LFTD PARTNERS INC. - Quarter Report: 2019 June (Form 10-Q)

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, 2019 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 13, 2019 for the period ended December 31, 2018.

ACQUIRED SALES CORP.

INDEX TO THE CONDENSED FINANCIAL STATEMENTS

4

Please see the accompanying notes to the condensed financial statements for more information.

5

Please see the accompanying notes to the condensed financial statements for more information.

6

Please see the accompanying notes to the condensed financial statements for more information.

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(Unaudited)

NOTE 1 – DESCRIPTION OF THE BUSINESS OF ACQUIRED SALES CORP.

Acquired Sales Corp. (hereinafter sometimes referred to as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986. The Company does not currently have any business or any sources of revenue.

The Company wants to acquire all or a portion of one or more operating businesses.

Management of the Company currently is exclusively exploring potential acquisitions of all or a portion of one or more operating businesses involving the manufacture and sale of cannabidiol (CBD)-infused products such as beverages, muscle/joint rubs, oils, crystals, tinctures, bath bombs, isolate, relief balms, elixirs, body washes, med sticks, lotions, vape pens and cartridges, shatter, and gummies (a “CBD-Infused Products Company”).

In order to consummate a particular acquisition of a CBD-Infused Products Company, management of the Company is open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such CBD-Infused Products Company, for example operating businesses and/or assets involving distilled spirits, beer, wine, hemp, paraphernalia, cannabis, tetrahydrocannabinol (THC)-infused products, and real estate. 

Signing of Letter of Intent to Acquire 100% of the Ownership Interests of Warrender Enterprise Inc. d/b/a Lifted Liquids

On May 23, 2019, the Company, its CEO Gerard M. Jacobs (“GJacobs”), its President and CFO William C. “Jake” Jacobs (“WJacobs”) and Erik S. Lundgren, CEO of CBD Lion LLC, entered into a Letter of Intent with Warrender Enterprise Inc. d/b/a Lifted Liquids (“Lifted”), and its owner Nicholas S. Warrender to, subject to a number of conditions, acquire 100% of the ownership of Lifted including its affiliated vape shops. The consideration to be paid by the Company in the proposed purchase of Lifted is (i) cash in the amount of $7,500,000; and (ii) equity in the amount of 4,545,455 shares of the Company’s common stock (“Stock Consideration”). In the event that the purchase of Lifted occurs, Warrender shall enjoy so-called “piggyback registration rights” in regard to the Stock Consideration, and provided further that Warrender shall enjoy so-called "demand registration rights" in regard to the Stock Consideration if no piggyback registration statement is filed with the SEC within 120 days following the closing of the proposed sale.  

The terms of the proposed transaction must be set forth in a definitive agreement. There are no assurances that the Company 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 the Company 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.

Closing of the acquisition of Lifted is subject to a number of conditions, including but not limited to the completion of due diligence investigation of Lifted by the Company that is acceptable to the Company, completion of a capital raise by the Company of at least $9 million, completion of an audit of Lifted acceptable to the Company, execution of definitive acquisition documents, execution of an employment agreement with Nicholas S. Warrender, obtaining necessary third-party approvals, including a tax opinion to be provided by Lifted’s tax counsel indicating that the proposed acquisition will qualify as a tax-free merger, execution of a shareholders agreement among GJacobs, WJacobs, Nicholas S. Warrender and Erik S. Lundgren, and completion of all necessary securities filings. In the event that most of the foregoing conditions are met, as detailed in the Letter of Intent, prior to the closing of the proposed acquisition, but only if AQSP is requested by Lifted in writing to do so, the Company will make a $300,000 loan to Lifted to be used by Lifted exclusively for growth capital.

The Company is currently engaged in due diligence of Lifted and have not yet started to negotiate a definitive agreement for the proposed acquisition. The Letter of Intent will terminate if (i) no audit of Lifted satisfactory to the Company has been delivered by September 30, 2019; (ii) the Company fails to raise $9 million by October 31, 2019; or (iii) the proposed purchase has not closed by November 30, 2019 (or such other date as mutually agreed by the parties).

The letter of intent contains customary provisions prohibiting Lifted from soliciting or encouraging any other acquisition proposal or entering into any negotiations or agreements for an alternative acquisition transaction prior to the termination of the Letter of Intent.

In the event that the proposed acquisition of Lifted is completed, the Letter of Intent requires that Lifted shall operate as a wholly-owned subsidiary of the Company under the Lifted brand, led by Nicholas S. Warrender as Lifted’s CEO.

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Acquired Sales Corp.

Notes to the Condensed Financial Statements

(Unaudited)

Signing of Letter of Intent to Acquire 100% of the Ownership Interests of CBD Lion LLC

On May 8, 2019, the Company, GJacobs and WJacobs entered into a Letter of Intent with CBD Lion LLC (“Lion”) and its owners (the “Lion Owners”) to, subject to a number of conditions, acquire 100% of the ownership of Lion (the “Transaction”). The consideration to be paid by the Company in the proposed acquisition of Lion is: two million dollars ($2,000,000) in cash, plus unregistered common stock of the Company (the "Stock Consideration") in an amount that is the greater of: (i) five million (5,000,000) shares or (ii) a number of shares with a value at closing of the Transaction, based on the Company’s share price, equal to 50% of the value of the aggregate consideration deemed paid to the Lion Owners for their ownership interests in Lion, which could hypothetically increase the Stock Consideration to a number significantly higher than five million (5,000,000). The Lion Owners shall have "piggyback registration rights" for the common stock shares underlying the Stock Consideration and "demand registration rights" that are triggered if no registration statement covering the Stock Consideration is filed with the SEC within 120 days following the closing of the Transaction. In addition, the Letter of Intent requires that at the closing of the Transaction, the Company shall cause up to four hundred sixty-two thousand four hundred thirty dollars ($462,430) of related party debt, plus accrued interest, owed by Lion to be repaid in full. 

The terms of the proposed Transaction must be set forth in a definitive agreement. There are no assurances that the Company 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 Transaction will be consummated. Even if a definitive agreement is executed, the terms of the proposed Transaction may change materially from the terms set forth in the Letter of Intent. There will be many conditions to closing of the Transaction, 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 of the Transaction will occur, even if the parties successfully negotiate and sign a definitive agreement.

Closing of the acquisition of Lion is subject to a number of conditions, including but not limited to the completion of due diligence investigation of Lion by the Company that is acceptable to the Company, completion of a capital raise by the Company of at least $4 million, completion of an audit of Lion acceptable to the Company, execution of definitive acquisition documents, execution of employment agreements with certain key Lion executives, obtaining necessary third-party approvals, including a tax opinion to be provided by Lion’s tax counsel indicating that the proposed Transaction will qualify as a tax-free reorganization, and completion of all necessary securities filings.

The Company has substantially completed its due diligence of Lion and is negotiating definitive agreements for the proposed Transaction. The Letter of Intent will terminate if (i) no audit of Lion satisfactory to the Company has been delivered by August 31, 2019; the Company fails to raise $4 million by September 30, 2019; or (iii) the proposed Transaction has not closed by October 31, 2019, and the outside closing date has not been extended by mutual agreement of the parties.

The Letter of Intent contains customary provisions prohibiting Lion from soliciting or encouraging any other acquisition proposal or entering into any negotiations or agreements for an alternative acquisition or financing transaction prior to the termination of the Letter of Intent.

In the event that the proposed acquisition of Lion is completed, the Letter of Intent requires that as soon as practicable following the closing of the proposed sale, the Company will change its name to "CBD Lion Corp.” and request a new trading symbol that better relates to the new proposed name.

Loan for Growth Capital Made to Lion

On August 8, 2019, after the preparation of draft definitive documentation regarding the Transaction, including a draft merger agreement, stockholders agreement, registration rights agreement, and employment agreements, AQSP made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”). The proceeds of the Loan are to be used by Lion exclusively for growth capital and not to be used to repay any related party debt of Lion nor to pay any increased salaries or bonuses to any of the executives of Lion. If the Transaction closes, then the Loan shall be extinguished, because post-closing of the Transaction, Lion and the Company will constitute the same entity. Pursuant to the terms of the Note, if the Transaction does not close and the merger agreement is terminated, then the Loan shall be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement.

Stock Sale and Purchase Agreement – Ablis Holding Company

Ablis Holding Company ("Ablis") produces CBD-infused beverages and other products. Ablis' all-natural, shelf-stable, GMO-free, non-alcoholic, lemon ginger, cranberry blood orange, and 0 calorie lemon water beverages target the mainstream health market and

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Notes to the Condensed Financial Statements

(Unaudited)

contain no THC. Ablis also manufactures and sells CBD-infused rubs and oils. Ablis' beverages are now being distributed in 11 states, online throughout the country, Puerto Rico and Guam. Also, Silver Moon Brewing, a brewery in Bend, has recently begun producing and selling Hazibliss, Oregon’s first hemp CBD-infused draft beer that incorporates Ablis’ cranberry blood orange CBD beverage.

On April 30, 2019, the Company, GJacobs, and WJacobs entered into a Stock Sale and Purchase Agreement with Ablis, Ablis, Inc., and James A. Bendis (“Bendis”) wherein the Company paid $399,200 for a post transaction 4.99% ownership of Ablis' equity. The Stock Sale and Purchase Agreement requires that Ablis use a portion of the purchase proceeds to pay off at least $381,000 of its liabilities. Another portion of the purchase proceeds will make capital available for expanded off-line and online advertising, and additional staff and equipment.

The Stock Sale and Purchase Agreement set out terms for a potential additional equity purchase of Ablis, such that the Company could purchase up to an additional 15% of Ablis for $1,200,000, so that the Company would then own 19.99% of the ownership equity of Ablis. The Company’s right to purchase an additional 15% of Ablis expired because it was not exercised on or before July 31, 2019.

The management team of Ablis is continuing to lead Ablis. Pursuant the terms of the Stock Sale and Purchase Agreement, GJacobs is now a member of the board of directors of Ablis, WJacobs is entitled to be provided with access to Ablis' financial information, and WJacobs is entitled to be provided access to Ablis’ financial information. The Stock Sale and Purchase Agreement also requires that GJacobs and WJacobs be introduced to the owners of Ablis’ CBD isolate suppliers, and any other companies in the hemp, CBD and cannabis industries with whom Ablis and/or Bendis have relationships, and whom may potentially be interested in entering into a stock sale or merger with the Company.

The Stock Sale and Purchase Agreement requires that Ablis evaluate and seriously consider a sale of Ablis or taking Ablis public within 60 months from April 30, 2019 and that it use commercially reasonable best efforts, to close a mutually acceptable alternative exit opportunity for the company within 72 months from April 30, 2019.

The Company’s investment in Ablis made the Company a minority owner of Ablis. As a minority owner, the Company is not able to recognize any portion of Ablis’ revenues or earnings in the Company’s financial statements. The Company is monitoring its investment in Ablis and from time to time will evaluate whether there has been a potential impairment of value.

Stock Purchase Agreement - Bendistillery Inc. and Bend Spirits, Inc.

Founded in 1996, Bendistillery Inc. ("Bendistillery") is an award-winning craft distillery, with an outstanding reputation for producing Crater Lake Spirits brands including vodkas, gins, whiskeys, and white label brands offered through Bend Spirits, Inc. ("Bend Spirits").

On April 30, 2019, the Company, GJacobs, and WJacobs entered into a Stock Purchase Agreement with Bendistillery, Bend Spirits, Bendis Homes Pinehurst, LLC, an Oregon limited liability company (“Landowner”), Bendis, and Alan T. Dietrich (“Dietrich”) wherein the Company paid $1,347,300 for a post transaction 4.99% ownership of Bendistillery’s equity and $149,700 for a post transaction 4.99% ownership of Bend Spirits’ equity. Bendistillery and Bend Spirits are in the business of manufacturing and sale of alcoholic beverages, and the manufacturing of CBD-infused beverages and CBD-infused products. The Stock Purchase Agreement requires that Bendistillery and Bend Spirits use a portion of the purchase proceeds to pay off at least $835,000 of their collective liabilities. Another portion of the purchase proceeds will make capital available for expanded off-line and online advertising, and additional staff and equipment.

The Stock Purchase Agreement also set out terms for a potential additional equity purchase of Bendistillery, such that the Company could purchase up to an additional 15% of Bendistillery for $4,050,000, so that the Company would then own 19.99% of the ownership equity of Bendistillery. Per the terms of the Stock Purchase Agreement, the Company potentially could also purchase up to an additional 15% of Bend Spirits for $450,000, such that the Company would then own 19.99% of the ownership equity of Bend Spirits. The Company’s right to purchase an additional 15% of Bendistillery and Bend Spirits expired because it was not exercised on or before July 31, 2019.

Pursuant to the Stock Purchase Agreement, Landowner (as landlord) and Bendistillery (as tenant) have entered into a long-term lease of the 23 acres in Tumalo outside Bend, Oregon, where Bendistillery and Bend Spirits conduct their businesses (the “Real Estate”), which lease (the “Lease”) is consistent with the following terms: the initial term of the Lease is 20 years at a rent of $17,500 per month; Tenant has the right, in its sole discretion, to exercise a series of options to extend the term of the Lease up to a maximum

of 99 years; and Tenant has a 60-day right of first refusal if Landowner ever decides to sell all or any portion of the Real Estate. Bendis is the owner of Landowner.

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Notes to the Condensed Financial Statements

(Unaudited)

The management teams of Bendistillery and Bend Spirits are continuing to lead their respective companies. Pursuant the terms of the Stock Purchase Agreement, GJacobs is now a member of the boards of directors of Bendistillery and Bend Spirits, WJacobs is entitled to be provided with access to Bendistillery’s and Bend Spirits’ financial information, and WJacobs is entitled to be provided access to Bendistillery’s and Bend Spirits’ financial information. Bendistillery and Bend Spirits are obligated to pay WJacobs an advisory fee of not less than $5,000 per quarter. The Stock Purchase Agreement also requires that GJacobs and WJacobs be

introduced to the owners of Deschutes Brewery, Silver Moon Brewing, LBD Beverage, and any other companies in the distilled spirits, beer, wine, hemp, CBD and cannabis industries with whom Bendistillery, Bend Spirits, Bendis and/or Dietrich have relationships, and whom may potentially be interested in entering into a stock sale or merger with the Company.

The Stock Purchase Agreement requires that Bendistillery and Bend Spirits evaluate and seriously consider a sale of Bendistillery and Bend Spirits or taking them public within 60 months from April 30, 2019 and that they use commercially reasonable best efforts to close a mutually acceptable alternative exit opportunity for the companies within 72 months from April 30, 2019.

The Company’s investments in Bendistillery and Bend Spirits made the Company a minority owner of these companies. As a minority owner, the Company is not be able to recognize any portion of Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements. The Company is monitoring its investment in Ablis and from time to time will evaluate whether there has been a potential impairment of value.

Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series A Convertible Preferred Stock (“Series A Preferred Stock”)

Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Series A Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Company has covenanted to file a registration statement covering the shares of newly issued common stock of the Company into which the Series A Preferred Stock can be converted (the "Registration Statement"). The Series A Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock.

On June 28, 2019, we commenced a private placement to accredited investors, offering to sell up to 5,000,000 shares of Series B Preferred Stock convertible into 5,000,000 shares of our common stock at an exercise price of $5.00 per share. As of the date of this report, the Company has accepted a subscription from one accredited investor to purchase 60,000 shares of Series B Preferred Stock for an aggregate purchase price of $300,000 in cash, convertible at the option of the holder into 60,000 shares of newly issued common stock of the Company, or $5.00 per share of common stock of the Company.

Acquisition Process

The structure of the Company’s participation in business opportunities and ventures will continue to be situational. The Company is likely to structure future acquisitions as a purchase of 19.99% or less, or 50.01% or more, of a target company’s equity ownership interest, or as a so-called tax-free reorganization. It is likely that the anticipated value of the business and/or securities that the Company acquires relative to the current value of the Company’s securities will result in the issuance of a relatively large number of newly issued shares of the Company, and, as a result, substantial additional dilution to the percentage ownership of our current stockholders. Moreover, the Company’s present management and shareholders may not have control of a majority of our voting shares following a merger or purchase of stock. It is possible that the shareholders of the acquired entity or the persons who provide the capital to the Company to finance a merger or purchase of stock will gain control of the Company’s voting stock and the Company’s directors may resign and new directors may be appointed without any vote by the shareholders. Those directors are entitled to replace the Company’s officers without stockholder vote.

In regard to nearly all of the Company’s potential acquisitions, the Company is typically focused upon acquiring 19.99% or less, or 50.01% or more, of existing privately held businesses whose owners are willing to consider selling a percentage of the equity ownership interest of their businesses, or merging their entire businesses into the Company or a wholly-owned subsidiary of the Company in a so-called tax-free reorganization, and whose management teams are enthusiastic about continuing to operate their businesses following the transactions with the Company.

Closing such purchases of stock or so-called tax-free reorganizations will likely require the Company to raise millions of dollars of capital, in order to pay the cash portion of the transaction consideration. The Company can provide no assurance or guaranty whatsoever that it will be able to raise such millions of dollars of capital on acceptable terms and conditions, if at all.

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Notes to the Condensed Financial Statements

(Unaudited)

An Investment Committee appointed by the Company’s Board of Directors, currently consisting of GJacobs, director Thomas W. Hines, CPA CFA, and WJacobs, CPA, will review material furnished to it and will vote whether or not the Investment Committee believes a potential acquisition is in the Company’s best interests and the interests of the Company’s shareholders. If the Investment

Committee votes unanimously to approve a potential acquisition, then such acquisition will be presented to the Board of Directors of the Company for their review and a vote. The Company does not intend to proceed forward with a potential acquisition without the unanimous approval of the Investment Committee and approval by a majority of the Company’s Board of Directors.

The Company intends to source acquisition opportunities through its CEO and directors and their contacts, and in some cases through finders. These contacts include the shareholders of Lion, Lifted, Ablis, professional advisors such as attorneys and accountants, securities broker dealers, venture capitalists, 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 one or more CBD-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 12, 2019, the Company has cash on hand of approximately $4,364,648, which are proceeds from the sale of Series A Preferred Stock between February 27, 2019 and May 13, 2019, and proceeds from the sale of Series B Preferred Stock. In prior years, the Company’s payables have been greater than their cash on hand. The Company has inconsistent income generating ability and is therefore reliant on raising money from loans or stock sales.

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation – The accompanying financial statements include the accounts and operations of the Company for all periods presented.

Condensed Financial Statements – The accompanying financial statements are condensed and do not include all disclosures normally required by generally accepted accounting principles. These statements should be read in conjunction with the annual financial statements included in Form 10-K filed with the SEC on March 13, 2019. In particular, the basis of presentation and significant accounting principles were presented in Note 1 to the annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying unaudited condensed financial statements and consist of only normal recurring adjustments, except as disclosed herein. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.

Use of Estimates – The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. In the past, significant estimates included share-based compensation forfeiture rates and the potential outcome of future tax consequences of

events that have been recognized for financial reporting purposes. Actual results and outcomes may differ from our estimates and assumptions.

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Notes to the Condensed Financial Statements

(Unaudited)

Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per

common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2019 and 2018.

In comparison, at June 30, 2018, there were 4,308,774 stock options and warrants that were excluded from the computation of diluted earnings loss per share because their effects would have been anti-dilutive.

Recent Accounting Pronouncements – The Company is unaware of any new accounting pronouncements that will materially impact the Company upon adoption, and the Company has not recently adopted any new accounting standards.

NOTE 3 – RISKS AND UNCERTAINTIES

Going Concern – The Company has a history of recurring losses which have resulted in an accumulated deficit of $14,991,921 as of June 30, 2019. During the three and six months ended June 30, 2019, the Company recognized a loss from operations of $902,438 and $978,376, respectively.

Also, the Company has Series A Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year. The Company has no income to pay these dividends. The Company does not have any business or any sources of revenue to pay these dividends or its other operating expenses. As a result, there is substantial doubt that the Company will be able to continue as a going concern. Bankruptcy of the Company at some point in the future is a possibility. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company currently has no revenue-generating subsidiaries. Management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.

NOTE 4 – THE COMPANY’S INVESTMENTS IN ABLIS, BENDISTILLERY AND BEND SPIRITS

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Notes to the Condensed Financial Statements

(Unaudited)

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. Ablis, Bendistillery and Bend Spirits are not audited and the Company has limited ability to comment on these companies’ operations and financial performance.

NOTE 5 – NOTES RECEIVABLE

The William Noyes Webster Foundation, Inc.

The Foundation, a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana dispensary in Dennis, Massachusetts. Jane W. Heatley (“Heatley”) is the founder and a member of the board of directors of the Foundation.

Teaming Agreement – The Company believes it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, the Company entered into a Teaming Agreement (the "Teaming Agreement") with Heatley, in which, among other things: (1) the Company and Heatley agreed to use their respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which the Company will provide capital and

expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. The Company claims that

Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that the Company violated the Teaming Agreement alleging that the

Company failed to lend funds to the Foundation in accordance with the Teaming Agreement. The Company believes Heatley's claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that the Company will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.

Promissory Note – On July 14, 2014, the Foundation signed and delivered to the Company a Secured Promissory Note (the "Note") which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $1,500,000 loan may be advanced in one or more installments as the Foundation and the Company may mutually agree upon. The Foundation and the Company mutually agreed that the first installment of this loan would be $602,500. Pursuant to instructions from the Foundation, on July 14, 2014, the Company paid $2,500 owed by the Foundation to one of its consultants, and the Company advanced $600,000 directly to the Foundation. The amount and timing of subsequent loan installments under the Note, which could have totaled $897,500, had not yet been mutually agreed upon between the Foundation and the Company as of the date of the Note.

Between April and July 2015, the Company loaned an additional $135,350 to the Foundation, evidenced by the Note and secured by the Security Agreement. Following such additional loans, the principal of the loan from the Company to the Foundation, evidenced by the Note and secured by the Security Agreement, is now $737,850. The principal balance outstanding under the Note bore interest at the rate of 12.5% per annum, compounded monthly. It was contemplated that the first payment of accrued interest by the Foundation under the Note would be made as soon after the Foundation commences operations of the Plymouth Cultivation Facility and the Dennis Dispensary as the Foundation's cash flows shall reasonably permit, but in any event no later than one year after the Foundation commences operations. The principal of the Note would be payable in eight consecutive equal quarterly installments, commencing on the last day of the calendar quarter in which the Foundation commences operations. Principal on the Note and related accrued interest would be considered past due if the aforementioned payments were not received by their due dates.

Uncollectable Note and Interest Receivable – The Company assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, the Company concluded that Note and interest receivable would not be collectible. As such, the Company wrote off the Note totaling $737,850 and interest receivable totaling $97,427 as bad debt expense on September 1, 2015.

NOTE 6 – AMOUNTS OWED TO RELATED PARTIES AND THIRD PARTIES

Consulting Salaries to be Paid to GJacobs and WJacobs

Effective as of June 19, 2019, the Company, GJacobs and WJacobs entered into a compensation agreement relating to service to the Company. GMJ and WCJ shall receive consulting fees of $7,500 per month and $5,000 per month, respectively.

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Notes to the Condensed Financial Statements

(Unaudited)

Amounts Owed to Related Parties

At June 30, 2019, there were expense reimbursements owed to the Company's CEO GJacobs totaling $3,555. There were also consulting fees of $7,500 payable to GJacobs. In comparison, at June 30, 2018, there were expense reimbursements owed to Gerard M. Jacobs totaling $17,245.

At June 30, 2019, there were expense reimbursements of $8,015 owed to WJacobs, who is now the Company's President and CFO. In comparison, at June 30, 2018, there were independent contractor fees of $130,000 and expense reimbursements of $4,077 owed to William C. Jacobs totaling $134,077. WJacobs is the son of GJacobs, our CEO, and the nephew of director James S. Jacobs.

On June 21, 2016, a company affiliated with Gerard M. Jacobs, Chief Executive Officer of Acquired Sales, made a non-interest bearing loan of $4,000 to the Company, which was payable upon demand; this loan was outstanding at June 30, 2018, and was repaid on March 13, 2019.

Financing Warrants – On July 13, 2018, the Audit Committee, Compensation Committee, and full Board of Directors of the Company approved by unanimous written consent borrowings by the Company on the following terms: (1) proceeds of the borrowings will be used to pay professional fees owed to our outside auditors, our stock transfer agent, and our securities counsel, and to pay other obligations of the Company; (2) the borrowings will be evidenced by promissory notes of the Company, accruing interest at the rate of 15% annually; (3) the notes will be jointly secured by a first lien security interest in all of the assets of the Company, pursuant to a security agreement signed by the Company in favor of the lenders, UCC filings in favor of the lenders, and a pledge to the lenders of the note payable by the William Noyes Webster Foundation Inc. to the Company; (4) the notes shall be due and payable upon demand by the lenders delivered to the Company; and (5) for each $1,000 loaned by the Company on these terms, the lender of such $1,000 shall receive warrants to purchase 1,250 shares of common stock of the Company, at an exercise price of $0.03 per share, exercisable at the discretion of such lender any time on or before July 16, 2023.

As of December 31, 2018, a total of $30,791 had been borrowed by the Company on such terms, and warrants to purchase 25,000 shares of common stock of the Company had been issued to director Joshua A. Bloom and warrants to purchase 12,500 shares of common stock of the Company had been issued to the Company's CEO GJacobs. As of December 31, 2018, there was also a total of $1,381 in interest payable to Joshua A. Bloom and GJacobs, related to these borrowings.

Between January 7, 2019 and February 6, 2019, an additional $14,772 was lent by GJacobs to the Company on such terms, and warrants to purchase 18,750 shares of common stock of the Company were issued to GJacobs.

On March 13, 2019, all of these borrowings and the related interest payable to Joshua A. Bloom and GJacobs was repaid. In total, $21,540 was paid to Joshua A. Bloom, and $26,628 was paid to GJacobs.

Amounts Owed to Third Parties

At June 30, 2019, there were accounts payable of $22,052 owed to third parties for professional fees. In comparison, at June 30, 2018, there were accounts payable of $111,820 owed to third parties for professional fees.

On March 15, 2019, the Company settled and paid its debt of $61,500 to its previous independent registered public accounting firm, Eide Bailly LLP, and the Company recognized a gain on the settlement of $29,196.

NOTE 7 – SHAREHOLDERS’ EQUITY

Issuance of Series A Preferred Stock – The Company has authorized 400,000 shares of its Series A Preferred Stock. Each share of Series A Preferred Stock may be converted into 100 shares of common stock. The Series A Preferred Stock pays dividends at the rate of 3% annually. The Series A Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Series A Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock shall have voluntary conversion rights. Shares of Series A Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.   

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,

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Acquired Sales Corp.

Notes to the Condensed Financial Statements

(Unaudited)

or $1.00 per share of common stock of the Company. 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 Preferred Stock can be converted (the "Registration Statement"). The Registration Statement has not yet been approved by the SEC. The Series A Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock. As of June 30, 2019, the Company has accrued a liability of $44,977 as dividends payable to holders of the Series A Preferred Stock. Although no dividends have been declared by the Board of Directors, the Company fully intends on paying the annual dividends to the holders of the Series A Preferred Stock, and as such, the Company has accrued the liability.

Issuance of Financing Warrants – On July 13, 2018, the Audit Committee, Compensation Committee, and full Board of Directors of AQSP approved by unanimous written consent borrowings by AQSP on the following terms:(1) proceeds of the borrowings will be used to pay professional fees owed to our outside auditors, our stock transfer agent, and our securities counsel, and to pay other

obligations of AQSP; (2) the borrowings will be evidenced by promissory notes of AQSP, accruing interest at the rate of 15% annually; (3) the notes will be jointly secured by a first lien security interest in all of the assets of AQSP, pursuant to a security agreement signed by AQSP in favor of the lenders, UCC filings in favor of the lenders, and a pledge to the lenders of the note payable by the William Noyes Webster Foundation Inc. to AQSP; (4) the notes shall be due and payable upon demand by the lenders delivered to AQSP; and (5) for each $1,000 loaned by AQSP on these terms, the lender of such $1,000 shall receive warrants to purchase 1,250 shares of common stock of AQSP, at an exercise price of $0.03 per share, exercisable at the discretion of such lender any time on or before July 16, 2023.

During the quarter ended March 31, 2019, a total of $14,772 was borrowed by AQSP on such terms from GJacobs, and warrants to purchase 18,750 shares of common stock of AQSP were issued to G Jacobs.

The warrants to purchase common stock that were issued to G Jacobs during the quarter ended March 31, 2019 were valued using the Black-Scholes valuation model as of the date they were issued. The values of these warrants were fully expensed because the notes are payable upon demand. The expense recognized related to the issuance of the warrants to GJacobs during the quarter ended March 31, 2019 was $26,773, which was a debit to interest expense and credit to additional paid-in capital.

Share-Based Compensation – During the quarter ended June 30, 2019, the Company recognized total stock compensation expense of $834,186. Of this total, $793,478 related to the value of 396,900 warrants to purchase unregistered shares of common stock of the Company, for the capital raised for the Company by brokers. The difference, $40,708, was the value of a total of 14,042 warrants to purchase unregistered shares of common stock of the Company, issued to two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis.

In comparison, there was $72,500 of share-based compensation recognized during the six months ended June 30, 2018.

On April 1, 2018, we issued to a director and to an independent contractor rights to purchase warrants, for an aggregate purchase price of $2.00, an aggregate of 250,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024; we recorded stock compensation expense of $72,500 related to these rights to purchase warrants during the three and six months ended June 30, 2018.

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Acquired Sales Corp.

Notes to the Condensed Financial Statements

(Unaudited)

Stock Option and Warrant Activity – The following is a summary of stock option and warrant activity as of June 30, 2019 and changes during the period then ended:

NOTE 8 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Payment of Finders’ Fees Related to Ablis

The Company has agreed to pay finders’ fees to two finders in regard to the potential purchase of an additional 15% of the stock of Ablis. The Company has agreed to pay those two finders additional warrants to purchase shares of common stock of the Company at

an exercise price of $1 per share exercisable at any time on or before April 30, 2024; in the event that the Company closes on the purchase of up to an additional 15% of the common stock of Ablis, then the total amount of such warrants will be 2,814 unregistered

shares of common stock of AQSP at an exercise price of $1 per share for each additional one percent of Ablis’ common stock so purchased (a maximum issuance of warrants to purchase 42,210 unregistered shares of common stock of the Company at an exercise price of $1 per share).

Payment of Finder’s Fee Related to CBD Lion

The Company has agreed to pay a finder’s fee to a finder if the Company closes on the acquisition of 100% of the ownership interests of CBD Lion LLC, such finder’s fee to be warrants to purchase 55,000 unregistered shares of common stock of the

Company at an exercise price of $0.01 per share, exercisable at any time on or prior to the fifth anniversary of such closing. An additional finder’s fee may be paid to a second finder if the Company closes on the acquisition of 100% of the ownership interests of CBD Lion LLC.

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.

Issuance of Warrants to Purchase Shares of Common Stock of the Company to Board Members

The Compensation Committee of the Company's Board of Directors may 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.

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Acquired Sales Corp.

Notes to the Condensed Financial Statements

(Unaudited)

Amounts Payable to Gerard M. Jacobs and William C. Jacobs

The Company’s CEO GJacobs runs the Company’s operations on a part-time basis and is compensated with equity. GJacobs has not historically received cash compensation, and, historically, the Company’s President and CFO WJacobs has worked for $5,000 per month. Effective as of June 19, 2019 through the earlier of the closing of the Company’s acquisition of CBD Lion LLC or the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Liquids, the Company has agreed to pay GJacobs and WJacobs consulting fees of $7,500 and $5,000 per month, respectively. In addition, upon the closing of one or more of the acquisitions described above, the salaries, equity incentives, expense reimbursements and bonuses will increase. There are also to be significant bonuses awarded to GJacobs and WJacobs in the event that the Company closes on the acquisitions of CBD Lion LLC and Warrender Enterprise Inc. d/b/a Lifted Liquids, and in the event that the Company raises $15 million and $25 million, as described in the current report on Form 8-K, and its exhibit, filed with the SEC on or about June 25, 2019.

Professional Contracts

In June 2019, the Company executed annual engagement contracts with its stock transfer agent and its securities attorney.

NOTE 9 – SUBSEQUENT EVENTS

We have evaluated subsequent events through the date of filing this quarterly report on Form 10-Q and have identified the following for disclosure:

Loan for Growth Capital Made to CBD Lion LLC (“Lion”)

On August 8, 2019, after the preparation of draft definitive documentation regarding the Transaction, including a draft merger agreement, stockholders agreement, registration rights agreement, and employment agreements, AQSP made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”). The proceeds of the Loan are to be used by Lion exclusively for growth capital and not to be used to repay any related party debt of Lion nor to pay any increased salaries or bonuses to any of the executives of Lion. If the Transaction closes, then the Loan shall be extinguished, because post-closing of the Transaction, Lion and the Company will constitute the same entity. Pursuant to the terms of the Note, if the Transaction does not close and the merger agreement is terminated, then the Loan shall be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement.

Exercise of Warrant

On July 21, 2019, a warrant holder delivered to the Company his notice of exercise of his warrant to purchase 7,021 shares of

common stock of the Company for a purchase price of $7,021.

Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series B Convertible Preferred Stock (“Series B Preferred Stock”)

On June 28, 2019, we commenced a private placement to accredited investors, offering to sell up to 5,000,000 shares of Series B Preferred Stock convertible into 5,000,000 shares of our common stock at an exercise price of $5.00 per share. As of the date of this report, the Company has accepted a subscription from one accredited investor to purchase 60,000 shares of Series B Preferred Stock for an aggregate purchase price of $300,000 in cash, convertible at the option of the holder into 60,000 shares of newly issued common stock of the Company, or $5.00 per share of common stock of the Company.

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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,” “Acquires Sales,” “AQSP,” “we,” “our” or “us” refer to Acquired Sales Corp., unless the context otherwise indicates.

We have a history of recurring losses, which has resulted in an accumulated deficit of $14,991,921 as of June 30, 2019.  In addition, we suffered losses from continuing operations during the six months ended June 30, 2019 and 2018. Also, the Company has Series A Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year. We do not have any business or any sources of revenue to pay these dividends or our other operating expenses. These matters raise substantial doubt about our ability to continue as a going concern.

This Management’s Discussion and Analysis or Plan of Operations (“MD&A”) section discusses our results of operations, liquidity and financial condition, contractual relationships 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 for Acquired Sales Corp.

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 SEC on March 13, 2019. 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 13, 2019, that can be read at www.sec.gov.

Overview

Acquired Sales Corp. (hereinafter sometimes referred to as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986. We do not currently have any business or any sources of revenue.

We want to acquire all or a portion of one or more operating businesses.

We are currently exclusively exploring potential acquisitions of all or a portion of one or more operating businesses involving the manufacture and sale of cannabidiol (CBD)-infused products such as beverages, muscle/joint rubs, oils, crystals, tinctures, bath bombs, isolate, relief balms, elixirs, body washes, med sticks, lotions, vape pens and cartridges, shatter, and gummies (a “CBD-Infused Products Company”).

In order to consummate a particular acquisition of a CBD-Infused Products Company, we are open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such CBD-Infused Products Company, for example operating businesses and/or assets involving distilled spirits, beer, wine, hemp, paraphernalia, cannabis, tetrahydrocannabinol (THC)-infused products, and real estate. 

Signing of Letter of Intent to Acquire 100% of the Ownership Interests of Warrender Enterprise Inc. d/b/a Lifted Liquids

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On May 23, 2019, we, our CEO Gerard M. Jacobs (“GJacobs”), our President and CFO William C. “Jake” Jacobs (“WJacobs”) and Erik S. Lundgren, CEO of CBD Lion LLC, entered into a Letter of Intent with Warrender Enterprise Inc. d/b/a Lifted Liquids (“Lifted”), and its owner Nicholas S. Warrender to, subject to a number of conditions, acquire 100% of the ownership of Lifted including its affiliated vape shops. The consideration to be paid by the Company in the proposed purchase of Lifted is (i) cash in the amount of $7,500,000; and (ii) equity in the amount of 4,545,455 shares of our common stock (“Stock Consideration”). In the event that the purchase of Lifted occurs, Warrender shall enjoy so-called “piggyback registration rights” in regard to the Stock Consideration, and provided further that Warrender shall enjoy so-called "demand registration rights" in regard to the Stock Consideration if no piggyback registration statement is filed with the SEC within 120 days following the closing of the proposed sale.  

The terms of the proposed transaction 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.

Closing of the acquisition of Lifted is subject to a number of conditions, including but not limited to the completion of due diligence investigation of Lifted by the Company that is acceptable to us, completion of a capital raise by us of at least $9 million, completion of an audit of Lifted acceptable to us, execution of definitive acquisition documents, execution of an employment agreement with Nicholas S. Warrender, obtaining necessary third-party approvals, including a tax opinion to be provided by Lifted’s tax counsel indicating that the proposed acquisition will qualify as a tax-free merger, execution of a shareholders agreement among GJacobs, WJacobs, Nicholas S. Warrender and Erik S. Lundgren, and completion of all necessary securities filings. In the event that most of the foregoing conditions are met, as detailed in the Letter of Intent, prior to the closing of the proposed acquisition, but only if we are requested by Lifted in writing to do so, we will make a $300,000 loan to Lifted to be used by Lifted exclusively for growth capital.

We are currently engaged in due diligence of Lifted and have not yet started to negotiate a definitive agreement for the proposed acquisition. The Letter of Intent will terminate if (i) no audit of Lifted satisfactory to us has been delivered by September 30, 2019; (ii) we fail to raise $9 million by October 31, 2019; or (iii) the proposed purchase has not closed by November 30, 2019 (or such other date as mutually agreed by the parties).

The letter of intent contains customary provisions prohibiting Lifted from soliciting or encouraging any other acquisition proposal or entering into any negotiations or agreements for an alternative acquisition transaction prior to the termination of the Letter of Intent.

In the event that the proposed acquisition of Lifted is completed, the Letter of Intent requires that Lifted shall operate as a wholly-owned subsidiary of the Company under the Lifted brand, led by Nicholas S. Warrender as Lifted’s CEO.

Signing of Letter of Intent to Acquire 100% of the Ownership Interests of CBD Lion LLC

On May 8, 2019, we, GJacobs and WJacobs entered into a Letter of Intent with CBD Lion LLC (“Lion”) and its owners (the “Lion Owners”) to, subject to a number of conditions, acquire 100% of the ownership of Lion (the “Transaction”). The consideration to be paid by us in the proposed acquisition of Lion is: two million dollars ($2,000,000) in cash, plus unregistered common stock of the Company (the "Stock Consideration") in an amount that is the greater of: (i) five million (5,000,000) shares or (ii) a number of shares with a value at closing of the Transaction, based on our share price, equal to 50% of the value of the aggregate consideration deemed paid to the Lion Owners for their ownership interests in Lion, which could hypothetically increase the Stock Consideration to a number significantly higher than five million (5,000,000). The Lion Owners shall have "piggyback registration rights" for the common stock shares underlying the Stock Consideration and "demand registration rights" that are triggered if no registration statement covering the Stock Consideration is filed with the SEC within 120 days following the closing of the Transaction. In addition, the Letter of Intent requires that at the closing of the Transaction, we shall cause up to four hundred sixty-two thousand four hundred thirty dollars ($462,430) of related party debt, plus accrued interest, owed by Lion to be repaid in full. 

The terms of the proposed Transaction 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 Transaction will be consummated. Even if a definitive agreement is executed, the terms of the proposed Transaction may change materially from the terms set forth in the Letter of Intent. There will be many conditions to closing of the Transaction, 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 of the Transaction will occur, even if the parties successfully negotiate and sign a definitive agreement.

Closing of the acquisition of Lion is subject to a number of conditions, including but not limited to the completion of due diligence investigation of Lion by us that is acceptable to us, completion of a capital raise by us of at least $4 million, completion of an audit of Lion acceptable to us, execution of definitive acquisition documents, execution of employment agreements with certain key Lion

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executives, obtaining necessary third-party approvals, including a tax opinion to be provided by Lion’s tax counsel indicating that the proposed Transaction will qualify as a tax-free reorganization, and completion of all necessary securities filings.

We have substantially completed our due diligence of Lion and we are negotiating definitive agreements for the proposed Transaction. The Letter of Intent will terminate if (i) no audit of Lion satisfactory to us has been delivered by August 31, 2019; we fail to raise $4 million by September 30, 2019; or (iii) the proposed Transaction has not closed by October 31, 2019, and the outside closing date has not been extended by mutual agreement of the parties.

The Letter of Intent contains customary provisions prohibiting Lion from soliciting or encouraging any other acquisition proposal or entering into any negotiations or agreements for an alternative acquisition or financing transaction prior to the termination of the Letter of Intent.

In the event that the proposed acquisition of Lion is completed, the Letter of Intent requires that as soon as practicable following the closing of the proposed sale, we will change our name to "CBD Lion Corp.” and request a new trading symbol that better relates to the new proposed name.

Loan for Growth Capital Made to Lion

On August 8, 2019, after the preparation of draft definitive documentation regarding the Transaction, including a draft merger agreement, stockholders agreement, registration rights agreement, and employment agreements, we made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”). The proceeds of the Loan are to be used by Lion exclusively for growth capital and not to be used to repay any related party debt of Lion nor to pay any increased salaries or bonuses to any of the executives of Lion. If the Transaction closes, then the Loan shall be extinguished, because post-closing of the Transaction, Lion and the Company will constitute the same entity. Pursuant to the terms of the Note, if the Transaction does not close and the merger agreement is terminated, then the Loan shall be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement.

Stock Sale and Purchase Agreement – Ablis Holding Company

Ablis Holding Company ("Ablis") produces CBD-infused beverages and other products. Ablis' all-natural, shelf-stable, GMO-free, non-alcoholic, lemon ginger, cranberry blood orange, and 0 calorie lemon water beverages target the mainstream health market and contain no THC. Ablis also manufactures and sells CBD-infused rubs and oils. Ablis' beverages are now being distributed in 11 states, online throughout the country, Puerto Rico and Guam. Also, Silver Moon Brewing, a brewery in Bend, has recently begun producing and selling Hazibliss, Oregon’s first hemp CBD-infused draft beer that incorporates Ablis’ cranberry blood orange CBD beverage.

On April 30, 2019, we, GJacobs, and WJacobs entered into a Stock Sale and Purchase Agreement with Ablis, Ablis, Inc., and James A. Bendis (“Bendis”) wherein we paid $399,200 for a post transaction 4.99% ownership of Ablis' equity. The Stock Sale and Purchase Agreement requires that Ablis use a portion of the purchase proceeds to pay off at least $381,000 of its liabilities. Another portion of the purchase proceeds will make capital available for expanded off-line and online advertising, and additional staff and equipment.

The Stock Sale and Purchase Agreement set out terms for a potential additional equity purchase of Ablis, such that we could purchase up to an additional 15% of Ablis for $1,200,000, so that we would then own 19.99% of the ownership equity of Ablis. Our right to purchase an additional 15% of Ablis expired because it was not exercised on or before July 31, 2019.

The management team of Ablis is continuing to lead Ablis. Pursuant the terms of the Stock Sale and Purchase Agreement, GJacobs is now a member of the board of directors of Ablis, WJacobs is entitled to be provided with access to Ablis' financial information, and WJacobs is entitled to be provided access to Ablis’ financial information. The Stock Sale and Purchase Agreement also requires that GJacobs and WJacobs be introduced to the owners of Ablis’ CBD isolate suppliers, and any other companies in the hemp, CBD and cannabis industries with whom Ablis and/or Bendis have relationships, and whom may potentially be interested in entering into a stock sale or merger with the Company.

The Stock Sale and Purchase Agreement requires that Ablis evaluate and seriously consider a sale of Ablis or taking Ablis public within 60 months from April 30, 2019 and that it use commercially reasonable best efforts, to close a mutually acceptable alternative exit opportunity for the company within 72 months from April 30, 2019.

Our investment in Ablis made us a minority owner of Ablis. As a minority owner, we are not able to recognize any portion of Ablis’ revenues or earnings in our financial statements. We are monitoring our investment in Ablis and from time to time we will evaluate whether there has been a potential impairment of value.

Stock Purchase Agreement - Bendistillery Inc. and Bend Spirits, Inc.

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Founded in 1996, Bendistillery Inc. ("Bendistillery") is an award-winning craft distillery, with an outstanding reputation for producing Crater Lake Spirits brands including vodkas, gins, whiskeys, and white label brands offered through Bend Spirits, Inc. ("Bend Spirits").

On April 30, 2019, we, GJacobs, and WJacobs entered into a Stock Purchase Agreement with Bendistillery, Bend Spirits, Bendis Homes Pinehurst, LLC, an Oregon limited liability company (“Landowner”), Bendis, and Alan T. Dietrich (“Dietrich”) wherein we paid $1,347,300 for a post transaction 4.99% ownership of Bendistillery’s equity and $149,700 for a post transaction 4.99% ownership of Bend Spirits’ equity. Bendistillery and Bend Spirits are in the business of manufacturing and sale of alcoholic beverages, and the manufacturing of CBD-infused beverages and CBD-infused products. The Stock Purchase Agreement requires that Bendistillery and Bend Spirits use a portion of the purchase proceeds to pay off at least $835,000 of their collective liabilities. Another portion of the purchase proceeds will make capital available for expanded off-line and online advertising, and additional staff and equipment.

The Stock Purchase Agreement also set out terms for a potential additional equity purchase of Bendistillery, such that the Company could purchase up to an additional 15% of Bendistillery for $4,050,000, so that the Company would then own 19.99% of the ownership equity of Bendistillery. Per the terms of the Stock Purchase Agreement, the Company potentially could also purchase up to an additional 15% of Bend Spirits for $450,000, such that the Company would then own 19.99% of the ownership equity of Bend Spirits. The Company’s right to purchase an additional 15% of Bendistillery and Bend Spirits expired because it was not exercised on or before July 31, 2019.

Pursuant to the Stock Purchase Agreement, Landowner (as landlord) and Bendistillery (as tenant) have entered into a long-term lease of the 23 acres in Tumalo outside Bend, Oregon, where Bendistillery and Bend Spirits conduct their businesses (the “Real Estate”), which lease (the “Lease”) is consistent with the following terms: the initial term of the Lease is 20 years at a rent of $17,500 per month; Tenant has the right, in its sole discretion, to exercise a series of options to extend the term of the Lease up to a maximum of 99 years; and Tenant has a 60-day right of first refusal if Landowner ever decides to sell all or any portion of the Real Estate. Bendis is the owner of Landowner.

The management teams of Bendistillery and Bend Spirits are continuing to lead their respective companies. Pursuant the terms of the Stock Purchase Agreement, GJacobs is now a member of the boards of directors of Bendistillery and Bend Spirits, WJacobs is entitled to be provided with access to Bendistillery’s and Bend Spirits’ financial information, and WJacobs is entitled to be provided access to Bendistillery’s and Bend Spirits’ financial information. Bendistillery and Bend Spirits are obligated to pay WJacobs an advisory fee of not less than $5,000 per quarter. The Stock Purchase Agreement also requires that GJacobs and WJacobs be introduced to the owners of Deschutes Brewery, Silver Moon Brewing, LBD Beverage, and any other companies in the distilled spirits, beer, wine, hemp, CBD and cannabis industries with whom Bendistillery, Bend Spirits, Bendis and/or Dietrich have relationships, and whom may potentially be interested in entering into a stock sale or merger with us.

The Stock Purchase Agreement requires that Bendistillery and Bend Spirits evaluate and seriously consider a sale of Bendistillery and Bend Spirits or taking them public within 60 months from April 30, 2019 and that they use commercially reasonable best efforts to close a mutually acceptable alternative exit opportunity for the companies within 72 months from April 30, 2019.

Our investments in 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 Bendistillery’s or Bend Spirits’ revenues or earnings in our financial statements. We are monitoring our investment in Ablis and from time to time will evaluate whether there has been a potential impairment of value.

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, we accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of 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. On August 2, 2019, we filed a Form S-1 registration statement covering the shares of newly issued common stock of the Company into which the Series A Preferred Stock can be converted (the "Registration Statement"). The Registration Statement has not yet been approved by the SEC. The Series A Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock. As of June 30, 2019, we accrued a liability of $44,977 as dividends payable to holders of the Series A Preferred Stock.

Liquidity and Capital Resources

The following table summarizes our current assets, current liabilities, and working capital as of June 30, 2019 and December 31, 2018, as well as cash flows for the six months ended June 30, 2019 and 2018.

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Results of Operations

Comparison of June 30, 2019 to June 30, 2018

At June 30, 2019, we had cash and cash equivalents of $4,341,023; in comparison, at June 30, 2018, we had cash and cash equivalents of $0. Also, at June 30, 2019, we had prepaid expenses for professional fees of $2,083; in comparison, we had no prepaid expenses at June 30, 2018. Our other assets include our investments in Ablis, Bendistillery and Bend Spirits, which total $1,896,200.

Total current assets at June 30, 2019 of $4,343,106 are adequate to fund current operations and to allow the Company to close on its planned acquisition of CBD Lion LLC. In comparison, total current assets at June 30, 2018 of $0 were not adequate to fund current operations or to fulfill corporate obligations or to fund growth and potential acquisitions. 

Current liabilities at June 30, 2019 of $86,099 consisted of dividends payable of $44,977 to our Series A Preferred Stock shareholders, trade accounts payable of $22,052, and accounts payable to related parties of $19,070. Accounts payable to related parties consisted of expense reimbursements and consulting fees, and trade accounts payable consisted of liabilities for professional fees. In comparison, current liabilities at June 30, 2018 of $267,143 consisted of accounts payable to related parties of $155,322 and trade accounts payable of $111,821.

Comparison of the three and six months ended June 30, 2019 to June 30, 2018

During the three and six months ended June 30, 2019, we incurred selling, general and administrative expenses of $44,749 and $71,221, respectively. Selling, general and administrative expenses primarily consisted of professional fees and independent contractor fees. In comparison, during the three and six months ended June 30, 2018, we incurred selling, general and administrative expenses of $16,579 and $33,574, respectively. Selling, general and administrative expenses primarily consisted of independent contractor fees and the reimbursement for expenses incurred by our CEO and independent contractor.

During the quarter ended June 30, 2019, we recognized stock compensation expense of $834,186, primarily related to the value of warrants to purchase unregistered shares of common stock issued to brokers for the capital raised for the Company by such brokers in the Company’s private placement of Series A Preferred Stock. Using the Black-Scholes model, these warrants had a value of $793,478. Also contributing to the interest expense recognized during the second quarter of 2019 was warrants to purchase $40,708 worth of unregistered shares of common stock, which the Company issued to two finders in regard to the purchase of 4.99% of the stock of Ablis.

In comparison, last year, on April 1, 2018, we issued to a director and to an independent contractor rights to purchase warrants, for an aggregate purchase price of $2.00, an aggregate of 250,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024; we recorded stock compensation expense of $72,500 related to these rights to purchase warrants during the three and six months ended June 30, 2018.

During the six months ended June 30, 2019, we recognized interest expense of $27,998; this related to the issuance of financing warrants and the related interest (please refer to Note 6 – Amounts Owed to Related Parties and Third Parties for more information). In comparison, there was no interest expense recognized during the six months ended June 30, 2018.

During the six months ended June 30, 2019, we used cash of $346,483, primarily to pay accrued independent contractor fees and to pay professional fees. In comparison, during the six months ended June 30, 2018, $0 cash was used in operating activities. Also, during the six months ended June 30, 2019, $1,896,200 was used in investing activities; this cash was invested in Ablis, Bendistillery and Bend Spirits. In comparison, during the six months ended June 30, 2018, $0 was used in investing activities.

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Lastly, during the six months ended June 30, 2019, $6,583,706 was provided by financing activities; this cash was primarily provided by the issuance of Series A Preferred Stock, and was primarily offset by the repayment of borrowings under notes payable to related parties.

During the six months ended June 30, 2019, cash increased by $4,341,023, and we had $4,341,023 in unrestricted cash at June 30, 2019. During the six months ended June 30, 2018, cash decreased by $0, leaving us with $0 in unrestricted cash at June 30, 2018.

We currently have no revenue-generating subsidiaries. We plan to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing profitable businesses that will create positive income from operations; (2) acquiring valuable real estate in exchange for common stock and/or preferred stock; and/or (3) completing private placements of our common stock and/or preferred stock. We believe that by taking these actions, we will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurance that we will be successful in consummating such actions on acceptable terms, if at all. Moreover, 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 are not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in our financial statements. The Company is monitoring its investments in Ablis, Bendistillery and Bend Spirits, and from time to time will evaluate whether there has been a potential impairment of value.

Critical Accounting Policies

Use of Estimates – Please refer to Note 2 – Basis of Presentation and Significant Accounting Policies.

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.

Basic and Diluted Earnings (Loss) Per Common Share – Please refer to Note 2 – Basis of Presentation and Significant Accounting Policies.

Recent Accounting Pronouncements – Please refer to Note 2 – Basis of Presentation and Significant Accounting Policies.

Off Balance Sheet Arrangements – We have no off-balance sheet arrangements.

Investments in Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc.

Please refer to Note 4 – The Company’s Investments in Ablis, Bendistillery and Bend Spirits.

The William Noyes Webster Foundation, Inc.

Please refer to Note 5 – Notes Receivable.

Other Matters

We may be subject to other legal proceedings, claims, and litigation arising in the ordinary course of business. We intend to defend vigorously against any such claims. Although the outcome of these other matters is currently not determinable, our management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on its financial position, results of operations, or cash flows.

As a smaller reporting company, we are not required to provide the information required by this Item.

Evaluation of Disclosure Controls and Procedures

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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, 2019, 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 SEC 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, 2018, 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, 2019. 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.

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.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

The target companies may rely on contract manufacturers to manufacturer their products. If the target companies are unable to maintain good relationships with their existing contract manufacturers and/or secure such contract manufacturers, their businesses could suffer

Many of the target companies’ contract manufacturers are affiliated with and manufacture other CBD-infused product brand products. In many cases, such products compete directly with the target companies’ products. If the target companies are unable to maintain good relationships with their existing contract manufacturers and/or secure such contract manufacturers, their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.

The US FDA considers the sale of most CBD-infused products to be illegal

The US Food and Drug Administration (the “FDA”) appears to believe that CBDs are drugs, and that the sale of most CBD-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 CBD-infused products are illegal. There can be no guarantee or assurance whatsoever that this regulatory hostility to CBDs will be resolved favorably to the CBD products industry. Aggressive law enforcement against the CBD industry by federal, state or local authorities and agencies could have a material adverse effect upon our Company and the trading price of our common stock.

CBD-infused products may be shown to have negative health and/or safety impacts upon consumers

The health and safety impacts of CBDs have not yet been established via traditional scientific and/or clinical studies. If scientific and/or clinical studies ultimately demonstrate negative health and/or safety impacts upon consumers, our Company's business and the trading price of our common stock could be materially adversely affected.

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Hemp and CBD-infused products are illegal if they exceed 0.3% THC

Hemp and CBD-infused products which exceed a THC concentration of 0.3% are illegal. Any failure to keep the THC concentration in hemp or CBD-infused products below 0.3% could subject us to action by regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon our Company's business and the trading price of our common stock.

In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the THC levels reflected in consumers’ blood tests are the result of CBD-infused products or THC-infused products. This may result in regulatory actions or lawsuits that could have a material adverse effect upon our Company's business and the trading price of our common stock.

Also, certain hemp products may, over time, gradually increase their THC concentration, and this may ultimately cause such products to exceed the 0.3% THC concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon our Company and the trading price of our common stock.

The price of CBD raw materials could spike as demand for CBD-infused products increases dramatically

Although considerable additional hemp acreage is being developed around the country which is expected to increase the supply of CBD isolate, distillate and water-soluble CBD, the demand for these raw materials is also growing dramatically, and any spike in the price of these raw materials could materially adversely affect our Company and the trading price of our common stock.

Target companies' management may not fit well into our corporate culture

If target companies' management does not fit well into our corporate culture, this could make us less attractive to potential investors, future acquisition targets may be uninterested in merging with us, and the overall chemistry among the executives in our Company could be damaged, which would materially adversely affect our Company and the trading price of our common stock.

Large competitors are expected to enter the CBD-infused product industry

We expect that over the next few years several major beverage and other consumer products companies with tremendous financial resources will emerge to compete against our Company in the CBD-infused products industry. We may not have the personnel, products, marketing and distribution capabilities, and/or financial resources to compete effectively against such larger companies, which could materially adversely affect our Company and the trading price of our common stock.

Alcoholic beverage sales are subject to slowdowns and are seasonal

Bendistillery Inc. and Bend Spirits, Inc. are involved in the sale of a variety of distilled alcoholic beverages including vodka, whiskey and gin, and their sales of such beverages are subject to occasional slowdowns and are seasonal. Also, some health conscious consumers are reducing or eliminating their alcohol consumption entirely. These factors could adversely affect the value of our ownership interest in those companies, which could materially adversely affect our Company and the trading price of our common stock.

Alcoholic beverage distributors are powerful and control much of the marketplace

Bendistillery Inc. and Bend Spirits, Inc. distribute their distilled alcoholic beverages through a limited number of powerful distributors that control much of the marketplace for alcoholic beverages. The loss of such distributors, or disruptions to the operations of such distributors, could adversely affect the value of our ownership interest in those companies, which could materially adversely affect our Company and the trading price of our common stock.

Increases in labor costs could harm the target companies' businesses

The U.S. in general, and Bend, Oregon in particular, are experiencing very low unemployment, which generally results in rising labor costs. Such rising labor costs are adversely affecting the expenses of Bendistillery Inc. and Bend Spirits, Inc., and may adversely affect the expenses of other target companies' businesses, which could materially adversely affect our Company and the trading price of our common stock.

Unregistered sales of equity securities during the period were disclosed in Item 3.02 of the current report on Form 8-K filed on May 10, 2019.

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None; not applicable.

None; not applicable.

None; not applicable.

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.

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Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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