Our Winning Brands 2020 Annual Report introduced the fact that we were undertaking the acquisition of a tech company. This was described under the heading of VISION 21. https://backend.otcmarkets.com/otcapi/company/financial-report/279668/content.
We provided a further update in the Q1 OTC Markets disclosure report. https://backend.otcmarkets.com/otcapi/company/financial-report/283293/content
Then on June 8, 2021 a post to this blog site added more information. The June 8th post provided the names of some of the many satisfied customers of our future Tech Division. The quality of that customer list speaks for itself. It requires no embellishment. It’s a “who’s who” of corporate excellence. These are organizations that can buy anything they want, from any supplier they prefer. There is no better “vetting” process of a supplier’s quality than to than to look at that supplier’s customer list. So simple, and yet so revealing. At one time or another, all of these companies (and more) have paid for product or service or license from our future Tech Division.
WNBD shareholders have responded favorably to this disclosure. The question amongst Winning Brands shareholders is no longer whether this is likely to be beneficial to the intrinsic value of WNBD. That is now obvious. The question has instead become how likely the acquisition is to actually occur, so that the Tech Division’s customers will in fact become Winning Brands customers, by extension.
Today’s update is a review of the process by which the acquisition is taking place. I describe this acquisition in the present tense. This is not an acquisition that would merely be “nice to have” one day, or an acquisition that we are “trying to obtain, but is iffy”. It is an acquisition which is already occurring.
The transaction deposit is being held in trust and is slated to be released this week – a partial payment. In this fact, and all our dealings to date, Winning Brands has shown itself to our transaction partners to be serious, competent and professional. Winning Brands has done in this transaction all that we said that we would do. WNBD is retaining the initiative in this transaction. Winning Brands is helping to keep things moving forward. We are not passive. We are active participants in a collaborative process, involving a number of parties, and it is going well.
It is in the nature of a multi-party transaction that various interests need to be reconciled. Not all parties are driven by the “time is of the essence” principle. Not all parties to such a transaction start out with the same concept of value. Not all parties are in the same jurisdiction. There are many things to pull together. Winning Brands’ astute handling of this transaction is an indicator of WNBD’s positive potential in future situations that require sound judgment. This may be a comfort to Winning Brands’ shareholders.
Winning Brands is honoring a non-disclosure agreement that prevents describing the company being acquired by name. As a practical matter, the name is irrelevant because it is not a name that you, the reader, would have heard of before. Yet, as you see, many of its customers are names that “everyone” knows.
In the modern economy, there are smart niche companies who are very successful being part of solutions that impact public life, but in the background. Bravo to Intel for the insight of their “Intel Inside” marketing concept. That concept converted Intel’s immense contribution to technology products from being an obscure contribution, i.e. hidden, to being universally known, and ultimately, a selling point. In the “Winning Brands” era of this Tech Division’s operation, more focus will be placed on branding “our” solutions so that not only will we continue to have great customers, but more people will know about that fact. A public company platform is uniquely well-suited to this objective for the benefit of our Tech Division and our shareholders.
Background to Current Process
Winning Brands is acquiring valuable intellectual property, as well as physical assets, personnel and goodwill of a technology company in North America that was put into trusteeship when a bank withdrew a line of credit in a manner that created a domino effect. A crisis ensued. On behalf of Winning Brands in the capacity of consultant, I intervened to organize bridge financing for that entity while the negotiations began with the trustee for Winning Brands to acquire the items in trusteeship within a new WNBD subsidiary, free and clear of the institutional liens that caused the difficulty. I know for a fact that the trusteeship was unnecessary, and not a reflection of the quality of the company. The trusteeship, in essence, arose as a technical consequence of the fact that the company did not meet the bank’s acid test ratio during a periodic review. Ironically, the “excessive” debt to asset ratio arose from friendly, foundational, shareholder loans that would never jeopardize the company. But to the bank, it was all about the ratio. (https://en.wikipedia.org/wiki/Quick_ratio)
Such decisions are often made in the “ivory towers” of bank headquarters without much flexibility. If a company does not fit new profile criteria, the company becomes a square peg for a round hole. Banks don’t like that. No one in bank management gets kudos for being flexible. They get criticism for not following the rules. In this case, the bank’s action precipitated a sequence of events that was too complex to stop simply.
My intervention gave the company a lifeline that, to my reckoning, could be beneficial for all parties concerned, if the rescued operation could join us as part of our public company team. It is beneficial for WNBD because we are obtaining things in the transaction, tangible and intangible, for pennies on the dollar relative to their development costs. Also, the institutional memory of a personnel group who know how to do something well, and have earned the trust of such high level customers does not even appear of the balance sheet. It can cost tens of millions to acquire such goodwill, if it can ever be gained. Our Tech Division has such goodwill. The acquisition is beneficial for the Tech Division team because their operation will be able to carry on without the burden of the bank issue (due to a release that will be provided). They gain additional management perspective and a new public platform to grow the awareness of their work. The acquisition is beneficial for our customers, because the Tech Division managed to stay operational, even on a restricted basis. In fact, the customers are not even disturbed by the impairments that the company needed to overcome because the quality of delivered goods and services was not affected. Soon, everything that the Tech Division will be even better. The company’s name has remained the same. The telephone number the same, etc. All aspects of the identity are intact, and will remain so. In the end, the acquisition will be a finesse that will only have winners. Even the bank is a winner because they get to “close the file” and move on.
Intellectual Property and Timing
There are two aspects to the intellectual property rights that are time consuming to deal with. The first is to establish their provenance. (https://en.wikipedia.org/wiki/Provenance). The second is to ensure their flawless conveyance. I am being unyielding on both.
We are dealing with licensed protection under more than 50 patents. These needed to be researched to establish beyond any doubt under what conditions this protection exists. Which entities to the transaction had rights, in which commercial arrangements were/are in place, how were these arrangements affected by the trusteeship (if at all), what releases and waivers are required for quit claim purposes, etc. Is that a lot of work? Yes, but effort now will ensure that in the future when we arrange for valuations of various aspects of Winning Brands’ interests, it will be enormously helpful that we paid attention to such matters. It also strengthens our enforcement rights in any actions and helps make the case to customers that we have something that gives them value and peace of mind – authentic, provable rights.
The transaction is taking place in two parts – a preparatory phase (the current phase). This phase is characterized by legal due diligence investigations, confirmation and discussion with vendors (of the rights) regarding the transfer of all of the vendors’ right, title and interest in and to the purchased assets, to Winning Brands.
We are hoping that this phase will end around June 30th, with the completion of the Asset Purchase Agreement setting out the detail that emerged from Step 1. We are no longer negotiating. This is purely a procedural collaboration. The Asset Purchase Agreement will formalize the description (for legal purposes) of those assets and the proposed mechanics and final timing for the sale to be consummated in the eyes of the court to whom the trustee is accountable. This affirmation by the court is important to me as CEO of Winning Brands so that representations that I will make publicly as to the ownership of these rights and assets free and clear are protected from any rebuttal. It is easy to be lazy or impatient, and skip this last step. This court affirmation is what I am determined to accomplish however, as it will enhance the value of what we have.
Therefore, within the next 2-3 weeks we target to have the Step 2 documentation ready and signed, and to apply for the court’s blessing. I will have a better sense in a few weeks when that can be expected.
In the meantime, Tech Division management and Winning Brands are already collaborating in the coordination of planning. Budgets are being drawn up. A lengthy Action Plan has been developed, with names of people assigned to specific tasks, for a roll-out sequence over the 6 months ensuing the court’s sign-off.
It is in WNBD shareholder interest that this process is not rushed, and that we do not upset the apple cart by diving into further detail about the company at this time because of the fact that it offers no benefit to do so. The acquisition is transformational for Winning Brands and the lift that it will provide is long lasting. In the larger scheme of things, a few days, or weeks, or even months is absolutely immaterial to the positive impact that will follow, and endure. The confidentiality provision protects our customers, staff, negotiators, the bank and other institutional interests, and even the court, from errant phone calls, e-mails and confusing communications at cross-purposes.
I will have a further update toward the end of June to keep shareholders apprised of developments.
In the meantime, Winning Brands continues to advance in its other initiatives.
Thank you, Winning Brands shareholders, for your interest and kind thoughts, expressed in so many ways.
Eric Lehner, CEO
Winning Brands
