PART II AND III 2 partiiandiii.htm

 

PART II – OFFERING CIRCULAR

 

An offering statement pursuant to Regulation A relating to these shares has been filed with the U.S. Securities and Exchange Commission (the “Commission”). Information contained in this preliminary offering circular is subject to completion or amendment. These shares may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This preliminary offering circular shall not constitute an offer to sell or a solicitation of an offer to buy or sell any of these shares in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a final offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the final offering circular or the offering statement in which such final offering circular was filed may be obtained.

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

Preliminary Offering Circular dated February 21 , 2018

 

 

SACK LUNCH PRODUCTIONS, INC.

 

2,400,000 shares of Series E Convertible Preferred Stock

 

This is an initial public offering of our Series E Convertible Preferred Stock (the “Series E Preferred Stock”). The offering price is $ 5.00 per share.

 

The offering consists of 2,400,000 shares of Series E Preferred Stock (the “Offering Shares”). None of our existing shareholders, nor any of our officers, directors or affiliates is selling any securities in this offering.

 

   

 

 

In the event all of the Offering Shares are sold, we may, in our discretion, sell up to 400,000 additional newly issued shares of Series E Preferred Stock (“Additional Shares”) in the offering.

 

The Series E Preferred Stock is convertible, no earlier than one year after issuance, into that number of shares of our common stock determined by dividing the Original Issue Price by the Conversion Price. The “Original Issue Price” is $5.00 per share of Series E Preferred Stock and the “Conversion Price” is 85.0% multiplied by the Market Price. See “Description of Registrant’s Securities to be Qualified” beginning on page 44.

 

Our Series E Preferred Stock is not currently quoted or traded on any exchange or marketplace. Following this offering, we intend to seek a market maker that will submit a Form 211 to have the Series E Preferred Stock quoted on the over-the-counter marketplace.

 

There is no minimum number of Offering Shares that we must sell in order to conduct a closing in this offering. The offering will commence within two calendar days after this offering circular has been qualified by the Commission. See “Plan of Distribution” on page 13. This offering will terminate upon the earlier of when all shares qualified hereunder are sold or [90 days] after this offering circular has been qualified by the Commission.

 

Although our common stock is quoted on the OTC-Pink (symbol “SAKL”), there has been a very limited trading market in our common stock, and it is not anticipated that an active market will develop as a result of this offering. See “Risk Factors” beginning on page 5 and “Plan of Distribution” on page 13. As of February 20 , 2018, the last reported sales price of our common stock was $0.0225 . No shares of Series E Preferred Stock have been issued prior to the Offering.

 

See “Risk Factors” beginning on page 5 of this offering circular for a discussion of information that should be considered in connection with an investment in such securities.

 

The Commission does not pass upon the merits of or give its approval to any securities offered or the terms of the offering, nor does it pass upon the accuracy or completeness of any offering circular or other solicitation materials. These securities are being offered pursuant to an exemption from registration with the Commission; however, the Commission has not made an independent determination that the securities offered are exempt from registration.

 

   Price Per Share   Selling Agents’ Discounts and Commissions(1)(2)   Proceeds to Our Company(2) 
Offering Shares  $5.00   $1,680,000   $10,320,000 

 

(1) We do not have any agreement in place with a selling agent. These expenses are estimated at 14% of the Offering Price based on our observation of standard market prices.
   
(2) Assumes that all of the Shares offered are sold and we have not taken advantage of our option to sell any Additional Shares as described herein.

 

   

 

 

We plan to market this offering to potential investors through our officers or we may engage broker-dealers and selling agents. This offering will terminate on [______], 2018, subject to extension for up to ninety (90) days, in our sole discretion (the offering period, as extended, being referred to as the “Offering Period”). We may hold an initial closing on any number of Offering Shares at any time during the Offering Period and thereafter may hold one or more additional closings during the Offering Period. We will close on proceeds based upon the order in which they are received. With respect to Additional Shares, however, we may accept or reject orders in our sole discretion. We will consider various factors in determining the timing of any additional closings following the initial closing, including the amount of proceeds received at the initial closing and any prior additional closings. See “Plan of Distribution” on page 13.

 

We may decide to extend the offering, close the offering early, or cancel it, in our sole discretion. If we extend the offering, we will provide that information in an amendment to this offering circular. If we close the offering early or cancel it, we may do so without notice to you, although if we cancel the offering all funds that may have been provided by any investors will be promptly returned without interest or deduction. See “Plan of Distribution” on page 13.

 

This is a Regulation A+ Tier 2 offering.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company reporting requirements. As a smaller reporting company within the meaning of Rule 405, we are following the Form S-1 disclosure requirements for smaller reporting companies. This offering circular is intended to provide the information required by Part I of Form S-1.

 

_______, 2017

 

   

 

 

TABLE OF CONTENTS

 

PART II – OFFERING CIRCULAR
SUMMARY 1
RISK FACTORS 5
USE OF PROCEEDS 12
PLAN OF DISTRIBUTION 13
DETERMINATION OF OFFERING PRICE 15
DILUTION 16
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
BUSINESS 25
MANAGEMENT 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 41
DESCRIPTION OF REGISTRANT’S SECURITIES TO BE QUALIFIED 42
INTERESTS OF NAMED EXPERTS AND COUNSEL 44
PROPERTIES 44
LEGAL PROCEEDINGS 45
FINANCIAL STATEMENTS 46
Cautionary Statement Regarding Forward Looking Statements
General

 

“Slide The City™, Lantern Fest™, Color Me Rad 5K™, The Dirty Dash™, Trike Riot™.” and related names are trademarks owned by Sack Lunch Productions, Inc. (“Sack Lunch”). Solely for our convenience, trademarks and trade names referred to in this offering circular may appear without the “®” or “™” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name, or service mark of any other company appearing in this offering circular is the property of its respective holder.

 

You should rely only on the information contained in this offering circular. We have not authorized anyone to provide you with different information.

 

The information in this offering circular assumes that all of the Shares offered are sold and we have not taken advantage of our option to sell any Additional Shares as described herein.

 

Unless otherwise stated in this offering circular, “we,” “us,” “our,” “our company” or “Sack Lunch” refers to Sack Lunch Productions, Inc. and our predecessor operations.

 

   

 

 

SUMMARY

 

This summary highlights certain information appearing elsewhere in this offering circular. For a more complete understanding of this offering, you should read the entire offering circular carefully, including the risk factors and the financial statements.

 

Forward-Looking Statements

 

This document contains forward-looking statements. All statements pertaining to our future financial and/or operating results, future events, or future developments may constitute forward-looking statements. The statements may be identified by words such as “expect,” “look forward to,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “project,” or words of similar meaning. Such statements are based on the current expectations and certain assumptions of our management, of which many are beyond control. These are subject to a number of risks, uncertainties, and factors, including but not limited to those described in disclosures. Should one or more of these risks or uncertainties materialize, or should underlying expectations not occur or assumptions prove incorrect, actual results, performance, or achievements of the Company may (negatively or positively) vary materially from those described explicitly or implicitly in the relevant forward-looking statement. We neither intend, nor assume any obligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated.

 

Overview

 

We are an action-oriented events and entertainment company providing immersive experiences that bring families, friends and communities together through corporate hosted and managed events across the U.S. and Canada. In addition, we operate globally through a proven franchise system. We own, operate, and hold exclusive rights or an equity interest in well-branded events including Slide The City™, Lantern Fest™, Color Me Rad 5K™, The Dirty Dash™, and our newest event series, Trike Riot™.

 

We generate revenue primarily from selling admission to our unique community-building events and activities, franchise agreements, license agreements, corporate sponsorship as well as the sale of health and beauty products and services.

 

Our revenue will take a different form in 2018; we will primarily generate event income from royalty payments for licensing our events. Effective as of December 31, 2017, we entered into license agreements with Happy Fun Events LLC. These agreements grant Happy Fun Events LLC an exclusive license in North America to conduct events for Lantern Fest, Slide the City, Color Me Rad and Dirty Dash. A royalty equal to 15% of Net Operating Profits will be due from the events operated by Happy Fun Events LLC.

 

Our History

 

On April 20, 1987, Sack Lunch Productions, Inc. was incorporated under the laws of the State of Colorado. On October 5, 2000 we merged with a Nevada corporation with the same name, and later changed our state of incorporation to Utah. Green Endeavors, Inc., a Utah corporation, was originally organized as Jasper Holdings.com, Inc. We currently hold 75% of Green Endeavor’s shares of common stock and have voting control of 99% of the total outstanding votes. We currently own 100% of Lantern Fest Productions, Inc., Slide the City Productions, Inc., Color Me Rad Productions, Inc., Trike Riot Productions, Inc. and The Dirty Dash Productions, Inc., Wasatch Capital Corporation, Downtown Development Corporation and Diversified Management Services, Inc.

 

1
 

 

Our Products and Services

 

Admission Tickets and Royalties

 

We generate revenue from selling admission to our events. For the year ended December 31, 2016, event admissions accounted for approximately 74% or our revenue. We maintain an online presence including social media to promote advanced sales and provide guests convenience and easy entry.

 

Our revenue will take a different form in 2018; we will primarily generate event income from royalty payments for licensing our events. Effective as of December 31, 2017, we entered into license agreements with Happy Fun Events LLC. These agreements grant Happy Fun Events LLC an exclusive license in North America to conduct events for Lantern Fest, Slide the City, Color Me Rad and Dirty Dash. We will receive royalty payments equal to 15% of Net Operating Profits from the events operated by Happy Fun Events LLC.

 

Franchise Agreements

 

We generate revenue through fees associated with our branded franchise systems, Slide the City and Color Me Rad. In accordance with our franchise agreements, all franchisees pay fees including lump sum franchise fees, development fees, equipment and asset fees, royalty fees, installment plan fees, deposit fees, advertising fees, local advertising cooperative fees, on-site consultation fees, annual state renewal fees, transfer fees, late charges, testing or supplier approval fees, default and indemnity fees, audit fees, interim management fees, system non-compliance fees. In addition, franchisees purchase trademarked products, services, event assets, event supplies, event equipment, and promotional items from us. During the fiscal year ended December 31, 2016, franchise operations generated approximately 4% of our total revenue.

 

Corporate Sponsorships and Strategic Alliances

 

We create and maintain long-term corporate sponsorship and strategic alliances with leading companies and brands. Utilizing a combination of strategic, international, national and local opportunities that allow businesses to reach customers through our events, we add significant brand marketing value and drive mutual business gains. Our corporate sponsors during 2015 and 2016 included, among others, Sprite, Sony, Nestle, Nivea, CBS, Razer, GoPro, Uber, Aaape, Vita Coco, and Hong Kong Airlines. During 2016 sponsorship and advertising generated approximately 2% of our total revenue.

 

Health and Beauty Services and Products

 

Green Endeavors, Inc., a subsidiary, provides a wide range of upmarket health and beauty services and Aveda products targeted at a high-end clientele. For the year ended December 31, 2016, the sale of health and beauty services and products accounted for 23% of our revenue.

 

Competitive Strengths

 

Driving dynamic innovation that capitalizes on the power of nostalgia, we believe our events tap into an intrinsic need to revisit the wonder and awe of childhood experiences and a desire to share these traditions with the next generation. We believe our competitive strengths to be our unique blend of entertainment and event promotion that targets an underserved millennial demographic. Utilizing both corporate managed events and a franchise model to garner a large market share, our scalable business model allows us to expand worldwide. With proven operating experience and an impressive list of corporate sponsors, our high-profile events effectively increase publicity through positive media coverage and generate revenue through admission sales and franchise agreements.

 

2
 

 

Our strategy is to grow and innovate through the initiatives listed below:

 

  Maintain and utilize a database of millions of potential participants;
     
  Expand and utilize our social media followers and reach to procure sponsors and participants;
     
  Create new, innovative events that appeals to both new and existing participants;
     
  Increase our brand offerings through acquisitions that contribute substantially to short and long-term growth; and
     
  Expand into new geographic markets.

 

We believe our focus on franchise growth and the continued acquisition of branded events will increase shareholder value as we continue to grow our revenue, earnings and cash flow. With over 200 projected corporate and franchise events worldwide in 2018 that optimize our cost structure, we believe we will continue to strengthen our core operations as we expand into additional global markets.

 

Each of these events incorporates quality vendors that provide live music, food and drinks to service the festivities. These events, which are entertainment and not sporting events, attract a wide and diverse attendance from all age groups and especially appeal to families and young people.

 

3
 

 

The Offering

 

Securities offered and price per share:   Up to 2,800,000 shares of Series E Preferred Stock, at $5.00 per share (“Shares”).
     
Best efforts offering:   There is no minimum number of Offering Shares that we must sell in order to conduct a closing in this offering. If all the Offering Shares are sold in the offering, we will have the option to sell up to 400,000 additional newly issued shares in the offering in our discretion (“Additional Shares”). Our directors and officers shall be entitled to purchase Shares in the offering.
     
Securities outstanding prior to this offering:  

1,687,

750 shares of common stock

505,750 shares of Series A Preferred Stock

14,750,000 shares of Series B Preferred Stock

360,233 shares of Series C Preferred Stock

35,000 shares of Series D Preferred Stock

     
Securities outstanding after this offering:  

1,687,455 shares of common stock

505,750 shares of Series A Preferred Stock

14,750,000 shares of Series B Preferred Stock

360,233 shares of Series C Preferred Stock

35,000 shares of Series D Preferred Stock

2,400,000 shares of Series E Preferred Stock(1)

     
Use of proceeds:   See “Use of Proceeds” beginning on page 11.
     
Risk factors:   Investing in our preferred and common stock involves a high degree of risk. See “Risk Factors” beginning at page 5.

 

(1) If we sell the Additional Shares, 2,800,000 shares of Series E Preferred Stock will be outstanding after the offering.

 

Corporate Information

 

Our principal executive offices are located at 59 West 100 South Salt Lake City, Utah 84101, telephone: 801–575–8073 Ext.111. Our principal website is www.sacklunchproductions.com. Our common stock is quoted on the OTC Markets and trades under the symbol “SAKL.”

 

We file annual, quarterly and special reports and other information with OTC Markets. Our filings with the OTC Markets site are available to the public on otcmarkets.com. Those filings are also available to the public on, or accessible through, our website for free via the “Investor Info” section at www.sacklunchproductions.com.

 

4
 

 

RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this offering circular, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

 

Risks Related to Our Business and Our Industry

 

Our business is highly sensitive to changes in consumer preferences.

 

We believe that consumers are often looking for new ways to remain active as well as be entertained. We must be able to constantly adapt our events to changing technologies and preferences for exercise and entertainment. Our events are generally meant to appeal to a sense of nostalgia which is ever changing depending on the segment of the population we are targeting. We must be able to appeal to newer generations by creating themes, colors, music and activities that meet current consumer preferences whatever those preferences may be. Some of our events may not be appealing to attend multiple times without adequately varying the experience from season to season. If we cannot adequate brand, modify, innovate or improve our events with themes and activities that are in alignment with changes in consumer preferences, we may be unable to attract participants, which would have a negative impact on revenues.

 

We may not be able to attain profitability without additional funding, which may be unavailable.

 

We have limited capital resources. Unless we begin to generate sufficient revenues from our business to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to lay off a substantial portion of our event staff or go out of business if additional financing is not available. We have no intention of liquidating. In the event our cash resources are insufficient to continue operations, we intend to raise additional capital through offerings and sales of equity or debt securities. In the event we are unable to raise sufficient funds, we will be forced to go out of business and will be forced to liquidate. A possibility of such outcome presents a risk of complete loss of investment in our common stock.

 

We face intense competition in the live events industry, and we may not be able to maintain or increase our current revenue, which could adversely affect our business, financial condition and results of operations.

 

Our business is in a highly competitive industry, and we may not be able to maintain or increase our current revenue due to such competition. The live event industry competes with other forms of entertainment for consumers’ discretionary spending and within this industry we compete with sporting events, charity races, music performers and other live events. We face competition from other promoters and venue operators. Our competitors may engage in more extensive development efforts, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential artists. Our competitors may develop services, advertising options or venues that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It is possible that new competitors may emerge and rapidly acquire significant market share.

 

Royalties due under our license agreements depend on the profit earned by the licensee, and if the licensee is unable to profitably run the licensed events, our revenues may decline.

 

Happy Fun Events LLC (the “Licensee”) holds licenses to operate Lantern Fest, Slide the City, Dirty Dash and Color Me Rad events from which the Company is entitled to receive a royalty equal to 15% of the Net Operating Profit, expenses including only reasonable executive compensation. The term Net Operating Profit includes the total of all sales of all products, goods or services sold or rendered by the Licensee and income of every kind and nature arising from the licensed business, including sponsorships and tangible property of every kind sold by it during the term of the License Agreement, less expenses of operations, cost of goods sold. Royalties will thus be limited by the Licensee’s ability to operate events that generate Net Operating Profits. We have very limited control over the operations of the Licensee, and if the Licensee is unable to control expenses and attract enough participants to the licensed events, royalties due under the license agreements will decline and have an adverse effect on our financial performance.

 

Furthermore, the license agreements give us the option to buy back the licensed rights from the Licensee for a two-year period. The purchase price of the buy-back option is the amount that expenses exceed revenue at the time of the buy back. If the Licensee incurs significant expenses or fails to generate sufficient revenue, it will be more difficult to buy back the licenses and improve the profitability of the events we have licensed to the Licensee.

 

5
 

 

Other variables that could adversely affect our financial performance by causing unfavorable fluctuations in operating costs which we may be unwilling or unable to pass through to our customers include:

 

  Competitors’ offerings that may include more favorable terms than we offer in order to obtain agreements for new venues or ticketing arrangements or to obtain events for the venues they operate;
  Technological changes and innovations that we are unable to adopt or are late in adopting that offer more attractive entertainment alternatives than we or other entertainment providers currently offer, which may lead to a reduction in attendance at our events;
  Other entertainment options available to our audiences that we do not offer;
  General economic conditions which could cause our consumers to reduce discretionary spending;
  Unfavorable changes in labor conditions which may require us to spend more to retain and attract key employees; and
  Unfavorable shifts in population and other demographics which may cause us to lose audiences as people migrate to markets where we have a smaller presence, or which may cause sponsors to be unwilling to pay for sponsorship and advertising opportunities if the general population shifts into a less desirable age or geographical demographic from an advertising perspective.

 

The occurrence of any of such variables leading to an adverse effect on our financial performance could adversely affect our business, financial condition and results of operations.

 

There is the risk of personal injuries and accidents in connection with our events, which could subject us to personal injury or other claims and increase our expenses, as well as reduce attendance at our events, causing a decrease in our revenue.

 

There are inherent risks involved with our events. As a result, personal injuries and accidents have, and may, occur from time to time, which could subject us to claims and liabilities for personal injuries. Incidents in connection with our events at any of our venues could also result in claims, reducing operating income or reducing attendance at our events, which could cause a decrease in our revenue. While we maintain insurance policies that provide coverage within limits that are sufficient, in management’s judgment, to protect us from material financial loss for personal injuries sustained by persons at our venues or events or accidents in the ordinary course of business, there can be no assurance that such insurance will be adequate at all times and in all circumstances.

 

Our business and the success of our events depend on our ability to secure venues that we do not own, and if we are unable to do so on acceptable terms, or at all, our events may be moved to less desirable venues or cancelled, in each case adversely affecting our results of operations.

 

The events that we produce depend upon our ability to lease venues or obtain certain government permits and approvals from third parties over which we have no control. We may be unable to secure these venues and the necessary leases, permits or approvals. Our ability to reserve certain venues depends on a number of factors, including national and local business conditions, competition with other events and changes to local laws and ordinances.

 

6
 

 

Our liabilities exceed our assets and we may not be able to continue our business if we do not raise additional funds to service and pay off our debts.

 

As of June 30, 2017, our total liabilities were $10,947,823 and our total assets were $5,047,806. On that same date, we had negative working capital of $7,880,261. The continuation of our business depends on our ability to pay off or refinance our debt. Because our revenues are not sufficient to service all of our debts, we will depend on the sale of preferred stock, convertible notes and common stock to finance our operations. Failure to raise the necessary funds through the sale of securities or issuing new debt may result in default under the terms of our debt agreements. If we are not able to repay our debts, we may face litigation from creditors and be forced to sell our assets. Another potential action to improve cash flows is the divestiture of Green Endeavors Inc. On June 16, 2017, TCA Global Credit Master Fund filed a complaint against us seeking unpaid payments that were due under a secured credit facility agreement, this matter has been resolved and the pending litigation has been dismissed.

 

Our Lantern Fest® events are subject to extra review and regulation due to the use of fire and airborne lanterns in the events.

 

There are a number of states that have adopted laws prohibiting the release of sky lanterns under any condition. Drought and other events causing a high level of fire danger can also lead to government officials prohibiting the release of sky lanterns. Recently scheduled events in the State of North Carolina have been cancelled as the results of changes in the state’s fire code. During 2016 the Federal Aviation Administration (FAA) created an Aviation Rulemaking Committee to develop recommendations regarding rules on the “safe operation of “… unmanned free balloons, fireworks, sky lanterns…” Engineering reports prepared by the Company indicated that based on the short burn time of the fuel cells in the sky lanterns used by Lantern Fest® the maximum elevation and disbursement of the lanterns is limited and allow for the safe use of the lanterns within guidelines used in our operations. However, government regulations may prohibit or limit our ability to conduct Lantern Fest® events and adversely impact our income.

 

Our operations are seasonal and the occurrence of certain events during our peak times could have a negative impact on our results of operations.

 

Our special events operations are highly seasonal. Most of our events are in the summer. If certain events arise during these events, attendance may drop resulting in a reduction of revenue. The occurrence of any of the following events could adversely impact the success of the events we sponsor and our results of operations:

 

  Adverse weather conditions, including drought conditions;
  Terrorist acts;
  Competitive sporting events; and
  Other entertainment events.
  We may need to layoff event staff during the off-season for our events, this may affect our ability to re-hire those experienced people for the next season.

 

7
 

 

Activities or conduct, such as illegal drug use, at our events may expose us to liability, cause us to lose business licenses or government approvals, result in the cancellation of all or a part of an event or result in adverse publicity.

 

We are subject to risks associated with activities or conduct, such as drug use at our events or venue that are illegal or violate the terms of our business licenses. Illegal activities or conduct at any of our events or venues may result in negative publicity, adverse consequences (including illness, injury or death) to the persons engaged in the illegal activity or others, and litigation against us. We have developed policies and procedures aimed at ensuring that the operation of each event is conducted in conformance with local, state and federal laws. Additionally, we have a ‘‘no tolerance’’ policy on illegal drug use in or around our events, and we continually monitor the actions of participants, guests, customers and our employees to ensure that proper behavioral standards are met. However, such policies, no matter how well designed and enforced, cannot provide absolute assurance that the policies’ objectives are achieved. Because of the inherent limitations in all control systems and policies, there can be no assurance that our policies will prevent deliberate acts by persons attempting to violate or circumvent them. The consequences of these acts may increase our costs, result in the loss or termination of certain business relationships, result in our inability to get the necessary permits and locations for our events, or lead to the cancellation of all or part of an event. These consequences may also make it more difficult for us to obtain or retain sponsorships, lower consumer demand for our events, subject us to liability claims, divert management’s attention from our business and make an investment in our securities unattractive to current and potential investors. These outcomes could have the effect of lowering our revenue, profitability and/or our stock price.

 

Costs associated with, and our ability to obtain, adequate insurance could adversely affect our profitability and financial condition.

 

Heightened concerns and challenges regarding property, casualty, liability, business interruption and other insurance coverage have resulted from terrorist and related security incidents along with varying weather-related conditions and incidents. As a result, we may experience increased difficulty obtaining high policy limits of coverage at reasonable rates, including coverage for acts of terrorism and weather-related property damage. We have material investments in future and recurring events, which are located in or near major cities and which hold events typically attended by a large number of participants, guests and customers.

 

These operational, geographical and situational factors, among others, may result in significant increases in insurance premium costs and difficulties obtaining sufficiently high policy limits with deductibles that we believe to be reasonable. We have 7 lawsuits pending in which we, or our one of our subsidiaries, are named as a defendant. We currently pay over $160,000 in insurance premiums annually to address these risks. We cannot assure that future increases in insurance costs and difficulties obtaining high policy limits will not adversely impact our profitability, thereby possibly impacting our operating results and growth.

 

We cannot guarantee that our insurance policy coverage limits, including insurance coverage for property, casualty, liability and business interruption losses and acts of terrorism, would be adequate under the circumstances should one or multiple events occur at or near any of our events, or that our insurers would have adequate financial resources to sufficiently or fully pay our related claims or damages. We cannot guarantee that adequate coverage limits will be available, offered at reasonable rates, or offered by insurers with sufficient financial soundness. The occurrence of such an incident or incidents affecting our existing events or any one or more of our future events could have a material adverse effect on our financial position and future results of operations if asset damage and/or company liability were to exceed insurance coverage limits or if an insurer were unable to sufficiently or fully pay our related claims or damages.

 

8
 

 

We face risks associated with security breaches or cyber-attacks.

 

We face risks associated with security breaches or cyber-attacks of our computer systems or those of our third-party representatives, vendors, and service providers. Our sales are conducted online. If we are unable to complete sales through our online sales platforms, our sales will be adversely impacted. In addition, we rely on advertising through email and social media. If our accounts are compromised, it will limit our ability to reach our audience and adversely impact our sales. Although we have implemented security procedures and controls to address these threats, our systems may still be vulnerable to data theft, computer viruses, programming errors, attacks by third parties, or similar disruptive problems. If our systems, or systems owned by third parties affiliated with our company, were breached or attacked, the proprietary and confidential information of our company and our customers could be disclosed and we may be required to incur substantial costs and liabilities, including the following: expenses to rectify the consequences of the security breach or cyber-attack; liability for stolen assets or information; costs of repairing damage to our systems; lost revenue and income resulting from any system downtime caused by such breach or attack; loss of competitive advantage if our proprietary information is obtained by competitors as a result of such breach or attack; increased costs of cyber security protection; costs of incentives we may be required to offer to our customers or business partners to retain their business; and damage to our reputation. In addition, any compromise of security from a security breach or cyber-attack could deter customers or business partners from entering into transactions that involve providing confidential information to us. As a result, any compromise to the security of our systems could have a material adverse effect on our business, reputation, financial condition, and operating results.

 

Our ability to operate effectively could be impaired if we were to lose the services of key personnel, or if we are unable to recruit qualified managers and key personnel in the future.

 

Our success is substantially dependent on the continued availability of our key management and technical personnel. Several of our key management personnel have been with us throughout most of our history and have substantial experience with our business and technology. If one or more of our key management personnel leaves us and we are unable to find a replacement with the combination of skills and attributes necessary to execute our business plan, it may have an adverse impact on our business. Our success will also depend, in part, on our ability to attract and retain additional qualified professional, technical, production, managerial and marketing personnel, both domestically and internationally.

 

Risks Relating to the Securities Markets and Ownership of Our Common Stock

 

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to obtain financing on unfavorable terms to us.

 

We may seek additional capital through a variety of means, including through private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds from third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for our product candidates, or grant to others the rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

9
 

 

The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board members.

 

As a public company, we will be subject to the reporting requirements of the Exchange Act, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the securities exchange on which our common stock is traded and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. We may need to hire additional employees to comply with these requirements, which will increase our costs and expenses.

 

In addition, we also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to furnish a report by our management on our internal control over financial reporting the year following our first annual report required to be filed with the SEC. When required, such report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

 

10
 

 

We are an “emerging growth company,” as defined by the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In this offering circular, we have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements and executive compensation. In addition, Section 107(b) of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to “opt in” to such extended transition period election under Section 107(b). Therefore we are electing to delay adoption of new or revised accounting standards, and as a result, we may choose to not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies.

 

We do not intend to pay dividends for the foreseeable future and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

 

We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

 

We may not be successful in getting our Series E Preferred Stock quoted for trading on any marketplace.

 

Our Series E Preferred Stock is not currently quoted or traded on any exchange or marketplace. Following this offering, we intend to seek a market maker that will submit a Form 211 to have the Series E Preferred Stock quoted on the over-the-counter marketplace. However, there can be no assurance that we will be successful in getting our Series E Preferred Stock quoted for trading on any marketplace, and even if we do, we cannot determine when it will be available for trading.

 

11
 

 

USE OF PROCEEDS

 

If we sell Shares for aggregate gross proceeds of $12,000,000 (or $14,000,000 if we sell the Additional Shares) our net proceeds (after our estimated other offering expenses of $1,680,000 or $1,960,000) will be $10,320,000 (or $12,040,000 if we sell the Additional Shares). We intend to use these net proceeds as follows:

 

 

$2,112,615 (as of 12/31/2017) to repay amounts owed to TCA Global Credit Master Fund, L.P., maturity date March 31, 2018, 18%;

  $517,677 to repay certain convertible notes payable:
    $227,057 note payable due August 3, 2017 7%;
    $123,750 note payable due February 13, 2018, 18%;
    $57,500 note payable due December 15, 2017, 18%;
    $57,500 note payable due June 1, 2018, 18%;
    $51,870 note payable due August 17, 2014 8%;
  $327,547 to repay certain notes payable (defined below);
    $62,587 note payable due January 10, 2019, 8%;
    $140,870, due 6/05/2018, 8%;
    $124,090, due 11/11/2017, 5%;
  $335,037, due 12/11/2017, 6%; and

 

These amounts include accrued interest through September 30, 2017.

 

Upon completion of this offering, we will be required to pay the outstanding debt and accrued interest to TCA Global Credit Master Fund, L.P. Additionally, in all but the 25% scenario below, we will pay, (i) the outstanding principal balance and any accrued interest related to certain convertible notes payable, $517,677, (see list above), (ii) the outstanding principal balance and any accrued interest related to certain notes payable, $327,547 , (iii) buyback of license agreements with Happy Fun Events in an estimated amount of $300,030 and (iv ) the outstanding principal balance and any accrued interest related to certain related party notes payable, $166,756 as detailed below:

 

  $121,756, due 11/20/2011, 24%;
  $32,500, due 11/6/2017, 20%; and
  $12,500, due 5/6/2016, 18%.

 

We anticipate paying selling agent commissions of between 6% and 7% of total gross proceeds.

 

Any remaining proceeds will be used for working capital and other general corporate purposes. The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors. The potential of buybacks of the license agreements from Happy Fun Events are also included if sales exceed 25% of the offering.

 

The following table sets forth a breakdown of our estimated use of our net proceeds as we currently expect to use them, assuming the sale of, respectively, 100%, 75%, 50% and 25% of the Shares (based on an offering amount of $12,000,000).

 

12
 

 

Assumed Percentage of Shares Sold  100%   75%   50%   25% 
Price to Public  $12,000,000   $9,000,000   $6,000,000   $3,000,000 
Selling agent commission   840,000    630,000    420,000    210,000 
Other offering expenses   840,000    780,000    720,000    660,000 
Net proceeds  $10,320,000   $7,590,000   $4,860,000   $2,130,000 
                     
Repayment of notes  $ 3,459,632     $ 3,459,632     $ 3,336,296    $1,491,000 
Working capital    6,560,338       3,830,338       1,223,674     639,000 
Buy Back of Licenses     300,030       300,030       300,030       0  
Total use of proceeds  $10,320,030   $7,590,030   $4,860,000   $2,130,000 

 

We have estimated our offering expenses based on prices we have observed in other similar offerings.

 

PLAN OF DISTRIBUTION

 

The Shares and Additional Shares are being sold through our executive officers. We may also engage broker-dealers or selling agents to sell the Shares and Additional Shares. We have not yet engaged anyone else to sell Shares and Additional Shares in this offering.

 

This is an offering of 2,400,000 shares of our Series E Preferred Stock issued by the Company. None of our officers, directors, or affiliates is selling any securities in this offering.

 

We will have the option to sell up to 400,000 Additional Shares, if all of the Offering Shares have been sold in the offering. There is no minimum number of Offering Shares that we must sell in order to conduct a closing in this offering.

 

If we do engage a broker-dealer or selling agent, we will arrange for the sale of securities to investors on a “best efforts” basis, meaning that they need only use their best efforts to sell the securities. Any third party we engage may sell some of the Offering Shares and Additional Shares through selected dealers.

 

The offering price of the Offering Shares and Additional Shares was determined by us. This determination was done without reference to our book value or asset values or by the application of any customary, established models for valuing companies or securities. Accordingly, the offering price may not be indicative of any amounts you might receive should you seek to sell your shares or should there be a liquidation of our company. In addition, such prices are not necessarily indicative of any prices at which our securities may trade, or any value that might be ascribed to our company after the completion of the offering. See “Dilution” on page 16.

 

Our officers and directors shall be entitled to purchase Offering Shares in the offering. Any such purchases shall be conducted in compliance with the applicable provisions of Regulation M.

 

13
 

 

Procedures for Subscribing

 

We will hold an initial closing on any number of Offering Shares at any time during the Offering Period when we determine and thereafter may hold one or more additional closings until we determine to cease having any additional closings during the Offering Period. We will close on proceeds based upon the order in which they are received. We will consider various factors in determining the timing of any additional closings following the initial closing, including the amount of proceeds received at the initial closing and any prior additional closings.

 

We may decide to close the offering early or cancel it, in our sole discretion. If we extend the offering, we will provide that information in an amendment to this offering circular. If we close the offering early or cancel it, we may do so without notice to you, although if we cancel the offering all funds that may have been provided by any investors will be promptly returned without interest or deduction.

 

Prior to this offering, there has been no public market for our common stock or our Series E Preferred Stock. Our common stock is quoted on the OTC Markets under the symbol “SAKL.” As of February 20 , 2018, the last reported sales price of our common stock was $0.0225 . No shares of Series E Preferred Stock have been issued prior to the Offering. Our Series E Preferred Stock is not currently quoted or traded on any exchange or marketplace. Following this offering, we intend to seek a market maker that will submit a Form 211 to have the Series E Preferred Stock quoted on the over-the-counter marketplace.

 

Discounts, Commissions and Expenses

 

We shall be responsible for and pay all expenses relating to the offering, including, without limitation, (a) all filing fees and expenses relating to the registration of the Shares and Additional Shares to be sold in the offering with the SEC and the filing of the offering materials with the OTC Markets, as applicable; (b) all fees and expenses relating to the registration or qualification of the Offering Shares (and any Additional Shares); as required under the “blue sky” laws, including the fees of counsel selected by us; (c) the costs of all mailing and printing of the offering documents; (d) fees and expenses of the transfer agent for such shares; (e) our road show expenses; (f) the fees and expenses of our accountants and the fees and expenses of our legal counsel and other agents and representatives; and (g) any fees or commissions we may incur if we engage a broker-dealer or selling agent to market the offering.

 

We have engaged Windsor Street Capital, a registered broker-dealer registered and a member of FINRA and SIPC, to act as a placement agent on a non-exclusive basis and to offer and sell up to all of the Shares and Additional Shares.

 

As compensation for the services listed above, we have agreed to pay Windsor Street Capital a 6.5% cash commission on the amount invested by investors. It is anticipated that solicitation activity on our behalf will be conducted by registered representatives or other broker-dealers that are engaged by Windsor Street Capital, and a portion of the sales commission received by Windsor Street Capital will be paid to those registered representatives and broker-dealers.

 

14
 

 

Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the lead selling agent that would permit a public offering of the securities offered by this offering circular in any jurisdiction where action for that purpose is required. The securities offered by this offering circular may not be offered or sold, directly or indirectly, nor may this offering circular or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction outside of the U.S., except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this offering circular comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this offering circular. This offering circular does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this offering circular in any jurisdiction in which such an offer or a solicitation is unlawful.

 

DETERMINATION OF OFFERING PRICE

 

The offering price of the Offering Shares and Additional Shares was determined by us. This determination was done without reference to our book value or asset values or by the application of any customary, established models for valuing companies or securities. Accordingly, the offering price may not be indicative of any amounts you might receive should you seek to sell your shares or should there be a liquidation of our company. In addition, such prices are not necessarily indicative of any prices at which our securities may trade, or any value that might be ascribed to our company after the completion of the offering.

 

15
 

 

DILUTION

 

The difference between the offering price per share of our Series E Preferred Stock in this offering and the Pro Forma As Adjusted net tangible book value per share after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities, by the total number of outstanding shares of common stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.

 

As of December 31, 2016, on an Actual basis and a Pro Forma basis, our net tangible book value is as follows:

 

   Actual   Pro Forma 
Net Book value  $(3,735,834)  $8,304,166 
Less: (intangibles assets)   (846,666)   (846,666)
Net tangible book value  $(4,582,500)  $7,457,500 

 

Total common shares outstanding - Pro Forma 12/31/16   3,127,050 
      
Net tangible book value per common share - Pro Forma  $2.38 

 

After giving effect to the sale of the Shares and Additional Shares in this offering, on a Pro Forma As Adjusted basis, our net tangible book value would be $7,457,500, or $2.38 per common share, after deducting selling agents’ discounts, commissions, a non-accountable expense allowance and expenses of this offering totaling approximately $1,720,000. This represents an immediate increase in Pro Forma As Adjusted net tangible book value of $2.38 per share to our existing stockholders and an immediate dilution of $2.62 per share to investors purchasing shares in this offering.

 

The following table illustrates the dilution to new investors on a per-share basis:

 

Offering price per share      $5.00 
Pro Forma net tangible book value per share before this offering  $(14.01)     
Increase in Pro Forma As Adjusted net tangible book value per share attributable to investors purchasing shares in this offering   16.39      
Pro Forma As Adjusted net tangible book value per share after this offering        2.38 
Dilution in Pro Forma As Adjusted net tangible book value per share to investors in this offering      $2.62 

 

16
 

 

The following table sets forth information with respect to our existing stockholders and the new investors as follows as of December 31, 2016:

 

   Shares Purchased (all series of Preferred stock fully converted)   Total Consideration   Average Price Per Share 
   Number   Percent   Amount   Percent   $ 
Existing stockholders   2,461,622    68%  $8,921,709    39%  $3.62 
New investors   1,138,211    32%   14,000,000    61%  $5.00 
Total   3,599,834    100%  $22,921,709    100%     

 

17
 

 

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

No established public trading market exists for our common stock, and there can be no assurance that a public trading market for our common stock will develop. Our common stock is quoted on the OTC Markets trading platform (www.otcmarkets.com), specifically the OTC Pink marketplace, under the trading symbol “SAKL.” Although we are quoted on the OTC Pink platform, this trading market lacks the depth, liquidity, and orderliness necessary to maintain a liquid market. The OTC Pink prices are quotations, which reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.

 

The following table sets forth the quarterly high and low sale prices of our common stock for the two most recent fiscal years as reported on the OTC Pink trading platform and reflect the October 25, 2017 1 for 500 reverse stock split:

 

Fiscal Quarter Ended  High   Low 
December 31, 2017     8.04       0.30  
September 30, 2017   8.75    2.00 
June 30, 2017   17.50    5.00 
March 31, 2017   15.00    1.00 
December 31, 2016   20.95    10.00 
September 30, 2016   50.30    14.25 
June 30, 2016   75.00    37.85 
March 31, 2016   64.50    20.00 
December 31, 2015   49.45    6.50 
September 30, 2015   12.50    2.50 
June 30, 2015   7.50    0.90 
March 31, 2015   8.80    2.50 

 

As of February 21 , 2018, we had 1,687,455 shares of common stock issued and outstanding and there are approximately 57 stockholders of record.

 

We have never declared or paid cash dividends on our common stock. We anticipate that in the future we may be in a position to do so and will make modifications as needed.

 

We currently have no equity compensation plans.

 

18
 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The current operations of Sack Lunch Productions, Inc. (“SAKL” or the “Company”) consist of two principal areas: (1) the entertainment events operated under the Slide the City™® Color Me Rad™®, Dirty Dash™® and Lantern Fest®™ divisions of the Company and (2) the operation of Landis Lifestyle Salons through SAKL’s ownership interest in Green Endeavors, Inc. (“GRNE”).

 

Effective as of December 31, 2017 the following named event subsidiaries of the Company have entered into licensing agreements with Happy Fun Events, LLC, an unrelated third party. The Lantern Fest Productions, Inc., Slide the City Productions, Inc., The Dirty Dash Productions, Inc., and Color Me Rad Productions, Inc. have each granted a license to Happy Fun Events, LLC (“Licensee”) to conduct licensed events for a period of five years in North America. It is expected that the Licensee will immediately begin marketing and carrying out operational plans to conduct events during the coming year.

 

The agreements contemplate that the Licensee will carry out all event operations. All employees of the subsidiaries related to the operation of the events have resigned or were terminated prior to the close of 2017. The same employees may or may not be retained by the Licensee in 2018. The license agreements call for an investment by Happy Fun Events that may exceed $500,000 in order to commence the operation of all events for the 2018 season. The investment is expected to cover select accounts payable necessary to operate the events in 2018. The Licensee will have the right to use all trademarks, websites, social media sites, and other assets necessary for the operation of the events. Licensee will be responsible for all costs associated with the use of such assets. The Licensee has agreed to pay a royalty equal to 15% of the Net operating profit from each license.

 

In the event we are able to successfully raise significant capital under this Offering, we retain the right to buy the license for The Lantern Fest back from the Licensee for a fee of $300,000, 200,000 shares of Preferred Series A Preferred Stock, plus any amounts expended by Licensee less revenues within the first two (2) years of the agreements. All other licenses may be recovered by payment of the amount that expenses exceed revenues at the time of the buy back or in the event that revenues exceed expenses on that date the payment due shall be $10 only.

 

The company entered into the licensing agreements because it did not have sufficient cash reserves to launch the events in 2018. The predominant reason for the cash shortfall was the cancellation or failure to open six (6) Lantern Fest events in the last half of 2017.

 

Results of Operations

 

The following discussion examines our results of operations and financial condition based on our consolidated financial statements for the three and six months ended June 30, 2017 and 2016 and the years ended December 31, 2016 and 2015.

 

Revenue

 

Three Months ended June 30, 2017 and 2016

 

Gross revenues for the three months ended June 30, 2017, were $3,388,632 as compared to $5,376,230 for the same period in 2016. The decrease in revenue for the period ended June 31, 2017 compared with the same period in 2016 was $1,987,598, or 37%, was primarily due to a decrease in event and service revenue of $1,545,156, and franchise and royalty fees of $148,063. The company has scheduled events later in the season in 2017 which will result in revenues being recognized later in the calendar year in 2017 versus 2016.

 

Six Months ended June 30, 2017 and 2016

 

Gross revenues for the six months ended June 30, 2017, were $4,620,201 as compared to $6,673,433 for the same period in 2016. The decrease in revenue for the period ended June 31, 2017 compared with the same period in 2016 was $2,053,232, or 30.8%, was primarily due to a decrease in event and service revenue of $1,413,841, and franchise and royalty fees of $293,763. The company has scheduled events later in the season in 2017 which will result in revenues being recognized later in the calendar year in 2017 versus 2016.

 

Years ended December 31, 2016 and 2015

 

Gross revenues for the years ended December 31, 2016, were $14,841,029 as compared to $10,472,854 for the same period in 2015. The increase in revenue for the year ended December 31, 2016 compared with the same period in 2015 was $4,368,175, or 41.71%, is primarily due to an increase of $3,842,304 in event revenue, Color Me Rad and Dirty Dash event companies were purchased in the second half of 2015, and an increase of $361,804 in salon services and offset by a decrease in franchise and royalty revenue of $710,002, reflecting our shifting focus to company owned events.

 

19
 

 

Costs and Expenses

 

Three Months ended June 31, 2017 and 2016

 

Costs and expenses for the three months ended June 30, 2017, decreased to $3,820,529 from $5,652,503 for the comparable period in 2016, a decrease of $1,831,974 or 32.4%. The decrease was primarily attributable to the timing of events held. The company will hold events later in the year and expenses associated with those events will be recognized at that time. A reduction in staff resulting in savings of $104,437 in salaries and wages over the comparable period in 2016.

 

Depreciation and amortization expense for the three months ended June 30, 2017, increased to $130,289 from $118,789.

 

Six Months ended June 30, 2017 and 2016

 

Costs and expenses for the six months ended June 30, 2017, decreased to $6,107,797 from $8,029,848 for the comparable period in 2016, a decrease of $1,922,051 or 23.9%. The decrease was primarily attributable to the timing of events held. The company will hold events later in the year and expenses associated with those events will be recognized at that time. A reduction in staff resulting in savings of $227,960 in salaries and wages over the comparable period in 2016.

 

Depreciation and amortization expense for the six month period ended June 30, 2017, increased to $259,116 from $242,856.

 

Years ended December 31, 2016 and 2015

 

Costs and expenses for the year ended December 31, 2016, increased to $16,612,875 from $11,375,495 for the year ended December 31, 2015 an increase of $5,237,380 or 46.04%. The increase over the comparable annual period is primarily attributable to an increase in the number of Events held in 2016 over 2015

 

Depreciation and amortization expense for the year ended December 31, 2016, increased to $500,485 from $359,205 due to the acquisition of Color Me Rad and The Dirty Dash.

 

Other Expenses, net

 

Three Months ended June 30, 2017 and 2016

 

Other net expenses for the three months ended June 30, 2017, were $285,509 compared to gain of $397,048 in the comparable period in 2016, a decrease of $682,557 or 171.9%. The decrease in other net expenses over the comparable period was primarily due to a loss on derivative activity of $208,715 as opposed to a gain on derivative activity of $803,574, a decrease in derivative activity of $1,012,289 netted against a decrease of interest expense of $402,986.

 

Six Months ended June 30, 2017 and 2016

 

Other net expenses for the six months ended June 30, 2017, were $395,212 compared to $235,517 in the comparable period in 2016, an increase of $159,695 or 67.8%. The increase in other net expenses over the comparable period was primarily due to a loss on derivative activity of $255,222 as opposed to a gain on derivative activity of $741,854, a decrease in derivative activity of $997,076 netted against a decrease of interest expense of $695,042, and a gain on the sale of a subsidiary of $807,372.

 

20
 

 

Years ended December 31, 2016 and 2015

 

Other net expenses for the year ended December 31, 2016, were $1,415,227 compared to $671,432 for the year ended December 31, 2015, an increase of $743,795 or 110%. The increase over the comparable annual period was due to a $2,167,129 loss on the settlement of debt as a result of the note with TCA Global being rewritten because of additional $440,000 borrowing. The new note called for the advisory fees under the original note to be wrapped into the principle of the replacement note. Additionally, other net expenses increased as a result of an increase in interest expense which was $1,569,805 for the year ended December 31, 2016 compared to $679,968 for the same period in 2015, an increase of $889,837 or 130%. The increase interest expense was the result of interest on the TCA Global note which was recorded for the complete year of 2016 versus the last quarter in 2015.

 

Net Income (Loss)

 

Three Months ended June 30, 2017 and 2016

 

Net loss for the three months ended June 30, 2017 was $717,406 compared to net income of $120,775 for the comparable period in 2016, a decrease of $838,181 or 694%. The decrease in income was primarily due to a decrease of revenue recognized in the period of $1,987,598 or 37%, this is primarily due to the timing of events being held. The company has scheduled events later in the season in 2017 which will result in revenues being recognized later in the calendar year in 2017 versus 2016. This reduction of revenue was offset by a reduction of recognized expenses of $1,831,974. This too is primarily due to the timing of events produced by the company.

 

Six Months ended June 30, 2017 and 2016

 

Net loss for the six months ended June 30, 2017, was $1,882,808 compared to a loss of $1,591,932 for the comparable period in 2016, an increase of $290,876 or 18.3%. The increase was primarily due to a decrease of revenue recognized in the period of $2,053,232 or 30.8%, this is primarily due to the timing of events being held. The company has scheduled events later in the season in 2017 which will result in revenues being recognized later in the calendar year in 2017 versus 2016. This reduction of revenue was offset by a reduction of recognized expenses of $1,922,051. This too is primarily due to the timing of events produced by the company.

 

Years ended December 31, 2016 and 2015

 

Net loss for the year ended December 31, 2016, were $3,187,073 compared to a loss of $1,574,073 for the year ended December 31, 2015, an increase of $1,613,000 or 102%. The increase in loss was primarily due to a loss on settlement of debt in the amount of $2,167,129 versus a gain on settlement of debt in 2015 of $110,220. The loss on settlement of debt was one-time non-cash charge.

 

21
 

 

Liquidity and Capital Resources

 

As of June 30, 2017 and December 31, 2016

 

We had a working capital deficit of $7,880,261 as of June 30, 2017.

 

   As of     
Working Capital  June-17   Dec-16   Variance   % 
Total Current Assets  $2,426,489   $2,223,236   $203,253    9.14 
Total Current Liabilities   10,306,750    8,574,122    1,732,628    20.21 
Working Capital Deficit  $(7,880,261)  $(6,350,886)  $(1,529,375)   24.08 

 

Current liabilities increased primarily due to an increase in deferred revenues resulting from advanced ticket sales for events, an increase in convertible notes financing and related derivative liabilities. We expect to fully realize all deferred revenue by the end of the fiscal year.

 

As of December 31, 2016 and 2015

 

We had a working capital deficit of $6,350,886 and $4,036,513 as of December 31, 2016 and 2015, respectively.

 

   As of December 31,     
Working Capital  2016   2015   Variance   % 
Total Current Assets  $2,223,236   $2,890,042   $(666,806)   (23.07)
Total Current Liabilities   8,574,122    6,926,555    1,647,567    23.79 
Working Capital Deficit  $(6,350,886)  $(4,036,513)  $(2,314,373)   57.34 

 

Cash Flows from Operating Activities

 

Cash flows from operating activities include net income, adjusted for certain non-cash charges, as well changes in the balances of certain assets and liabilities.

 

Six Months ended June 30, 2017 and 2016

 

Net cash provided by operating activities for the six months ended June 30, 2017, was $338,272 as compared to $383,239 for the comparable period in 2016. A major contributing factor to the decrease in cash provided by operating activities over the comparable period was an increase in accounts payable of $1,114,879 offset by a $578,016 decrease in deferred revenues and a $205,772 decrease of inventories.

 

During the six months ended June 30, 2017 and 2016 we received franchise fees of $21,000 and $314,763, respectively.

 

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Years ended December 31, 2016 and 2015

 

Net cash used by operating activities for the year ended December 31, 2016, was $134,181 as compared to $1,608,928 for the year ended December 31, 2015. The decrease in cash used by operating activities over the comparable periods is primarily due to a $2,105,528 increase in derivative fair value adjustment.

 

During the fiscal years ended December 31, 2016 and 2015 we received franchise fees of $616,092 and $1,326,094, respectively.

 

We expect to increase cash provided by operating activities over the next twelve months by executing the individual business strategies of our subsidiaries.

 

Cash Flows from Investing Activities

 

Six Months ended June 30, 2017 and 2016

 

Cash flow provided by investing activities for the period ended June 30, 2017, was $12,261 as compared to cash used in investing activities of $112,225 for the comparable period in 2016. The increase in cash flows provided by investing activities is primarily due to disposal of real estate holdings.

 

Years ended December 31, 2016 and 2015

 

Cash flow used in investing activities for the year ended December 31, 2016, was $146,042 as compared to $414,243 for the year ended December 31, 2015. The decrease in cash flows used in investing activities is primarily due to a decrease in the purchase of property, plant, and equipment.

 

We expect to continue our investing activities, including purchasing both property and equipment for an additional salon location and making both short and long-term equity investments.

 

Cash Flows from Financing Activities

 

Six Months ended June 30, 2017 and 2016

 

Cash flows used in financing activities for the period ended June 30, 2017, was $492,130 as compared to $382,154 for the comparable period in 2016. The increase in cash used by financing activities is primarily due to an increase in payments on notes issued in prior periods.

 

Years ended December 31, 2016 and 2015

 

Cash flows provided in financing activities for the year ended December 31, 2016, was $409,886 as compared to $2,155,343 for the year ended December 31, 2015. The decrease in cash provided by financing activities is primarily due to an increase in payments on notes issued in prior periods.

 

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Other Factors Affecting Liquidity and Capital Resources

 

We have insufficient current assets to meet our current liabilities resulting in negative working capital of $7,880,261 as of June 30, 2017. We expect to fully realize $1,739,649 in deferred revenues which will decrease our working capital deficit by the same amount. Historically, we have funded our cash needs from a combination of revenues, management of accounts payable and accrued expenses, sales of equity, and debt transactions. Since we are not currently realizing net cash flows from our business, we may need to seek financing to continue our operations. Prospective sources of funding could include shareholder loans, equity sales or loans from other sources though no assurance can be given that such sources would be available or that any commitment of support is forthcoming to date. However, if we are successful in this offering, we expect to pay off our debt and have sufficient funds for the next 12 months.

 

We do not intend to pay cash dividends in the foreseeable future.

 

Impact of Inflation

 

We compensate some of our salon employees with percentage commissions based on sales they generate. Accordingly, this provides us certain protection against inflationary increases, as payroll expense is a variable cost of sales. In addition, we may increase pricing in our salons to offset any significant increases in wages and cost of services provided. Therefore, we do not believe inflation has had a significant impact on the results of our operations.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet financing arrangements.

 

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BUSINESS

 

Overview

 

We are an action-oriented events and entertainment company providing immersive experiences that bring families, friends and communities together through corporate hosted and managed events across the U.S. and Canada. In addition, we operate globally through a proven franchise system. We own, operate, and hold exclusive rights or an equity interest in well-branded events including Slide The City™, Lantern Fest™, Color Me Rad 5K™, The Dirty Dash™, and our newest event series, Trike Riot™.

 

In addition to our branded events, we have built a stable portfolio of diversified operations established in burgeoning markets that include segments in entertainment, health and beauty, and real estate industries.

 

We generate revenue primarily from selling admission to our unique community-building events and activities, franchise agreements, licensing agreements, corporate sponsorship as well as the sale of health and beauty products and services.

 

Our revenue will take a different form in 2018; we will primarily generate event income from royalty payments for licensing our events. Effective as of December 31, 2017, we entered into license agreements with Happy Fun Events LLC. These agreements grant Happy Fun Events LLC an exclusive license in North America to conduct events for Lantern Fest, Slide the City, Color Me Rad and Dirty Dash. A royalty equal to 15% of Net Operating Profits will be due from the events operated by Happy Fun Events LLC.

 

Our principal executive offices are located at 59 West 100 South Salt Lake City, Utah 84101, telephone: 801–575–8073 Ext.111. Our principal website is www.sacklunchproductions.com. Our common stock is quoted on the OTC Markets and trades under the symbol “SAKL.”

 

Our Business

 

Taking full advantage of a thriving special events industry and bringing with it a sense of unity and community pride, our portfolio of branded events include:

 

Slide the City™

 

Slide the City is a family friendly slip-n-slide water party event. In 2017, we scaled back the number of events and plan to change our strategy in 2018

 

Color Me Rad™

 

Color Me Rad is a popular 5K run where participants complete an entertaining course teeming with color stations, eventually culminating in a polychromatic party with music and food.

 

Lantern Fest™

 

Lantern Fest organizes sky lantern events where participants light lanterns, endow them with hopes and wishes for the future, and in a grand-scale release them to the sky in an extraordinary communal display.

 

The Dirty Dash™

 

The Dirty Dash is a fun run incorporating a muddy obstacle course that caters to a runner’s inner child.

 

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Trike Riot™

 

Our newest event, Trike Riot, is set to launch in 2017. With an estimated $90 in average revenue per participant and over 2,000 anticipated participants, this event is sure to evoke childhood memories and ignite interest in family fun. Trike Riot provides a unique experience in cities throughout the United States. We close down city streets and give participants the opportunity to cruise on three wheels around the city—going over obstacles or just cruising. All this fun culminates at the finish line where there are food trucks, live music, and people showing off their skills. We have partnered with Razor® to present the Trike Riot events and provide trikes for participants.

 

Green Endeavors, Inc.

 

We currently hold 82% of the total issued and outstanding shares of common stock and through preferred stock, 99% of the total outstanding votes of Green Endeavors, Inc., a company operating in the health and beauty industry. Providing a stable revenue base for us, this segment operates two Aveda Lifestyle Salons and an Aveda retail store. Green Endeavors delivers a wide range of upmarket health and beauty products and services targeted at a high-end clientele. The Landis Lifestyle Salon brand, mission, and highly skilled staff bring quality and excellence to the Utah salon market, consistently outperforming other high-end boutique salons year after year. Green Endeavors generated $3.4M of revenue in 2016. Going forward, revenue is expected to remain stable at approximately $3M annually. Green Endeavors is publicly traded on the OTC Pink Market under the symbol “GRNE.”

 

Effective December 31, 2017, Green Endeavors approved and delivered to LCF Salons LLC a Security Agreement. The Security Agreement secures the payment of a promissory note held by LCF in the amount of $300,000, payable to LCF by Green Endeavors and its subsidiaries. Payment is over a term of 18 months, with monthly payments of $17,684.79, interest at the rate of 12% per annum, and final payment due June 30, 2019. The security held by LCF places it in the secured position previously held by TCA Global Credit Master Fund LP that LCF received by direct assignment from TCA on all assets held by Green Endeavors as well as each of the three subsidiaries of Green Endeavors: Landis Salons, Inc. Landis Salons II, Inc. and Landis Experience Center LLC.

 

LCF is 100% owned by its member/manager Logan C. Fast who is a former officer and director of Green Endeavors, Inc.

 

Our Products and Services

 

Admission Tickets and Royalties

 

We generate revenue from selling admission to our events. For the year ended December 31, 2016, event admissions accounted for approximately 74% or our revenue. We maintain an online presence including social media to promote advanced sales and provide guests convenience and easy entry.

 

Our revenue will take a different form in 2018; we will primarily generate event income from royalty payments for licensing our events. Effective as of December 31, 2017, we entered into license agreements with Happy Fun Events LLC. These agreements grant Happy Fun Events LLC an exclusive license in North America to conduct events for Lantern Fest, Slide the City, Color Me Rad and Dirty Dash. We will receive royalty payments equal to 15% of Net Operating Profits from the events operated by Happy Fun Events LLC.

 

Franchise Agreements

 

We generate revenue through fees associated with our branded franchise systems, Slide the City and Color Me Rad. In accordance with our franchise agreements, all franchisees pay fees including lump sum franchise fees, development fees, equipment and asset fees, royalty fees, installment plan fees, deposit fees, advertising fees, local advertising cooperative fees, on-site consultation fees, annual state renewal fees, transfer fees, late charges, testing or supplier approval fees, default and indemnity fees, audit fees, interim management fees, system non-compliance fees. In addition, franchisees purchase trademarked products, services, event assets, event supplies, event equipment, and promotional items from us. During the fiscal year ended December 31, 2016, franchise operations generated approximately 4% of our total revenue.

 

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Corporate Sponsorships and Strategic Alliances

 

We create and maintain long-term corporate sponsorship and strategic alliances with leading companies and brands. Utilizing a combination of strategic, international, national and local opportunities that allow businesses to reach customers through our events, we add significant brand marketing value and drive mutual business gains. Our corporate sponsors during 2015 and 2016 included, among others, Sprite, Sony, Nestle, Nivea, CBS, Razer, GoPro, Uber, Aaape, Vita Coco, and Hong Kong Airlines. During 2016 sponsorship and advertising generated approximately 2% of our total revenue.

 

Health and Beauty Services and Products

 

Green Endeavors, Inc., a subsidiary, provides a wide range of upmarket health and beauty services and Aveda products targeted at a high-end clientele. For the year ended December 31, 2016, the sale of health and beauty services and products accounted for 23% of our revenue.

 

Competitive Strengths

 

Driving dynamic innovation that capitalizes on the power of nostalgia, we believe our events tap into an intrinsic need to revisit the wonder and awe of childhood experiences and a desire to share these traditions with the next generation. We believe our competitive strengths to be our unique blend of entertainment and event promotion that targets an underserved millennial demographic. Utilizing licensed events, corporate events and a franchise model to garner a large market share, our scalable business model allows us to expand worldwide. With proven operating experience and an impressive list of corporate sponsors, our high-profile events effectively increase publicity through positive media coverage and generate revenue through license royalties and franchise agreements.

 

Our strategy is to grow and innovate through the initiatives listed below:

 

  Maintain and utilize a database of millions of potential participants;
     
  Expand and utilize our social media followers and reach to procure sponsors and participants;
     
  Create new, innovative events that appeals to both new and existing participants;
     
  Increase our brand offerings through acquisitions that contribute substantially to short and long-term growth; and
     
  Expand into new geographic markets.

 

We believe our focus on franchise growth and the continued acquisition of branded events will increase shareholder value as we continue to grow our revenue, earnings and cash flow. With projected corporate, licensed and franchise events worldwide in 2018 that optimize our cost structure, we believe we will continue to strengthen our core operations as we expand into additional global markets.

 

Each of these events incorporates quality vendors that provide live music, food and drinks to service the festivities. These events, which are entertainment and not sporting events, attract a wide and diverse attendance from all age groups and especially appeal to families and young people.

 

Corporate Social Responsibility

 

We believe in giving back to the communities that support us and improving the world we live in. In 2016, we gave back over $400,000 of cash and in kind donations to charitable organizations, while providing valuable exposure for all of our charitable partners, some of which include: Boys & Girls Club of American, March of Dimes, YMCA, Rotary International, Canadian Cancer Society, Ronald McDonald House Charities, and USA Cares.

 

27
 

 

Our Guests and Customers

 

Our events attract a wide and diverse attendance from all age groups and especially appeal to families and young people. Our events are held in major cities with large population centers, and generate positive media coverage on local levels.

 

Our History

 

On April 20, 1987, Sack Lunch Productions, Inc. was incorporated under the laws of the State of Colorado. On October 5, 2000 Sack Lunch Productions, Inc. merged with a Nevada corporation with the same name, and later changed its state of incorporation to Utah. Green Endeavors, Inc., a Utah corporation, was originally organized as Jasper Holdings.com, Inc. Sack Lunch Productions, Inc. currently holds 75% of Green Endeavor’s shares of common stock and has voting control of 99% of the total outstanding votes. We currently own 100% of Lantern Fest Productions, Inc., Slide the City Productions, Inc., Color Me Rad Productions, Inc., Trike Riot Productions, Inc. The Dirty Dash Productions, Inc., Wasatch Capital Corporation, Downtown Development Corporation and Diversified Management Services, Inc.

 

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Below is a chart showing our organizational structure:

 

 

29
 

 

Seasonality

 

Outdoor events are seasonal by nature, typically generating the highest revenues in the second and third quarters of each year. Our global franchise network, the diversity in type and venue of our events, and the consistency of our health and beauty operations not only drive revenue growth but also reduce the seasonality of our events segment.

 

Our Industry

 

The party and event planning industry comprises independent companies and individuals that organize parties, weddings, corporate dinners and other social gatherings. Industry participants usually orchestrate a variety of details for such events including venue booking, music arrangement, food catering, photography, video recording and other services. The industry depends on the willingness of households and businesses to spend money on social gatherings, and is set to benefit from climbing corporate profit and per capita disposable income as the U. S. economy continues to grow. We believe the events industry to be a thriving sector. We believe the market is large, lucrative and awaiting expansion in diverse areas.

 

Competition

 

Our action-oriented events and entertainment offerings compete directly for discretionary spending with other local or regional events and indirectly with other types of recreational forms of entertainment including movies, home entertainment options, sports attractions, restaurants and vacation travel. Some principal direct competitors for events are Loton, Live Nation Entertainment, Merlin Entertainment, NightCulture, and Oriental Land. We also face competition from events such as Ragnar Events, Red Frog Events, Reebok Spartan Race, The Color Run, Warrior Dash and a variety of fun runs and racing events.

 

We believe we compete effectively and our competitive position is protected due to strong brand recognition, unique event type and low operating cost. Operating globally through our franchise system and scalable business model, our highly differentiated products offer events that are innovative and provide authentic experiences for participants of an underserved millennial demographic. In addition, our family oriented offerings help advance healthy communities by supporting experiences that build memories through entertainment, events and playful activities.

 

Our main competitors at the local market level for sponsorships and advertising dollars include local sports teams, which often offer state of the art venues and strong local media packages, as well as festivals, theme parks and other local events. On the national level, our competitors include the major sports leagues that sell sponsorships combined with significant national media packages.

 

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Insurance

 

We maintain insurance of the type and in the amounts that we believe to be commercially reasonable for businesses in our industry. We maintain primary and excess casualty coverage. We maintain employers’ liability and all coverage required by law in the states in which we operate. Defense costs are included in the insurance coverage we obtain against losses in these areas. Based upon our historical experience of reported claims and an estimate for incurred-but-not-reported claims, we accrue a liability for our deductible/self-insured retention contingencies regarding general liability, automobile liability and workers compensation exposures. We maintain additional forms of special casualty coverage appropriate for businesses in our industry. We also maintain commercial property coverage against fire, natural perils, so-called “extended coverage” perils such as civil commotion, business interruption and terrorism exposures for protection of our real and personal properties (other than land). We generally renegotiate our insurance policies on an annual basis. We cannot predict the amounts of premium cost that we may be required to pay for future insurance coverage, the level of any deductibles/self-insured retentions we may retain applicable thereto, the level of aggregate excess coverage available or the availability of coverage for special or specific risks.

 

Regulation

 

We are subject to federal, state and local laws, both domestically and internationally, governing matters such as:

 

  Construction, renovation and operation of our events;
  Licensing, permitting and zoning, including noise ordinances;
  Human health, safety and sanitations requirements;
  The service of food and alcoholic beverages;
  Working conditions, labor minimum wage and hour, citizenship and employment laws;
  Compliance with the ADA and the DDA;
  Historic landmark rules;
  Compliance with United States Foreign Corrupt Practices Act and similar regulations in other countries;
  Hazardous and non-hazardous waste and other environmental protection laws;
  Sales and other taxes and withholdings of taxes;
  Privacy laws and protection of personally identifiable information;
  Marketing activities via the telephone and online; and
  Primary ticketing services.

 

We believe that we are in material compliance with these laws. The regulations relating to our food service in our venues are many and complex. A variety of regulations at various governmental levels relating to the handling, preparation and serving of food, the cleanliness of food production facilities and the hygiene of food-handling personnel are enforced primarily at the local public health department level.

 

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We also must comply with applicable licensing laws, as well as state and local service laws, commonly called dram shop statutes. Dram shop statutes generally prohibit serving alcoholic beverages to certain persons such as an individual who is intoxicated or a minor. If we violate dram shop laws, we may be liable to third parties for the acts of the customer. Although we generally hire outside vendors to provide these services at our larger operated venues and regularly sponsor training programs designed to minimize the likelihood of such a situation, we cannot guarantee that intoxicated or minor customers will not be served or that liability for their acts will not be imposed on us.

 

We are also required to comply with the Americans with Disabilities Act (ADA), the Developmental Disabilities Administration (DDA) and certain state statutes and local ordinances that, among other things, require that places of public accommodation, including both existing and newly constructed venues, be accessible to customers with disabilities. The ADA and the DDA require that venues be constructed to permit persons with disabilities full use of a live entertainment venue. The ADA and the DDA may also require that certain modifications be made to existing venues to make them accessible to customers and employees who are disabled. In order to comply with the ADA, the DDA and other similar ordinances, we may face substantial capital expenditures in the future.

 

We are required to comply with the laws of the countries we operate in and also the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act 2010 regarding anti-bribery regulations. These regulations make it illegal for us to pay, promise to pay or receive money or anything of value to, or from, any government or foreign public official for the purpose of directly or indirectly obtaining or retaining business. This ban on illegal payments and bribes also applies to agents or intermediaries who use funds for purposes prohibited by the statute.

 

We are required to comply with federal, state and international laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data. Specifically, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction.

 

From time to time, governmental bodies have proposed legislation that could have an effect on our business. For example, our events may be impacted by changes to fire codes, FAA regulations, water use restrictions caused by drought and public pool laws as applied to Slide the City.

 

In addition, we and our venues are subject to extensive environmental laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level restrictions which may affect, among other things, the hours of operations of our events.

 

Employees

 

As of February 16, 2018, we employed approximately 60 employees. None of our employees are covered by a collective bargaining agreement, and we consider our employee relations to be good. Full-time staff members consist of event directors, operations experts, and legal support including:

 

Available Information

 

We file annual, quarterly and special reports and other information with the OTC Markets. Our filings with the OTC Markets site are available to the public on otcmarkets.com. Those filings are also available to the public on, or accessible through, our website for free via the “Investor Info” section at www.sacklunchproductions.com.

 

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MANAGEMENT

 

The following table sets forth the names, ages, and biographical information of each of our current directors and executive officers, and the positions with the Company held by each person, and the date such person became a director or executive officer of the Company. Our executive officers are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve until their death, resignation or removal by the Board of Directors. There are no family relationships among the directors and officers of the Company.

 

Name   Age   Position(s)
         
Richard Surber   44   Chief Executive Officer and Director
         
Scott Coffman   55   Director
         
Gerald Einhorn   77   Director
         
Taylor Russel Gourley   37   Director of Operations

 

Richard Surber: CEO and Director

 

Richard Surber’s experience includes over 20 years in the public markets. He has been the CEO and Director of Sack Lunch Productions for the last 18 years. He is a member of the California bar, and practiced law on a limited basis specializing in complex corporate and securities law matters. He graduated from the University of Utah with a Bachelor of Science degree in Finance and a Juris Doctor with an emphasis in corporate law, including securities, taxation and bankruptcy.

 

Scott C. Coffman, Director

 

Mr. Coffman has been appointed as a Director in 2016. Mr. Coffman previously served the Company’s subsidiary, Green Endeavors, Inc. as its CFO and director beginning in June of 2012 through March 22, 2015. He is currently employed by Vista Outdoor Inc. External Financial Reporting and has held this position since March 23, 2015. Mr. Coffman graduated from the University of Utah with a Bachelor of Science degree in Finance and then with a Masters of Business Administration and later returned to the University of Utah for additional master’s level accounting coursework.

 

Gerald Einhorn, Director

 

Mr. Einhorn previously served on the Board of Directors of SAKL and an officer of the company from 2002 through 2008. Mr. Einhorn is a member of the New York Bar and has also worked providing legal opinion and consulting with the company for the past few years. Mr. Einhorn is currently retired from full time employment and does selected legal matters on a limited basis.

 

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Taylor Russel Gourley, Director of Operations

 

T.R. Gourley is the co-creator and developer of Slide the City, Lantern Fest, and Trike Riot, in addition to these three events TR runs and manages all events owned by Sack Lunch Productions. TR produced films for over 5 years under WG productions and Redline Productions. These two companies produced and sold their own and other companies films domestically and internationally. Out of the dozens of films sold, TR produced or executive produced 10 of these films. Mr. Gourley has been an employee of the Company or its subsidiaries for the past five years.

 

Executive Compensation

 

See “Certain Relationships and Related Transactions, and Director Independence” on page 42 for a description of our employment agreements and settlement agreements with Mr. Surber.

 

Summary Compensation Table

 

Name and

Principal Position

  Year    

Salary

($)

   

Bonus

($)

   

Stock

Awards

($)

   

Option Awards

($)

    Non-Equity Incentive Plan Compensation ($)     Nonqualified Deferred Compensation ($)    

All Other

Compensation

($)

   

Total

($)

 
                                                       

Richard Surber, CEO

 

 

    2017     $ 136,071       -0-       $130,109(1)       -0-       -0-       -0-       -0-     $ 266,180  
    2016     $ 137,000       -0-       -0-       -0-       -0-       -0-       -0-     $ 137,000  
    2015     $ 156,845       -0-       -0-       -0-       -0-       -0-       -0-     $ 156,845  
                                                                         

Taylor R. Gourley
Control Person

 

    2017     $ 179,000 (2)     -0-       $130,109(1)       -0-       -0-       -0-       -0-     $ 309,109  
    2016     $ 93,303       -0-       -0-       -0-       -0-       -0-       -0-     $ 93,303  
    2015     $ 13,000       -0-       -0-       -0-       -0-       -0-       -0-     $ 13,000  

 

 

1.On May 4, 2017, the board of directors approved the issuance of common shares to TR Gourley and Richard Surber: 6,571,169 and 6,571,168 pre-split, respectively (13,143 common shares each post-split). Stock Awards for 2017 were valued at the time of issuance at $130,109 each.

 

2.Of the compensation paid to Mr. Gourley during 2017, $127,308 was paid at his direction to a limited liability company of which he was a member and a manager.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following tables set forth, as of February 21 , 2018, certain information with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.

 

For a description of each class of stock, see “Description of Registrant’s Securities to be Qualified” on page 44.

 

Common Stock

 

Name and Address (1)  Common Stock Ownership   Percentage of Common Stock Ownership (2) 
         
Richard Surber (3)   49,930    2.96%
           
David Wulf
1140 South West Temple
Salt Lake City, Utah 84101
   26,285    1.56%
           
Taylor Russel Gourley (3)   39,428    2.34%
           
All Officers and Directors as a Group (2 Persons)   89,358    5.291%

 

(1) Unless otherwise indicated, the address of the shareholder is c/o Sack Lunch Productions, Inc., 59 West 100 South, 2nd Floor, Salt Lake City, Utah 84101.
(2) Unless otherwise indicated, based on 1,687,455 shares of common stock issued and outstanding as of February 21 , 2018. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(3) Indicates one of our officers or directors.

 

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Series A Preferred Stock

 

The Series A Convertible Preferred Stock (the “Series A Preferred”) has voting rights in any matter presented to the shareholders of the Company’s common stock on the basis of ten votes for each share of Series A Preferred.

 

The Series A Preferred shall be senior to the common stock and any other series of Preferred Stock, including Series B and Series C Convertible Preferred Stock.

 

Each share of Series A Preferred is convertible at the option of the Series A Preferred stockholder into the number of shares of common stock equal in value to Ten Dollars ($10). The Board of Directors shall approve and make the final determination of the conversion rate or value based upon the average closing prices for the common stock for the five day period preceding the notice of conversion made by the holder of Series A Preferred.

 

Name and Address (1)  Series A Preferred Stock Ownership   Percentage of Series A Preferred Stock Ownership (3) 
         
Richard Surber (3)   139,000    27.48%
           
David Wulf
1140 South West Temple
Salt Lake City, Utah 84101
   89,000    17.60%
           
Taylor Russel Gourley (3)   139,000    27.48%
           
All Officers and Directors as a Group (2 Persons)   278,000    54.97%

 

(1) Unless otherwise indicated, the address of the shareholder is c/o Sack Lunch Productions, Inc., 59 West 100 South, 2nd Floor, Salt Lake City, Utah 84101.
(2) Unless otherwise indicated, based on 505,750 shares of Series A Preferred Stock issued and outstanding as of February 21, 2018. Shares of Series A Preferred Stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(3) Indicates one of our officers or directors.

 

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Series B Preferred Stock

 

The Series B Convertible Preferred Stock (the “Series B Preferred”) has voting rights in any matter presented to the shareholders of the Company’s common stock on the basis of 100 votes for each share of Series B Preferred.

 

A majority of the holders of the outstanding Series B Preferred (the “Series B Holders”) is required for approval of any proposal upon which a vote of shareholders is taken.

 

The Series B Preferred is convertible into shares of common stock of one (1) shares of common stock for each ten (10) shares of Series B Preferred.

 

The Series B Preferred is senior to the common stock and any subsequently authorized series or class of Preferred Stock.

 

Name and Address (1)  Series B Preferred Stock Ownership   Percentage of Series B Preferred Stock Ownership 
         
Richard Surber (2)   14,250,000    96.61%
           
David Wulf
1140 South West Temple
Salt Lake City, Utah 84101
   250,000    1.69%
           
Taylor Russel Gourley (2)   250,000    1.69%
           
All Officers and Directors as a Group (2 Persons) (2)   14,500,000    98.30%

 

(1) Unless otherwise indicated, the address of the shareholder is c/o Sack Lunch Productions, Inc., 59 West 100 South, 2nd Floor, Salt Lake City, Utah 84101.
(2) Unless otherwise indicated, based on 14,750,000 shares of Series B Preferred Stock issued and outstanding as of February 21 , 2018. Shares of Series B Preferred Stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(3) Indicates one of our officers or directors.

 

 37 
 

 

Series C Preferred Stock

 

The Series C Convertible Preferred Stock (the “Series C Preferred”) has voting rights in any matter presented to the shareholders of the Company’s common stock on the basis of one vote for each share of Series C Preferred.

 

Each share of Series C Preferred is convertible at the option of the Series C Preferred stockholder into the number of shares of common stock equal in value to Five Dollars ($5). The Board of Directors shall approve and make the final determination of the conversion rate or value based upon the average closing prices for the common stock for the five day period preceding the notice of conversion made by the holder of Series C Preferred.

 

The Series C Preferred is senior to the common stock and any subsequently authorized series or class of Preferred Stock.

 

Name and Address (1)  Series C Preferred Stock Ownership(3)   Percentage of Series C Preferred Stock Ownership 
         
Richard Surber (3)   10,000    2.78%
           
Casey Coleman
1124 North 780 West
Clinton, Utah 84015
   103,050    28.61%
           
Taylor Russel Gourley (3)   32,500    9.02%
           
Owen Spencer Hunn
502 East Main Street
Lehi, Utah 84043
   27,424    7.61%
           
Interstellar Holdings, LLC
Attn: Len Amato
85 Lords Highway East
Weston, CT 06883
   45,000    12.49%
           
Johnson Stockdale JTWROS
2537 Irving Place
Billings, Montana 59102
   40,000    11.10%
           
All Officers and Directors as a Group (2 Persons) (3)   42,500    11.80%

 

(1) Unless otherwise indicated, the address of the shareholder is c/o Sack Lunch Productions, Inc., 59 West 100 South, 2nd Floor, Salt Lake City, Utah 84101.
(2) Unless otherwise indicated, based on 360,233 shares of Series C Preferred Stock issued and outstanding as of February 21 , 2018. Shares of Series C Preferred Stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(3) Indicates one of our officers or directors.
(4) The above listed Preferred Series C Stock shareholders are limited to conversion into less than 5% of the issued common stock at any point in time and hold only 1 vote per share of preferred stock and thus hold less than 0.01% of votes in any shareholder vote. None of the named C shareholders are control persons at this point in time.

 

 38 
 

 

Series D Preferred Stock

 

The Series D Convertible Preferred Stock (the “Series D Preferred”) has voting rights in any matter presented to the shareholders of the Company’s common stock on the basis of one vote for each share of Series D Preferred.

 

Each share of Series D Convertible Preferred is convertible into that number of shares of the Company’s Common Stock, equal in value to Five Dollars ($5.00). The board of directors shall approve the conversion rate based on a calculation of 50% of the average of the three lowest trades during the ten trading days prior to the notice of conversion but in no event shall the conversion price per share of common stock be below $0.00001.

 

The Series D Preferred is senior to the common stock and any subsequently authorized series or class of Preferred Stock.

 

Name and Address (1)  Series D Preferred Stock Ownership   Percentage of Series D Preferred Stock Ownership 
         
Mammoth Corporation
1 First Bank Plaza, Suite 205
Lake Zurich, IL 60047
   35,000    100%
           
All Officers and Directors as a Group   0    0%

 

 39 
 

 

Combined Voting

 

The table below lists the total votes that each person would be able to vote in any matter brought before the Company’s common stockholders for a vote. The voting information below is presented with respect to the Company’s equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of any class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.

 

Name  Common Stock Votes   Series A Preferred Stock Votes   Series B Preferred Stock Votes   Series C Preferred Stock Votes   Series D Preferred Stock Votes   Percentage of Total Votes(2) 
                         
Richard Surber (1)   49,930    1,390,000    1,425,000,000    10,000    -    94.55%
                               
David Wulf   26,285    1,390,000    25,000,000    -    -    1.75%
                               
Taylor Russel Gourley (1)   39,428    1,390,000    25,000,000    32,500    -    1.75%
                               
Casey Coleman   -    -    -    119,050    -    * 
                               
Owen Spencer Hunn   -    -    -    27,424    -    * 
                               
Interstellar Holdings, LLC   -    -    -    45,000    -    * 
                               
Johnson Stockdale JTWROS   -    -    -    40,000    -    * 
                               
Mammoth Corporation   -    -    -    -    35,000    * 
                               
All Officers and Directors as a Group (2 Persons)   89,358    2,780,000    1,450,000,000    42,500         96.39%

 

* Less than 1%.

 

(1) Indicates one of our officers or directors.
(2) Based on shares outstanding as of February 21 , 2018: 1,687,455 shares of common stock outstanding (one vote per share), 505,750 shares of Series A Convertible Preferred Stock outstanding (ten votes per share), 15,000,000 shares of Series B Convertible Preferred Stock outstanding (100 votes per share), 360,233 shares of Series C Convertible Preferred Stock outstanding (one vote per share) and 35,000 shares of Series D Convertible Preferred Stock outstanding (one vote per share).

 

 40 
 

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

 

Over the years 2017, 2016 and 2015, the President of the Company has extended short-term, interest-free advances for the purchase of inventory and operational expenses. As of December 31, 2016, the outstanding balance was $56,265. Additionally, at June 30, 2017, the Company’s related party balances were, accounts payable, $154,018, notes payable, 34,309 and convertible notes payable, $59,394.

 

On December 4, 2015, the company entered into a Settlement Agreement that extinguished $1,051,387 of accrued back pay owed to Richard D. Surber, the CEO and Director in exchange for 52,569,350 restricted shares of common stock.

 

On January 5, 2016 the Board of Directors of SAKL approved the execution of employment agreements with Richard Surber, John Malfatto, David Wulf and Taylor Gourley. The terms of the agreements begin on January 1, 2016 and expire on December 31, 2020. Base annual salary for each of the named persons is $250,000 and cannot be reduced below $1,500 for any single two week payroll period. The agreements include non-compete provisions for a period equal to three years or upon sale of all preferred securities held by the employee. Each of the named persons hold shares of Series B Preferred Stock that by agreement are not transferable without the prior approval of the Board of Directors of SAKL. Each of these same persons has signed a Lock-Up Agreement with the Company that limits the sale of securities by the named persons and the Company in exchange agreed to protect the four named individuals’ securities from “corporate action, including any reverse stock split of the common stock exceeding a factor of two (2) or other restructuring of the Company.” Each of the parties has agreed to waive unpaid compensation for the period ended December 31, 2016. Mr. Wulf’s employment with the Company has been terminated. The employment agreements with Mr. Surber and Mr. Gourley remain in effect for 2017 and it is expected that the Company will either pay or accrue their compensation for this year.

 

On July 13, 2006 the Company issued a note payable for $250,000 to Mr. Surber in exchange for common shares of Green Endeavors. The note is convertible into the Company’s common shares at Mr. Surber’s option at a conversion rate of 90% of the average market price of the Company’s common shares as reported from the date of notice to the date of conversion. The current principal balance of the note is $59,394 with $62,362 of accrued interest through September 14, 2017, the note bears interest at the rate of 24% per annum. No payments on the note have been made during 2017.

 

No other loans or advances by Mr. Surber exceed one percent of the average of our total assets at year-end for the last two completed fiscal years.

 

On April 14, 2017 the Company entered into a Settlement Agreement and Release with John Malfatto and Martin Malfatto Squared Inc. wherein the parties agreed to terms that will end Malfatto’s current employment agreement with the Company and provide for the terms under which he will continue to provide services through the end of 2017. Malfatto and Malfatto Squared will deliver to the Company 250,000 shares of Series B Preferred stock and 139,000 shares of Series A Preferred stock and return 13,142,337 shares of common stock to Richard Surber and Taylor Gourley.

 

Landis Salons Inc., a subsidiary of the Company has as of August 2016 entered into an equipment lease with Diversified Holdings X, Inc., a corporation controlled by Richard Surber, for solar panel equipment to be used at the Liberty Heights Landis salon location in Salt Lake City Utah. The lease is for a term of five years, with monthly payments in the sum of $1,422.00. The equipment has been installed and appears to be operating properly. Mr. Surber received tax credits and energy rebates totaling approximately $40,000 as a result of the transaction.

 

Richard Surber, a related party, is providing his personal guaranty for several lines of credit, credit cards and a second mortgage on his home that are being utilized by the Company and its operating subsidiaries. In addition to the above, Mr. Surber is a personal guarantor to notes payable by the Company with remaining principal balances of approximately $1.2 Million. Subsequent to December 31, 2016, Mr. Surber continues to provide his personal guaranty for several lines of credit, credit cards, and loans that are being utilized by the Company and its subsidiaries. The total amount of these credit obligations vary and have exceeded $1,000,000.

 

 41 
 

 

DESCRIPTION OF REGISTRANT’S SECURITIES TO BE QUALIFIED

 

Our authorized capital stock consists of 990,000,000 shares of common stock, par value $0.0001, and 50,000,000 shares of preferred stock, par value $0.001. As of the date of February 21 , 2018, there were 1,687,750 shares of our common stock issued and outstanding, and 505,750 shares of Series A Convertible Preferred Stock, 14,750,000 shares of Series B Convertible Preferred Stock, 360,233 shares of Series C Convertible Preferred Stock, 35,000 shares of Series D Convertible Preferred Stock and no shares of Series E Convertible Preferred Stock issued and outstanding.

 

Common Stock

 

Each shareholder of our common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of our common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares voted for the election of those directors can elect all of the directors. The holders of our common stock are entitled to receive dividends when and if declared by our Board of Directors from funds legally available therefore. Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our common shareholders. Shares of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our common stock.

 

Our Board of Directors has determined that it would be in the Company’s best interest to conduct a reverse stock split of the issued and outstanding shares of common stock on a one for five hundred basis. We have received the consent of the holders of a majority of the voting rights of the Company’s securities to authorize the board to conduct such a reverse stock split. The Board of Directors believes that a reduction in the number of outstanding shares would reduce investor concerns and is in the best interest of the Company and its shareholders. The effective date of the reverse split was October 25, 2017.

 

On December 18, 2015 the CEO and four managers of the company entered into a lockup agreement with the company in exchange for 13,142,330 pre-split shares of common stock each, (for a total of 52,569,320 pre-split common shares or 105,139 post-split common shares) series A Preferred Stock and Series B Preferred Stock. These individuals were restricted in their ability to trade or transfer ownership of these shares freely as well as restriction on conversion of the Series B Preferred Stock into Common Stock. In exchange for these restrictions the parties were protected from the effects of reverse stock splits greater than a factor of two for one for a period of three years after the agreement. This protection against the effects of a reverse stock split was subsequently waived on November 10, 2017 by all members of the agreement. The common shares awarded to these individuals were reverse split at the same rate as all other common shares and did not receive preferential treatment.

 

Preferred Stock

 

We are authorized to issue 50,000,000 shares of preferred stock, par value $0.001 per share, of which 2,500,000 shares of Series A Preferred Stock, 20,000,000 shares of Series B Preferred Stock and 2,500,000 shares of Series C Preferred Stock, 200,000 shares of Series D Preferred Stock, and 5,000,000 shares of Series E Preferred Stock have been designated and authorized. The holders of our Preferred Stock have the number of votes per share of Preferred Stock as stated below, to be voted as a group along with the common shareholders on all matters on which the shareholders are entitled to vote. Series A Preferred Stock has ten votes per share, Series B Preferred Stock has 100 votes per share, Series C Preferred Stock has one vote per share, Series D Preferred Stock has 1 vote per share and Series E Preferred Stock has 10 votes per share.

 

 42 
 

 

Series E Preferred Stock

 

Our Series E Preferred Stock is convertible, no earlier than one year after issuance, into that number of shares of our common stock determined by dividing the Original Issue Price by the Conversion Price. The Original Issue price is $5.00 per share of Series E Preferred Stock and the Conversion Price is 80.0% multiplied by the Market Price. The Market Price means the average of the lowest five (5) Trading Prices for our common stock during the ten (10) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. Trading Price is, for any security as of any date, the closing bid price as reported by OTC Markets Group, Inc., or, if the OTC Markets is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by OTC Markets Group, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Company and holder. “Trading Day” shall mean any day on which the Company’s common stock is tradable for any period on OTC Markets, or on the principal securities exchange or other securities market on which the common stock is then being traded.

 

The conversion of the Series E Preferred Stock is limited such that the holder of Series E Preferred Stock may not convert any shares of Series E Preferred Stock if the conversion would result in beneficial ownership by the holder and its affiliates of more than 9.99% of our outstanding shares of common stock.

 

The Series E Preferred Stock is not redeemable.

 

Liquidation Rights

 

In the event of any liquidation, dissolutions, or winding up of the Company, whether voluntary or involuntary, the Board of Directors shall redeem the Series A Preferred Stock and Series C Preferred Stock by issuing shares of common stock based upon the closing price of the shares of common stock on the date the Company is deemed liquidated, dissolved, or wound up.

 

In the event of any liquidation, dissolutions, or winding up of the Company, whether voluntary or involuntary, the Series B Preferred Stock Holders shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any outstanding capital stock of the Company or subsequent series of preferred stock, an amount equal to $0.001 per share.

 

In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of the Series D Preferred then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any outstanding capital stock of the Company, an amount equal to Five Dollars ($5.00) per share. If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the holders of the Preferred Stock shall be insufficient to permit the payment to the holders thereof the full preferential amount as provided therein, and to the Series D Preferred Shareholders, then such available assets shall be distributed ratably first to the holders of the Series C Preferred, and then to the holders of the Series D Preferred.

 

 43 
 

 

The holders of each share of Series E Preferred Stock outstanding in the event of any liquidation shall be entitled to be paid, out of the available funds and assets, subject to the rights of the holders of Series A, B, C and D Preferred Stock and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any available funds and assets on any shares of common stock or subsequent series of preferred stock, an amount per share equal to the original issue price of the Series E Preferred Stock plus all declared but unpaid dividends on the Series E Preferred Stock. If upon any liquidation, dissolution or winding up of the Company, the available funds and assets shall be insufficient to permit the payment to holders of the Series E Preferred Stock of their full preferential amount as described in this subsection, then all of the remaining available funds and assets shall be distributed among the holders of the then outstanding Series E Preferred Stock pro rata, according to the number of outstanding shares of Series E Preferred Stock held by each holder thereof.

 

Finally, all of the assets of the Company remaining to be distributed after redemption of the preferred stock holders shall be distributed ratably to the holders of the outstanding shares of common stock of the Company.

 

Dividend Policy

 

We have not declared or paid a cash dividend on our capital stock in our last two fiscal years and we do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board of Directors and subject to any restrictions that may be imposed by our lenders.

 

Dividends may not be declared or paid without the prior written consent of the majority of the Series B Holders.

 

Options and Warrants

 

As of the date of this offering circular, we do not have any outstanding options, warrants, or other convertible securities.

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

The financial statements of Sack Lunch included in this offering circular and elsewhere in the offering statement of which this offering circular forms a part have been so included in reliance upon the report, which includes an explanatory paragraph as to our ability to continue as a going concern, of Sadler, Gibb & Associates, LLC, independent registered public accountants, upon the authority of that firm as experts in auditing and accounting.

 

PROPERTIES

 

Downtown Development Corporation (DDC)

 

DDC, our wholly owned subsidiary, owned a one story retail building located at 1374 South State Street, Salt Lake City, Utah, which it purchased on December 1, 1999 for $535,000. The building is approximately 7,000 square feet, one story tall and constructed in the late 1960’s. A restaurant currently occupies 2,500 square feet of retail space pursuant to a lease. The remaining 4,500 sq ft is vacant.

 

 44 
 

 

DDC, on August 18, 2006, closed on the purchase of a lot immediately adjacent to the above described property and building located at 1374 South State Street. The total purchase price for the property was $250,000.

 

On June 23, 2011, DDC closed on refinancing of the loans on the building and lot on South State Street. A loan in the sum of $615,262 was secured from Cyprus Credit Federal Credit Union. The loan bears interest at the rate of 6.50% per annum, with monthly payments of $4,157, with a final balloon payment due on May 23, 2021 (estimated amount $478,352). The loan is personally guaranteed by Richard D. Surber, Sack Lunch’s President and C.E.O.

 

In January of 2018 Downtown Development Corporation sold its real property located on South State Street in Salt Lake City Utah. The sale proceed were sufficient to satisfy the existing first mortgage on the property and its related debt in the amount of $543,000 and secondary lien holders in the property and their related debts in the amount of $175,000

 

Landis Salons

 

Our Liberty Heights facility is located at 1298 South 900 East, Salt Lake City, Utah 84105. This lease is for a 4,000 square foot free standing commercial building with a preliminary term of ten years beginning on October 1, 2005 and the lease provides for one five year extended term.

 

Our Landis II facility is located at 600 North 300 West, Salt Lake City, Utah 84103. This lease is for a 3,000 square foot commercial building with a term of ten years beginning on September 15, 2010 and the lease provides for two, five year extended terms.

 

On March 10, 2012, we signed a lease through a newly formed subsidiary, Landis Experience Center, LLC to operate an Aveda™ experience center in the newly opened City Creek Mall located in downtown Salt Lake City, Utah. This 430 square foot store will focus on the sale of products only, no salon services will be provided. The lease is for a period of seven years beginning when the store opened in August 2012.

 

Event facilities

 

SAKL and its subsidiaries corporate headquarters of approximately 3,000 square feet are located at 59 West 100 South, second floor, Salt Lake City, Utah 84101.

 

SAKL has a lease for warehouse space located at 4521 West 1980 South, Salt Lake City, Utah. The leased space is for 8,476 square feet of warehouse space for a two year term beginning January 1, 2017.

 

LEGAL PROCEEDINGS

 

Except as set forth below, we are not a party to or otherwise involved in any material pending legal proceedings, other than ordinary routine litigation incidental to our business operations.

 

Sack Lunch Productions, Inc. v Scott Crandall and Matt Ward, Case No. 170903524 in the Third Judicial District Court of Salt Lake County, State of Utah, filed June 2, 2017 seeking damages under the Acquisition Agreement from August of 2015 for recovery of the debts or payables of Springbok that exceeded the amount of $2 million. Defendants have filed their appearances and discovery has begun.

 

TCA Global Credit Master Fund, L.P. vs Sack Lunch Productions, Inc., Green Endeavors, Inc., Landis Salons, Inc., Landis Salons II, Inc., Diversified Managements Services, Inc., Wasatch Capital Corporation, Downtown Development Corporation, WG Productions Company, Landis Experience Center, LLC, Redline Entertainment, Inc., Springbok Holdings, LLC, Color Me Rad, LLC, The Dirty Dash, LLC, Springbok Franchising LLC, and Springbok Management, LLC, Case CACE-17-011661 Division 12, in the Circuit Court of the 17th Judicial Circuit In and For Broward County, Florida. The suit seeks recovery for payments that were due in accordance with the terms and provisions of the Senior Secured Credit Facility Agreement effective between the parties as of October 31, 2015. The parties have entered into a Settlement Agreement to resolve and dismiss the litigation.

 

1 Global Capital, LLC vs. Lantern Fest Productions, Inc. and Richard D. Surber, individually. Complaint filed in the 17th Judicial Circuit in and for Broward County, Florida on September 5, 2017, case Number: CACE 17016985. The complaint seeks damages in the sum of $125,479.00 for failure to pay pursuant to a Merchant Agreement between Lantern Fest and 1st Global Capital. Defendants have retained counsel to defend the complaint and are prepared to dispute the allegations set forth by the complaint.

 

 45 
 

 

FINANCIAL STATEMENTS

 

Audit Report
Financial Statements for the years ended December 31, 2016 and 2015
Unaudited Financial Statements for the period ended June 30, 2017

 

 46 
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Management of Sack Lunch Productions, Inc.

 

We have audited the accompanying consolidated balance sheets of Sack Lunch Productions, Inc. (“the Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two year period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sack Lunch Productions, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 18 to the consolidated financial statements, the Company has suffered net losses since inception and has accumulated a significant deficit. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 18. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Sadler, Gibb & Associates, LLC

 

Salt Lake City, UT

June 27, 2017

 

 47 
 

 

Sack Lunch Productions, Inc.

Consolidated Balance Sheets

 

   December 31, 
   2016   2015 
ASSETS        
Current assets          
Cash and cash equivalents  $670,352   $540,689 
Restricted cash   262,996    429,832 
Accounts receivable, net of allowance for doubtful accounts of $409,279 and $239,794, respectively   42,404    156,769 
Inventory   1,016,661    1,630,641 
Prepaid expenses   230,823    132,111 
Total current assets   2,223,236    2,890,042 
Note receivable, net of allowance of $0 and $11,622, respectively   184,295    179,032 
Property and equipment, net of accumulated depreciation of $1,864,966 and $1,515,698, respectively   2,048,343    2,225,673 
Goodwill   139,755    139,755 
Intangible assets, net of accumulated amortization of $157,707 and $46,075   846,666    959,128 
Other assets   19,674    20,914 
Total assets  $5,461,969   $6,414,544 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities          
Accounts payable  $1,907,237   $2,127,398 
Accounts payable related party   215,437    232,348 
Deferred revenue   289,466    153,717 
Accrued expenses   1,634,876    1,291,531 
Current portion of notes payable, net of debt discount of $95,368 and $14,461, respectively   970,406    508,142 
Current portion of capital leases   26,134    22,911 
Derivative liability   1,391,432    2,113,172 
Convertible notes payable, net of debt discount of $133,870 and $1,500,532, respectively   2,045,431    376,314 
Convertible notes payable, related party   59,394    60,282 
Current portion of notes payable related party   34,309    40,740 
Total current liabilities   8,574,122    6,926,555 
Long-term liabilities          
Notes payable   566,212    703,359 
Notes payable, related party   -    14,389 
Convertible notes payable, net of debt discount of $0 and $30,390 respectively   -    8,110 
Capital leases   57,469    21,295 
Total long-term liabilities   623,681    747,153 
Total liabilities   9,197,803    7,673,708 
Commitments and contingencies   -    - 
Convertible preferred stock   8,921,709    8,942,303 
Stockholders’ deficit          
Common stock, par value $0.0001; 990,000,000 shares authorized; 327,071 and 272,102 shares issued and outstanding, respectively   33    27 
Additional paid-in capital   35,678,386    36,849,674 
Accumulated deficit   (48,212,352)   (45,166,282)
Accumulated other comprehensive income   (760)   (760)
Total Sack Lunch Productions, Inc. and subsidiaries stockholders’ deficit   (12,534,693)   (8,317,341)
Non-controlling interest   (122,850)   (1,884,126)
Total stockholders’ deficit   (12,657,543)   (10,201,467)
Total liabilities and stockholders’ deficit  $5,461,969   $6,414,544 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 48 
 

 

Sack Lunch Productions, Inc.

Consolidated Statements of Operations

 

   Year Ended December 31, 
   2016   2015 
Revenue        
Services  $12,367,031   $8,031,936 
Products   1,408,707    829,692 
Rental   38,121    39,680 
Franchise Fees and Royalties   616,092    1,326,094 
Other   411,078    245,452 
Total revenue   14,841,029    10,472,854 
Costs and Expenses          
Cost of services   5,705,930    4,236,604 
Cost of products   2,452,416    1,335,431 
Cost of other revenues   175,610    222,324 
Depreciation and amortization   500,485    359,205 
Salaries and wages   1,928,475    1,766,405 
General and administrative   5,849,959    3,455,526 
Total operating expenses   16,612,875    11,375,495 
           
Loss from operations   (1,771,846)   (902,641)
Other Income (Expense)          
Interest income   3,688    11,354 
Interest expense   (1,569,805)   (679,968)
Interest expense, related parties   (35,705)   (8,834)
Gain on derivative activity   2,311,016    55,363 
Gain (loss) on settlement of debt   (2,167,129)   110,220 
Gain on disposal of assets   3,523    - 
Other income (expense)   80,068    (4,079)
Loss on subsidiary stock subscription receivable   (40,883)   (155,488)
Total other income (expenses), net   (1,415,227)   (671,432)
Net income (loss) before income taxes   (3,187,073)   (1,574,073)
Income taxes   -    - 
Net loss before non-controlling interest   (3,187,073)   (1,574,073)
Net loss attributable to non-controlling interest   (141,003)   (459,486)
Net loss attributable to stockholders   (3,046,070)   (1,114,587)
Deemed dividends   386,250    - 
Net loss available to common stockholders  $(3,432,320)  $(1,114,587)
           
Loss per common share, basic and diluted  $(11.33)  $(7.90)
Loss related to non-controlling interest, basic and diluted  $(0.47)  $(3.07)
Weighted average shares used to compute earnings per share, basic and diluted   302,949    141,045 
           
Basic   302,949    141,045 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 49 
 

 

Sack Lunch Productions Inc.

Consolidated Statements of Stockholders’ Deficit

 

   Mezzanine 
   Series A   Series B   Series C   Series D   Convertible   Convertible 
   Preferred   Preferred   Preferred   Preferred   Preferred   Preferred 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   APIC   Total 
                                         
Balances at December 31, 2014   142,750   $143    15,000,000   $15,000    1,442,723   $1,443    -   $-   $8,467,267   $8,483,853 
Stock issuance for investment in subsidiary   417,000    417    -    -    -    -    -    -    20,059    20,476 
Preferred C shares issued for cash   -    -    -    -    5,200    5    -    -    12,995    13,000 
Preferred C shares converted to common stock   -    -    -    -    (25,766)   (26)   -    -    -    (26)
Preferred C shares issued for services   -    -    -    -    85,000    85    -    -    424,915    425,000 
Preferred C shares cancelled   -    -    -    -    (278,396)   (278)   -    -    278    - 
Balances at December 31, 2015   559,750   $560    15,000,000   $15,000    1,228,761   $1,229    -   $-   $8,925,514   $8,942,303 
Preferred A shares issued for cash   61,000    61    -    -    -    -    -    -    304,939    305,000 
Preferred A shares converted to common shares   (3,000)   (3)   -    -    -    -    -    -    -    (3)
Preferred C shares issued for cash   -    -    -    -    40,000    40    -    -    99,960    100,000 
Preferred C shares converted to common shares   -    -    -    -    (379,462)   (379)   -    -    -    (379)
Preferred C shares cancelled for debt   -    -    -    -    (85,000)   (85)   -    -    (424,915)   (425,000)
Preferred C shares cancelled   -    -    -    -    (336,716)   (337)   -    -    126    (212)
Extinguishment of series C stock by issuance of Series D stock   -    -    -    -    (72,100)   (72)   72,100    72    -    - 
Balances at December 31, 2016   617,750   $618    15,000,000   $15,000    395,483   $396    72,100   $72.00   $8,905,624   $8,921,709 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 50 
 

 

Sack Lunch Productions Inc.

Consolidated Statements of Stockholders’ Deficit

 

                   Accumulated         
   Common   Additional       Other   Non-   Total 
   Stock   Paid-in   Accumulated   Comprehensive   controlling   Shareholders’ 
   Shares   Amount   Capital   Deficit   Income   interest   Deficit 
                             
Balances at December 31, 2014   129,743   $13   $35,122,707   $(44,051,695)  $(760)  $(1,356,660)  $(10,286,395)
Options exercise of subsidiary stock   -    -    428,004    -    -    -    428,004 
Derivative liability conversion to APIC   -    -    24,561    -    -    -    24,561 
Preferred C shares converted to common stock   22,374    2    24    -    -    -    26 
Common shares issued with debt   2,834    -    24,000    -    -    -    24,000 
Common shares issued for conversion of note payable   4,212    -    69,823    -    -    -    69,823 
Common shares issued for accrued payroll   105,139    11    1,051,375    -    -    -    1,051,386 
Common shares issued for cash   6,000    1    44,999    -    -    -    45,000 
Common shares issued for services   1,800    -    16,200    -    -    -    16,200 
Decrease NCI for ownership change in subsidiary   -    -    67,980    -    -    (67,980)   - 
Net loss   -    -    -    (1,114,587)   -    (459,486)   (1,574,073)
Balances at December 31, 2015   272,102   $27   $36,849,673   $(45,166,282)  $(760)  $(1,884,126)  $(10,201,468)
Preferred A shares converted to common shares   462    -    3    -    -    -    3 
Preferred C shares issued for cash   -    -    211    -    -    -    211 
Preferred C shares converted to common shares   52,241    5    374    -    -    -    379 
Common shares issued for settlement of liability   4,800    1    54,000    -    -    -    54,001 
Common shares issued for services   3,900    -    314,710    -    -    -    314,710 
Common shares issued for conversion of note payable   1,695    -    50,051    -    -    -    50,051 
Common shares issued for loan inducement   167    -    -    -    -    -    - 
Common shares cancelled   (8,189)   -    -    -    -    -    - 
Difference in rouding shares from split   (107)   -    1    -