations: (i) payable by Savage, Premier Greens, MKRC, Wheeler and/or Winters to former or current shareholders, directors, officers or employees of those entities; (ii) payable by Savage, Premier Greens, or MKRC to any banks or other sources of debt except certain specified equipment purchase debt obligations that are being paid off in installments, and except for that certain bank mortgage on the building in Palm Springs, California that is owned by MKRC; or (iii) payable by Savage, Premier Greens or MKRC to Wheeler, Winters or their respective relatives, or to trusts of which Wheeler, Winters or any of their respective relatives are the beneficiaries or are otherwise affiliated. |
Capital Raise. The Closing shall be conditioned upon the completion by us of a capital raise (the “Capital Raise”) involving the sale of at least Thirty Million Dollars ($30,000,000) worth of AQSP Stock on pricing and other terms and conditions acceptable to us in our discretion.
Tax Opinion. The Closing shall be conditioned upon the receipt by Savage, Wheeler and Winters of a written opinion from Savage’s tax counsel that the Merger qualifies as a reorganization that is so-called “tax free” in regard to the Stock Consideration pursuant to the U.S. tax code and applicable Internal Revenue Service regulations promulgated thereunder (the “Tax Opinion”).
Corporate Approvals. The Closing shall be conditioned upon approval of the Transactions by our Board of Directors, and, if necessary, by our shareholders. Savage, Premier Greens, MKRC, Wheeler and Winters have all approved the Transactions, subject only to (a) approval of the Definitive Documents by Wheeler, Winters, and Savage’s legal counsel, and (b) the receipt by Savage, Wheeler and Winters of the Tax Opinion from Savage’s tax counsel.
Securities Filings and Governmental Approvals. The Closing shall be conditioned upon the completion of all necessary corporate and securities filings and the obtaining of any necessary approvals from the SEC and FINRA.
Pre-Closing Agreements and Covenants
Exclusivity. During the period between the signing of the LOI and the execution and delivery of the Merger Agreement or the termination of the LOI, Savage, Premier Greens, MKRC and RJMC, Wheeler and Winters shall not directly or indirectly enter into any discussion(s), negotiation(s), letter(s) of intent, merger(s), reorganization(s), stock sale(s), asset sale(s) (other than asset sales in the ordinary, normal, and customary course of those entities’ business), other transaction(s), loan agreement(s), financing agreement(s) or arrangement(s) of any type, other capital raise(s), or other contract(s) or arrangement(s) with any third party, or any other agreement(s), contract(s) or arrangement(s) outside the ordinary course of Savage’s, Premier Greens’, MKRC’s and RJMC’s business, that would or might delay or make more costly or difficult the Closing. The Merger Agreement and the Purchase Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the Purchase Agreement and the Closing or termination of the Merger Agreement and the Purchase Agreement.
Ordinary Course of Business. During the period between the signing of the LOI and the execution and delivery of the Merger Agreement and the Purchase Agreement or the termination of the LOI, Wheeler and Winters shall use commercially reasonable efforts to operate Savage, Premier Greens, MKRC, RJMC, AAA and Remediez only in accordance with the ordinary, normal and customary course thereof consistent with past practices. The Merger Agreement and the Purchase Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the Purchase Agreement and the Closing or termination of the Merger Agreement and the Purchase Agreement.
Acquisitions. During the period between the signing of the LOI and the execution and delivery of the Merger Agreement and the Purchase Agreement or the termination of the LOI, Nicholas S. Warrender, Gerard M. Jacobs, and William C. Jacobs shall use commercially reasonable efforts to cause us to refrain from entering into any letters of intent or definitive agreements regarding future mergers and acquisitions, excepting only those that have been mutually agreed upon by Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs, Wheeler and Winters. The Merger Agreement and the Purchase Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the Purchase Agreement and the Closing or termination of the Merger Agreement and the Purchase Agreement.
Commercially Reasonable Efforts. The Parties shall use commercially reasonable efforts to cause the Closing to occur as soon as practicable, subject to the fulfillment of all of the conditions described above. Without limiting the generality of the foregoing, Wheeler and Winters expressly agree and covenant to use commercially reasonable efforts to cause Savage, Premier Greens, MKRC, the Other MKRC Owners, RJMC, AAA and Remediez to fully cooperate with the Closing of the Transactions.
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Post-Closing Agreements and Covenants
Corporate Name and Ticker Symbol. Savage, Wheeler and Winters acknowledge that we plan to change our name to “LFTD Partners Inc.”, and that we plan to change our ticker symbol to “LFTD”, subject to all necessary approvals and securities filings. Promptly following the Closing, the Parties to the Shareholders Agreement shall mutually agree upon a new name (the “New Corporate Name”) and ticker symbol (the “New Ticker Symbol”) for us/LFTD Partners Inc. which better reflects Savage, Premier Greens, MKRC, Wheeler and Winters partnering with us/LFTD Partners Inc., and the Parties to the Shareholders Agreement shall use commercially reasonable efforts to cause our Board of Directors and shareholders to approve the New Corporate Name and the New Ticker Symbol as soon as practicable, subject to all necessary approvals and securities filings.
Operation of Savage and Premier Greens. Savage and Premier Greens shall operate as our wholly-owned subsidiaries under the Savage and Premier Greens names and using Savage’s and Premier Greens’ brand names, respectively, led by Wheeler as Savage’s and Premier Greens’ CEO and Winters as Savage’s and Premier Greens’ President and CFO.
Operation of Acquired Sales Corp. Wheeler and Winters shall serve alongside Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs on our internal Office of the President, which shall conceptualize and articulate our go-forward operational, sales, distribution, advertising, organic growth and acquisitions strategies and initiatives that will be presented to our CEO and Board of Directors for approval.
Termination of the LOI
Events of Termination. The LOI shall terminate, without any payment by or penalty due from any party; upon execution of the Merger Agreement or if:
| (a) | The Audit shall not have been completed, or the results of the Audit shall have not been accepted by us, by an outside date of March 15, 2022; |
| (b) | We have not closed the Capital Raise by an outside date of March 15, 2022; |
| (c) | The Merger Agreement and the Purchase Agreement have not been signed by March 15, 2022 (the Merger Agreement and the Purchase Agreement, if executed, shall include an outside closing date of March 15, 2022, or such other date as mutually agreed by the parties); |
| (d) | We shall have delivered written notice to Savage that we are abandoning the Transactions due to a determination that the results of the “due diligence” investigation of Savage, Premier Greens, MKRC, RJMC, AAA and Remediez are not acceptable to us; |
| (e) | Savage shall have delivered written notice to Lifted that Savage is abandoning the Transactions due to a determination that the results of the “due diligence” investigation of us and Lifted Made are not acceptable to Savage; or |
| (f) | Any material provisions of the LOI shall be adjudged by a court or the SEC to be invalid or unenforceable, and thereafter the Parties to the LOI are unable to mutually agree upon how to proceed forward with the Transactions as impacted by such court or SEC action. |
Expenses
Except as expressly set forth in the LOI, each of the Parties shall bear its or his own fees and expenses in connection with the proposed Transactions. Without limiting the generality of the foregoing, each of the Parties to the LOI shall be solely responsible for the fees and expenses owed by it or him to any lawyers, accountants, financial advisors, investment bankers, brokers or finders employed by such party.
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Source of Funds for the Proposed Savage Transactions
We anticipate that the source of funds cash component of the acquisition of Savage and its affiliates would be proceeds from future sales of Acquired Sales Corp.’s equity securities, and potentially partially from revenues from our business from our operations. Professional costs in connection with the transaction would be paid using cash on hand and from proceeds of the proposed equity raises.
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 hemp-derived cannabinoid-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 ours, led by Nicholas S. Warrender as Lifted's CEO and also as our Vice Chairman and Chief Operating Officer.
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.
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.
Products
Lifted produces its own lines of products and private labelled products made with hemp, hemp flower, and hemp-derived cannabinoids including delta-10-THC, delta-8-THC, CBD, CBG and CBN.
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. Prior to and following the worst months of the COVID-19 pandemic, the Lifted team has occasionally 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 Nicholas S. Warrender. The Company holds an option to purchase Mr. Warrender's interests in such vape shops for a nominal price.
Lifted currently has approximately 70 full time and part time employees and independent contractors 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. Most of Lifted’s employees are based in Kenosha, WI, and Zion, IL, and the rest are located in Florida, Louisiana and California. Lifted’s independent contractors are located in California, Florida and Rhode Island.
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Description of Property
Acquired Sales Corp.’s CEO Gerard M. Jacobs and its President and CFO William C. Jacobs live in Florida, and Acquired Sales Corp.’s COO Nicholas S. Warrender lives in Wisconsin. The Company currently does not have a dedicated corporate office for Acquired Sales Corp. other than in the home office spaces provided by the Company’s CEO and President in Florida. The future location of Acquired Sales Corp.’s corporate office will depend upon a number of factors including where our CEO is living at the time.
Lifted does not own any physical properties.
As reported in Acquired Sales Corp.’s Current Report on Form 8-K filed with the SEC on December 22, 2020, on December 18, 2020, Lifted as tenant entered into a Lease Agreement (the “Lease) with 95th Holdings, LLC (“Landlord”) for office, laboratory and warehouse space in a building located at 5511 95th Avenue, in the City of Kenosha, State of Wisconsin (the “Premises”). The lease commencement date was January 1, 2021, and lease termination date is January 1, 2026.
Lifted constructed improvements including a clean room, and gradually moved into the Kenosha Premises over the course of the first quarter of 2021.
Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately 11,238 square feet at the Premises at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which is subject to a 2% increase in base rent each year, plus certain operating expenses and taxes. The Lease will continue until midnight on the fifth anniversary date of the commencement date of the Lease. Lifted shall have the right to extend the original five year term of the Lease for one extension period of two years, commencing upon the expiration of the original term. Lifted and Landlord are required to execute an “Amendment of Extension” prior to six months before the expiration of the original term.
Under the terms of the lease, the tenant, Lifted, has the option to purchase the property at any time prior to December 31, 2025, and in any event, Lifted is obligated to purchase the property on or before that date. Pursuant to the Lease, in all cases Lifted’s purchase price for the Premises shall be in an amount equal to the greater of: (1) the fair market value of the Premises at the time Lifted purchases the Premises; or (2) any remaining principal balance of any purchase-money mortgage for the Premises existing at the time of the closing of Lifted’s purchase, plus the corresponding amount identified in the Additional Purchase Price Schedule attached as Exhibit B to the Lease, which is an additional amount ranging between $300,000 and $375,000 based on the number of years that have passed between the commencement of the Lease and the purchase of the Premises by Lifted.
Landlord is an entity owned by Nicholas S. Warrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as beneficial owner of 3,900,455 common stock shares. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, Nicholas S. Warrender is able to benefit through his entity 95th Holdings, LLC by receiving rent and by eventually selling the Premises to Lifted.
The foregoing description is qualified in its entirety by reference to the Lease Agreement and exhibits which were filed as Exhibit 10.58 to the Current Report on Form 8-K filed with the SEC on December 22, 2020, and which are incorporated herein by reference.
From June 1, 2018 through June 1, 2021, Lifted rented 3,300 square feet of space located in Zion, Illinois, for manufacturing, warehousing and office space. After June 1, 2021, Lifted has leased such space on a month-to-month basis. Lifted has given notice to the landlord of the facility in Zion, Illinois, that Lifted will be terminating the month-to-month lease on July 31, 2021. From May 2020 until April 1, 2021, Lifted also temporarily used additional space located adjacent to its rented space in Zion, Illinois, and made payments in lieu of rent therefor.
SmplyLifted LLC
Lifted owns 50% of SmplyLifted LLC (“SmplyLifted”). The other 50% of SmplyLifted is owned by SMPLSTC LLC and its principals, who are located in Costa Mesa, California. SmplyLifted conducts its business at Lifted’s and SMPLSTC LLC’s offices, currently without any rent or other charges being payable by SmplyLifted. On a quarterly basis, SmplyLifted LLC reimburses Lifted for William C. Jacobs’ time as the Chief Financial Officer at William C. Jacobs’ hourly rate.
Sources of Supply
Lifted sources certain raw goods and products from independent suppliers. Lifted’s hemp and hemp-derived raw materials are third-party lab tested. In the past, Lifted also sourced gel and liquid sanitizer from various third parties.
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 vape pens and cartridges, bottles, containers, boxes, labels, packaging and other items from third party manufacturers.
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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, Chinese holidays, backups at U.S. ports, 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, Chinese holidays, backups at U.S. ports, 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.
SmplyLifted sources its inventory, packaging and marketing materials from independent suppliers.
Products
Lifted’s focus is manufacturing, sales and distribution of effective, quality products formulated in a clean room. In the past, Lifted has re-bottled and re-sold gel and liquid hand sanitizer. Such re-sales of hand sanitizer are unlikely to continue in the future. Lifted sources hemp-derived cannabinoids and other ingredients and products from many different suppliers. The ingredients are then incorporated into proprietary formulations in house.
Lifted produces its own lines of hemp-derived cannabinoid-infused products, as well as numerous hemp-derived cannabinoid-infused products for private label clients. Lifted’s current list of hemp and hemp-derived products include: hemp flower; delta-8-THC-infused flower; delta-8-THC and delta-10-THC-infused vape cartridges, disposable vapes, saucy dmnds, gummies, chocolate, dabs and caviar cones; hemp-derived nano CBD water enhancer packets; hemp-derived cannabinoid-infused lotions, sexual lubricant, tinctures, bath bombs, oral sprays, muscle gel, moon rocks, gummies, caviar cones, vape pens, vape cartridges, dog food and other edibles, and non-prescription cannabinoid formulations; and hemp joints.
Third party manufacturers make cannabinoid-infused edibles, dabs, saucy dmnds, bath bombs and lotion for Lifted in accordance with Lifted's specifications.
Lifted also distributes disposable e-cigarettes containing synthetic nicotine.
Lifted owns 50% of SmplyLifted LLC, which sells tobacco-free nicotine pouches under the brand name FR3SH (www.GETFR3SH.com).
Product Risks
Some of Lifted's and SmplyLifted’s products currently contain synthetic nicotine, delta-8-THC, delta-10-THC, CBD and other cannabinoids. There is a risk that Lifted could be targeted by regulators or consumers with claims that its products are illegal and/or unsafe.
The market for cannabinoid-infused 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. In addition, certain jurisdictions have prohibited the sale of smokable hemp and hemp-derived products, and delta-8-THC. 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 three years. Research and development costs are expensed as they are incurred.
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Marketing
Lifted markets itself by networking throughout the industry through word of mouth, its website, and by attending trade shows. During 2020, Lifted also began 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.
SmplyLifted markets itself by networking throughout the industry through word of mouth, its website and by attending trade shows.
Distribution
Lifted’s and SmplyLifted’s distribution is done internally and through third party distributors who distribute throughout the U.S. Lifted, SmplyLifted and these distributors distribute Lifted’s and SmplyLifted’s products to vape and smoke shops, convenience stores, grocery stores, gyms, natural food stores, wellness stores, and other locations. Lifted and SmplyLifted believe but cannot guarantee that in the event that they lost their relationship with one or more of their current distributors, that other replacement distributors could be found without significant disruption to Lifted’s and SmplyLifted’s business. However, the COVID-19 pandemic seriously disrupted Lifted’s distribution channels, although such disruption has begun to decrease.
Online Sales of Lifted Made Products
Lifted sells its own brands of products and its private label clients’ products online primarily through www.LiftedMade.com.
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.
Creation of SmplyLifted LLC
Acquired Sales Corp. and Lifted Made and privately-held SMPLSTC, Costa Mesa, CA (www.SMPLSTCBD.com) have partnered to create an equally-owned new entity called SmplyLifted LLC, which has begun selling non-tobacco nicotine pouches in four flavors and four and six mg. nicotine strengths under the brand name FR3SH (www.GETFR3SH.com). The nicotine pouches are sold in plastic canisters containing 20 pouches. The canisters are competitively priced, and are expected to be sold globally by retailers and direct to consumers online. Lifted Made, SMPLSTC, and three individuals have a 50%, 20%, 10%, 10%, and 10% membership interest in SmplyLifted LLC, respectively.
Online Sales of SmplyLifted LLC Products
SmplyLifted LLC primarily sells its brand of nicotine pouches, FR3SH, to wholesalers and distributors. SmplyLifted LLC has also commenced selling its nicotine pouches direct-to-consumer online through www.GETFR3SH.com.
Description of Legal Proceedings
Lifted currently is involved in one pending lawsuit, as the plaintiff:
| (1) | Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe – The Company has filed an action in a case styled “Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe” seeking to recover $30,000 that was to be held in escrow. The Company is also requesting approximately $14,569 in damages resulting from Girish GPO’s failure to pay for product it ordered and that the Company delivered. The matter was recently filed and the Company intends to pursue the action and recover its damages. |
Lifted currently is involved in one pending lawsuit, as the defendant:
| (1) | 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. |
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During 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following four 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) |
| (3) | 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). |
| (4) | 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). |
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 Company 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 did not use any portion of the loan or grant money that Lifted 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 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, unless Nicholas S. Warrender agrees to an alternative allocation of such unvested Deferred Contingent Stock. |
| • | 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 or alternatively allocated to other employees of Lifted. |
| • | 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 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. |
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| • | 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 authorized number of directors of the Corporation was increased from seven to nine. The Corporation’s directors currently consist of eight persons following the election of a new board of directors and the subsequent resignation of Michael D. McCaffrey: Gerard M. Jacobs, JD (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead Outside Director), Joshua A. Bloom, MD, James S. Jacobs, MD, Richard E. Morrissy, Kevin J. Rocio, and Robert T. Warrender II. |
| • | 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 - 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 Lifted is deemed to be the accounting acquiree, under the acquisition method of accounting.
The Application of Accounting Guidance to the Merger
Quoted below are the accounting standards codification guidance relating to the accounting treatment of the Company’s acquisition of Lifted as of the date of Merger, followed by the Company’s comments regarding the application of that guidance to the Merger:
Guidance: “Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following:
1. a. The relative voting rights in the combined entity after the business combination. The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity. In determining which group of owners retains or receives the largest portion of the voting rights, an entity shall consider the existence of any unusual or special voting arrangements and options, warrants, or convertible securities.”
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The Company’s Comments: In evaluating which entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity, the Company observes that: (1) the voting rights held by the Company’s outstanding common stock, options and warrants, and convertible securities represented a total of 13,684,538 shares on a fully diluted basis; and (2) the voting rights held by the Company’s outstanding common stock, options and warrants, convertible securities, 3,900,455 shares of common stock issued to Nicholas S. Warrender, 645,000 shares of deferred contingent common stock issued in the merger, and the 1,820,000 warrants granted in the merger, represented a total of 20,049,993 shares on a fully diluted basis. Consequently, the existing shareholders of the Company owned 68% of the merged entity on a fully diluted basis. Note: many of the 645,000 shares of deferred contingent stock and many of the 1,820,000 warrants granted in the transaction were issued to current officers and directors of the Company, and, pursuant to the Compensation Agreement dated June 19, 2019, as a result of the Company’s closing of the acquisition of Lifted, Gerard M. Jacobs and William C. Jacobs were awarded warrants to purchase 250,000 and 225,000 shares of common stock of the Company at $5.00 per share, respectively, so the existing shareholders of the Company actually owned more than 68% of the combined entity on a fully diluted basis. The foregoing analysis of the relative voting rights of the combined entity suggests that the Company should be considered to be the accounting acquirer in the Merger.
Guidance: “2. b. The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest. The acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity.”
The Company’s Comments: The stockholders agreement entered into between Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs effectively prevents Nicholas S. Warrender from exercising any control over the combined entity that is not approved by the Company’s current management team of Gerard M. Jacobs and William C. Jacobs. This effect of the stockholders agreement suggests that the Company should be considered the accounting acquirer in the Merger.
Guidance: “3. c. The composition of the governing body of the combined entity. The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity.”
The Company’s Comments: The pre-closing directors of the Company had seven seats on the Board of Directors of the combined entity, and Nicholas S. Warrender and his nominee Kevin J. Rocio received only two seats. In addition, the stockholders agreement between Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs effectively prevents Nicholas S. Warrender from taking control over the Board of Directors of the combined entity post-closing. The foregoing analysis suggests that the Company should be considered the accounting acquirer in the Merger.
Guidance: “4. d. The composition of the senior management of the combined entity. The acquirer usually is the combining entity whose former management dominates the management of the combined entity.”
The Company’s Comments: The pre-closing officers of the Company continue to serve as the Company’s Chairman, CEO, President, CFO, Treasurer and Secretary. The only additional officer role is that of Nicholas S. Warrender, who now serves as the Company’s Vice Chairman and COO. The foregoing analysis suggests that the Company should be considered the accounting acquirer in the Merger.
Guidance: “5. e. The terms of the exchange of equity interests. The acquirer usually is the combining entity that pays a premium over the precombination fair value of the equity interests of the other combining entity or entities.”
The Company’s Comments: It is very difficult to say with any certainty whether or not the Company paid a premium over the precombination fair value of Lifted. Most of the companies in the cannabis industry are losing money and nevertheless are enjoying market capitalizations that are massively higher than the consideration that the Company paid to acquire Lifted. However, Lifted has historically been involved in the vaping and e-liquids industry, and it is unclear what discount to fair value should be attributed to that involvement. The foregoing analysis does not assist us in reaching any conclusion as to which entity should be considered the accounting acquirer in the Merger.
Guidance: “55-13 The acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.”
The Company’s Comments: In terms of assets, prior to the closing, the Company’s cash on hand of over $4 million significantly exceeded Lifted’s assets. On the other hand, Lifted’s revenues and earnings significantly exceed the Company’s revenue and earnings. This analysis does not assist us in reaching any conclusion as to which entity should be considered the accounting acquirer in the Merger.
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Guidance: “55-14 In a business combination involving more than two entities, determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities, as discussed in the preceding paragraph.”
The Company’s Comments: This consideration is not applicable as the Merger of the Company and Lifted did not involve more than two entities.
Guidance: “55-15 A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer by applying the guidance in paragraphs 805-10-55-10 through 55-14. In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration may be the acquirer.”
The Company’s Comments: This consideration is not applicable as the Company and Lifted are not structuring a business combination.
Conclusion
Based on the foregoing analysis of the facts surrounding the Company’s acquisition of Lifted, it is the Company’s position that the Company is the accounting acquirer of Lifted in the Merger, and Lifted is the accounting acquiree in the Merger, under the acquisition method of accounting.
As such, as of February 24, 2020 (the acquisition date), the Company recognized, separately from goodwill, the identifiable assets acquired and the liabilities assumed in the Merger.
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.
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Purchase Price Allocation
The following table presents the purchase price allocation:
| Consideration: | ||||
| Cash and cash equivalents | $ | 3,750,000 | ||
| Note consideration | $ | 3,750,000 | ||
| 3,900,455 shares of unregistered common stock of the Company valued as of January 7, 2020 (date of entering into the Agreement and Plan of Merger) | $ | 10,726,251 | ||
| 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 | ||
| Total merger consideration | $ | 23,206,401 | ||
| Assets acquired: | ||||
| Cash and cash equivalents | $ | 619,390 | ||
| Accounts Receivable | $ | 341,387 | ||
| Inventory | $ | 267,474 | ||
| Loan to Shareholder | $ | 9,000 | ||
| Fixed Assets | $ | 80,003 | ||
| Intangible Assets | $ | 4,444 | ||
| Security Deposit | $ | 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 | $ | 22,292,767 | ||
| Total assets acquired | $ | 23,639,411 | ||
| Liabilities assumed: | ||||
| Accounts Payable and Accrued Expenses | $ | 345,075 | ||
| Operating Lease Liability | $ | 15,569 | ||
| Deferred Revenue | $ | 64,696 | ||
| Non-Current Operating Lease Liability | $ | 7,670 | ||
| Total Liabilities assumed | $ | 433,010 | ||
| Net Assets Acquired: | $ | 23,206,401 | ||
| Net Assets Acquired (Excluding Goodwill): | $ | 913,634 | ||
Determination of the Fair Value of the Shares of Common Stock and Warrants Issued as Part of the Merger Consideration
The Company determined the fair value of the shares of common stock issued on February 24, 2020 as part of the Merger Consideration by multiplying the stock closing price on January 7, 2020 ($2.75) by the number of common stock shares issued (3,900,455) in the Merger. January 7, 2020 was the date of entering into the Agreement and Plan of Merger.
The Company determined the fair value of the warrants issued on February 24, 2020 as part of the Merger Consideration by using the Black-Scholes valuation model, which incorporated the following assumptions: expected future stock volatility 362%; risk-free interest rate of 1.55%; dividend yield of 0% and an expected term of 2.57 years. The expected future stock volatility was based on the historical volatility of Acquired Sales Corp.’s common stock price per share. 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 vested and the contractual term of the warrant. The values of the warrants were considered part of the Merger consideration.
Allocation of Purchase Price to Goodwill
The Company’s primary motivation for acquiring Lifted was to secure the exclusive services of Nicholas S. Warrender. Mr. Warrender founded Lifted in 2014 with $900, and since its inception has done a masterful job staying ahead of industry trends, navigating industry challenges and launching innovative, advanced branded products before competitors launched their branded products. Mr. Warrender is focused and relentless, and attracts many people who like his energy and creativeness and want to do business with him. In the Company’s opinion, Lifted’s customers do business with Lifted primarily because of Mr. Warrender; and, at the time of the Merger, Mr. Warrender was the only full time employee handling sales for Lifted. There were no other material identifiable intangible assets that were considered appropriate for recognition at the time of close. In a very significant sense, Lifted is Mr. Warrender, and Mr. Warrender is Lifted. This is why the Company recognized $22,292,767 of the total acquisition consideration paid in the Merger as being goodwill.
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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 did not use 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 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 and CFO 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.
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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 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, as amended on December 1, 2020, 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, of which $50,000 has been paid to Gerard M. Jacobs, and which are accruing 2% annual interest on and after January 1, 2021; |
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| (3) | Upon demand by Gerard M. Jacobs and William C. Jacobs on or after January 1, 2021, 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, plus 2% annual interest accruing on and after January 1, 2021; |
| (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 Acquisitions in Wisconsin
The Merger Agreement imposes a legally binding obligation upon us to use good faith efforts to acquire two companies located in Wisconsin. These two companies are completely unrelated to, and are not affiliated in any way with, Nicholas S. Warrender. Since the Merger Agreement was entered into, we and Nicholas S. Warrender have mutually agreed to abandon all efforts to acquire the two companies located in Wisconsin, and no further time, efforts, or expense are being incurred in relation to these two companies located in Wisconsin.
Obligation to Pursue a Hemp Processing System Deal
The Merger Agreement imposes a legally binding obligation upon us to use good faith efforts to pursue an opportunity in the cannabinoid industry. Nicholas S. Warrender's father, Board member Robert T. 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 T. Warrender II. Robert T. 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 T. 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 T. 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.
Since the Company’s acquisition of Lifted Made in February 2020, there have been no material discussions among the Company, Lifted Made, and Robert T. Warrender II regarding the development or financing of any hemp processing system and to date no such project has proceeded forward. If the project proceeds, and there is no assurance that it will proceed, a company owned by Robert T. Warrender II could potentially supply certain pumps and other equipment for that project.
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Post-Merger Business
Our cash on hand is expected to be sufficient to allow us to pay the post-closing salaries of Gerard M. Jacobs, our CEO, of Nicholas S. Warrender, Vice Chairman and COO, and of William C. "Jake" Jacobs, our President and CFO during 2021, the fees and expenses of our securities lawyer and auditors during 2021, and certain other operational expenses.
However, beyond those payments, our available capital is limited. We have not yet paid an aggregate of $300,000 of bonuses owed to Gerard M. Jacobs, our CEO, and to William C. "Jake" Jacobs, our President and CFO, because we currently do not have the funds to do so without adversely impacting Lifted’s working capital. These bonuses are payable upon demand. Gerard M. Jacobs and William C. “Jake” Jacobs are entitled to an additional aggregate of $350,000 of bonuses that are payable to them upon demand on or after January 1, 2021, and we currently do not have the funds to pay such bonuses without adversely impacting Lifted’s working capital. Lifted needs additional working capital to fuel its continued growth. 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.
Liquidity and Capital Resources
Currently, the Company’s only wholly-owned subsidiary, Lifted Made, is generating enough free cash flow to allow the Company and Lifted Made to fund their operations at their current levels and to grow Lifted Made’s business in a conservative, capital-constrained fashion. However, no guarantee or assurance can be given that Lifted Made’s current level of free cash flow will continue in the future, especially in light of the continuing COVID-19 pandemic, and U.S. federal, state and local laws, regulations and executive orders that are associated with the pandemic or that otherwise negatively impact the sales of hemp-derived products and nicotine products.
The Company and Lifted Made have aspirations to grow significantly faster than at their current levels, both organically and via acquisitions. But, to do so would require the Company to raise many millions of dollars of additional capital.
The $3,750,000 note payable jointly by the Company and Lifted Made to Nicholas S. Warrender (the “Note”) is secured by a perfected first lien security interest (the “Security Interest”) that encumbers all of the assets of the Company and Lifted Made.
The existence of the Note and the Security Interest make it extremely difficult for the Company and Lifted Made to raise capital via borrowing, since few if any potential lenders are interested in making loans to the Company and/or to Lifted Made that would be unsecured or that would be secured by a second lien that is subordinate to the Note and the Security Interest, except perhaps on terms that would be extremely expensive or otherwise unattractive to the Company.
And currently, management of the Company is reluctant to raise capital by selling equity securities of the Company (common stock and/or convertible preferred stock) at a significant discount to the current trading price of the Company’s common stock.
Even if the Company is able to raise additional capital via borrowing or the sale of equity securities of the Company: (1) the Company is contractually obligated to allocate and apply 50% of all such additional capital toward a partial or full repayment of the Note; and (2) the Company is currently obligated to pay a total of $300,000 in management bonuses to Gerard M. Jacobs and William C. Jacobs, and there will also be a total of an additional $350,000 in management bonuses payable to Gerard M. Jacobs and William C. Jacobs upon demand by them anytime on or after January 1, 2021. Additional capital raised by the Company that is used to pay down the Note or that is used to pay accrued management bonuses to Gerard M. Jacobs and William C. Jacobs is collectively referred to as the “Allocated Capital”.
If, notwithstanding these impediments, the Company and/or Lifted Made is able to raise debt or equity capital that is in addition to the Allocated Capital (the “Growth Capital”), then the Growth Capital would likely be used first to assist Lifted Made’s organic growth. Lifted Made could expend $1,000,000 or more of the Growth Capital to purchase additional raw materials and inventory, and to hire more sales people and production staff.
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Any additional Growth Capital available would likely be used in connection with potential acquisitions. Consummating the proposed acquisitions of Savage Enterprises and related companies will require additional Growth Capital of at least $17,840,000. It is unclear how much additional Growth Capital would be needed to fund additional future acquisitions. While the Company would prefer to engage in 100% stock-for-stock acquisitions, potential acquisition candidates frequently prefer that a significant portion of the acquisition consideration be in cash. Also, the process of conducting a due diligence investigation and audit of potential acquisition candidates can be very expensive and requires cash. Also, some potential acquisitions may only make sense if the Company is in a position to inject cash into the potential acquisition candidates simultaneously with the closing of the acquisitions, in order to pay off accrued liabilities or to provide needed growth capital.
There is no assurance that the Company and Lifted Made will be able to obtain the additional Growth Capital needed to accelerate our growth beyond current levels. Our ability to obtain Growth Capital will depend on the level of pandemic-related stress on Lifted Made’s distributors and customers, governmental prohibitions and regulations of hemp-derived cannabinoids such as delta-8-THC, delta-10-THC, investor demand, our performance and reputation, the price of the Company’s common stock, and other factors beyond our control.
Our inability to raise additional Growth Capital could result in the delay or indefinite postponement of our growth objectives, including but not limited to an inability to consummate the proposed acquisitions of Savage Enterprises and related companies.
There can be no assurance or guarantee that any additional Growth Capital will be available on acceptable terms and conditions, if at all. The lack of availability of additional Growth Capital could have a material adverse effect on our Company and the trading price of our common stock.
Government Laws and Regulations
Lifted primarily sells hemp-derived products, including products containing delta-8-THC, delta-10-THC, CBD, CBG, CBN and other cannabinoids, and products that contain nicotine. Lifted’s sales are typically made through distributors, with a limited but growing number of sales online or direct to retail outlets. Lifted is attempting to only conduct business related to manufacturing and commercializing hemp-derived products to the extent permitted in jurisdictions where it may operate.
While Lifted is optimistic regarding the future of its business selling hemp-derived products and products that contain nicotine, the manufacture and sale of hemp-derived products and products that contain nicotine involves significant risks associated with federal, state and local laws and regulations, and regulatory agencies, that have the potential to bankrupt Lifted and the Company, or at least to negatively impact the trading price of our common stock.
In regard to the sale of hemp-derived products 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 (the “Farm Bill”), 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. However:
(a) FDA: The US Food and Drug Administration (“FDA”) has stated that although hemp is no longer an illegal substance under the Farm Bill, 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. The health and safety impacts of delta-8-THC, delta-10-THC, CBD, CBG, CBN and other cannabinoids have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that CBD may or could have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. Furthermore, the FDA sometimes appears to believe that certain cannabinoids are drugs, and that the sale of certain 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 hemp-derived cannabinoid-infused products is illegal, or have imposed restrictions or prohibitions upon the sale of certain hemp-derived products. The FDA may in the future impose significant licensing or other requirements, regulations, restrictions and/or prohibitions on the sale of hemp-derived products, which could have a material adverse effect upon Lifted’s business and the trading price of our common stock;
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(b) DEA: The US Drug Enforcement Agency (“DEA”) has stated that although hemp is no longer an illegal substance under the Farm Bill, the FDA continues to pursue Schedule I controlled substances as well as certain synthetic substances. In particular:
(i) Hemp and hemp-derived cannabinoid-infused products which exceed a delta-9-THC concentration of 0.3% are illegal under the Farm Bill. Any failure to keep the delta-9-THC concentration in Lifted’s hemp-derived or cannabinoid-infused products below 0.3% could subject us to action by the DEA or other 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, certain hemp-derived 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 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 legal hemp-derived products or marijuana-infused products. This may result in regulatory actions or lawsuits against the Company; and
(ii) The DEA has issued a statement that some have interpreted as making hemp-derived delta-8-THC illegal. In deference to the DEA, certain state and local governments have imposed restrictions or prohibitions upon the sale of certain products containing delta-8-THC. Lifted sells significant quantities of products containing hemp-derived delta-8-THC, and any crackdown by the DEA or other regulatory authorities on products containing delta-8-THC could have a material adverse effect upon Lifted’s business and the trading price of our common stock; and
(c) Amended PACT act: The recently amended federal PACT act may make the online sale of certain of Lifted’s products difficult or impossible. We are evaluating the amended federal PACT act, and the most appropriate course of action for Lifted to take in response thereto. The amended federal PACT act could have a material adverse effect upon Lifted’s business and the trading price of our common stock.
In regard to the sale of products containing nicotine, products containing nicotine are addictive and are subject to heavy regulation by U.S. federal, state and local governments. The legislative and regulatory landscape surrounding nicotine-containing products has created risks for Lifted’s business. Laws and regulations have been adopted that can impose significant liabilities upon companies operating in the nicotine industry, especially in regard to sales to minors. Existing and future laws and regulations affecting nicotine products could have a material adverse effect upon Lifted’s business and the trading price of our common stock.
Furthermore, the regulation of nicotine, hemp, hemp oil, hemp-derived cannabinoids, and cannabinoid-infused products is evolving. Lifted may become subject to new rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon nicotine and Canna-Infused Products Companies imposed by the U.S. President pursuant to executive orders, by the U.S. Congress in laws, by U.S. federal agencies such as the FDA and/or the DEA, and/or by state and local governments.
Competition
Lifted faces intense competition in the cannabinoid industry and in the nicotine products 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.
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”) on April 20, 2020. Lifted recognized a $10,000 gain on the forgiveness of the EIDL Advance on April 21, 2020.
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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. As of December 31, 2020, Lifted had an accrual of $1,074 for the interest on the PPP Loan. 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 of the PPP Loan 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. believes that Lifted has used at least 75% of the PPP Loan amount for designated qualifying expenses and Lifted applied for forgiveness of the PPP Loan in accordance with the terms of the PPP.
On April 20, 2021, the entire PPP Loan ($149,622) and the interest payable on the PPP Loan ($1,525) was forgiven by the SBA.
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 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. On July 6, 2020, the Company filed with the SEC an amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On December 10, 2020, the Company filed with the SEC a second amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On June 2, 2021, the Company filed with the SEC a third amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On July 2, 2021, the Company filed with the SEC a fourth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On July 26, 2021, the Company filed with the SEC a fifth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. There can be no guarantee or assurance that such Registration Statement will ever be declared effective by the SEC. As of August 6, 2021, 60,400 shares of Series A Preferred Stock have been converted into a total of 6,040,000 shares of common stock of the Company, which leaves 5,750 shares of Series A Preferred Stock currently outstanding.
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. On July 6, 2020, the Company filed with the SEC an amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On December 10, 2020, the Company filed with the SEC a second amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On June 2, 2021, the Company filed with the SEC a third amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On July 2, 2021, the Company filed with the SEC a fourth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On July 26, 2021, the Company filed with the SEC a fifth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. There can be no guarantee or assurance that such Registration Statement will ever be declared effective by the SEC. As of August 6, 2021, 60,000 shares of Series B Preferred Stock have been converted into a total of 60,000 shares of common stock of the Company, which leaves 40,000 shares of Series B Preferred Stock currently outstanding.
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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. However, in particular situations, the Company is willing to consider alternative deal structures including joint ventures. For example, during 2020, the Company’s Lifted Made subsidiary entered into a 50-50 joint venture called SmplyLifted LLC, with the other 50% of SmplyLifted LLC being owned by SMPLSTC LLC and its principals.
In deals that are structured as tax-free reorganizations, it is expected that the Company will issue 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.
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.
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 currently consisting of our CEO Gerard M. Jacobs, our Chief Operating Officer Nicholas S. Warrender, and our President and CFO William C. "Jake" Jacobs, 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, Wheeler and Winters, and through 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 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 August 6, 2021, the consolidated cash on hand of Acquired Sales Corp. and Lifted Made was a total of $3,305,068. To date, Lifted has also invested cash of $587,500 into a company called SmplyLifted LLC, which SmplyLifted LLC has primarily used to purchase inventory of tobacco-free nicotine pouches. Lifted may invest additional cash into SmplyLifted LLC, also to be primarily used to purchase inventory of tobacco-free nicotine pouches. Lifted has a 50% membership interest in SmplyLifted LLC. Lifted may also invest cash into other companies.
In prior years, Acquired Sales Corp.’s payables have been greater than its cash on hand. Historically, Acquired Sales Corp. has had inconsistent income generating ability and is therefore has been reliant on raising money from loans or stock sales.
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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 Vice Chairman and Chief Operating Officer, under the Executive Employment Agreements described above.
We expect to continue to use consultants, attorneys, accountants, other professionals and independent contractors as necessary.
Election of New Board of Directors; Resignation of Michael D. McCaffrey as a director
On September 9, 2020, pursuant to Nevada corporate law, stockholders of Acquired Sales Corp. who own more than 2/3rds of the outstanding shares of common stock of Acquired Sales Corp. elected a new Board of Directors consisting of Gerard M. Jacobs, JD (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead Outside Director), Joshua A. Bloom, MD, James S. Jacobs, MD, Michael D. McCaffrey, JD, Richard E. Morrissy, Kevin J. Rocio, and Robert T. Warrender II. Robert T. Warrender II replaced director Thomas W. Hines who was not re-elected to the Board. Mr. Hines was a member of the Company’s Nominating, Audit and Investment Committees and no longer serves in those roles.
Robert T. Warrender, II, age 69, is the owner and founder of American Process Equipment, Inc. in Zion, IL. In 1993, Mr. Warrender founded American Process Equipment, Inc., which specializes in specialty pumps and related systems. Mr. Warrender has authored industry publications and technical papers for the pump industry and has served as a consultant to companies in related industries. Mr. Warrender attended the University of Wisconsin-Parkside. Mr. Warrender coached junior high school basketball for 20 years. Mr. Warrender is the father of Nicholas S. Warrender who currently serves as the Company’s Vice Chairman of the Board and Chief Operating Officer, and as the CEO of Acquired Sales Corp.’s wholly owned subsidiary Lifted Made.
On October 12, 2020, Michael D. McCaffrey, J.D, resigned from the Board of Directors of Acquired Sales Corp. Mr. McCaffrey served as a member of the Nominating, Compensation and Audit Committees of the Board. Mr. McCaffrey confirmed that his resignation was not the result of any disagreement with the Company.
Exercise of Options
On October 27, 2020, a director of the Company exercised an option to purchase 25,000 shares of Acquired Sales Corp.’s common stock at an exercise price of $0.001 per share.
October 27, 2020 Shortfall Loan to SmplyLifted LLC for Purchase Order Transaction
On October 27, 2020, Lifted paid a vendor $200,000 on behalf of SmplyLifted LLC as a down payment on a purchase order of inventory. Later that same day, SmplyLifted LLC reimbursed Lifted for such $200,000.
Stock Buy-back Transactions with a Non-Affiliate Stockholder
On November 24, 2020, Acquired Sales Corp. purchased 36,000 shares of common stock of the Company from a non-affiliate stockholder in a private transaction for $0.95 per share for a total of $34,200. These shares are held in treasury.
On January 8, 2021, Acquired Sales Corp. purchased an additional 36,000 shares of common stock of the Company from the same non-affiliate shareholder, also in a private transaction, for $0.95 per share for a total of $34,200. These shares are also held in treasury.
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December 1, 2020 Amendment to Compensation Agreement dated as of June 19, 2019
Due to the COVID-19 pandemic and for other reasons, the Company was not in a position to pay Gerard M. Jacobs, CEO, and William C. “Jake” Jacobs, President and CFO, the $250,000 and $100,000 bonuses, that were to be paid to them, respectively, on December 1, 2020, pursuant to the Compensation Agreement dated as of June 19, 2019, without negatively impacting Lifted’s working capital. In recognition of this reality, the Company, Gerard M. Jacobs and William C. “Jake” Jacobs agreed that in lieu of such payments, upon the earlier of the date when Gerard M. Jacobs or William C. “Jake” Jacobs delivers to the Company written demands for payments which may not be sooner than January 1, 2021, or the first date when the Company has raised a total of at least $15 million after January 1, 2019, the Company shall pay Gerard M. Jacobs and William C. “Jake” Jacobs cash bonuses in the amounts of $250,000 and $100,000, respectively (the “Delayed December 1, 2020 Cash Bonuses”); provided that (i) commencing on January 1, 2021, the cash bonuses of $250,000 and $100,000 that were due and payable by the Company to Gerard M. Jacobs and William C. “Jake” Jacobs upon the closing of the Company’s acquisition of Lifted, of which $300,000 has not yet been paid and are payable upon demand by Gerard M. Jacobs and William C. “Jake” Jacobs, shall accrue interest until paid in full at the rate of 2% per year, and (ii) commencing on January 1, 2021, the Delayed December 1, 2020 Cash Bonuses, which have not yet been paid and are payable upon demand by Gerard M. Jacobs and William C. “Jake” Jacobs on or after January 1, 2021, shall accrue interest until paid in full at the rate of 2% per year.
December 3, 2020 Shortfall Loan and December 4, 2020 SmplyLifted LLC Purchase Order Transaction
On December 3, 2020, both Lifted and SMPLSTC each made shortfall loans of $93,750 (a total of $187,500) to SmplyLifted LLC for the purchase of inventory. Because of online banking issues, on December 4, 2020, Lifted paid a vendor the $187,500 on behalf of SmplyLifted LLC as a down payment on a purchase order of inventory. On December 7, 2020, SmplyLifted LLC reimbursed Lifted for such $187,500.
Signing of Exclusive Independent Pharmacy Distribution Agreement with Girish GPO
On December 7, 2020, Acquired Sales Corp. announced that Lifted has signed an exclusive agreement with Girish GPO, Des Plaines, IL (www.GirishGPO.com), to distribute certain of Lifted’s CBD and delta-8-THC products to independent pharmacies throughout the United States. In the exclusive agreement, Girish GPO has committed to distribute Lifted’s products to at least 500 independent pharmacies within 90 days, and to use its best efforts to distribute Lifted’s products to 2,500 independent pharmacies nationwide within 180 days. The initial term of the distribution agreement is six months, with yearly extensions possible thereafter.
Lifted’s hemp-derived products available for distribution under this agreement include CBD and nano CBD tinctures, CBD salves, CBD muscle gel, delta-8-THC gummies, delta-8-THC tinctures, delta-8-THC cartridges, delta-8-THC dabs, and a 510 compatible battery specifically designed for vaping delta-8-THC cartridges.
Pursuant to the exclusive agreement with Girish GPO, on December 7, 2020 Lifted initiated a $30,000 ACH (the “Escrow”) to an account managed by Girish GPO’s attorney (the “Escrowee”). The Escrow shall be used by the Escrowee to repay Girish GPO if and to the extent that Girish GPO has paid commissions to its sales representatives on purchase orders for products that were accepted by Lifted but for which Lifted has failed to deliver the products. At the end of the first 180 days following the effective date of the agreement, the amount remaining in the Escrow shall be returned by the Escrowee to Lifted.
Lifted has begun selling products under this pharmacy distribution agreement.
On June 17, 2021, the Company filed an action in a case styled “Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe” seeking to recover $30,000.00 that was to be held in escrow. The Company is also requesting approximately $14,569 in damages resulting from Girish GPO’s failure to pay for product it ordered and that the Company delivered. The Company intends to pursue the action and recover its damages.
December 24, 2020 Shortfall loan to SmplyLifted LLC for Purchase Order Transaction
On December 24, 2020, Lifted paid a vendor $200,000 on behalf of SmplyLifted LLC for the purchase of inventory. This is accounted for as a shortfall loan to SmplyLifted. As of the date of this report, Lifted has not yet been reimbursed by SmplyLifted for this $200,000.
January 27, 2021 Shortfall loan to SmplyLifted LLC for Purchase Order Transaction
On January 27, 2021, Lifted paid a vendor $93,750 on behalf of SmplyLifted LLC for the purchase of inventory. This is accounted for as a shortfall loan to SmplyLifted. As of the date of this report, Lifted has not yet been reimbursed by SmplyLifted for this $93,750.
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Reallocation of Contingent Deferred Stock and Terminated Warrants
On December 24, 2020, a total of 25,000 shares of forfeited contingent deferred stock and warrants to purchase a total of 25,000 shares exercisable at $5 per share were reallocated by Nicholas S. Warrender to another Lifted employee.
Planned Name Change to LFTD Partners Inc.
The Company plans to change the name of the company to LFTD Partners Inc., subject to changing the company’s articles of incorporation in Nevada, all necessary securities filings and governmental approvals. The planned name change is intended to better reflect the company’s ownership of rapidly growing Lifted Made, which has received national recognition for its outstanding Urb Finest Flowers brand of hemp-derived delta-8-THC, delta-10-THC, CBD, CBN and CBG products. In connection with the name change, the company plans to request a new trading symbol that more closely relates to the new company name.
Dissolution of Younite Corp.
On January 10, 2021, Lifted established a wholly-subsidiary called Younite Corp., an Illinois corporation. Younite Corp. did not conduct any business. On April 29, 2021, Lifted dissolved Younite Corp.
January 27, 2021 SmplyLifted LLC Purchase Order Transaction
On January 27, 2021, Lifted paid a vendor $93,750 on behalf of SmplyLifted LLC for the purchase of inventory. As of the date of this report, Lifted has not yet been reimbursed by SmplyLifted for this $93,750.
February 12, 2021 Loan to Younite Corp.
On February 12, 2021, Acquired Sales Corp. made a $1,000 loan to Younite Corp., as operating capital. Younite Corp. was dissolved on April, 29, 2021, and this loan was returned to Acquired Sales Corp.
Payments of Dividends
On February 27, 2021, Acquired Sales Corp. paid a total of $70,200 in dividends to holders of Acquired Sales Corp.’s Series A Convertible Preferred Stock.
Conversions of Series A Convertible Preferred Stock to Shares of Common Stock
On March 1, 2021, 25,400 shares of Series A Convertible Preferred Stock were converted into 2,540,000 shares of common stock.
On March 2, 2021, 1,000 shares of Series A Convertible Preferred Stock were converted into 100,000 shares of common stock.
On March 5, 2021, 1,000 shares of Series A Convertible Preferred Stock were converted into 100,000 shares of common stock.
On March 9, 2021, 1,000 shares of Series A Convertible Preferred Stock were converted into 100,000 shares of common stock.
On March 18, 2021, 4,000 shares of Series A Convertible Preferred Stock were converted into 400,000 shares of common stock.
On March 18, 2021, 60,000 shares of Series B Convertible Preferred Stock were converted into 60,000 shares of common stock.
On March 22, 2021, 500 shares of Series A Convertible Preferred Stock were converted into 50,000 shares of common stock.
Paydown of Bonus Payable to Gerard M. Jacobs
On April 29, 2021, the Company paid Gerard M. Jacobs a portion ($50,000) of the bonus payable to Gerard M. Jacobs in regard to the closing of the acquisition of Lifted.
Dissolution of LftdXSvg LLC
As we announced on April 27, 2021, Lifted and privately-held Savage Enterprises, Irvine, California, have partnered to create an equally-owned new entity called LftdXSvg LLC to make and sell products containing hemp-derived THCV (tetrahydrocannabivarin). Although both entities still plan to make and sell products containing hemp-derived THCV, the new entity was never funded, the managers of LftdXSvg LLC unanimously decided to dissolve LftdXSvg LLC on June 23, 2021.
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Exercise of Warrant
On April 14, 2021, a non-affiliate shareholder exercised his warrant to purchase 7,021 shares of unregistered common stock for $1 per share.
Forgiveness of the PPP Loan
On April 20, 2021, the entire PPP Loan ($149,622) and the interest payable on the PPP Loan ($1,525) was forgiven by the SBA.
Payment Into Warrender Enterprise Inc.’s Illinois Department of Employment Security Unemployment Insurance Account
On April 28, 2021, the Company paid $5,806 into Warrender Enterprise Inc.’s Illinois Department of Employment Security unemployment insurance account. The Company is trying to get this money moved into the Company’s Illinois Department of Employment Security unemployment insurance account, but there can be no assurance that this will happen, or when.
Conversions of Series A Convertible Preferred Stock to Shares of Common Stock
On May 24, 2021, 27,500 shares of Series A Convertible Preferred Stock were converted into 2,750,000 shares of the Company’s common stock.
Settlement with Mark Burrier, Kevin R. Sarsany and RCM Securities
On June 1, 2021, Acquired Sales Corp. entered into a Settlement Agreement with Mark Burrier, Kevin R. Sarsany and RCM Securities in regard to warrants to purchase 190,500 shares of restricted common stock of the Company which were allocated by the Company in connection with a private offering in 2019 (the “Warrants”). In such Settlement Agreement, the Company agreed to issue a total of 136,071 shares of the Company’s restricted common stock to parties designated by Mr. Burrier, Mr. Burrier released and agreed to indemnify the Company and its affiliates from all associated liabilities, and RCM Securities and Kevin Sarsany approved such settlement.
Financial Statements
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended June 30, 2021 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2021 for the period ended December 31, 2020.
| 31 |
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 32 |
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 (Unaudited) | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Dividend Receivable from Bendistillery, Inc. | ||||||||
| Prepaid Expenses | ||||||||
| Loan to SmplyLifted LLC | ||||||||
| IL Income Tax Receivable | ||||||||
| Interest Receivable | ||||||||
| Note Receivable from CBD LION | ||||||||
| Accounts Receivable, net of allowance of $ | ||||||||
| Inventory | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| Goodwill | ||||||||
| Investment in Ablis | ||||||||
| Investment in Bendistillery and Bend Spirits | ||||||||
| Deposit for Girish GPO Distribution Agreement | ||||||||
| Investment in SmplyLifted LLC | ||||||||
| Fixed Assets, less accumulated depreciation of $ | ||||||||
| Intangible Assets, less accumulated amortization of $ | ||||||||
| Security and State Licensing Deposits | ||||||||
| Finance Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $ | ||||||||
| Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $ | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Finance Lease Liability | $ | $ | ||||||
| Operating Lease Liability | ||||||||
| Deferred Revenue | ||||||||
| Management Bonuses Payable - Related Party | ||||||||
| Management Bonus Payable - Related Party - Payable to William C. Jacobs | ||||||||
| Management Bonus Payable - Related Party - Payable to Gerard M. Jacobs | ||||||||
| Management Bonuses Payable - Related Party | ||||||||
| Company-Wide Management Bonus Pool | ||||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Interest Payable - Related Party | ||||||||
| Interest - Payable to William C. Jacobs | ||||||||
| Interest - Payable to Gerard M. Jacobs | ||||||||
| Interest - Payable to Nicholas S. Warrender | ||||||||
| Interest Payable - Related Party | ||||||||
| Preferred Stock Dividends Payable | ||||||||
| Series A Convertible Preferred Stock Dividends Payable | ||||||||
| Series B Convertible Preferred Stock Dividends Payable | ||||||||
| Preferred Stock Dividends Payable | ||||||||
| Total Current Liabilities | $ | $ | ||||||
| Non-Current Liabilities | ||||||||
| Paycheck Protection Program Loan | ||||||||
| Finance Lease Liability | ||||||||
| Notes Payable - Related Party | ||||||||
| Notes Payable - Payable to Nicholas S. Warrender | ||||||||
| Total Non-Current Liabilities | $ | $ | ||||||
| Total Liabilities | $ | $ | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders' Equity | ||||||||
| Preferred Stock, $ par value; total shares authorized; out of which shares of Series A Convertible Preferred Stock are authorized, and shares of Series A Convertible Preferred Stock shares were issued and outstanding at June 30, 2021, and shares of Series A Convertible Preferred Stock shares were issued and outstanding at December 31, 2020; and out of which shares of Series B Convertible Preferred Stock are authorized, and shares of Series B Convertible Preferred Stock shares were issued and outstanding at June 30, 2021, and shares of Series B Convertible Preferred Stock shares were issued and outstanding at December 31, 2020 | ||||||||
| Common Stock, $ par value; shares authorized; shares issued and outstanding at June 30, 2021, and shares issued and outstanding at December 31, 2020 | ||||||||
| Treasury Stock (Purchase of shares of common stock at $/share) | ( | ) | ( | ) | ||||
| Additional Paid-in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Shareholders' Equity (Deficit) | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
Please see the accompanying notes to the consolidated financial statements for more information.
| 33 |
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||
| Selling, General and Administrative Expenses | ||||||||||||||||
| Bank Charges and Merchant Fees | ||||||||||||||||
| Accrual for Company-Wide Management Bonus Pool | ||||||||||||||||
| Management Bonuses Owed Under Compensation Agreement | ||||||||||||||||
| Bad Debt | ||||||||||||||||
| Payroll, Consulting and Independent Contractor Expenses | ||||||||||||||||
| Professional Fees | ||||||||||||||||
| Advertising and Marketing | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
| Rent Expense | ( | ) | ( | ) | ||||||||||||
| Warehouse & Lab Expenses (too small to capitalize) | ||||||||||||||||
| Income/(Loss) From Operations | ( | ) | ( | ) | ||||||||||||
| Other Income/(Expenses) | ||||||||||||||||
| Income/(Loss) From 50% membership interest in SmplyLifted LLC (FR3SH) | ( | ) | ( | ) | ||||||||||||
| Income from SmplyLifted for WCJ Labor | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Warehouse Buildout Credits | ||||||||||||||||
| Penalties | ( | ) | ||||||||||||||
| Gain on Forgiveness of Debt | ||||||||||||||||
| Refund of Merchant Account Fees | ||||||||||||||||
| Settlement Costs | ( | ) | ( | ) | ||||||||||||
| Gain(Loss) on Disposal of Fixed Assets | ( | ) | ( | ) | ||||||||||||
| Loss on Deposit | ( | ) | ( | ) | ||||||||||||
| Interest Income | ||||||||||||||||
| Total Other Income/(Expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income/(Loss) Before Provision for Income Taxes | ( | ) | ( | ) | ||||||||||||
| Provision for Income Taxes | ||||||||||||||||
| Net Income/(Loss) Attributable to Acquired Sales Corp. common stockholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic Net Income (Loss) per Common Share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted Net Income (Loss) per Common Share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
Please see the accompanying notes to the consolidated financial statements for more information.
| 34 |
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
| Additional | Total | |||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Treasury Stock | Paid-in | Accumulated | Shareholders' | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Issuance of warrants to Gerard M. Jacobs upon execution of employment agreement | $ | $ | ||||||||||||||||||||||||||||||||||
| Issuance of warrants to William C. Jacobs upon execution of employment agreement | $ | $ | ||||||||||||||||||||||||||||||||||
| Issuance of common stock consideration as part of the acquisition of Lifted Liquids, Inc. | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Issuance of warrants to purchase shares of common stock as part of the acquisition of Lifted Liquids, Inc. | $ | $ | ||||||||||||||||||||||||||||||||||
| Series A Preferred Stock dividend payable | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B Preferred Stock dividend payable | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Net Loss | — | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Series A Preferred Stock dividend payable | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B Preferred Stock dividend payable | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Cancellation of shares of common stock | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Series A Preferred Stock dividend payable | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B Preferred Stock dividend payable | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| AQSP's January 8, 2021 purchase of 36,000 shares of common stock at $0.95 per share, for a total of $34,200, from an unrelated shareholder | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Conversions of Series A Convertible Preferred Stock to Common Stock | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Conversions of Series B Convertible Preferred Stock to Common Stock | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net Income | — | $ | 618,359 | $ | 618,359 | |||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Series A Preferred Stock dividend payable | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Series B Preferred Stock dividend payable | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Conversions of Series A Convertible Preferred Stock to Common Stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net Income | — | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
Please see the accompanying notes to the consolidated financial statements for more information.
| 35 |
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net Income/(Loss) | $ | $ | ( | ) | ||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: | ||||||||
| Lifted Made's Portion of SmplyLifted's net loss in 2021 | ||||||||
| Stock Compensation Expense | ||||||||
| Bad Debt Expense | ||||||||
| Depreciation and Amortization | ||||||||
| Gain on Forgiveness of Debt | ( | ) | ||||||
| Loss (Gain) on Disposal of Fixed Assets | ||||||||
| Loss on Deposit | ||||||||
| Spoiled and Written Off Inventory | ||||||||
| Effect on Cash of Changes in Operating Assets and Liabilities | ||||||||
| Accounts Receivable | ( | ) | ( | ) | ||||
| Sales Tax Receivable | ||||||||
| Sales Tax Refund Receivable | ||||||||
| Prepaid Expenses | ( | ) | ||||||
| Dividend Receivable from Bendistillery, Inc. | ||||||||
| Income Tax Receivable | ||||||||
| Interest Receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other Current Assets | ( | ) | ||||||
| Loan to Shareholder | ||||||||
| Trade Accounts Payable and Accrued Expenses | ||||||||
| Accounts Payable and Interest Payable to Related Parties | ||||||||
| Change in ROU Asset | ||||||||
| Change in Finance & Operating Lease Liabilities | ( | ) | ||||||
| Deferred Revenue | ||||||||
| Net Cash Provided by (Used in) Operating Activities | ( | ) | ||||||
| Cash Flows From Investing Activities | ||||||||
| Net Cash Paid as Part of Lifted Liquids, Inc. Acquisition | ( | ) | ||||||
| Reduction of CBD Lion Note Receivable | ||||||||
| Net Purchase of Fixed Assets | ( | ) | ( | ) | ||||
| Loans to SmplyLifted LLC | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from Paycheck Protection Program Loan | ||||||||
| Proceeds from Exercise of Warrants | ||||||||
| Payments of Dividends to Series A Convertible Preferred Stockholders | ( | ) | ( | ) | ||||
| Payments of Dividends to Series B Convertible Preferred Stockholders | ( | ) | ||||||
| Purchase of Shares Held in Treasury | ( | ) | ||||||
| Repayment of Finance Lease Liability | ( | ) | ||||||
| Net Cash Used in Financing Activities | ( | ) | ( | ) | ||||
| Net Increase/(Decrease) in Cash | ( | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Cash Flow Information | ||||||||
| Cash Paid For Interest | $ | $ | ||||||
| Cash Paid For Income Taxes | $ | $ | ||||||
| Non-Cash Activities: | ||||||||
| Right-of-Use assets acquired from inception of Finance Leases | $ | |||||||
| Conversion of Series A and Series B Preferred Stock to Common Stock | $ | |||||||
| Cashless exercise of Warrants | $ | |||||||
Please
see the accompanying notes to the consolidated financial statements for more information.
| 36 |
Acquired Sales Corp.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation –
On May 18, 2021, the Company amended its articles of incorporation with the State of Nevada to change its name to LFTD Partners Inc. from Acquired Sales Corp. In connection with the name change to LFTD Partners Inc., the Company filed a required notification with the Financial Industry Regulatory Authority, Inc. (“FINRA”), a self-regulatory organization that is involved with the coordination of the clearing, settling and processing of transactions in equity securities, including our common stock. The Company’s name change notification to FINRA included a request for a new stock trading symbol. The change of the Company’s name to LFTD Partners Inc. and the change of trading symbol to reflect our common stock in the clearing, settling and processing of transactions in equity securities is pending, subject to FINRA clearance. As a result, we continue to refer to the Company in this report as Acquired Sales Corp. (and sometimes referred to in the body of this Report as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.). The Company was organized under the laws of the State of Nevada on January 2, 1986. Shares of the Company’s common stock are currently traded on the OTCQX Best Market under the trading symbol AQSP. We expect OTC Markets, Inc. to change the Company’s tier to the OTCQB Venture Market from the OTCQX Best Market within the next 30 days because we do not meet the OTCQX Best Market qualifications. We do not believe that the transition to the OTCQB market tier will have a material impact on our stock price or our trading volume.
Our business 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, sale and distribution of products infused with hemp-derived cannabinoids (including but not limited to delta-8-THC, delta-9-THC, delta-10-THC, CBD, CBG and CBN) such as beverages, shots, water, other liquids, water soluble nano drops or liquids, lotions, sprays, conditioners, creams, oils, pre-rolled hemp joints and hemp cigarettes, caviar cones, dabs, cartridges, gummies, saucy dmnds, flower, disposable vapes, tinctures, powder, water packets, effervescent tablets, capsules, bath bombs, balms, body washes, gummies, food, chocolate, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). Our business also involves selling and distributing products containing synthetic nicotine. During 2020, our business also involved selling and distributing hand sanitizer, but it is unlikely that this hand sanitizer business will continue going forward.
Management of the Company is open-minded to the concept of also acquiring operating businesses and/or assets involving products containing marijuana, distilled spirits, beer, wine, 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 now called Lifted Liquids, Inc. d/b/a
Lifted Made (formerly Warrender Enterprise Inc. d/b/a Lifted Liquids),
Lifted
Made owns
We have also terminated a planned acquisition of a Canna-Infused Products Company called CBD Lion LLC.
At this point in time, we have entered into a Letter of Intent relating to the proposed acquisition of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC, which Letter of Intent is described below. We also are in discussions with certain other companies in our acquisition pipeline. 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.
At this point in time, we are working with an investment banking firm regarding the potential for a $30 million capital raise, in conjunction with a potential listing of our common stock on a Canadian stock exchange. However, there can be no guarantee or assurance that any such capital raise or listing will be completed on acceptable terms, if at all.
Letter of Intent relating to the proposed acquisition of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC
On June 15, 2021, we, along with our Chairman and CEO Gerard M. Jacobs, our President and CFO William C. “Jake” Jacobs, and our Vice Chairman and COO Nicholas S. Warrender, entered into a Letter of Intent (the “LOI”) with Savage Enterprises, a Wyoming corporation (“Savage”), Premier Greens LLC, a California limited liability company (“Premier Greens”), MKRC Holdings, LLC, a Wyoming limited liability company (“MKRC”), Christopher G. Wheeler (“Wheeler”), and Matt Winters (“Winters”), in connection with our proposed acquisition of Savage, Premier Greens and MKRC as described below.
| 37 |
The terms of the proposed transactions (“Transactions”) must be set forth in a definitive agreement. There are no assurances that we will be successful in negotiating an acceptable definitive agreement, when or whether a definitive agreement will be reached between the parties, or that the proposed purchase will be consummated. Even if a definitive agreement is executed, the terms of the proposed purchase may change materially from the terms set forth in the Letter of Intent. There will be many conditions to closing, many of which are outside of the parties’ control and we cannot predict whether these conditions will be satisfied. There are no assurances when or if closing will occur, even if the parties successfully negotiate and sign a definitive agreement.
The Proposed Transactions
In the proposed Transactions:
| (a) | We will acquire One Hundred Percent (100%) of the ownership interests in Savage in a reorganization (the “Merger”), for the following consideration (“Merger Consideration”): Fifteen Million Eight Hundred Forty Thousand Dollars ($15,840,000) in cash, plus Eight Million Six Hundred Ninety-One Thousand Three Hundred Fifty-Eight (8,691,358) shares of unregistered common stock of AQSP (“AQSP Stock”) with a value of Twenty-Eight Million One Hundred Sixty Thousand Dollars ($28,160,000) based upon the closing trade price of AQSP Stock on the date of the LOI (the “Stock Consideration”); |
| (b) | We will purchase One Hundred Percent (100%) of the ownership interests in Premier Greens, for the following consideration: Nine Hundred Twenty Thousand Dollars ($920,000) in cash; and |
| (c) | Using
cash provided by us (in addition to the Merger Consideration), Savage will purchase from
the other owners of MKRC (the “Other MKRC Owners”) the remaining Fifty-Four
Percent (54%) of the ownership interests in MKRC that Savage does not currently own,
for the following consideration: One Million Eighty Thousand Dollars ($ |
Following
the closing of the Transactions (the “Closing”), Savage will own: One Hundred Percent (
Following
the Closing, we will continue to own One Hundred Percent (
Conditions
The Closing will be subject to the following conditions:
Audits. As promptly as possible following the execution of the LOI: Savage, Premier Greens, MKRC, and RJMC shall, and Savage shall use commercially reasonable efforts to cause Remediez to, prepare their respective financial statements for calendar years 2019 and 2020, and for the first and second quarters of calendar year 2021, including statements of income, balance sheets and cash flows (the “‘Financial Statements”). Savage, Premier Greens, MKRC, and RJMC shall, and Savage shall use commercially reasonable efforts to cause Remediez to, engage our PCAOB-qualified independent firm of certified public accountants, Fruci & Associates II PLLC, Spokane, Washington (“Fruci”), to audit the Financial Statements (and, if necessary to comply with U.S. Securities and Exchange Commission (“SEC”) rules and regulations, to audit or review Savage’s, Premier Greens’ , MKRC’s, RJMC’s and Remediez’s financial statements for subsequent calendar quarters) in accordance with U.S. generally accepted accounting principles, and to provide all opinion letters and other documents as shall be necessary to allow Savage and Premier Greens to be acquired by us in the Transactions pursuant to all applicable SEC and FASB rules and regulations, and to allow us to timely file all necessary securities filings with the SEC (collectively, the “Audit”). If the results of the Audit are not acceptable to us in our discretion, then the Transaction shall be abandoned. Fruci’s fees and expenses for conducting the Audit shall be paid one-half (50%) by us and one-half (50%) by Savage, regardless of whether or not the Transactions close or are abandoned for any reason.
| 38 |
Mutual “Due Diligence”.
Savage, Premier Greens, MKRC, and RJMC shall allow us to conduct a confidential so-called “due diligence” investigation of Savage’s, Premier Greens’, MKRC’s, and RJMC’s business, permits, leases, contracts, books and records, financials, historical operations, business practices, computer systems, prospects, legal, taxes, and other matters. If the results of such “due diligence” investigation are not acceptable to us in our discretion, then the Transactions shall be abandoned.
We shall allow Savage, Premier Greens and MKRC to conduct a confidential so-called “due diligence” investigation of our and Lifted Made’s business, permits, leases, contracts, books and records, financials, historical operations, business practices, computer systems, prospects, legal, taxes, and other matters. If the results of such “due diligence” investigation are not acceptable to Savage in its discretion, then the Transactions shall be abandoned.
Closing Documentation. If the Audit and the “due diligence” investigation of Savage, Premier Greens, MKRC, RJMC, AAA and Remediez are acceptable to us, and if the Audit and the “due diligence” investigation of us and Lifted Made are acceptable to Savage, then the Parties shall enter into a merger agreement (the “Merger Agreement”) and a purchase agreement (the “Purchase Agreement”) each containing representations, warranties, covenants, conditions, and indemnifications customary to transactions like the Transactions. The Closing shall be conditioned upon the execution and delivery by the Parties of mutually acceptable, legally binding, definitive Closing documentation (the “Definitive Documents”) including:
| (a) | The Merger Agreement |
| (b) | The Purchase Agreement |
| (c) | Wheeler
Employment Agreement: A five-year ‘“rolling’’ employment agreement
between us and Wheeler, for Wheeler to serve as Savage’s and Premier Greens’
CEO and as our Co-Founder and Chief Sales Officer, and to serve alongside Winters, Nicholas
S. Warrender, Gerard M. Jacobs, William C. Jacobs as a member of our internal corporate
steering committee called the Office of the President, with an annual base salary of
Two Hundred Fifty Thousand Dollars ($ |
| (d) | Winters Employment Agreement: A five-year “rolling” employment agreement between us and Winters, for Winters to serve as Savage’s and Premier Greens’ President and CFO and as our Co-Founder and Chief Risk Officer, and to serve alongside Wheeler, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs as a member of our internal corporate steering committee called the Office of the President, with an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) and an annual bonus through the company-wide management bonus pool expected to be at least Four Hundred Thousand Dollars ($400,000) subject to us/Lifted/Savage/Premier Greens meeting certain financial performance criteria (the “Winters Employment Agreement”); |
| (e) | Amended Employment Agreements: Amendments to the existing employment agreements between us and Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs, respectively, on terms and conditions as are mutually acceptable to the Compensation Committee of our Board of Directors, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs, Wheeler and Winters, to be effective upon the Closing; |
| (f) | Shareholders Agreement: A shareholders agreement (the “Shareholders Agreement”) among Wheeler, Winters, Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs (collectively the “Parties to the Shareholders Agreement”), it being understood that the Shareholders Agreement shall include, among other things, agreements by each of the Parties to the Shareholders Agreement: |
| (1) | to nominate, support and vote in favor of slates of nominees for the Boards of Directors of us, Lifted and Savage who are mutually acceptable to the Parties to the Shareholders Agreement; |
| (2) | to support and vote in favor of base salaries, a management bonus pool, and future stock options or warrants, for our key executives including Wheeler, Winters, Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs, that are mutually acceptable to the Parties to the Shareholders Agreement; |
| (3) | to support and vote in favor of future acquisitions and divestitures, capital raises, and other lawful corporate transactions from time to time, that are mutually acceptable to the Parties to the Shareholders Agreement; and |
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| (4) | not to directly or indirectly sell or transfer any of their Acquired Sales Corp. stock, options or warrants as part of an agreement, contract, plan or arrangement of any nature that is intended to result in a change of control of us, unless such agreement, contract, plan or arrangement is mutually acceptable to the Parties to the Shareholders Agreement and is approved by a majority of our Board of Directors; |
| (g) | Working Capital/Liquidity: Evidence, satisfactory to us in our discretion, that as of the Closing the aggregate value of Savage’s inventory, cash on hand, and accounts receivables exceed Savage’s accounts payable and other short-term liabilities by at least Two Million Dollars ($2,000,000), less any amounts contributed by Savage to MKRC to fund additional building commitments prior to the Closing; and |
| (h) | Payoff or Termination of Certain Obligations: Evidence, satisfactory to us in our discretion, that Savage, Premier Greens, MKRC, Wheeler and Winters have paid off or otherwise terminated certain obligations including but not limited to all obligations: (i) payable by Savage, Premier Greens, MKRC, Wheeler and/or Winters to former or current shareholders, directors, officers or employees of those entities; (ii) payable by Savage, Premier Greens, or MKRC to any banks or other sources of debt except certain specified equipment purchase debt obligations that are being paid off in installments, and except for that certain bank mortgage on the building in Palm Springs, California that is owned by MKRC; or (iii) payable by Savage, Premier Greens or MKRC to Wheeler, Winters or their respective relatives, or to trusts of which Wheeler, Winters or any of their respective relatives are the beneficiaries or are otherwise affiliated. |
Capital Raise. The Closing shall be conditioned upon the completion by us of a capital raise (the “Capital Raise”) involving the sale of at least Thirty Million Dollars ($30,000,000) worth of AQSP Stock on pricing and other terms and conditions acceptable to us in our discretion.
Tax Opinion. The Closing shall be conditioned upon the receipt by Savage, Wheeler and Winters of a written opinion from Savage’s tax counsel that the Merger qualifies as a reorganization that is so-called “tax free” in regard to the Stock Consideration pursuant to the U.S. tax code and applicable Internal Revenue Service regulations promulgated thereunder (the “Tax Opinion”).
Corporate Approvals. The Closing shall be conditioned upon approval of the Transactions by our Board of Directors, and, if necessary, by our shareholders. Savage, Premier Greens, MKRC, Wheeler and Winters have all approved the Transactions, subject only to (a) approval of the Definitive Documents by Wheeler, Winters, and Savage’s legal counsel, and (b) the receipt by Savage, Wheeler and Winters of the Tax Opinion from Savage’s tax counsel.
Securities Filings and Governmental Approvals. The Closing shall be conditioned upon the completion of all necessary corporate and securities filings and the obtaining of any necessary approvals from the SEC and FINRA.
Pre-Closing Agreements and Covenants
Exclusivity. During the period between the signing of the LOI and the execution and delivery of the Merger Agreement or the termination of the LOI, Savage, Premier Greens, MKRC and RJMC, Wheeler and Winters shall not directly or indirectly enter into any discussion(s), negotiation(s), letter(s) of intent, merger(s), reorganization(s), stock sale(s), asset sale(s) (other than asset sales in the ordinary, normal, and customary course of those entities’ business), other transaction(s), loan agreement(s), financing agreement(s) or arrangement(s) of any type, other capital raise(s), or other contract(s) or arrangement(s) with any third party, or any other agreement(s), contract(s) or arrangement(s) outside the ordinary course of Savage’s, Premier Greens’, MKRC’s and RJMC’s business, that would or might delay or make more costly or difficult the Closing. The Merger Agreement and the Purchase Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the Purchase Agreement and the Closing or termination of the Merger Agreement and the Purchase Agreement.
Ordinary Course of Business. During the period between the signing of the LOI and the execution and delivery of the Merger Agreement and the Purchase Agreement or the termination of the LOI, Wheeler and Winters shall use commercially reasonable efforts to operate Savage, Premier Greens, MKRC, RJMC, AAA and Remediez only in accordance with the ordinary, normal and customary course thereof consistent with past practices. The Merger Agreement and the Purchase Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the Purchase Agreement and the Closing or termination of the Merger Agreement and the Purchase Agreement.
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Acquisitions. During the period between the signing of the LOI and the execution and delivery of the Merger Agreement and the Purchase Agreement or the termination of the LOI, Nicholas S. Warrender, Gerard M. Jacobs, and William C. Jacobs shall use commercially reasonable efforts to cause us to refrain from entering into any letters of intent or definitive agreements regarding future mergers and acquisitions, excepting only those that have been mutually agreed upon by Nicholas S. Warrender, Gerard M. Jacobs, William C. Jacobs, Wheeler and Winters. The Merger Agreement and the Purchase Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the Purchase Agreement and the Closing or termination of the Merger Agreement and the Purchase Agreement.
Commercially Reasonable Efforts. The Parties shall use commercially reasonable efforts to cause the Closing to occur as soon as practicable, subject to the fulfillment of all of the conditions described above. Without limiting the generality of the foregoing, Wheeler and Winters expressly agree and covenant to use commercially reasonable efforts to cause Savage, Premier Greens, MKRC, the Other MKRC Owners, RJMC, AAA and Remediez to fully cooperate with the Closing of the Transactions.
Post-Closing Agreements and Covenants
Corporate Name and Ticker Symbol. Savage, Wheeler and Winters acknowledge that we plan to change our name to “LFTD Partners Inc.”, and that we plan to change our ticker symbol to “LFTD”, subject to all necessary approvals and securities filings. Promptly following the Closing, the Parties to the Shareholders Agreement shall mutually agree upon a new name (the “New Corporate Name”) and ticker symbol (the “New Ticker Symbol”) for us/LFTD Partners Inc. which better reflects Savage, Premier Greens, MKRC, Wheeler and Winters partnering with us/LFTD Partners Inc., and the Parties to the Shareholders Agreement shall use commercially reasonable efforts to cause our Board of Directors and shareholders to approve the New Corporate Name and the New Ticker Symbol as soon as practicable, subject to all necessary approvals and securities filings.
Operation of Savage and Premier Greens. Savage and Premier Greens shall operate as our wholly-owned subsidiaries under the Savage and Premier Greens names and using Savage’s and Premier Greens’ brand names, respectively, led by Wheeler as Savage’s and Premier Greens’ CEO and Winters as Savage’s and Premier Greens’ President and CFO.
Operation of Acquired Sales Corp. Wheeler and Winters shall serve alongside Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs on our internal Office of the President, which shall conceptualize and articulate our go-forward operational, sales, distribution, advertising, organic growth and acquisitions strategies and initiatives that will be presented to our CEO and Board of Directors for approval.
Termination of the LOI
Events of Termination. The LOI shall terminate, without any payment by or penalty due from any party; upon execution of the Merger Agreement or if:
| (a) | The Audit shall not have been completed, or the results of the Audit shall have not been accepted by us, by an outside date of March 15, 2022; |
| (b) | We have not closed the Capital Raise by an outside date of March 15, 2022; |
| (c) | The Merger Agreement and the Purchase Agreement have not been signed by March 15, 2022 (the Merger Agreement and the Purchase Agreement, if executed, shall include an outside closing date of March 15, 2022, or such other date as mutually agreed by the parties); |
| (d) | We shall have delivered written notice to Savage that we are abandoning the Transactions due to a determination that the results of the “due diligence” investigation of Savage, Premier Greens, MKRC, RJMC, AAA and Remediez are not acceptable to us; |
| (e) | Savage shall have delivered written notice to Lifted that Savage is abandoning the Transactions due to a determination that the results of the “due diligence” investigation of us and Lifted Made are not acceptable to Savage; or |
| (f) | Any material provisions of the LOI shall be adjudged by a court or the SEC to be invalid or unenforceable, and thereafter the Parties to the LOI are unable to mutually agree upon how to proceed forward with the Transactions as impacted by such court or SEC action. |
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Expenses
Except as expressly set forth in the LOI, each of the Parties shall bear its or his own fees and expenses in connection with the proposed Transactions. Without limiting the generality of the foregoing, each of the Parties to the LOI shall be solely responsible for the fees and expenses owed by it or him to any lawyers, accountants, financial advisors, investment bankers, brokers or finders employed by such party.
Source of Funds for the Proposed Savage Transactions
We anticipate that the source of funds cash component of the acquisition of Savage and its affiliates would be proceeds from future sales of Acquired Sales Corp.’s equity securities, and potentially partially from revenues from our business from our operations. Professional costs in connection with the transaction would be paid using cash on hand and from proceeds of the proposed equity raises.
Acquisition of 100% of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids)
On
February 24, 2020
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 ours, led by Nicholas S. Warrender as Lifted's CEO and also as our Vice Chairman and Chief Operating Officer.
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
Consolidated 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 Consolidated Statements of Operations, certain expense categories less than $10,000 are consolidated into the Selling, General and Administrative Expenses category.
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 and warrants.
Cash
and Cash Equivalents – Cash and cash equivalents as of June 30, 2021 and December 31, 2020 included cash on-hand.
The Company considers all highly liquid investments with an original maturity date within 90 days to be cash equivalents. 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 $
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.
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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 quoted 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.
SmplyLifted LLC, Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc. are not publicly traded, and as such their financial instruments are 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 loss history and an overall assessment of past due trade accounts
receivable outstanding. An allowance for bad debt of $
Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at June 30, 2021 and December 31, 2020:
| June 30, 2021 | December 31, 2020 | |||||||
| Raw Goods | $ | $ | ||||||
| Finished Goods | $ | $ | ||||||
| Total Inventory | $ | $ | ||||||
Monthly overhead costs such as payments for rent, utilities, insurance, and indirect labor are allocated to finished goods based on the estimated percentage cost toward the finished goods.
During
the quarter ended June 30, 2021, $
During
the quarter ended March 31, 2021, $
As described in “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement”, 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.
The following were written off as obsolete inventory during the quarter ended June 30, 2021:
| 1) | Various packaging; |
| 2) | Raw ingredients; and |
| 3) | Discontinued finished goods. |
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The process of determining obsolete inventory during the quarter involved:
| 1) | Identifying raw goods (including packaging) that would no longer be used in the manufacture of finished goods; |
| 2) | Identifying finished goods that would no longer be sold; and |
| 3) | Valuing and expensing raw and finished goods that would no longer be sold. |
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 $
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.
State Licensing Deposits – The Company is required to pay deposits for certain licenses in various states.
Investments
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 $
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.
As such, 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.
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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At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether its investments are impaired. Factors that the Company would consider indicators of impairment include: (1) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, (2) a significant adverse change in the regulatory, economic, or technological environment of the investee, (3) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, (4) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment, and (5) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. Up to the date of this report on Form 10-Q, none of the above the above factors have been applicable to the Company’s investments.
The qualitative assessments at the end of quarters one, two and three are done via conference calls with the management teams of Ablis, Bendistillery and Bend Spirits. The qualitative assessment at the end of quarter four relating to these entities also includes review of their respective financial statements that have been reviewed by a third party accounting firm. At that time, the Company performs an annual impairment assessment. The reviewed financial statements of these companies are not audited, and the Company is not active in the management of these companies, and except for these companies’ quarterly meetings with the management of the Company, 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 those reviewed financial statements.
On July 15, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during quarter ended June 30, 2021. Based upon the financial and non-financial information that was shared with Acquired Sales Corp. during that conference call, the management of Acquired Sales Corp. believes that no impairment of the value of Bendistillery, Bend Spirits or Ablis is warranted at this point in time. The information that was shared by the management of Ablis included, among other things: sales of Ablis are up from the second half of 2020 to the first half of 2021; Ablis “on premise” sales (in restaurants and bars) are improving as restaurants have re-opened; Ablis distributors are ordering again (and more frequently); and Ablis online sales in the first half of 2021 are up compared to in the first half of 2020. The information that was shared by the management of Bendistillery and Bend Spirits included, among other things: combined revenue for the first half of 2021 is down just 2.3% from the first half of 2020 (when there was lots of panic buying), but the two year annualized sales average is up 12.7%, with a five year annualized average growth of 9.1%. Also: Bendistillery is closer to the release of a new “Ready-to-Drink” beverage; Bend Spirits has new clients in the pipeline; direct-to-consumer channels are gaining traction; and Bendistillery’s sales team is making gains in key markets.
On February 17, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during calendar year 2020. Based upon the financial and non-financial information that was shared with Acquired Sales Corp. during that conference call, the management of Acquired Sales Corp. believes that no impairment of the value of Bendistillery, Bend Spirits or Ablis is warranted at this point in time. The information that was shared by the management of Ablis, Bendistillery and Bend Spirits included, among other things: a 17% increase in sales in 2020 compared to 2019 at Bendistillery, expansion of Bendistillery’s business from restaurants and bars to liquor stores, positive employee morale since none of Bendistillery’s sales team was laid off during the pandemic, new clients of Bend Spirits expected to come online in 2021, and positive sales trends during recent months at Ablis including more direct-to-consumer sales. Moreover, in Oregon, bars and restaurants opened up to 25% capacity on February 12, 2021; historically, most of Ablis’ sales have come from bars and restaurants. Also, a new 17,000 square foot building is being built at Bendistillery’s headquarters, and pasteurization, canning and packaging are expected to be brought in house once the building is operational later in 2021; by bringing pasteurization, canning and packaging in house, management expects to save manufacturing time and costs and to internalize the profits from those functions. Also, Ablis’ management finished re-branding the brand this year, has cut operational costs, is in the process of launching new functional beverages, and is in discussions with some multi-state distributors to distribute Ablis beverages.
Investment in SmplyLifted LLC
Lifted
owns 50% of SmplyLifted LLC (“SmplyLifted”). The other 50% of SmplyLifted is owned by SMPLSTC LLC and its principals,
who are located in Costa Mesa, California. Under US GAAP, the Company uses the equity method to account for its 50% membership
interest in SmplyLifted. Under the equity method of accounting, the Company records its share (50%) of SmplyLifted’s earnings
(or losses) as income (or losses) on the Consolidated Statements of Operations. The Company recorded its initial investment in
SmplyLifted, which was $
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LftdXSvg LLC
As we announced on April 27, 2021, Lifted and privately-held Savage Enterprises, Irvine, California, have partnered to create an equally-owned new entity called LftdXSvg LLC to make and sell products containing hemp-derived THCV (tetrahydrocannabivarin). Although both entities still plan to make and sell products containing hemp-derived THCV, the new entity was never funded, and the managers of LftdXSvg LLC unanimously decided to dissolve LftdXSvg LLC on June 23, 2021.
Goodwill
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers.
Goodwill is not amortized but is subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.
Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2020 on the goodwill recognized as part of the acquisition of Lifted, and determined that no impairment was necessary. Please refer to “NOTE 4 – THE COMPANY’S INVESTMENTS”, below, for more information.
Revenue
The Company recognizes revenue in accordance with ASC 606.
Revenue Recognition on the Sale of Raw Materials to Customers
Historically, the Company has sold hemp flower, hemp-derived cannabinoids and other raw materials (“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
Typically, 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 Made-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 and smoke 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.
Typically, 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. If the shipping terms on a sale are FOB destination, the revenue is deferred until the product reaches its destination.
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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 products.
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 a customer may want to return an ordered item, and how the Company responds in each situation:
| 1) | The ordered item breaks, melts, or separates in transit to the customer. In this case, the Company will replace the broken, melted or separated 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. |
| 4) | The ordered item is recalled. In a situation where product is recalled, the Company will offer a replacement, credit, or refund. |
Historically, the scenarios described above have occurred infrequently, and occurrences have been immaterial. However, during the third quarter of 2020, the Company provided many replacements, and issued refunds or credits to many customers who purchased delta-8-THC gummies that melted in transit, and delta-8-THC nano drops that had separation issues.
Disaggregation of Revenue
During the quarter ended June 30, 2021, nearly all of the Company’s sales occurred inside of the United States of America.
The Company has considered providing disaggregation of revenue by information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments, such as type of good, geographical region, market or type of customer, type of contract, contract duration, timing of transfer of goods, and sales channels. Due to the rapidly evolving nature of our industry, the Company is constantly launching new products to stay ahead of trends, finding new sales channels, initiating new distribution networks and modifying the prices of its products.
Shown below is a table showing the approximate disaggregation of historical revenue:
| February 24, 2020 (Closing on Lifted)-March 31, 2020 | % of Net Sales During February 24, 2020 (Closing on Lifted)-March 31, 2020 | February 24, 2020 (Closing on Lifted)-December 31, 2020 | % of Net Sales During February 24, 2020 (Closing on Lifted)-December 31, 2020 | For the three months ended March 31, 2021 | % of Net Sales During the three months ended March 31, 2021 | For the three months ended June 30, 2021 | % of Net Sales During the three months ended June 30, 2021 | |||||||||||||||||||||||||
| Net sales of raw materials to customers | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Net sales of products to private label clients | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Net sales of products to wholesalers | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Net sales of products to distributors | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Net sales of products to end users | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Contract Liabilities
Amounts
received from a customer before the purchased product is shipped to the customer is treated as deferred revenue. If cash is not
received, an accounts receivable is recognized, but revenue is not recognized until an order is fully shipped. The amount of
deferred revenue as of June 30, 2021 and December, 31, 2020 was $
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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, 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 stock compensation expense, selling, general and administrative expenses, bank charges and merchant fees, management bonuses, bad debt, payroll, consulting and independent contractor expenses, professional fees, advertising and marketing, depreciation and amortization, and warehouse and lab expenses.
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.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Net Income/(Loss) | $ | $ | ( | ) | Net Income/(Loss) | $ | $ | ( | ) | |||||||||
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | |||||||||||||||||
| Basic | Basic | |||||||||||||||||
| Diluted | Diluted | |||||||||||||||||
| Basic Net Income (Loss) per Common Share | $ | $ | ( | ) | Basic Net Income (Loss) per Common Share | $ | $ | ( | ) | |||||||||
| Diluted Net Income (Loss) per Common Share | $ | $ | ( | ) | Diluted Net Income (Loss) per Common Share | $ | $ | ( | ) | |||||||||
As of June 30, 2021, in addition to our outstanding common stock, we have issued (a) options to purchase shares of common stock at $2.00 per share, (b) warrants to purchase shares of common stock at $1 per share, (d) rights to purchase warrants to purchase shares of common stock at between $0.01 and $1.85 per share, (e) financing warrants to purchase shares of common stock at $0.03 per share, and (f) warrants to purchase shares of common stock at $5.00 per share.
Regarding the aforementioned rights to purchase warrants to purchase shares of common stock at between $0.01 and $1.85 per share: of these, rights to purchase warrants to purchase million shares of our common stock are not vested and are not exercisable until a performance contingency is met.
Regarding the aforementioned warrants to purchase 2,295,000 shares of our common stock at an exercise price of $5.00 per share: of the total, warrants to purchase shares of our common stock are vested, while the remaining warrants to purchase shares of our common stock are not vested and are subject to certain conditions and requirements.
| 48 |
In
comparison, at June 30, 2020, there were outstanding options and warrants to purchase shares of common stock exercisable
at between $0.001 and $5.00 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 exercisable at $0.03 per
share, (d) warrants to purchase shares of common stock at $5.00 per share, and (e) warrants to purchase shares
of common stock at $5.00 per share. As of the date of this report, 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 of the warrants exercisable
at $5.00 per share which are not yet vested and subject to certain performance contingencies. Also outstanding at June 30, 2020
was Series A Preferred Stock outstanding convertible into
shares of common stock. In addition, the Company has accepted subscriptions from four accredited investors to purchase
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 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. Because the Company does not currently have any cloud computing arrangements that include a software license, fees associated with any hosting element are expensed as incurred.
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.
On August 5, 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is effective for public business entities that meet the definition of a SEC filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The FASB noted that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
Advertising
and Marketing Expenses – Advertising costs are expensed as incurred. During the three and six months ended June
30, 2021, the Company incurred $
Compensated Absences – Paid time off (“PTO”) is provided to employees and subcontractors who 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.
| 49 |
Business Combinations and Consolidated Results of Operations and Outlook – The Company accounts for its acquisitions under ASC Topic 805, Business Combinations and Reorganizations (“ASC Topic 805”). ASC Topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. ASC Topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations. Acquisition costs are expensed as incurred.
When the Company acquires a business, we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values. We record any premium over the fair value of net assets acquired as goodwill. The allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value. We use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.
During 2020, the acquisition of Lifted added approximately $4,444 in purchased intangible assets and $22,292,767 in goodwill to the consolidated balance sheet.
| January 1, 2019 - February 24, 2020 (Acquisition Date) (1) | February 24, 2020 (Acquisition Date) - December 31, 2020 (2) | |||||||
| Net Sales | $ | $ | ||||||
| Net Earnings | $ | $ | ||||||
Shown above are Lifted’s net sales and net earnings for the following two periods:
| (1) |
| (2) |
The foregoing disclosures of net sales and net earnings during those periods solely reflects Lifted’s financial results. Prior to its acquisition of Lifted on February 24, 2020, Acquired Sales Corp. had no sources of revenue, so the acquisition of Lifted was significant for Acquired Sales Corp.
| 50 |
NOTE 2 – SELECTED QUARTERLY FINANCIAL INFORMATION
ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | For the Three Months Ended | For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||||||||
| June 30, | March 31, | December 31, | September 30, | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of Goods Sold | ||||||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||
| Stock Compensation Expense | ||||||||||||||||||||||||||||||||
| Selling, General and Administrative Expenses | ||||||||||||||||||||||||||||||||
| Bank Charges and Merchant Fees | ||||||||||||||||||||||||||||||||
| Accrual for Company-Wide Management Bonus Pool | ||||||||||||||||||||||||||||||||
| Management Bonuses Owed Under Compensation Agreement | ||||||||||||||||||||||||||||||||
| Bad Debt | ||||||||||||||||||||||||||||||||
| Payroll, Consulting and Independent Contractor Expenses | ||||||||||||||||||||||||||||||||
| Professional Fees | ||||||||||||||||||||||||||||||||
| Advertising and Marketing | ||||||||||||||||||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||||||||||||||||||
| Rent Expense | ( | ) | ||||||||||||||||||||||||||||||
| Warehouse & Lab Expenses (too small to capitalize) | ||||||||||||||||||||||||||||||||
| Income/(Loss) From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Other Income/(Expenses) | ||||||||||||||||||||||||||||||||
| Income/(Loss) From 50% membership interest in SmplyLifted LLC (FR3SH) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Income from SmplyLifted for WCJ Labor | ||||||||||||||||||||||||||||||||
| Settlement Income/Gain on Settlement | ||||||||||||||||||||||||||||||||
| Settlement Costs | ( | ) | ||||||||||||||||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividend Income | ||||||||||||||||||||||||||||||||
| Warehouse Buildout Credits | ||||||||||||||||||||||||||||||||
| Penalties | ( | ) | ||||||||||||||||||||||||||||||
| Gain on Forgiveness of Debt | ||||||||||||||||||||||||||||||||
| Refund of Merchant Account Fees | ||||||||||||||||||||||||||||||||
| Gain(Loss) on Disposal of Fixed Assets | ( | ) | ||||||||||||||||||||||||||||||
| Loss on Deposit | ( | ) | ||||||||||||||||||||||||||||||
| Interest Income | ||||||||||||||||||||||||||||||||
| Total Other Income/(Expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Income/(Loss) Before Provision for Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Provision for Income Taxes | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Net Income/(Loss) Attributable to Acquired Sales Corp. common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Earnings/(Loss) Per Common Share Attributable to Acquired Sales Corp. common shareholders: | ||||||||||||||||||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||||||||
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NOTE 3 – 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 $
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 $
NOTE 4 - RISKS AND UNCERTAINTIES
Going
Concern – The Company has a history of recurring losses which have resulted in an accumulated deficit of $
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.
The
COVID-19 pandemic and its ramifications, combined with the expenses and potential liabilities associated with litigation involving
Lifted, combined with the regulatory risks and uncertainties associated with the cannabinoid-infused products, vaping and nicotine
products industries, combined with the risks associated with internet hacking or sabotage, combined with the risks of employee
and/or independent contractor disloyalty or theft of Company information and opportunities, have created significant adverse risks
to the Company, which have caused 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
| 52 |
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 Company 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.
Concentration
of Credit Risks – During the quarter ended June 30, 2021, five customers made up approximately
During
the quarter ended December 31, 2020, four customers made up approximately
Regarding
the purchases of raw goods and finished goods (“Supplies”), during the quarter ended December 31, 2020, approximately
NOTE 5 – THE COMPANY’S INVESTMENTS
The Company’s Investments in Ablis, Bendistillery and Bend Spirits
On
April 30, 2019, the Company purchased
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.
As such, 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.
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.
| 53 |
At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether its investments are impaired. Factors that the Company would consider indicators of impairment include: (1) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, (2) a significant adverse change in the regulatory, economic, or technological environment of the investee, (3) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, (4) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment, and (5) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. Up to the date of this report on Form 10-Q, none of the above the above factors have been applicable to the Company’s investments.
The qualitative assessments at the end of quarters one, two and three are done via conference calls with the management teams of Ablis, Bendistillery and Bend Spirits. The qualitative assessment at the end of quarter four relating to these entities also includes review of their respective financial statements that have been reviewed by a third party accounting firm. At that time, the Company performs an annual impairment assessment. The reviewed financial statements of these companies are not audited, and the Company is not active in the management of these companies, and except for these companies’ quarterly meetings with the management of the Company, 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 those reviewed financial statements.
On July 15, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during quarter ended June 30, 2021. Based upon the financial and non-financial information that was shared with Acquired Sales Corp. during that conference call, the management of Acquired Sales Corp. believes that no impairment of the value of Bendistillery, Bend Spirits or Ablis is warranted at this point in time. The information that was shared by the management of Ablis included, among other things: sales of Ablis are up from the second half of 2020 to the first half of 2021; Ablis “on premise” sales (in restaurants and bars) are improving as restaurants have re-opened; Ablis distributors are ordering again (and more frequently); and Ablis online sales in the first half of 2021 are up compared to in the first half of 2020. The information that was shared by the management of Bendistillery and Bend Spirits included, among other things: combined revenue for the first half of 2021 is down just 2.3% from the first half of 2020 (when there was lots of panic buying), but the two year annualized sales average is up 12.7%, with a five year annualized average growth of 9.1%. Also: Bendistillery is closer to the release of a new “Ready-to-Drink” beverage; Bend Spirits has new clients in the pipeline; direct-to-consumer channels are gaining traction; and Bendistillery’s sales team is making gains in key markets.
On February 17, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during calendar year 2020. Based upon the financial and non-financial information that was shared with Acquired Sales Corp. during that conference call, the management of Acquired Sales Corp. believes that no impairment of the value of Bendistillery, Bend Spirits or Ablis is warranted at this point in time. The information that was shared by the management of Ablis, Bendistillery and Bend Spirits included, among other things: a 17% increase in sales in 2020 compared to 2019 at Bendistillery, expansion of Bendistillery’s business from restaurants and bars to liquor stores, positive employee morale since none of Bendistillery’s sales team was laid off during the pandemic, new clients of Bend Spirits expected to come online in 2021, and positive sales trends during recent months at Ablis including more direct-to-consumer sales. Moreover, in Oregon, bars and restaurants opened up to 25% capacity on February 12, 2021; historically, most of Ablis’ sales have come from bars and restaurants. Also, a new 17,000 square foot building is being built at Bendistillery’s headquarters, and pasteurization, canning and packaging are expected to be brought in house once the building is operational later in 2021; by bringing pasteurization, canning and packaging in house, management expects to save manufacturing time and costs and to internalize the profits from those functions. Also, Ablis’ management finished re-branding the brand this year, has cut operational costs, is in the process of launching new functional beverages, and is in discussions with some multi-state distributors to distribute Ablis beverages.
The Company’s Investment in Lifted Made
The Company performed its annual fair value assessment at December 31, 2020 on the goodwill recognized as part of the acquisition of Lifted, and determined that no impairment was necessary. The factors that led the Company to this conclusion include, among other things: continued growth in sales and profitability quarter-over-quarter, the launch of first-to-market, ground-breaking new products, the addition of more and more wholesalers and distributors nationwide, and continued positive publicity of Lifted. Lifted has also been limited in its production capacity due to the size of its facility in Zion, Illinois. With Lifted’s recent move into a much larger facility located in Kenosha, Wisconsin, Lifted should be able to produce a greater quantity of products to meet demand.
| 54 |
SmplyLifted LLC
Acquired Sales Corp. and Lifted Made and privately-held SMPLSTC, Costa Mesa, CA (www.SMPLSTCBD.com) have created an equally-owned new entity called SmplyLifted LLC, which has begun selling tobacco-free nicotine pouches in several flavors and nicotine strengths under the brand name FR3SH (www.GETFR3SH.com).
On
September 22, 2020, SmplyLifted LLC was formed. Lifted has a
NOTE 6 – PROPERTY AND EQUIPMENT, NET
Property and Equipment consist of the following:
| Asset Class | June 30, 2021 | December 31, 2020 | ||||||
| Machinery & Equipment | $ | $ | ||||||
| Leasehold Improvements - Zion | $ | $ | ||||||
| Leasehold Improvements - Kenosha | $ | $ | ||||||
| Furniture & Fixtures - Kenosha | $ | $ | ||||||
| Sub-total: | $ | $ | ||||||
| Less: accumulated depreciation | $ | ( | ) | $ | ( | ) | ||
| $ | $ | |||||||
During the first quarter of 2021, management re-evaluated the useful lives of its property and equipment and determined the useful lives per asset class to be:
| Asset Class | Estimated Useful Life | |
| Machinery & Equipment | ||
| Trade Show Booth | ||
| Leasehold Improvements | ||
| Furniture & Fixtures | ||
Depreciation
expense of $
As described in “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement”, 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.
| 55 |
NOTE 7 – NOTES RECEIVABLE
SmplyLifted LLC
At
March 31, 2021, the Company had made shortfall loans to SmplyLifted LLC totaling $
CBD Lion LLC
On
August 8, 2019, the Company made an unsecured $
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 $
This
left Lion with a net balance owed to the Company of $
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 $
| 56 |
Between
April and July 2015, the Company loaned an additional $
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 $
NOTE 8 – INTANGIBLE ASSETS, NET
www.LiftedMade.com Website
The
cost of developing Lifted’s website, www.LiftedMade.com, is being amortized over
The Lifted Made Merger
The terms of the Lifted Merger were as follows:
| • | The
Company acquired 100% of the ownership of Lifted for $ |
| • | The
Promissory Note, payable jointly by the Company and Lifted to Nicholas S. Warrender,
is in the principal amount of $ |
| • | 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, unless Nicholas S. Warrender agrees to an alternative allocation of such unvested Deferred Contingent Stock. |
| • | 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 or alternatively allocated to other employees of Lifted. |
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| • | 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 $ |
| • | 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 authorized number of directors of the Corporation was increased from seven to nine. The Corporation’s directors currently consist of eight persons following the election of a new board of directors and the subsequent resignation of Michael D. McCaffrey: Gerard M. Jacobs, JD (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead Outside Director), Joshua A. Bloom, MD, James S. Jacobs, MD, Richard E. Morrissy, Kevin J. Rocio, and Robert T. Warrender II. |
| • | 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 - Vice Chairman and Chief Operating Officer. |
Source of Funds for the Lifted Merger
The
source of funds for the $
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 Lifted is deemed to be the accounting acquiree, under the acquisition method of accounting.
The Application of Accounting Guidance to the Merger
Quoted below are the accounting standards codification guidance relating to the accounting treatment of the Company’s acquisition of Lifted as of the date of Merger, followed by the Company’s comments regarding the application of that guidance to the Merger:
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Guidance: “Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following:
1. a. The relative voting rights in the combined entity after the business combination. The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity. In determining which group of owners retains or receives the largest portion of the voting rights, an entity shall consider the existence of any unusual or special voting arrangements and options, warrants, or convertible securities.”
The
Company’s Comments:
Guidance: “2. b. The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest. The acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity.”
The Company’s Comments: The stockholders agreement entered into between Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs effectively prevents Nicholas S. Warrender from exercising any control over the combined entity that is not approved by the Company’s current management team of Gerard M. Jacobs and William C. Jacobs. This effect of the stockholders agreement suggests that the Company should be considered the accounting acquirer in the Merger.
Guidance: “3. c. The composition of the governing body of the combined entity. The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity.”
The Company’s Comments: The pre-closing directors of the Company had seven seats on the Board of Directors of the combined entity, and Nicholas S. Warrender and his nominee Kevin J. Rocio received only two seats. In addition, the stockholders agreement between Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs effectively prevents Nicholas S. Warrender from taking control over the Board of Directors of the combined entity post-closing. The foregoing analysis suggests that the Company should be considered the accounting acquirer in the Merger.
Guidance: “4. d. The composition of the senior management of the combined entity. The acquirer usually is the combining entity whose former management dominates the management of the combined entity.”
The Company’s Comments: The pre-closing officers of the Company continue to serve as the Company’s Chairman, CEO, President, CFO, Treasurer and Secretary. The only additional officer role is that of Nicholas S. Warrender, who now serves as the Company’s Vice Chairman and COO. The foregoing analysis suggests that the Company should be considered the accounting acquirer in the Merger.
Guidance: “5. e. The terms of the exchange of equity interests. The acquirer usually is the combining entity that pays a premium over the precombination fair value of the equity interests of the other combining entity or entities.”
The Company’s Comments: It is very difficult to say with any certainty whether or not the Company paid a premium over the precombination fair value of Lifted. Most of the companies in the cannabis industry are losing money and nevertheless are enjoying market capitalizations that are massively higher than the consideration that the Company paid to acquire Lifted. However, Lifted has historically been involved in the vaping and e-liquids industry, and it is unclear what discount to fair value should be attributed to that involvement. The foregoing analysis does not assist us in reaching any conclusion as to which entity should be considered the accounting acquirer in the Merger.
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Guidance: “55-13 The acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.”
The Company’s Comments: In terms of assets, prior to the closing, the Company’s cash on hand of over $4 million significantly exceeded Lifted’s assets. On the other hand, Lifted’s revenues and earnings significantly exceed the Company’s revenue and earnings. This analysis does not assist us in reaching any conclusion as to which entity should be considered the accounting acquirer in the Merger.
Guidance: “55-14 In a business combination involving more than two entities, determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities, as discussed in the preceding paragraph.”
The Company’s Comments: This consideration is not applicable as the Merger of the Company and Lifted did not involve more than two entities.
Guidance: “55-15 A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer by applying the guidance in paragraphs 805-10-55-10 through 55-14. In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration may be the acquirer.”
The Company’s Comments: This consideration is not applicable as the Company and Lifted are not structuring a business combination.
Conclusion
Based on the foregoing analysis of the facts surrounding the Company’s acquisition of Lifted, it is the Company’s position that the Company is the accounting acquirer of Lifted in the Merger, and Lifted is the accounting acquiree in the Merger, under the acquisition method of accounting.
As such, as of February 24, 2020 (the acquisition date), the Company recognized, separately from goodwill, the identifiable assets acquired and the liabilities assumed in the Merger.
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.
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Purchase Price Allocation
The following table presents the purchase price allocation:
| Consideration: | |||||
| Cash and cash equivalents | $ | ||||
| Note consideration | $ | ||||
| 3,900,455 shares of unregistered common stock of the Company valued as of January 7, 2020 (date of entering into the Agreement and Plan of Merger) | $ | ||||
| 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 | $ | ||||
| Total merger consideration | $ | ||||
| Assets acquired: | |||||
| Cash and cash equivalents | $ | ||||
| Accounts Receivable | $ | ||||
| Inventory | $ | ||||
| Loan to Shareholder | $ | ||||
| Fixed Assets | $ | ||||
| Intangible Assets | $ | ||||
| Security Deposit | $ | ||||
| Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $20,010 in 2020 and $17,336 in 2019 | $ | ||||
| Goodwill | $ | ||||
| Total assets acquired | $ | ||||
| Liabilities assumed: | |||||
| Accounts Payable and Accrued Expenses | $ | ||||
| Operating Lease Liability | $ | ||||
| Deferred Revenue | $ | ||||
| Non-Current Operating Lease Liability | $ | ||||
| Total Liabilities assumed | $ | ||||
| Net Assets Acquired: | $ | ||||
| Net Assets Acquired (Excluding Goodwill): | $ | ||||
Determination of the Fair Value of the Shares of Common Stock and Warrants Issued as Part of the Merger Consideration
The Company determined the fair value of the shares of common stock issued on February 24, 2020 as part of the Merger Consideration by multiplying the stock closing price on January 7, 2020 ($2.75) by the number of common stock shares issued (3,900,455) in the Merger. January 7, 2020 was the date of entering into the Agreement and Plan of Merger.
The Company determined the fair value of the warrants issued on February 24, 2020 as part of the Merger Consideration by using the Black-Scholes valuation model, which incorporated the following assumptions: expected future stock volatility %; risk-free interest rate of %; dividend yield of % and an expected term of years. The expected future stock volatility was based on the historical volatility of Acquired Sales Corp.’s common stock price per share. 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 vested and the contractual term of the warrant. The values of the warrants were considered part of the Merger consideration.
Allocation of Purchase Price to Goodwill
The
Company’s primary motivation for acquiring Lifted was to secure the exclusive services of Nicholas S. Warrender. Mr. Warrender
founded Lifted in 2014 with $900, and since its inception has done a masterful job staying ahead of industry trends, navigating
industry challenges and launching innovative, advanced branded products before competitors launched their branded products. Mr.
Warrender is focused and relentless, and attracts many people who like his energy and creativeness and want to do business with
him. In the Company’s opinion, Lifted’s customers do business with Lifted primarily because of Mr. Warrender; and,
at the time of the Merger, Mr. Warrender was the only full time employee handling sales for Lifted. There were no other material
identifiable intangible assets that were considered appropriate for recognition at the time of close. In a very significant sense,
Lifted is Mr. Warrender, and Mr. Warrender is Lifted. This is why the Company recognized $
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Annual Fair Value Assessment on the Goodwill Recognized as Part of the Acquisition of Lifted
The Company performed its annual fair value assessment at December 31, 2020 on the goodwill recognized as part of the acquisition of Lifted, and determined that no impairment was necessary. The factors that led the Company to this conclusion include, among other things: continued growth in sales and profitability quarter-over-quarter, the launch of first-to-market, ground-breaking new products, the addition of more and more wholesalers and distributors nationwide, and continued positive publicity of Lifted. Lifted has also been limited in its production capacity due to the size of its facility in Zion, Illinois. With Lifted’s anticipated move into a much larger facility located in Kenosha, Wisconsin, Lifted should be able to produce a greater quantity of products to meet demand.
NOTE 9 – RELATED PARTY TRANSACTIONS
Commissions Paid
Vincent J. Mesolella
Neither
Acquired Sales Corp. nor Lifted paid any commissions paid to Vincent J. Mesolella, Acquired Sales Corp.’s lead outside director,
during the quarter ended March 31, 2021. During the year ended December 31, 2020, Lifted paid Vincent J. Mesolella commissions
totaling $
Robert T. Warrender III
During
the quarter ended June 30, 2021, $
During
the quarter ended March 31, 2021, $
Shipping Costs
Lifted
shares a shipping account with a company operated by Nicholas S. Warrender’s father, Robert T. Warrender II, who is also a member
of the board of directors of Acquired Sales Corp. Lifted does this in an effort to reduce shipping costs, as the shipper gives a price
discount based on volume. Lifted reimburses Robert T. Warrender II’s company for the cost of shipping. During the quarter ended
June 30, 2021, Lifted reimbursed Robert T. Warrender II’s company $
Transactions with 95th Holdings, LLC
In Zion, Illinois, Lifted has rented 3,300 square feet of space under a lease that terminates on June 1, 2021. Lifted’s rented space in Zion, Illinois, is not adequate in light of various issues including zoning uncertainties, lack of air conditioning, and small size. Up until April 1, 2021, Lifted also temporarily used additional space located adjacent to its rented space in Zion, Illinois, and made payments in lieu of rent therefor.
On December 18, 2020, Lifted as tenant entered into a Lease Agreement (the “Lease) with 95th Holdings, LLC (“Landlord”) for office, laboratory and warehouse space in a building located at 5511 95th Avenue, in the City of Kenosha, State of Wisconsin (the “Premises”). The lease commencement date was January 1, 2021, and lease termination date is January 1, 2026.
Lifted constructed improvements including a clean room, and gradually moved into the Kenosha Premises over the course of the first quarter of 2021. Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately 11,238 square feet at the Premises at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which is subject to a 2% increase in base rent each year, plus certain operating expenses and taxes. The Lease will continue until midnight on the fifth anniversary date of the commencement date of the Lease. Lifted shall have the right to extend the original five year term of the Lease for one extension period of two years, commencing upon the expiration of the original term. Lifted and Landlord are required to execute an “Amendment of Extension” prior to six months before the expiration of the original term.
Under the terms of the lease, the tenant, Lifted, has the option to purchase the property at any time prior to December 31, 2025, and in any event, Lifted is obligated to purchase the property on or before that date. Pursuant to the Lease, in all cases Lifted’s purchase price for the Premises shall be in an amount equal to the greater of: (1) the fair market value of the Premises at the time Lifted purchases the Premises; or (2) any remaining principal balance of any purchase-money mortgage for the Premises existing at the time of the closing of Lifted’s purchase, plus the corresponding amount identified in the Additional Purchase Price Schedule attached as Exhibit B to the Lease, which is an additional amount ranging between $300,000 and $375,000 based on the number of years that have passed between the commencement of the Lease and the purchase of the Premises by Lifted.
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Landlord is an entity owned by Nicholas S. Warrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as beneficial owner of 3,900,455 common stock shares. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, Mr. Warrender is able to benefit through his entity 95th Holdings, LLC by receiving rent and by eventually selling the Premises to Lifted.
During
the quarter ended June 30, 2021, Lifted paid $
Transaction with SmplyLifted LLC
On
February 2, 2021, Lifted owed SmplyLifted $
Amounts Owed to Related Parties
Amounts Owed to Lifted
On
a quarterly basis, SmplyLifted LLC reimburses Lifted for William C. Jacobs’ time as the Chief Financial Officer at William
C. Jacobs’ hourly rate. As of June 30, 2021, SmplyLifted LLC owed $
Amounts Owed to SmplyLifted LLC
As
of March 31, 2021, Lifted owed SmplyLifted $
Amounts Owed to Gerard M. Jacobs
Due
to the COVID-19 pandemic and for other reasons, the Company was not in a position to pay Gerard M. Jacobs, CEO, the $
On April 29, 2021, the Company paid Gerard M. Jacobs a portion ($50,000) of the bonus payable to Gerard M. Jacobs in regard to the closing of the acquisition of Lifted.
As
of June 30, 2021, there was total interest of $
At December 31, 2020, there was a management bonus payable of $250,000 owed to the Company's CEO Gerard M. Jacobs; there were no other payables owed to Gerard M. Jacobs.
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Amounts Owed to William C. “Jake” Jacobs
Due
to the COVID-19 pandemic and for other reasons, the Company was not in a position to pay William C. “Jake” Jacobs,
President and CFO, the $
As
of June 30, 2021, there was total interest of $
At
March 31, 2021, $
At December 31, 2020, there was a management bonus payable of $100,000 owed by Acquired Sales Corp. to William C. “Jake” Jacobs. William C. Jacobs is the son of Gerard M. Jacobs, Chief Executive Officer of Acquired Sales Corp., and the nephew of director James S. Jacobs. Also at December 31, 2020, there was $12 in expense reimbursements owed by SmplyLifted LLC to William C. “Jake” Jacobs.
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) $
As
such, as of June 30, 2021, in addition to the Promissory Note of $3,750,000 owed to Nicholas S. Warrender, there was also related
interest payable of $101,301 owed to Nicholas S. Warrender. In comparison, as of December 31, 2020, in addition to the Promissory Note of $
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 did not use 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 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.
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Transactions with Related Parties
Transactions with Corner Vapory
Nicholas S. Warrender is a 50% owner in Corner Vapory, a vape shop, located in Kenosha, Wisconsin.
During
the quarter ended June 30, 2021, Corner Vapory purchased $
In
comparison, during the year ended December 31, 2020, Corner Vapory purchased $
Transactions with Canna Vita
Nicholas S. Warrender is a 50% owner in Canna Vita, a CBD shop, located in Kenosha, Wisconsin.
During
the quarter ended June 30, 2021, Canna Vita purchased $
Transactions with Squeez Juice Bar
Squeez Juice Bar, located in Kenosha, Wisconsin, subleases space from Corner Vapory (a vape shop; 50% of which is owned by Nicholas S. Warrender; discussed above) and pays Corner Vapory a percentage of Squeez Juice Bar’s monthly revenue. Squeez Juice Bar sells certain of Lifted’s products; along with many other brands’ hemp-derived products. Lifted provides Squeez Juice Bar with distributor pricing, similar to many other individual shops that are customers of Lifted.
During
the quarter ended June 30, 2021, Squeez Juice Bar purchased $
In
comparison, during the quarter ended March 31, 2021, Squeez Juice Bar purchased $
Transactions with Liquid Event Marketing
Liquid
Event Marketing is a company owned by Lifted’s
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:
As
of December 31, 2018, a total of $
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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 $
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 %; risk-free interest rates of % and %, respectively; dividend yield of % and an expected terms of
years and 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 $
On
January 7, 2019, Gerard M. Jacobs loaned to the Company $
On
January 21, 2019, Gerard M. Jacobs loaned to the Company $
On
February 6, 2019, Gerard M. Jacobs loaned to the Company $
On
March 13, 2019, all of these borrowings and the related interest payable to Joshua A. Bloom and Gerard M. Jacobs was repaid. In
total, $
NOTE 10 – 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 $
NOTE 11 – SHAREHOLDERS’ EQUITY
Stock Buy-back Transactions with a Non-Affiliate Stockholder
On
November 24, 2020, Acquired Sales Corp. purchased shares of common stock of the Company from a non-affiliate stockholder
in a private transaction for $ per share for a total of $
On
January 8, 2021, Acquired Sales Corp. purchased shares of common stock of the Company from a non-affiliate stockholder
in a private transaction for $per share for a total of $
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Cancellation
of Shares of Common Stock – Several
years ago, pursuant to a fully signed settlement agreement (the "Settlement Agreement"), the Company purchased for $
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 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 shares (the "690,796 Shares").
At
the closing of the Purchase, the Company paid $
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
Issuance
of Series A Convertible Preferred Stock – The Company has
authorized 400,000 shares of its Series A Convertible Preferred Stock.
Between
February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase shares of
newly issued Series A Convertible Preferred Stock for an aggregate purchase price of $
On August 2, 2019, the Company filed a Form S-1 Registration Statement covering the shares of newly issued common stock of the Company into which the Series A Convertible Preferred Stock can be converted. The Registration Statement, which has been amended five times, has not yet been approved by the SEC.
As
of June 30, 2021 and December 31, 2020, the Company has accrued a liability of $
Issuance
of Series B Convertible Preferred Stock – The Company has
authorized 5,000,000 shares of its Series B 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 $
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On August 2, 2019, the Company filed a Form S-1 Registration Statement covering the shares of newly issued common stock of the Company into which the Series B Convertible Preferred Stock can be converted. The Registration Statement, which has been amended five times, has not yet been approved by the SEC.
As of June 30, 2021 and December 31, 2020, the Company
has accrued a liability of $
Share-Based Compensation – During the year ended December 31, 2020, the Company recognized $ in share-based compensation related to the issuance of warrants to Gerard M. Jacobs. The Company also recognized $ in share-based compensation related to the issuance of warrants to William C. “Jake” Jacobs. These warrants were issued to Gerard M. Jacobs and William C. “Jake” Jacobs pursuant to the June 19, 2019 Compensation Agreement, which authorized the issuance of certain warrants to Gerard M. Jacobs and William C. “Jake” Jacobs 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 Gerard M. Jacobs the right to purchase 250,000 shares of common stock of AQSP exercisable at $5.00 per share. The five-year warrants give William C. “Jake” Jacobs 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%.
| Weighted-Average | Aggregate | |||||||||||||||
| Weighted-Average | Remaining Contractual | Intrinsic | ||||||||||||||
| Shares | Exercise Price | Term (Years) | Value | |||||||||||||
| Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, April 1, 2021 | $ | $ | ||||||||||||||
| Warrants Exercised During Q2 2021 | ||||||||||||||||
| Warrants Forfeited During Q2 2021 | ||||||||||||||||
| Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, June 30, 2021 | $ | $ | ||||||||||||||
| Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, June 30, 2021 | $ | $ | ||||||||||||||
Upon
the execution of Gerard M. Jacobs’ employment agreement 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 on November 4, 2020
and September 29, 2021 were extended so that all of such stock options may be exercised by Gerard M. Jacobs at any time on or
before
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Share-Based Compensation in 2019
During
the year ended December 31, 2019, we issued warrants to purchase a total of
NOTE 12 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Operating and Finance Lease Right-of-Use Assets – 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 a 11,238 square
foot facility located in Kenosha, Wisconsin. Lifted started leasing this facility on January 1, 2021, and the lease terminates
on January 1, 2026. The Kenosha facility is owned by an entity controlled by Nicholas S. Warrender. As the Company's lease does
not provide an implicit rate, the Company used the same incremental borrowing rate used by the purchaser of the building in determining
the present value of lease payments. The discount rate used in the computations was
Lifted also leases, on a month-to-month basis, a 3,300 square foot facility in Zion, Illinois, where Lifted has rented 3,300 square feet of space. The original lease to this space terminated on June 1, 2021. Lifted has given notice to the landlord of the facility in Zion, Illinois, that Lifted will be terminating the month-to-month lease on July 31, 2021. This lease is accounted for as an operating lease.
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 | June 30, 2021 | |||||
| Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $43,356 in 2021 | Non-Current Assets | $ | |||||
| Liability | Balance Sheet Line | June 30, 2021 | |||||
| Current Operating Lease Liability | Current Liabilities | $ | |||||
Balance Sheet Classification of Finance Lease Assets and Liabilities
| Asset | Balance Sheet Line | June 30, 2021 | |||||
| Finance Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $24,673 in 2021 | Non-Current Assets | $ | |||||
| Liability | Balance Sheet Line | June 30, 2021 | |||||
| Current Finance Lease Liability and | Current Liabilities | $ | |||||
| Non-Current Finance Lease Liability | Non-Current Liabilities | $ | |||||
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Lease Costs
The table below summarizes the components of lease costs for the following periods:
| Three Months June 30, 2021 | Six Months June 30, 2021 | Year Ended December 31, 2020 | ||||||||||
| Lease Cost: | ||||||||||||
| Amortization of Right-of-Use Assets | $ | $ | $ | |||||||||
| Interest on lease liabilities | ||||||||||||
| Operating Lease Expense | ||||||||||||
| Total | $ | $ | $ | |||||||||
As described in Note 3, a portion of monthly overhead costs such as this lease expense are allocated to finished goods.
Future maturities of Finance and Operating lease liabilities as of June 30, 2021 are as follows:
| Maturities Analysis as of June 30, 2021: | Finance | Operating | |||||||
| 2021 | $ | $ | |||||||
| 2022 | |||||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2035 | |||||||||
| Thereafter | |||||||||
| Total | $ | $ | |||||||
| Less: Present value discount | ( | ) | |||||||
| Lease Liability | $ | $ | |||||||
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
Previously,
on April 30, 2019, the Company issued warrants to purchase
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
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.
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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.
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, as amended, 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 $ |
| (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 $ |
| (3) | Upon demand by Gerard M. Jacobs and William C. Jacobs on or after January 1, 2021, 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 $ |
| (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 |
Commissions on Sales
Lifted has agreed to pay up to 7% commissions to certain individuals, some of whom are affiliated with the Company and some of whom are relatives of affiliates of the Company, in connection with certain sales of Lifted’s products. Commissions are based upon the total purchase prices paid by the referrers’ customers, excluding shipping costs and any governmentally imposed taxes and fees, all of which must be paid by the referrers’ customers. Some of these agreements extend through December 31, 2040, and one extends through December 31, 2025. Commissions are paid on each purchase order of Lifted products received from and paid for by the referrers’ customers. In the Consolidated Statements of Operations, these commissions are included in the “Payroll, Consulting and Independent Contractor” totals.
As
mentioned in NOTE 9 – RELATED PARTY TRANSACTIONS, during the quarter ended June 30, 2021, $
As
mentioned in NOTE 9 – RELATED PARTY TRANSACTIONS, during the twelve months ended December 31, 2020, $
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NOTE 13 – 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 currently is involved in one pending lawsuit, as the plaintiff:
| (1) | Lifted
Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe –
The Company has filed an action in a case styled “Lifted Liquids, Inc. v Girish
GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe” seeking to recover $ |
Lifted currently is involved in one pending lawsuit, as the defendant:
| (1) | 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 $ |
During 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following four 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). |
| (3) | 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) |
| (4) | 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) |
As
a result of the settlement agreements, the Company incurred aggregate settlement costs of $
NOTE 14 – COMPANY-WIDE MANAGEMENT BONUS POOL
Pursuant to the employment agreements entered into between the Company and its three principal executives Gerard M. Jacobs, William C. “Jake” Jacobs, and Nicholas S. Warrender (individually, “Executive”), the Company is obligated to compensate management of the Company via a management bonus pool.
For each fiscal year during the Employment Term, the Executive shall be eligible to be considered for an annual bonus (the "Annual Bonus") as part of a Company-wide management bonus pool arrangement. During the fourth quarter of each year, the Chairman of the Compensation Committee of the Board (the "Compensation Committee") shall recommend in writing a consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") target (each, a "Target") for the following year (the "Target Year"), which Target must be approved in writing by each of the following for as long as he remains employed by the Company: Gerard M. Jacobs, William C. Jacobs, and Nicholas S. Warrender (collectively, and with respect to each for only as long as he is an employee of the Company, the "Executive Management Group"). If the Chairman of the Compensation Committee does not recommend in writing a Target for a Target Year that is approved in writing by all of the members of the Executive Management Group prior to the commencement of the Target Year, then the Target for the Target Year shall be equal to the actual consolidated EBITDA of the Company and its subsidiaries during the then-current year (i.e., the year preceding the Target Year) as certified in writing by the Company's outside firm of independent certified public accountants. If the actual consolidated EBITDA of the Company and its subsidiaries during the Target Year as certified in writing by the Company's outside firm of independent certified public accountants exceeds the Target (the amount by which the actual consolidated EBITDA of the Company and its subsidiaries during the Target Year as certified in writing by the Company's outside firm of independent certified public accountants exceeds the Target, the "Excess Amount"), then cash equal to 33% of the Excess Amount shall be set aside by the Company as a cash management bonus pool (the "Bonus Pool"), and the amount of the Bonus Pool shall be allocated and paid out by the Company as bonuses or fees to the officers of the Company and its subsidiaries (and potentially, to directors or third parties who have significantly helped the Company and its subsidiaries during the Target Year), with the amount to be paid to each payee, including the amount of any Annual Bonus to be paid to the Executive, to be determined by unanimous written agreement of the Executive Management Group, in their sole discretion. The Executive expressly agrees and acknowledges that the amount of the Annual Bonus (if any) allocated and paid to the Executive as so determined by unanimous written agreement of the Executive Management Group shall be final, non-appealable, and binding upon the Executive, regardless of whether the Executive receives any Annual Bonus, and regardless of whether any Annual Bonus received by the Executive is higher or lower than any other person's bonus, under any and all circumstances whatsoever. The Company shall pay the Executive the Annual Bonus, if any, no later than March 15th of the year following the applicable Target Year.) In the event that there is funding for the Bonus Pool but the Executive Management Group does not reach a unanimous decision on Bonus allocations, then no annual bonus shall be paid. The Annual Bonus Pool would then be placed in escrow and the Executive Management Group would mediate.
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During
the quarter ended June 30, 2021, the Company accrued $
As
of June 30, 2021, the total accrual for the Annual Bonus was $
NOTE 15 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through August 13, 2021, which is the date through which the financial statements were available to be issued.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Form 10-Q, references to the “Company,” “Acquired Sales,” “AQSP,” “we,” “our” or “us” refer to Acquired Sales Corp. and Lifted, unless the context otherwise indicates.
IMPACTS OF COVID-19
LIKE MANY BUSINESSES IN THE UNITED STATES TODAY, ACQUIRED SALES CORP. (SOMETIMES “AQSP” OR “ACQUIRED SALES”) AND ITS WHOLLY OWNED SUBSIDIARY LIFTED LIQUIDS, INC. D/B/A LIFTED MADE (SOMETIMES “LIFTED” OR “LIFTED MADE”) ARE FACING AN UNPRECEDENTED AND HIGHLY RISKY BUSINESS ENVIRONMENT AND UNCERTAIN FUTURE CAUSED BY THE CORONAVIRUS KNOWN AS COVID-19 AND ITS VARIANTS (“COVID-19”).
THE IMPACTS OF COVID-19 ON ACQUIRED SALES CORP., ON 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 MADE’S EMPLOYEES FROM PERFORMING THEIR WORK FOR LIFTED MADE 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 |
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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 SIGNIFICANTLY DISRUPTED ACQUIRED SALES CORP. AND LIFTED MADE DURING 2020. AMONG OTHER THINGS, VARIOUS FEDERAL, STATE AND LOCAL EXECUTIVE ORDERS SIGNIFICANTLY DISRUPTED DISTRIBUTION CHANNELS IN THE CANNABINOID INDUSTRY DURING 2020. WHILE LIFTED MADE’S DISTRIBUTION CHANNELS PERFORMED BETTER DURING THE THIRD AND FOURTH QUARTERS OF 2020, AND DURING THE FIRST AND SECOND QUARTERS OF 2021, COMPARED TO DURING THE FIRST AND SECOND QUARTERS OF 2020, NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW LIFTED MADE’S DISTRIBUTION CHANNELS WILL PERFORM DURING THE REMAINDER OF 2021. CERTAIN DISTRIBUTORS, RETAILERS AND CONSUMERS IN THE CANNABINOID AND VAPE INDUSTRIES APPEAR TO BE FINANCIALLY DISTRESSED, AND THE TERMS AND CONDITIONS ASSOCIATED WITH CERTAIN DISTRIBUTORS’ AND RETAILERS’ PURCHASES AND PAYMENTS FOR LIFTED MADE’S PRODUCTS HAVE BEEN MATERIALLY ADVERSELY IMPACTED.
WHILE DISTRIBUTION OF CERTAIN VACCINES IN REGARD TO COVID-19 HAS BEGUN, NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO WHAT IMPACT THESE VACCINES WILL HAVE. IN PARTICULAR, NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW “FUTURE WAVES” OF COVID-19, AND HOW EMERGING/MUTATED VARIANTS OF THE COVID-19 VIRUS, WILL PLAY OUT AND IMPACT ACQUIRED SALES CORP., LIFTED MADE, LIFTED MADE'S OFFICERS, EMPLOYEES AND INDEPENDENT CONTRACTORS, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME, OR THE PRICE OF OUR COMMON STOCK.
DURING THE SECOND AND THIRD QUARTERS OF 2020, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES WERE 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”) AND UPON THE RECEIPT BY LIFTED MADE OF $10,000 GRANTED TO IT BY THE SBA UNDER THE SBA’S ECONOMIC INJURY DISASTER LOAN PROGRAM. SUCH RE-SALES OF HAND SANITIZER ARE NOT EXPECTED TO CONTINUE IN THE FUTURE. CONSEQUENTLY, LIFTED MADE’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED MADE AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.
DURING THE THIRD AND FOURTH QUARTERS OF 2020, AND DURING THE FIRST AND SECOND QUARTERS OF 2021, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES WERE SIGNIFICANTLY DEPENDENT UPON THE SALE OF HEMP-DERIVED DELTA-8-THC PRODUCTS. U.S. FEDERAL, STATE AND LOCAL GOVERNMENTS AND AGENCIES MAY IMPOSE LAWS, RULES, REGULATIONS AND EXECUTIVE ORDERS THAT EFFECTIVELY PROHIBIT LIFTED MADE FROM SELLING DELTA-8-THC PRODUCTS. CONSEQUENTLY, LIFTED MADE’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED MADE AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.
NOTWITHSTANDING THE FOREGOING DESCRIBED RISKS, AS DISTRIBUTION CHANNELS IN THE CANNABINOID INDUSTRY HAVE PERFORMED BETTER, AND AS LIFTED MADE’S SALES OF DELTA-8-THC PRODUCTS HAVE ACCELERATED DURING THE THIRD AND FOURTH QUARTERS OF 2020 AND THE FIRST AND SECOND QUARTERS OF 2021 , COMPARED TO DURING THE FIRST AND SECOND QUARTERS OF 2020, THE CONSOLIDATED CASH ON HAND OF ACQUIRED SALES CORP. AND LIFTED MADE HAS IMPROVED SIGNIFICANTLY AND AS OF AUGUST 6, 2021, WAS A TOTAL OF $3,305,068. TO DATE, LIFTED MADE HAS ALSO INVESTED CASH OF $587,500 INTO A COMPANY CALLED SMPLYLIFTED LLC, WHICH SMPLYLIFTED LLC HAS PRIMARLY USED TO PURCHASE INVENTORY CONSISTING OF TOBACCO-FREE NICOTINE POUCHES. LIFTED MAY INVEST ADDITIONAL CASH INTO SMPLYLIFTED LLC, ALSO TO BE USED TO PRIMARILY PURCHASE INVENTORY OF TOBACCO-FREE NICOTINE POUCHES. LIFTED MADE HAS A 50% MEMBERSHIP INTEREST IN SMPLYLIFTED LLC. LIFTED MADE MAY ALSO INVEST CASH INTO OTHER COMPANIES.
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Material Damage to Lifted's Business Resulting From the Ongoing COVID-19 Pandemic:
The COVID-19 pandemic and its ramifications, including Illinois Governor Pritzker's Executive Order in response to the pandemic, have materially damaged Lifted's business, among other things by disrupting Lifted's access to its employees, suppliers, packaging, distributors and customers. That is why Lifted applied for and received funding under the federal Economic Injury Disaster Loan program and the federal Paycheck Protection Program (collectively the "Federal Financial Assistance").
Expectations to Continue as a Going Concern:
Notwithstanding the material damage to our business described above, the management of Lifted currently expects Lifted to continue as a going concern during the 12 months following the date of this report, for the following reasons:
| • | Lifted’s sales over the past few quarters has significantly increased Lifted's liquidity. As of August 6, 2021, the consolidated cash on hand of Acquired Sales Corp. and Lifted Made was a total of $3,305,068, which is significant. To date, Lifted has also invested cash of $587,500 into a company called SmplyLifted LLC, which SmplyLifted LLC has used to purchase inventory of tobacco-free nicotine pouches. Lifted expects to invest additional cash into SmplyLifted LLC, also to be primarily used to purchase inventory of tobacco-free nicotine pouches. Lifted has a 50% membership interest in SmplyLifted LLC. |
| • | As of today, Lifted’s current assets significantly outweigh Lifted's current liabilities. However, we do owe a total of $300,000 in management bonuses to Gerard M. Jacobs, Acquired Sales Corp.’s CEO, and to William C. “Jake” Jacobs, Acquired Sales Corp.’s President and CFO, which management bonuses are payable upon demand. We currently do not have the money to pay these bonuses without adversely impacting Lifted’s working capital. At any time on or after January 1, 2021, Gerard M. Jacobs and William C. “Jake” Jacobs also have the right to demand payment of a total of an additional $350,000 in management bonuses (for a total of $650,000 in management bonuses), plus accrued interest at 2% annually commencing January 1, 2021, and we currently do not have the money to pay these bonuses either without adversely impacting Lifted’s working capital. Gerard M. Jacobs and William C. “Jake” Jacobs are entitled to these bonuses and could demand payment of them at any time. |
| • | When Lifted's core business of manufacturing, packaging, selling and distributing cannabinoid-infused products was materially damaged by the COVID-19 pandemic and its ramifications, Lifted diverted a significant portion of its available human and financial capital toward a new line of business selling, re-selling, brokering and distributing hand sanitizer. This hand sanitizer business was significant for Lifted during the second and third quarters of 2020. However, the national supply of hand sanitizer has increased, and this business is not expected to be significant for Lifted going forward. |
| • | During the third and fourth quarters of 2020 and during the first and second quarters of 2021, the demand by distributors for Lifted’s Urb Finest Flowers (“Urb”) brand of hemp and hemp-derived products has gradually increased. However, other companies may attempt to copy the Urb brand's innovative and colorful packaging and products and thus create more competition against Lifted's Urb products, over time. |
| • | Lifted has commenced selling hemp-derived delta-8-THC and delta-10-THC cartridges, gummies, chocolate, dabs, caviar cones, saucy dmnds, delta-8-THC-infused flower, and disposable delta-8-THC vapes. During the third and fourth quarters of 2020 and the first and second quarters of 2021, Lifted’s sales of hemp-derived delta-8-THC products has accelerated, and has become a very significant percentage of Lifted’s business. However, the competition against Lifted’s hemp-derived delta-8-THC and delta-10-THC products is increasing, and pricing is under pressure. In addition, hemp-derived delta-8-THC products may be illegal in certain states, and additional federal, state and/or local prohibitions or restrictions may be imposed on hemp-derived delta-8-THC products. In particular, a recent DEA statement has been interpreted by some as prohibiting the sale of certain hemp-derived delta-8-THC products. Any inability to sell hemp-derived delta-8-THC products would have a material adverse impact on Lifted’s business and on the trading price of Acquired Sales Corp.’s common stock. |
| • | Lifted is involved in the distribution of disposable e-cigarettes containing synthetic nicotine, and Lifted owns 50% of SmplyLifted LLC, which sells tobacco-free nicotine pouches. Tobacco-based nicotine products and non-tobacco based nicotine products are subject to extensive regulations and in some cases are subject to federal, state and/or local prohibitions or restrictions. |
| • | Lifted is taking proactive steps to attempt to gain brand awareness and drive more direct-to-consumer sales online. Lifted has used public relations firms to assist with Lifted’s public relations efforts. Lifted has also hired a firm specializing in SEO to assist with Lifted’s organic search engine rankings. However, Lifted has also experienced outages of its website, which may be due hacking and/or sabotage, which has hurt Lifted’s online sales and presumably has also negatively impacted Lifted’s perception with certain consumers. In addition, the recently amended federal PACT act may make the online sale of certain of Lifted’s products difficult or impossible. |
| • | Some of the products that Lifted sells or re-sells are manufactured by third parties who, in certain instances, have experienced significant challenges in manufacturing high quality products. This has negatively impacted Lifted’s perception with certain distributors, retailers and consumers. |
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Lifted plans to take actions to continue as a going concern, if necessary:
If the COVID-19 pandemic and its ramifications, or if other events and circumstances adverse to Lifted's business, challenge Lifted’s ability to continue as a going concern within one year after the date that AQSP’s consolidated financial statements are issued, then we would plan to sustain Lifted as a going concern by taking one or more of the following actions:
| • | causing Lifted’s parent company AQSP to complete private placements of AQSP's common stock and/or preferred stock |
| • | borrowing from banks and/or private investors |
| • | acquiring and/or developing profitable businesses that will create positive income from operations |
| • | causing Lifted’s parent company AQSP to accrue rather than pay dividends on AQSP's outstanding preferred stock |
| • | selling the 4.99% of the ownership of Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc. that is owned by Acquired Sales Corp. |
We believe that by taking some combination of these actions, Lifted should be able to be provided with sufficient capital, future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees that Lifted will be successful in consummating such actions on acceptable terms, if at all, and that is why in AQSP's filings with the SEC we are careful to include a "going concern" risk.
ITEM 1. STATEMENTS
Prior to the acquisition of Lifted on February 24, 2020, Acquired Sales Corp. had no sources of revenue, and Acquired Sales Corp. had a history of recurring losses, which has resulted in an accumulated deficit of $14,989,850 as of June 30, 2021. Acquired Sales Corp. has Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year, and the Company is obligated to pay management bonuses that it does not currently have sufficient money to pay. These matters raise substantial doubt about our ability to continue as a going concern.
This Management’s Discussion and Analysis (“MD&A”) section discusses our results of operations, liquidity and financial condition and certain factors that may affect our future results. You should read this MD&A in conjunction with our financial statements and accompanying notes included elsewhere in this report.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this annual report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 31, 2021. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Certain information included herein contains statements that may be considered forward-looking statements, such as statements relating to our anticipated revenues and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include the “Risk Factors” included herein and in our annual report on Form 10-K filed with the SEC on March 30, 2020, that can be read at www.sec.gov.
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Overview
Please refer to “NOTE 1 – DESCRIPTION OF THE BUSINESS OF ACQUIRED SALES CORP.” for information.
Liquidity and Capital Resources
The following table summarizes our current assets, current liabilities and working capital as of June 30, 2021 and December 31, 2020, as well as cash flows for the six months ended June 30, 2021 and 2020.
| June 30, 2021 | December 31, 2020 | |||||||
| Current Assets | $ | 7,217,810 | $ | 3,264,777 | ||||
| Current Liabilities | 4,445,905 | 2,308,722 | ||||||
| Working Capital | 2,825,905 | 956,055 | ||||||
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net Cash Provided by (Used in) Operating Activities | $ | 2,340,725 | $ | (740,074 | ) | |||
| Net Cash Used in Investing Activities | $ | (306,175 | ) | $ | (3,085,225 | ) | ||
| Net Cash Used in Financing Activities | $ | (244,573 | ) | $ | (48,827 | ) | ||
Comparison of June 30, 2021 to June 30, 2020
At June 30, 2021, we had consolidated cash and cash equivalents of $2,229,056. In comparison, at June 30, 2020, we had consolidated cash and cash equivalents of $510,803.
Consolidated current assets of $7,271,810 at June 30, 2021 primarily consisted of cash and cash equivalents of $2,229,056, net accounts receivable of $1,780,058, prepaid expenses of $1,679,042, and inventory of $1,194,032. The consolidated current assets are adequate to fund current operations and to fulfill corporate obligations or to fund growth and potential acquisitions. In comparison, consolidated current assets of $1,531,004 at June 30, 2020 consisted of cash and cash equivalents of $510,803, prepaid expenses for professional fees of $2,083, interest receivable of $838, note receivable from CBD Lion of $122,546, net accounts receivable of $394,697, and inventory of $500,037. We believe that the consolidated current assets are adequate to fund current operations and to fulfill corporate obligations.
Consolidated current liabilities as of June 30, 2021 of $4,445,905 primarily consisted of accounts payable and accrued expenses of $1,732,668, the company-wide management bonus pool of $1,159,335, deferred revenue of $1,114,922, $300,000 in accrued management bonuses payable to Gerard M. Jacobs and William C. Jacobs, total interest payable of $108,074 payable to Gerard M. Jacobs, William C. Jacobs and Nicholas S. Warrender, and dividends payable of $4,751 to the Series A Convertible Preferred Stock holders, and dividends payable of $4,750 payable to the Series B Convertible Preferred Stock holders.
In comparison, consolidated current liabilities as of June 30, 2020 totaled $834,261. At June 30, 2020, primarily driving the current liabilities was $350,000 in accrued management bonuses payable to GJacobs and WJacobs, dividends payable of $45,521 to the Series A Convertible Preferred Stock holders, dividends payable of $13,221 payable to the Series B Convertible Preferred Stock holders, interest of $26,301 payable to Nicholas S. Warrender, and deferred revenue of $79,380.
Comparison of the three and six months ended June 30, 2021 to June 30, 2020
During the three and six months ended June 30, 2021, Lifted recognized net sales of $6,695,144 and $10,048,414, respectively. In comparison, during the three and six months ended June 30, 2020, Lifted recognized net sales of $1,267,942 and $1,638,367, respectively.
Lifted recognized a company-wide management bonus pool expense of $816,388 and $1,159,335 for the three months and six months ended June 30, 2021, respectively.
Lifted recognized $0 and $1,393,648 in stock compensation expense during the six months ended June 30, 2021 and June 30, 2020, respectively. Of the $1,393,648 in stock compensation recognized during the six months ended June 30, 2020, $733,499 came from the issuance of warrants to GJacobs. The Company also recognized $660,149 in stock compensation expense 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.
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Also during the three months ended March 31, 2020, AQSP recognized a total of $350,000 in management bonus expense. Pursuant to GJacobs’ and WJacobs’ employment agreements, GJacobs and WJacobs were to be paid $250,000 and $100,000, respectively, upon the closing of AQSP’s acquisition of Lifted. These management bonuses are accrued for on the balance sheet as of March 31, 2020, and still today, AQSP has not yet paid $300,000 of these bonuses. These bonuses are payable upon demand. Also, Lifted applied for and received a $10,000 loan advance under the EIDL (“EIDL Advance”) on April 20, 2020. Lifted recognized a $10,000 gain on the forgiveness of this EIDL Advance on April 21, 2020. During the three months ended June 30, 2020, Lifted was refunded $34,429 of merchant account fees, and the Illinois Department of Revenue refunded Lifted $43,817 of sales tax.
During the three months ended June 30, 2021, approximately 95% of sales were generated from the sale of hemp and hemp-derived products, and 5% of sales were generated from the sale of e-liquid and disposable e-cigarettes.
During the three months ended June 30, 2020, approximately 49% of sales were generated from the sale of e-liquid and disposable e-cigarettes, 47% of sales were generated from the sale of hand sanitizer, and 4% of sales were generated from the sale of hemp and hemp-derived products. During the period February 24, 2020 (date of the Merger) through June 30, 2020, approximately 53% of sales were generated from the sale of e-liquid and disposable e-cigarettes, 37% of sales were generated from the sale of hand sanitizer, and 10% of sales were generated from the sale of hemp and hemp-derived products.
During the six months ended June 30, 2021, net cash of $2,340,725 was provided by operating activities. Cash was used for primarily for prepaid expenses, inventory, and payroll. During the same period, $306,175 net cash was used in investing activities, the majority of which was used to purchase fixed assets. Also, during the six months ended June 30, 2021, $244,573 net cash was used in financing activities, primarily to make dividend payments of $199,186 and $5,844 to holders of the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, respectively; also, $34,200 was used to purchase shares 36,000 shares of common stock, which are now held in treasury.
In comparison, during the six months ended June 30, 2020, net cash of $740,074 was used in operating activities, primarily for payroll and the purchase of inventory. During the same period, $3,085,225 net cash was used in investing activities, the majority of which was cash paid as part of the Lifted acquisition, and remainder used to purchase fixed assets. Also, during the six months ended June 30, 2020, $48,827 net cash was used in financing activities, which consisted of $149,623 of proceeds from the PPP Loan offset by $198,450 in payments of dividends to holders of the Series A Convertible Preferred Stock.
During the six months ended June 30, 2021, cash increased by $1,789,976, and we had $2,229,056 in unrestricted cash at June 30, 2020. In comparison, during the six months ended June 30, 2020, cash decreased by $3,874,126, and we had $510,803 in unrestricted cash at June 30, 2020.
Source of Revenue
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, the dividends accruing on its preferred stock, and the interest payable to Nicholas S. Warrender, 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.
Our investments in Ablis, Bendistillery and Bend Spirits made us a minority owner of these companies. As a minority owner, we will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in our financial statements. We may, at some point, receive commissions for helping sell Ablis' and Bendistillery's products online or offline. Our investments in Ablis, Bendistillery and Bend Spirits will be tested for potential impairment of value on a quarterly basis.
Critical Accounting Policies
Critical accounting policies are discussed in “NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES.”
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SmplyLifted LLC
Please refer to Note 7 – Notes Receivable.
CBD Lion LLC
Please refer to Note 7 – Notes Receivable.
The William Noyes Webster Foundation, Inc.
Please refer to Note 7 – Notes Receivable.
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 in addition to the matters discussed above in “NOTE 13 – LEGAL PROCEEDINGS”. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2021, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As indicated in our Form 10-K for the year ended December 31, 2020, management concluded that our internal control over financial reporting was not effective. Management’s assessment of internal controls over financial reporting has not changed at June 30, 2021. There existed a lack of segregation of duties in regard to the Company’s financial reporting, procedures for depositing of funds, procedures for cash disbursements, procedures for checkbook entries, period close procedures, and procedures for financial statement preparation that result in material weaknesses in internal control over financial reporting.
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Changes in Internal Control over Financial Reporting
Our chief executive officer and chief financial officer have concluded that there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
Description of Legal Proceedings
Lifted currently is involved in one pending lawsuit, as the plaintiff:
| (1) | Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe – The Company has filed an action in a case styled “Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe” seeking to recover $30,000 that was to be held in escrow. The Company is also requesting approximately $14,569 in damages resulting from Girish GPO’s failure to pay for product it ordered and that the Company delivered. The matter was recently filed and the Company intends to pursue the action and recover its damages. |
Lifted currently is involved in one pending lawsuit, as the defendant:
| (1) | 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. |
During 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following four 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) |
| (3) | 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). |
| (4) | 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). |
Item 1A. Risk Factors.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered sales of equity securities during the period were disclosed in Item 3.02 of the current report filed on May 10, 2019.
We issued common stock, committed to issue restricted common stock, and warrants all in connection with Merger.
On April 2, 2020, 166,888 shares of common stock were cancelled.
On November 24, 2020, Acquired Sales Corp. purchased 36,000 shares of common stock of the Company from a non-affiliate stockholder in a private transaction for $0.95 per share for a total of $34,200. These shares are held in treasury.
On January 8, 2021, Acquired Sales Corp. purchased an additional 36,000 shares of common stock of the Company from the same non-affiliate shareholder, also in a private transaction, for $0.95 per share for a total of $34,200. These shares are also held in treasury.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
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Item 4. Mine Safety Disclosures.
None; not applicable.
Item 5. Other Information.
Amendment to Articles of Incorporation
On May 18, 2021, the Company amended its articles of incorporation with the State of Nevada to change its name to LFTD Partners Inc. from Acquired Sales Corp. In connection with the name change to LFTD Partners Inc., the Company filed a notification with the FINRA, the clearance of which remains pending as of the date of this report. Until clearance of our name change by FINRA, most of the public facing quotations of the Company’s common stock will continue to be in the name of “Acquired Sales” despite the name change. A complete copy of the Company's Certificate of Amendment is attached to this report as Exhibit 3.7.
Item 6. Exhibits.
The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.
| Form 10-SB | March 23, 2007 |
| 3.1 | Articles of Incorporation dated December 12, 1985 |
| 3.2 | Amended Articles of Incorporation Dated July 1992 |
| 3.3 | Amended Articles of Incorporation Dated November 1996 |
| 3.4 | Amended Articles of Incorporation Dated June 1999 |
| 3.5 | Amended Articles of Incorporation Dated January 25, 2006 |
| 3.6 | Amended Bylaws |
| Form 8-K | August 2, 2007 |
| 5.01 | Shareholder Agreement |
| Form 8-K | July 16, 2014 |
| 10.30 | Promissory Note; William Noyes Webster Foundation, Inc. |
| 10.31 | Security Agreement relating to Promissory Note with the William Noyes Webster Foundation, Inc. |
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| Form 8-K | August 20, 2019 |
| 10.54 | Agreement and Plan of Merger – CBD Lion LLC |
| 10.55 | $300,000 Promissory Note to CBD Lion LLC |
| Form 8-K | January 8, 2020 |
| 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) |
| Form 10-K | March 30, 2020 |
| Form 8-K | September 9, 2020 |
| 5.02 | Departure of Thomas W. Hines as a Director and Election of Robert T. Warrender, II as a Director |
| Form 8-K | October 13, 2020 |
| 5.02 | Departure of Michael D. McCaffrey as a Director |
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| Form 8-K | December 22, 2020 |
| 10.58 | Lease From 95th Holdings, LLC Landlord to Lifted Liquids, Inc. Tenant as of December 15, 2020 |
| Form 8-K | January 6, 2021 |
| 10.58 | Acquired Sales Corp. presentation dated January 2021 |
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| Form 8-K | June 21, 2021 |
| 10.59 | Letter of Intent relating to the proposed acquisition of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC |
| 99.1 | Press Release Dated June 16, 2021 |
This Form 10-Q
*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated:August 13, 2021 | ||
| ACQUIRED SALES CORP. | ||
| By: | /s/ Gerard M. Jacobs | |
| Gerard M. Jacobs | ||
| Chief Executive Officer | ||
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