The unaudited interim condensed consolidated financial statements of Leafbuyer Technologies, Inc. (“we”, “our”, “us”, the “Company”) follow. All currency references in this report are to US dollars unless otherwise noted.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 — Description of Business
Description of Business
The Company was founded in 2012 by a group of technology and industry veterans and provides online resources for cannabis deals and specials. Our headquarters is located in Greenwood Village, Colorado.
Our subsidiary, LB Media Group, LLC has evolved and grown as a listing website to a comprehensive marketing technology platform. Our clients, medical and recreational dispensaries in legalized cannabis states, along with cannabis product companies subscribe to our technology platform to assist in new customer acquisition and provide retention tools that include texting/loyalty and order ahead technology.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of June 30, 2021, has been derived from audited financial statements. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements being audited and in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of this interim information. All intercompany transactions have been eliminated in consolidation. Operating results and cash flows for interim periods are not necessarily indicative of results that can be expected for the entire year. The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. The information included in this report should be read in conjunction with our audited financial statements and notes thereto.
Going Concern
As of December 31, 2021, we had $452,251 in cash and cash equivalents and a working capital deficit of $2,616,897. We are dependent on funds raised through equity financing. Our cumulative net loss of $23,221,054 was funded by debt and equity financing and we reported a net loss from operations of $1,585,128 for the six months ended December 31, 2021. Accordingly, there is substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued.
Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management believes that actions presently being taken to further implement our business plan of expansion of products, geographical locations we sell our services and deeper market penetration will generate additional revenues and eventually positive cash flow and provide opportunity for the Company to continue as a going concern. While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances to that effect.
Error Correction
Series A & B Shares Outstanding
The Company’s annual financial statements ended June 30, 2020 contained three errors related to the Preferred Stock issued in connection with the March 23, 2017 Merger Agreement.
In accordance with the Merger Agreement, the Company issued 324,327 new pre-split shares of Series A Convertible Preferred Stock and accepted subscriptions in a private placement offering of 27,027 new pre-split shares of the Company’s Series B Convertible Preferred Stock, of which each share of Series B Convertible Preferred Stock is convertible into 16 Common Shares at any time, in the amount of $250,000. All shares issued in accordance with the Merger Agreement are considered to be outstanding beginning January 1, 2015 as these shares relate to the change in capital structure.
On March 24, 2017, the Company effected a forward split such that 9.25 shares of Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to the forward split. The Company incorrectly stated that immediately following the forward split, 3,000,000 shares of post-split Series A Convertible Preferred Stock, and 250,000 shares of post-split Series B Convertible Preferred Stock outstanding. The par value of all classes of shares remained at $0.001 per share after the forward split. All references to shares from that point forward were referred to as post-split shares.
This presentation was incorrect because in connection with stock splits by the Company, the certificate of designation for each of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock provide for an adjustment to the common stock underlying such shares and not the shares of preferred stock. Therefore, the September 30, 2020 Consolidated Statement of Equity and Footnote 4 have been changed to reflect 324,325 shares of Series A issued and outstanding and 7,567 shares of Series B Convertible Preferred Stock issued and outstanding after the conversion of 19,459 shares in January and June of 2018 and June 30, 2019.
Therefore, the Consolidated Balance Sheet, Consolidated Statement of Equity and Footnote 4 have been changed to reflect the Number of shares of Series A and Series B preferred stock and the par value of those shares.
Balance Sheet – December 31, 2020
|
|
|
As Computed -
Restated
|
|
|
As
Reported
|
|
|
Effect of
Change
|
|
|
Convertible Preferred Stock Series A - Value
|
|
$
|
324
|
|
|
$
|
3,000
|
|
|
$
|
(2,676
|
)
|
|
Convertible Preferred Stock Series B - Value
|
|
$
|
8
|
|
|
$
|
1,120
|
|
|
$
|
(1,112
|
)
|
|
Additional Paid in Capital
|
|
$
|
16,725,897
|
|
|
$
|
16,722,110
|
|
|
$
|
3,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock Series A - Shares
|
|
|
324,325
|
|
|
|
3,000,000
|
|
|
|
(2,675,675
|
)
|
|
Convertible Preferred Stock Series B - Shares
|
|
|
7,567
|
|
|
|
1,120,000
|
|
|
|
(1,112,433
|
)
|
Series A convertible feature not accounted properly
The Series A Preferred Shares are convertible into a number of shares of Common Stock so that the holders of Series A Convertible Preferred Stock would hold 55% of the number of outstanding shares of Common Stock on a fully diluted basis after giving effect to such conversion. The Series A Convertible Preferred Stock vote on an “as-converted” basis.
The Company has determined that the Series A Preferred Stock conversion provisions meet the accounting requirements of FASB ASC 815 which requires a bifurcation of an embedded conversion feature and classification of the derivative as a liability on the balance sheet at the end of each reporting period. The fair value of the derivative liability is estimated each period as a Level 3 – Significant Unobservable Inputs based upon the numbers of common shares stock at an estimated conversion price.
The following table represents the value of the derivative and number of shares of common stock issuable for the holders to obtain 55% of the number of outstanding shares of common stock:
Balance Sheet – December 31, 2020
|
|
|
As Computed -
Restated
|
|
|
As
Reported
|
|
|
Effect of
Change
|
|
|
Derivative liability
|
|
$
|
6,601,339
|
|
|
$
|
-
|
|
|
$
|
6,601,339
|
|
|
Total current liabilities
|
|
$
|
9,570,333
|
|
|
$
|
3,383,426
|
|
|
$
|
6,601,339
|
|
|
Total liabilities
|
|
$
|
10,628,310
|
|
|
$
|
4,485,904
|
|
|
$
|
6,601,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
24,806,182
|
|
|
$
|
17,409,029
|
|
|
$
|
6,601,339
|
|
|
Total equity (deficit)
|
|
$
|
(7,224,121
|
)
|
|
$
|
3,887,031
|
|
|
$
|
(6,601,339
|
)
|
Income Statement – December 31, 2020
|
|
|
As Computed -
Restated
|
|
|
As
Reported
|
|
|
Effect of
Change
|
|
|
Unrealized gain(loss) on derivative
|
|
$
|
(2,792,563
|
)
|
|
$
|
-
|
|
|
$
|
(2,792,563
|
)
|
|
Other income/ (expense)
|
|
$
|
(3,007,794
|
)
|
|
$
|
(215,231
|
)
|
|
$
|
(2,792,563
|
)
|
|
Net (loss) income
|
|
$
|
(4,200,468
|
)
|
|
$
|
(1,407,905
|
)
|
|
$
|
(2,792,563
|
)
|
|
Earnings (loss) per share - Basic
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
Earnings (loss) per share – Fully Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
-
|
|
Statement of Cash Flow – December 31, 2020
|
|
|
As Computed -
Restated
|
|
|
As
Reported
|
|
|
Effect of
Change
|
|
|
Net (loss) income
|
|
$
|
(4,200,468
|
)
|
|
$
|
(1,407,905
|
)
|
|
$
|
(2,792,563
|
)
|
|
Loss (gain) on derivative liability
|
|
$
|
2,792,563
|
|
|
$
|
-
|
|
|
$
|
2,792,563
|
|
Statement of Equity –December 31,2020
|
|
|
As Computed -
Restated
|
|
|
As
Reported
|
|
|
Effect of
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 – Accumulated Deficit
|
|
$
|
(23,977,270
|
)
|
|
$
|
(17,409,029
|
)
|
|
$
|
(6,568,241
|
)
|
Fully Diluted shares exceed Authorized Shares
The Company has determined that as of December 31, 2020 the Series A Preferred stock would be convertible into 111,821,225 shares of common stock which would result in 242,856,839 shares of fully diluted common shares. The Company had authorized to issue 150,000,000 shares as of December 31, 2020. This exceeded the authorized and outstanding shares by 92,856,839 shares and therefore in accordance with ASR 268 the Company needs to present the Series A Convertible Preferred Stock separate from Stockholders Equity on the Balance Sheet and in the footnote disclosure. The Company has elected to not to present the Series A Convertible Preferred Stock separate as a mezzanine equity in accordance with ASR 268 because in October 2021 the Series A 55% feature no longer existed and this classification would be temporary and moved backed to permanent equity.
Note 2 — Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, LB Media. All significant inter-company transactions and balances have been eliminated in consolidation.
For a detailed discussion about the Company’s significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in the Company’s consolidated financial statements included in the Company’s June 30, 2021 Form 10-K. During the three months ended December 31, 2021, there were no significant changes made to the Company’s significant accounting policies
Use of Estimates
Management uses estimates and assumptions in preparing these condensed consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Examples of estimates include loss contingencies; useful lives of our tangible and intangible assets; allowances for doubtful accounts; and stock-based compensation forfeiture rates. Examples of assumptions include: the elements comprising a software arrangement, including the distinction between upgrades or enhancements and new products; when technological feasibility is achieved for our products; the potential outcome of future tax consequences of events that have been recognized in our financial statements or tax returns. Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
Earnings (Loss) per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised. Dilutive instruments had no effect on the calculation of earnings or loss per share during the period ended December 31, 2021. For the period ended December 31, 2020 warrants of 29,119,898, stock options vested as of the end of the period of1,998,444and Convertible Debt into 14,879,132shares were added to the weighted-average number of common shares outstanding.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The pronouncement will be effective for public business entities that are SEC filers in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The effect of the adoption of this pronouncement to the Company was immaterial.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s own Equity (Subtopic 815-40). ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification. The pronouncement will be effective for public business entities that are SEC filers in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted but no earlier than fiscal years beginning December 15, 2020.
No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future condensed consolidated financial statements.
Note 3 — Fixed Assets and Intangible Assets
Fixed Assets and intangible assets consist of the following
|
|
|
December 31,
2021
|
|
|
June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
Software platform
|
|
$
|
4,482,225
|
|
|
$
|
4,482,225
|
|
|
Furniture and fixtures
|
|
|
1,500
|
|
|
|
1,500
|
|
|
Less accumulated amortization
|
|
|
(2,170,523
|
)
|
|
|
(1,809,801
|
)
|
|
Property and equipment, net
|
|
$
|
2,311,702
|
|
|
$
|
2,673,924
|
|
On November 6, 2018, the Company acquired a customer facing software (“Loyalty Software”) through a Stock Purchase Agreement, where the Company acquired all the issued and outstanding capital stock of Greenlight Technologies, Inc. (“GTI”) from its shareholders. At the time of the transaction, there were no employees working for GTI, no systems and no assets, other than the Loyalty Software. GTI’s legal entity will be dissolved in the transition and the Loyalty Software will be assumed by the Company. Management determined that the purchase of GTI did not constitute a business purchase and recorded the transaction as a purchase of software. The consideration for the Loyalty Software was 2,916,667shares of common stock and cash of approximately $450,000. Total value of the Loyalty Software was estimated at approximately $3,010,000. The additional consideration for future developments will be evaluated and considered enhancements which will either be capitalized to the software or expensed as research and development costs. During the year ended June 30, 2020 additional Incentive Shares of 366,667for a value of $262,500was issued to shareholders of GTI as final settlement of the 2018 agreement. During the period ended December 31, 2021 there was no software capitalized and for the same period ended 2020.
GTI provides cannabis consumers real-time mobile ordering and loyalty rewards through an internally developed application that integrates with the local dispensary’s point of sale system. The Company plans to fully integrate this technology into the current platform and create an “Ultimate Bundle” of services for the cannabis industry. The current revenues of GTI are minimal, and the Company expects higher sales in the California market as the system is fully integrated.
Amortization expense, recorded as cost of revenue, related to internal use software totaled $362,222during the six months ended December 31, 2021 and for the same period ended 2020 amortization expenses was $362,222. Amortization expense for the next five years is as follows:
|
2022
|
|
$
|
724,445
|
|
|
2023
|
|
|
724,445
|
|
|
2024
|
|
|
724,445
|
|
|
2025
|
|
|
138,367
|
|
|
Total Unamortized Expense
|
|
$
|
2,311,701
|
|
Note 4 — Capital Stock and Equity Transactions
The Company has 700,000,000 shares of common stock authorized with a par value of $0.001 per share as of December 31, 2021. On August 13, 2021 the Company filed Articles of Amendment to Amended and Restated Articles of Incorporation with the State of Nevada increasing the number of common shares from 150,000,000 to 700,000,000.
In addition, the Company has 10,000,000 preferred stock authorized with a par value of $0.001 per share as of December 31, 2021.
Effective October 13, 2021, the Company executed and filed with the State of Nevada a Certificate of Designation of Preferred Stock of the Corporation fixing the designations, power, preferences, and rights of the shares. The total of 324,325 shares of preferred stock series A with a par value of $0.001 per share, of the Corporation are herby designated as Series A Super Voting Preferred Stock. These shares are not entitled to receive dividends and shall not be entitled to any liquidation preference. Further the holders shall have no conversion rights and the holders shall have the right to vote in an amount equal to 600 votes per share of Series A Preferred Stock.
The value as of October 13, 2021 for the derivative liability was $4,392,870 which was an increase from September 30, 2020 of $838,303. The difference was recorded as an unrealized loss on the consolidated statement of operations as of December 31, 2021 compared to a loss for this same period in 2020 of $3,714,877. For the period ending December 31, 2021 the derivative liability was treated as a capital contribution and is recorded against additional paid in capital. in accordance with FASB ASC 815.
As of December 31, 2020 the 324,325 shares of Series A Convertible Preferred Stock are convertible into 111,821,225 shares of Common Stock so that the Series A Convertible Stock holders would hold 55% of the number of outstanding shares of Common Stock on a fully diluted basis after giving effect to such conversion as of September 30, 2020. The Series A Convertible Preferred Stock vote on an “as-converted” basis. The Company has recorded a derivative liability in accordance with FASB ASC 815 because of the conversion feature embedded in the Series A Convertible Preferred Stock.
Issuance of Common Stock
During the six months ended December 31, 2021 the Company issued 733,938 shares of Common Stock to employees. These shares were valued at fair market value of $65,514 and expensed in the accompanying Condensed Consolidated Statement of Operations.
During the six months ended December 31, 2021, the Company issued 290,000 shares of Common Stock to vendors for services rendered. These shares were valued at fair market value of $22,300 and expensed in the accompanying Condensed Consolidated Statement of Operations.
During the six months ended December 31, 2020 the Company issued 1,124,832 shares of Common Stock to employees. These shares were valued at fair market value of $96,962 and expensed in the accompanying Condensed Consolidated Statement of Operations.
During the six months ended December 31, 2020, the Company issued 1,019,505 and 10,000 shares of Common Stock respectively to vendors and non-management members of the board of directors for services rendered. These shares were valued at fair market value of $71,980 and expensed in the accompanying Condensed Consolidated Statement of Operations.
Note 5 — Debt
During February 2018, the Company issued a promissory note in favor of an investor of the Company in the amount of $150,000 in exchange for $132,000 cash. The note has an original issue discount of $18,000 that is being amortized to interest expense over the term of the note. The loan maturity date was extended to August 8, 2019, the discount is fully amortized and total unpaid principal and interest is approximately $220,027, accruing at 12% at December 31, 2021, and is payable upon demand.
On September 21, 2018, the Company entered into a promissory note with an investor of the Company with a face value of $440,000 in exchange for $400,000 cash payment (“the Convertible Note”), the discount of the Convertible Note will be amortized over the life of the Convertible Note and have an interest rate of 10%. The Convertible Note has a twelve-month term with no payment required for the initial six months; after six months, the Company will repay the investors interest and principal in six equal installments. The principal and interest of the note is convertible into the Company’s common stock at a purchase price of $0.70 per common share after the six months. If the Company defaults on the Convertible Note, the interest is increased to 12% and at the investors’ option, the principal and interest can be converted into the Company’s common stock at a 20% discount to the then current market. In addition, the Company issued five-year warrants to purchase up to 200,000 common shares of the Company’s common stock at a price of $0.75 per share. The value assigned to the warrants of $125,723 has been fully amortized. The cash for this Convertible Note was received prior to September 30, 2018. As of December 31, 2021, the Convertible Note is payable upon demand and total unpaid principal and interest outstanding is approximately $603,535.
On September 21, 2018, the Company entered several promissory notes with various investors of the Company with a face value of $440,000 in exchange for $400,000 cash payment (“the Notes”), the discount of the Notes will be amortized over the life of the Note and have an interest rate of 10%. The Notes have a twelve-month term with no payment required for the initial six months; after six months, the Company will repay the investors interest and principal in six equal installments. The principal and interest of the note is convertible into the Company’s common stock at a purchase price of $0.70 per common share after the six months. If the Company defaults on the Notes, the interest is increased to 12% and at the investors’ option, the principal and interest can be converted into the Company’s common stock at a 20% discount to the then current market price. In addition, the Company issued five-year warrants to purchase up to 200,000 of the Company’s common shares at a price of $0.75 per share. The cash for these Notes was received prior to September 30, 2018. The value assigned to the warrants of $62,862 has been fully amortized. In March 2020, $220,000 of the 2018 Notes have been fully extinguished and the remaining $220,000 is in default and payable upon demand. As of December 31, 2021, the total unpaid principal and interest is approximately $301,768.
During the year ended June 30, 2019, the Company entered into several promissory notes with various investors of the Company with a face value of $960,000 in exchange for a total of $900,000 cash payments. The Notes have a beneficial conversion feature valued at $839,378, which is recorded as a discount. The total discount on the Notes will be amortized over the life of the Notes and recorded as interest expense. The notes have an interest rate of 7% and have an eighteen-month term with no payment required for the initial six months; after six months, the Company will repay the investors interest and principal in twelve equal installments. The principal and interest of the note is convertible into the Company’s common stock at a purchase price of $0.75 per common share at any time after the Original Issue Date. In March 2020, the Company did not make its required principal and interest payment which put the Notes in default. The interest rate increased to 15% and at the investors’ option, the principal and interest can be converted into the Company common stock at a 20% discount to the then current market price. The beneficial ownership value assigned to the conversion feature of $801,741 has been fully amortized. As of March 31, 2020, $533,000 of the 2019 Notes have been fully extinguished as $402,000 of debt repayment and the issuance of common stock valued at $131,000. On January 25, 2021, $300,000 of the 2019 Notes have been fully extinguished with the issuance of 4,000,000 of common stock at a price of $0.075 per share. The remaining principal of $90,125 is in default and payable upon demand. As of December 31, 2021, the total unpaid principal and interest is approximately $322,278.
During the year ended June 30, 2020, the Company entered into a promissory note with a related party (see Note 9) with a face value of $600,000 in exchange for a total of $565,000 cash payments. The total discount of the Note will be amortized over the life of the Note and recorded as interest expense which matured on December 1, 2020. In January 2021, the Company repaid $300,000 of the promissory note balance. The note is in default and due upon demand and the interest rate was increased to 12%. As of December 31, 2021, the total unpaid principal and interest is approximately $367,858.
During the year ended June 30, 2020, the Company entered into a promissory note with a related party (see Note 9) with a face value of $50,000. In January 2021, the Company repaid $25,000 of the promissory note balance. The note is in default and the interest rate increased to 12%. As of December 31, 2021, the total unpaid principal and interest is approximately $30,638.
On April 30, 2020 the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the United States Small Business Administration (the “SBA”) under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $500,000, with proceeds to be used for working capital purposes. Interest on the EIDL Loan accrues at the rate of 3.75% per annum and installment payments, including principal and interest, are due monthly beginning twelve months from the date of the EIDL Loan in the amount of $2,437. The balance of principal and interest is payable thirty years from the date of the promissory note.
On March 30, 2021, the Company was granted a loan from American Express National Bank in the aggregate amount of $557,977, pursuant to the Paycheck Protection Program (“PPP) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan which was in the form of a Note dated March 30, 2021, matures on March 30, 2023 and bears interest at a rate of 1.00% per annum, payable monthly commencing on March 30, 2022. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, rent, utilities and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, it cannot be assured that the Company will be ineligible for forgiveness of the loan, in whole or in part. On September 30, 2021 the Company was notified by American Express National Bank that the United States Small Business Administration has approved our Loan Forgiveness Application and the loan has been closed. The Company realized other income from the forgiveness of the PPP loan in the Consolidated Statement of Operations for the quarter ended September 30, 2021.
The Company recognized $102,777 and $215,231 of interest expense for the six months ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, accrued interest on the above notes was $524,035 and $319,523, respectively. The weighted average interest rates as of December 31, 2021 and 2020 was 5.13% and 5.65%.
Notes payable and long-term debt outstanding as of December 31, 2021 and June 30, 2021 are summarized below:
|
|
|
Maturity Date
|
|
December 31,
2021
|
|
|
June 30,
2021
|
|
|
12% $150,000 Convertible Note Payable, net of unamortized discount of $0 and $0, respectively
|
|
Due on Demand
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
12% $440,000 Convertible Note Payable, net of unamortized discount of $0 and $0, respectively
|
|
Due on Demand
|
|
|
440,000
|
|
|
|
440,000
|
|
|
12% $220,000 Convertible Note Payable, net of unamortized discount of $0 and $0, respectively
|
|
Due on Demand
|
|
|
220,000
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7% $213,333 Convertible Note Payable, net of unamortized discount of $0 and $28,492, respectively
|
|
Due on Demand
|
|
|
244,802
|
|
|
|
244,802
|
|
|
8% $600,000 Related Party Note Payable, net of unamortized discount of $0 and $21,911 respectively
|
|
Due on Demand
|
|
|
300,000
|
|
|
|
300,000
|
|
|
8% $50,000 Related Party Note Payable
|
|
Due on Demand
|
|
|
25,000
|
|
|
|
25,000
|
|
|
5% Note Payable
|
|
Due on Demand (1)
|
|
|
350,000
|
|
|
|
350,000
|
|
|
1% PPP #2 Note Payable
|
|
May 29 ,2022
|
|
|
-
|
|
|
|
557,977
|
|
|
3.75% SBA EIDL Note Payable
|
|
April 30, 2050
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Total notes payable
|
|
|
|
|
2,229,802
|
|
|
|
2,787,779
|
|
|
Less current portion of notes payable
|
|
|
|
|
1,729,802
|
|
|
|
1,729,802
|
|
|
Notes payable, net of current portion
|
|
|
|
$
|
500,000
|
|
|
$
|
1,057,977
|
|
(1) The Company entered two promissory notes with an investor of the Company in the amount of $350,000. The investor had agreed to convert the loan into 437,500 shares of common stock in 2018. The Company has not issued these shares to the investor and booked the notes as a short-term loan. This loan is considered payable upon demand.
Note 6 — Commitments and Contingencies
The Company records tax contingencies when the exposure item becomes probable and reasonably estimable. As of December 31, 2021, the Company had a tax contingency related to stock options granted below the fair market value on date of grant. The Company is in the process of determining the possible exposure and necessary expense accrual for the related tax, penalties and interest. Management has not been able to determine the amount as of the date of this report, however, does not expect the amount to be material to the financial statements.
To the best of the Company’s knowledge and belief, no legal proceedings of merit are currently pending or threatened against the Company.
Note 7 —Risks and Uncertainties
The Company does not have a concentration of revenues from any individual customer (less than 10%).
The Company operates in a rapidly evolving and highly regulated industry and will only conduct business in state legal cannabis markets.
The Company was affected in 2020 by the COVID-19 outbreak and worldwide pandemic. The Company saw some postponements in orders in the first few weeks March 2020 but orders stabilized to a normal level by the end of fiscal year 2020. The Company made a significant pivot to a complete solution when it comes to online ordering and communication.
Note 8 — Stock Based Compensation
The equity incentive plan of the Company was established in February of 2017. The Board of Directors of the Company may from time to time, in its discretion grant to directors, officers, consultants and employees of the Company, non-transferable options to purchase common shares, provided that the number of options issued do not exceed 25,000,000. The options are exercisable for a period of up to 4 years from the date of the grant. The number of shares authorized to be issued under the equity incentive plan was increased from 10,000,000 to 25,000,000 through consent of stockholders to amend and restate the equity incentive plan.
The average fair value of stock options granted was estimated to be $0.14 and $0.07. This estimate was made using the Black-Scholes option pricing model and the following weighted average assumptions for the three months ended December 31, 2021:
|
Expected option life (years)
|
|
|
2-4
|
|
|
Expected stock price volatility
|
|
|
227 to 258
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
Risk-free interest rate
|
|
|
0.44 to 0.54
|
%
|
A summary of option activity under the employee share option pan as of December 31, 2021 and changes during the year then ended is presented below.
|
|
|
Shares
|
|
|
Weighted-Average Exercise Price
|
|
|
Weighted-Average Remaining
Contractual Price
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2021
|
|
|
13,594,259
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
562,500
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
Exercised, converted
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Forfeited / exchanged / modification
|
|
|
(542,027
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021
|
|
|
13,614,732
|
|
|
$
|
0.11
|
|
|
|
2.5
|
|
|
$
|
-
|
|
|
Exercisable at December 31, 2021
|
|
|
9,557,364
|
|
|
$
|
0.08
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options available for grant at end of period
|
|
|
426,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Company’s non vested shares as of December 31, 2021, and changes during the year quarter December 31, 2021, is presented below:
|
Options
|
|
Shares
|
|
|
Weighted-Average Grant-Date Fair Value
|
|
|
Nonvested at July 1, 2021
|
|
|
12,130,179
|
|
|
$
|
0.08
|
|
|
Granted
|
|
|
562,500
|
|
|
$
|
0.13
|
|
|
Vested
|
|
|
(542,027
|
)
|
|
$
|
0.07
|
|
|
Forfeited
|
|
|
(955,733
|
)
|
|
$
|
0.08
|
|
|
Nonvested at December 31, 2021
|
|
|
11,194,920
|
|
|
$
|
0.08
|
|
Stock-based compensation expense attributable to stock options was approximately $264,628for the six months ended December 31, 2021. As of December 31, 2021, there was approximately $2,268,871of unrecognized compensation expense related to 11,194,920nonvested stock options outstanding, and the weighted average vesting period for those options was3 years.
Warrants
At December 31, 2021, the Company had outstanding warrants to purchase the Company’s common stock which were issued in connection with multiple financing arrangements. Information relating to these warrants is summarized as follows:
|
Warrants
|
|
Remaining
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrants - SEDA Financing
|
|
|
86,957
|
|
|
|
1.80
|
|
|
$
|
1.15
|
|
|
Warrants - Issued with Convertible Notes
|
|
|
600,000
|
|
|
|
2.23
|
|
|
$
|
0.75
|
|
|
Warrants - Securities Purchase Agreement
|
|
|
360,577
|
|
|
|
3.02
|
|
|
$
|
0.78
|
|
|
Warrants A - Securities Purchase Agreement
|
|
|
28,072,364
|
|
|
|
3.02
|
|
|
$
|
0.16
|
|
|
Total
|
|
|
29,119,898
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value at December 31, 2021
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
Note 9 — Related Party Transactions
In March 2020, the Company entered into a promissory note with the Chief Executive Officer for $600,000in exchange for a total of a $565,000cash payment. The note matured in December 2020 and $300,000of principal payments have been made to date. The note is in default and due upon demand and the interest rate was increased to 12%.
In March 2020, the Company entered into a promissory note with the Chief Technology Officer for $50,000. The note matured on January 1, 2021 and $25,000of principal payments have been made to date. The note is in default and due upon demand and the interest rate was increased to 12%.
Note 10 — Leases
On January 1, 2021 the Company extended its Denver Colorado headquarter lease for 12 months through December 31, 2021. During the past fiscal year a majority of the Company’s employee have been working remotely and the Company does not know if they will continue to keep this location or relocate to a small facility. Therefore, in accordance with ASC 842 the Company will not record an operating right of use asset and operating lease liability because of the short-term nature of this amendment. The Company will recognize lease expense on a monthly basis through the life of this lease of approximately $51,786.