UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to_________

 

Commission file number: 333-206745

 

LEAFBUYER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

38-3944821

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

6888 S. Clinton Street, Suite 300, Greenwood Village, CO 80112

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code (720)-235-0099

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

None

None

   

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐     No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐     No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

 

Indicate by check mark whether the Company is a larger accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its report. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

The aggregate market value of the common equity held by non-affiliates of the Registrant (assuming for this purpose, but without conceding, that all executive officers and Directors are “affiliates” of the Registrant) as of December 31, 2019, the last day of business day of the Registrant’s most recently completed second fiscal quarter was $9,036,888 based on $0.115 per share price.

 

The number of shares of outstanding of the Registrant’s Common Stock as of September 24, 2020 was 82,082,800

  

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

 

Table of Contents

 

 

 

 

Page

 

 

 

 

 

PART I

 

 

 

Item 1.

Business

 

3

 

Item 1A.

Risk Factors

 

5

 

Item 1B.

Unresolved Staff Comments

 

10

 

Item 2

Properties

 

10

 

Item 3.

Legal Proceedings

 

10

 

Item 4.

Mine Safety Disclosures

 

10

 

 

 

 

 

PART II

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

11

 

Item 6.

Selected Financial Data

 

13

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

 

18

 

Item 8.

Financial Statements and Supplementary Data

 

30

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

19

 

Item 9A.

Controls and Procedures

 

19

 

Item 9B.

Other Information

 

20

 

 

 

 

 

PART III

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

21

 

Item 11.

Executive Compensation

 

23

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

24

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

26

 

Item 14.

Principal Accountant Fees and Services

 

26

 

 

 

 

 

PART IV

 

 

Item 15.

Exhibits, Financial Statement Schedules

 

27

 

 

 
2

 

 

PART 1

 

 

ITEM 1. BUSINESS

 

Forward Looking Statements

 

This annual report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions.

 

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

As used in this annual report, the terms “we”, “us” and “our” mean Leafbuyer Technologies, Inc., unless otherwise indicated.

 

Business Overview

 

Leafbuyer.com Platform

 

The Company’s wholly owned subsidiary, LB Media Group, LLC has evolved and grown as a listing website to a comprehensive marketing technology platform that focuses on new customer acquisition, retention and now online-order ahead services. With the increased popularity of Leafbuyer texting/loyalty program, clients can communicate through SMS and MMS messaging to inform consumers of specials as well as confirm online ordering details. This creates more diverse product offering for our clients.Leafbuyer proprietary systems are integrated to form a seamless process for the user to find, research, compare and communicate on the thousands of products available.The Company’s website, Leafbuyer.com, and its progressive web application hosts a robust search algorithm similar to popular travel or hotel sites, where consumers can search the database for appealing offers. They can also search through thousands of menu items and products, create a profile, sign up to receive deal alerts and place online orders for pick up or delivery.With a worldwide pandemic from Covid-19, the need for an order ahead solution in the cannabis industry was put to the test in early March of 2020. Technology enhancements were made that now include delivery features for medical and recreational stores, increased POS integrations and real-time notifications.

 

The Leafbuyer Network reaches millions of consumers every month through its web-based platforms, loyalty platform and partner sites. The site’s sophisticated vendor dashboard pairs vendor data with consumer needs and presents a robust, 24/7 real-time dashboard where vendors can update menus, specials, available jobs, and more. The system helps to track the vendors’ return on investment.

 

The Company continues an aggressive push into all legal cannabis markets. Increasing the Company’s marketing and sales presence in new markets is a primary objective. Along with this expansion, the Company continues to develop new technologies that will serve cannabis dispensaries and product companies in attracting and retaining consumers.

   

 
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Leafbuyer operates in a rapidly evolving and highly regulated industry that, as has been estimated by grandviewresearch.com, to exceed $73 billion in revenue by the year 2027. The founders and board of directors have been, and will continue to be, aggressive in pursuing long-term opportunities.

 

We will be announcing a major addition to our platform shortly that will allow an “all in one” platform that is completely customizable for our clients.This will tie all Leafbuyer products into one device that will give our customers the ability to control messaging through multiple avenues and receive real-time updates. This will give the consumers the ability to search, shop, earn rewards, place orders and communicate with their favorite stores all in one place.

 

COVID -19 and Worldwide Pandemic Outlook

 

The Company was affected in March by the COVID-19 outbreak and worldwide pandemic. The Company saw some postponements in orders in the first few weeks March 2020 but by the end of March 2020 orders stabilized to a normal level. The Company has made a significant pivot to have the complete solution when it comes to online ordering and communication.

  

The Team

 

The Company has 29 full-time employees working out of its headquarters in Greenwood Village, Colorado. In addition, the Company currently has sales teams in California and Oklahoma. Leafbuyer also has relationships with numerous contractors which it retains from time to time.

 

A majority of our employees are involved in sales and customer service.

 

One of the Company’s top priorities in 2020 has been recruiting and retaining some of the top talent in the cannabis and technology industries.

 

Growth State by State

 

As new states continue to legalize and the market expands, so does Leafbuyer.As of September 2020, Leafbuyer now works with clients in 24 legal states including California, Colorado, Washington, Oklahoma, Oregon, and Michigan and we are continuing our efforts to expand into all legal markets.Our primary focus are markets that have the most potential and that are continuing to expand and show stability.

 

The marginal cost for Leafbuyer to enter a market is minimal in comparison to growers or retail operations. In order for us to enter a new market, most of our costs include sales and marketing personnel and grassroots efforts to grow the consumer base in the new market. With the changing times of Covid-19, virtual meetings have doubled and are more accepted reducing the cost of travel and office space into smaller markets.

 

We have formed many partnerships in the industry with Point of Sale and other ancillary companies to expand our referral and VAR programs.This gives Leafbuyer more access to new potential customers in smaller markets at a very minimal cost.We will continue to expand this program as a complementary resource for expansion into other markets.

   

2020 and Beyond

 

The global legal marijuana market size is expected to reach $66.3 billion by the end of 2025, according to a new report by Grand View Research, Inc. It is anticipated to expand at a compound annual growth rate of 23.9% during the forecast period. Increasing legalization of marijuana for medicinal and recreational purposes is expected to continue.

  

 
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Our business model is designed to benefit from this trend. When a new state passes a medical or recreational cannabis law, we can start marketing to consumers and businesses in that state with minimal marginal cost. Because Leafbuyer is not involved in the production or sale of cannabis, we do not have to build expensive grow operations and open brick and mortar stores. As more states pass laws to offer legal cannabis products, we begin marketing into the state and sign up dispensaries to be on the Leafbuyer platform.

 

The Company also plans to accelerate growth in our loyalty platform. The loyalty product line ties into other Company offerings to complement and provide a truly unique value proposition. Loyalty is monetized through a monthly fee and a cost per text model. The Company anticipates a significant opportunity to increase revenue by expanding this product offering.

 

We plan to grow the Company organically through the aggressive deployment of sales and marketing resources into legal cannabis states. We understand that to obtain significant market share in the industry in the future will require us to look for acquisitions for a significant portion of that growth. However, there can be no assurance that we will be able to locate and acquire such opportunities or that they will be on terms that are favorable to the Company.

   

ITEM 1A. RISK FACTORS

 

Risks Related to the Business

 

We have minimal financial resources. Our Company Financial Statements includes a footnote disclosure stating that there is substantial doubt about our ability to continue as a going concern.

 

Leafbuyer Technologies, Inc. is an early stage Company and has minimal financial resources. We had a cash balance of $1,309,912 as of June 30, 2020. We had an accumulated deficit of $15,839,678 at June 30, 2020. We may seek additional financing. The financing sought may be in the form of equity or debt financing from various sources as yet unidentified. No assurances can be given that we will generate sufficient revenue or obtain the necessary financing to continue as a going concern.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Leafbuyer is and will continue to be completely dependent on the services of our president, chief executive officer and chief financial officer, the loss of whose services may cause our business operations to cease, and we will need to engage and retain qualified employees and consultants to further implement our strategy.

 

Leafbuyer’s operations and business strategy are completely dependent upon the knowledge and business connections of Messrs. Rossner and Breen our executive officers. They are under no contractual obligation to remain employed by us. If any should choose to leave us for any reason or become ill and unable to work for an extended period of time before we have hired additional personnel, our operations will likely fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described in this Form 10-K. We will likely fail without the services of our officers or an appropriate replacement(s).

 

 
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COVID -19 and Worldwide Pandemic Outlook

 

The Company was affected in March by the COVID-19 outbreak and worldwide pandemic. The Company saw some postponements in orders in the first few weeks of the month but later in the month orders stabilized to a normal level. We anticipate that some of these postponed orders will be placed in the following quarters. The Company has made a significant pivot to online ordering and curbside pickup with technology that had already been built out. The Company believes the pivot to these new areas will enhance future revenue opportunities with minimal additional cost.

 

Because we have only recently commenced business operations, we face a high risk of business failure.

 

The Company was formed in April 2013. Our efforts to date have related to developing our business plan and beginning business activities. We face a high risk of business failure. The likelihood of the success of the Company must be considered in light of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of new businesses and the competitive environment in which the Company will operate. There can be no assurance that future revenues will occur or be significant enough or that we will be able to sell our products and services at a profit, if at all. Future revenues and/or profits, if any, will depend on many various factors, including, but not limited to both initial and continued market acceptance of the Company’s website and the successful implementation of its planned growth strategy.

 

We may not be successful in hiring technical personnel because of the competitive market for qualified technical people.

 

The Company’s future success depends largely on its ability to attract, hire, train and retain highly qualified technical personnel to provide the Company’s services. Competition for such personnel is intense. There can be no assurance that the Company will be successful in attracting and retaining the technical personnel it requires to conduct and expand its operations successfully and to differentiate itself from its competition. The Company’s results of operations and growth prospects could be materially adversely affected if the Company were unable to attract, hire, train and retain such qualified technical personnel.

 

We will face competition from companies with significantly greater resources and name recognition.

 

The markets in which the Company will operate are characterized by intense competition from several types of solution and technical service providers. The Company expects to face further competition from new market entrants and possible alliances among competitors in the future as the convergence of information processing and telecommunications continues. Many of the Company’s current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be better able to respond or adapt to new or emerging technologies and changes in client requirements or to devote greater resources to the development, marketing and sales of their services than the Company. There can be no assurance that the Company will be able to compete successfully. In addition, the Company will be faced with numerous competitors, both strategic and financial, in attempting to obtain competitive products. Many actual and potential competitors we believe are part of much larger companies with substantially greater financial, marketing and other resources than the Company, and there can be no assurance that the Company will be able to compete effectively against any of its future competitors.

 

To fully develop our business plan, we will need additional financing.

 

We will have to obtain additional financing in order to conduct our business in a manner consistent with our proposed operations. There is no guaranty that additional funds will be available when, and if, needed. If we are unable to obtain financing, or if its terms are too costly, we may be forced to curtail expansion of operations until such time as alternative financing may be arranged, which could have a materially adverse impact on our operations and our shareholders’ investment.

   

 
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Risks Related to Our Securities

 

Our officers and directors currently own the majority of our voting power, and through this ownership, control our Company and our corporate actions.

 

Our current Board of Directors and executive officers hold approximately 26.7% of the voting power of the Company’s outstanding voting capital stock as of June 30, 2020. These parties have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all our assets, election of directors, and other significant corporate actions. As such, these shareholders have the power to prevent or cause a change in control; therefore, without the aforementioned consent we could be prevented from entering into transactions that could be beneficial to us. The interests of our executive officers may give rise to a conflict of interest with the Company and the Company’s shareholders.

   

There is a substantial lack of liquidity of our common stock and volatility risks.

 

Our common stock is quoted on the OTC Markets platform under the symbol “LBUY.” The liquidity of our common stock may be very limited and affected by our limited trading market. The OTC Markets quotation platform is an inter-dealer market much less regulated than the major exchanges, and is subject to abuses, volatilities and shorting. There is currently no broadly followed and established trading market for our common stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded.

 

The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that we are a small Company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven Company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for our common stock on the OTC Markets may not necessarily be a reliable indicator of our fair market value. In addition, if our shares of common stock cease to be quoted, holders would find it more difficult to dispose of or to obtain accurate quotation as to the market value of, our common stock and as a result, the market value of our common stock likely would decline.

 

The market price for our stock may be volatile and subject to fluctuations in response to factors, including the following:

 

the increased concentration of the ownership of our shares by a limited number of affiliated stockholders following the share exchange may limit interest in our securities;

 

 

variations in quarterly operating results from the expectations of securities analysts or investors;

 

 

revisions in securities analysts’ estimates or reductions in security analysts’ coverage;

 

 

announcements of new products or services by us or our competitors;

 

 

reductions in the market share of our products and services;

 

 

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

 
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general technological, market or economic trends;

 

 

investor perception of our industry or prospects;

 

 

insider selling or buying;

 

 

investors entering into short sale contracts;

 

 

regulatory developments affecting our industry; and

 

 

additions or departures of key personnel.

 

Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.

 

Our common stock may never be listed on a major stock exchange.

 

We currently do not satisfy the initial listing standards and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.

 

A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue operations.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations. If our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.

 

Concentrated ownership of our common stock creates a risk of sudden changes in our common stock price.

 

The sale by any shareholder of a significant portion of their holdings could have a material adverse effect on the market price of our common stock.

 

Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock.

 

A number of the outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a Company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTC Markets). A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.

   

 
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If we issue additional shares or derivative securities in the future, it will result in the dilution of our existing stockholders.

 

Our Articles of Incorporation authorize the issuance of up to 150,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares are designated as “blank check” preferred stock, par value $0.001 per share (the “Preferred Stock”). Our board of directors may choose to issue some or all of such shares, or derivative securities to purchase some or all of such shares, to provide additional financing in the future.

 

We do not plan to declare or pay any dividends to our stockholders in the near future.

 

We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

The requirements of being a public company may strain our resources and distract management.

 

As a result of filing the resignation statement, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.

 

We may incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

Persons associated with securities offerings, including consultants, may be deemed to be broker dealers.

 

In the event that any of our securities are offered without engaging a registered broker-dealer, we may face claims for rescission and other remedies. If any claims or actions were to be brought against us relating to our lack of compliance with the broker-dealer requirements, we could be subject to penalties, required to pay fines, make damages payments or settlement payments, or repurchase such securities. In addition, any claims or actions could force us to expend significant financial resources to defend our Company, could divert the attention of our management from our core business and could harm our reputation.

   

 
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Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.

 

A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.

 

“Penny Stock” rules may make buying or selling our common stock difficult.

 

Trading in our common stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

 

Our ability to issue preferred stock may adversely affect the rights of holders of our Common Stock and may make takeovers more difficult, possibly preventing you from obtaining the optimal price for our Common Stock.

 

Our Articles of Incorporation authorizes the issuance of shares of “blank check” preferred stock, which would have the designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Shares. The issuance of preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.

 

TEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our executive office is located at 6888 S. Clinton Street, Suite 300, Greenwood Village, CO 80112. The Company also leases space at 5200 West Century Blvd., Los Angeles, CA 90045.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are not aware of any legal proceedings to which we are a party or of which our property is the subject. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTC Markets under the trading symbol “LBUY”. Trading in stocks quoted on the OTC Markets is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects. We cannot assure you that there will be a market for our common stock in the future. Our common stock commenced trading on April 5, 2017 under the symbol “APVT”.

 

The following quotations reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

 

 

Year ended June 30, 2020

 

 

 

High

 

 

Low

 

Quarter ended June 30, 2020

 

$ 0.10

 

 

$ 0.07

 

Quarter ended March 31, 2020

 

$ 0.15

 

 

$ 0.06

 

Quarter ended December 31, 2019

 

$ 0.23

 

 

$ 0.08

 

Quarter ended September 30, 2019

 

$ 0.80

 

 

$ 0.11

 

 

 

 

Year ended June 30, 2019

 

 

 

High

 

 

Low

 

Quarter ended June 30, 2019

 

$ 1.28

 

 

$ 0.74

 

Quarter ended March 31, 2019

 

$ 1.73

 

 

$ 0.44

 

Quarter ended December 31, 2018

 

$ 2.33

 

 

$ 0.43

 

Quarter ended September 30, 2018

 

$ 2.40

 

 

$ 0.55

 

 

Holders

 

As of June 30, 2020, there were approximately 15,000 holders of record of our common stock.

 

Dividends

 

We have not paid cash dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock for the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our future dividend policy will be subject to the discretion of our Board of Directors and will depend upon our future earnings, if any, our financial condition, our capital requirements, general business conditions and other factors.

   

 
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Equity Compensation Plans

 

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 20,000,000. The options are exercisable for a period of up to 10 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 20,000,000 through a consent of stockholders to amend and restate the equity incentive plan.

 

Recent Sales of Unregistered Securities

 

On July 2, 2019, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell directly to the Investors in a private offering (the “Offering”), an aggregate of 7,211,538 shares of common stock (the “Shares”), par value $0.001 per share, at $0.624 per Share or a 20% discount to the closing price as of July 2, 2019, for gross proceeds of approximately $4,500,000 before deducting offering expenses. The Shares were offered by the Company pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Company was obligated in accordance with the terms of a Registration Rights Agreement (the “Rights Agreement”) to register the Shares and the shares of common stock underlying the warrants described below, within 90 days from the date of the Purchase Agreement. All shares of the common stock and shares of common stock underlying the warrants have been registered.

 

As additional consideration for the purchase of the Shares, the Company agreed to issue to the Investors Series A Warrants, Series B Warrants, and Series C Warrants (collectively, the “Warrants”). The number of shares for the Warrants and exercise price of the Warrants is subject to adjustment; provided, however, on each of (i) the 3rd Trading Day following the effective date (the “Effective Date”) of the Registration Statement to be filed by the Company (the “Interim True-Up Date”), and (ii) the 6th Trading Day following the Effective Date (the “Final True-Up Date”), the Exercise Price shall be reduced, and only reduced, to equal the lower of (1) the then Exercise Price and (2) 100% of the lowest VWAP during the 2 Trading Days prior to the Interim True-Up Date or 5 Trading Days prior to the Final True-Up Date, as applicable, immediately following the Effective Date. The Series C Warrants, which are considered pre-funded, allow each Investor to purchase an amount of shares equal to the sum of (a) any shares purchased by the Investor pursuant to the Purchase Agreement that would have resulted in the beneficial ownership of greater than 4.99% of the outstanding common shares of the Company, (b) on the 3rd Trading Day following the Effective Date, if 80% of the lowest VWAP during the 2 Trading Days immediately prior to such date (“Primary Effective Date Price”) is less than $0.624, then a number of shares of Common Stock equal to such Investor’s Purchase Agreement purchase amount divided by the Primary Effective Date Price less any shares of Common Stock (i) issued at the Closing and (ii) issuable pursuant to clause (a) above, if any, and (c) on the 6th Trading Day following the Effective Date, if 80% of the lowest VWAP during the 5 Trading Days immediately prior to such date (“Secondary Effective Date Price”) is less than $0.624, then a number of shares of Common Stock equal to such Holder’s Subscription Amount at the Closing divided by the Secondary Effective Date Price less any shares of common stock (i) issued at the Closing, (ii) issuable pursuant to clause (a) above, if any, (ii) issuable pursuant to clause (b) above, if any. The Series C Warrants are exercisable at a price of $0.001 per share.

 

 
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The Company issued 30,299,998 shares of common stock pursuant to the Purchase Agreement, as well as the exercise of the Series C Warrants and fees paid in shares of common stock. The Company received approximately $4,038,000, net of the placement fees, legal and other expenses incurred for the placement of the share. The investors received Series A Warrants to allow the Investors to purchase an aggregate of 7,018,091 shares of common stock, and Series B Warrants to allow the Investors to purchase an aggregate of 28,072,364 shares of common stock at a purchase price of $0.1603 per common share. If the investors choose to exercise all Series A and Series B Warrants, the Company would receive proceeds of $5,625,000.

 

The Company relied on the exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The subscription agreements with the investors contained representations to support the Company’s reasonable belief that the investors had access to information concerning the Company’s operations and financial condition, the investors acquired the securities for their own account and not with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the investors are sophisticated within the meaning of Section 4(2) of the Securities Act and are “accredited investors” (as defined by Rule 501 under the Securities Act). In addition, the sale of securities did not involve a public offering; the Company made no solicitation in connection with the sale other than communications with the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication; and the investors either received or had access to adequate information about the Company in order to make an informed investment decision.

   

Item 6. Selected Financial Data

 

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this annual report. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

 

The Company was formed as AP Event, Inc., (“Registrant”) a Nevada corporation on October 16, 2014. The Registrant was originally in the business of travel agency to provide individual and group leisure tours to music festivals, and concerts combined with local excursions. On March 21, 2017 LB Media Group, LLC (“LB Media”) acquired eighty percent (80%) of the outstanding common stock of the Registrant. On March 23, 2017, the Registrant consummated an Agreement and Plan Merger (“Merger”) with LB Media and LB Acquisition Corp., a wholly owned subsidiary of the Registrant, whereby LB Acquisition was merged with and into LB Media Group, LLC. Simultaneously with the Merger, the Registrant accepted subscriptions in a private placement offering (“Offering”) of its Common Stock. As a result of the Merger, LB Media became a wholly owned subsidiary of the Registrant and following the consummation of the Merger and giving effect to the securities sold in the Offering, the members of LB Media beneficially own approximately fifty-five percent (55%) of the issued and outstanding Common Stock of the Registrant.

   

 
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On March 24, 2017, the Registrant amended its Articles of Incorporation (the “Amendment”) to (i) change its name to LeafBuyer Technologies, Inc., (ii) to increase the number of its authorized shares of capital stock from 75,000,000 to 160,000,000 shares of which 150,000,000 shares were designated common stock, par value $0.001 per share (the “Common Stock”) and 10,000,000 shares were designated “blank check” preferred stock, par value $0.001 per share (the “Preferred Stock”) and (iii) to effect 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 Amendment (the “Split”).

 

On April 19, 2018, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA II PN Ltd. (“Investor”), a Cayman Island exempt limited partnership and an affiliate of Yorkville Advisors Global, LLC, whereby the Company sold and the Investor purchased 869,565 shares of the Company’s common stock for One Million Dollars ($1,000,000), Additionally, under the SEDA the Company may sell to the Investor up to $5 million of shares of Common Stock over a two-year commitment period. Under the terms of the SEDA, the Company may from time to time, in its discretion, sell newly issued shares of its common stock to the Investor at a discount to market of 8% of the lowest daily volume weighted average price during the relevant pricing period. The Company is obligated to registered the Initial Shares, the Commitment Shares (as defined below), and the shares of Common Stock issuable under the SEDA pursuant to a registration statement under the Securities Act of 1933, as amended (the Securities Act”).

 

During October and November 2018, the Company used the SEDA to receive $1,045,000. The Company issued 1,116,738 common shares which were valued at fair market at the date issued.

 

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 2,916,667 shares of common stock, par value $0.001 per share and cash of approximately $450,000. Total value of the Loyalty Software was estimated at approximately $3,010,000. During the year ended June 30, 2020 additional Incentive Shares of 366,667 for a value of $262,500 was issued to shareholders of GTI as final settlement of the Purchase Agreement.

 

On July 2, 2019, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell directly to the Investors in a private offering (the “Offering”), an aggregate of 7,211,538 shares of common stock (the “Shares”), par value $0.001 per share, at $0.624 per Share or a 20% discount to the closing price as of July 2, 2019, for gross proceeds of approximately $4,500,000 before deducting offering expenses. The Purchase Agreement contains customary representations and warranties, and the Offering was subject to customary closing conditions. The Shares were offered by the Company pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Company was obligated in accordance with the terms of a Registration Rights Agreement (the “Rights Agreement”) to register the Shares and the shares of common stock underlying the warrants described below, within 90 days from the date of the Purchase Agreement.

 

The Company issued 30,299,998 shares of common stock for the private placement and the issuance of Series C Warrants. The Company received approximately $4,060,000, net of the placement fees, legal and other expenses incurred for the placement of the share. The investors received Series A Warrants to allow the Investors to purchase an aggregate of 7,018,091 shares of common stock, and Series B Warrants to allow the Investors to purchase an aggregate of 28,072,364 shares of common stock at a purchase price of $0.1603 per common share.

 

The equity incentive plan of the Company dated February of 2017 was amended and restated by The Board of Directors of the Company in April 2020 to increase the number of options available from 10,000,000 to 20,000,000.

    

 
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Business Overview

 

Leafbuyer.com Platform

 

The Company’s wholly owned subsidiary, LB Media Group, LLC has evolved and grown as a listing website to a comprehensive marketing technology platform that focuses on new customer acquisition, retention and now online-order ahead services. With the increased popularity of Leafbuyers texting/loyalty program, clients can communicate through SMS and MMS messaging to inform consumers of specials as well as confirm online ordering details. This creates more diverse product offering for our clients. Leafbuyers proprietary systems are integrated to form a seamless process for the user to find, research, compare and communicate on the thousands of products available.The Company’s website, Leafbuyer.com, and its progressive web application hosts a robust search algorithm similar to popular travel or hotel sites, where consumers can search the database for appealing offers. They can also search through thousands of menu items and products, create a profile, sign up to receive deal alerts and place online orders for pick up or delivery.With a worldwide pandemic from Covid-19, the need for an order ahead solution in the cannabis industry was put to the test in early March of 2020. Technology enhancements were made that now include delivery features for Medical and Recreational stores, increased POS integrations and real-time notifications.

 

The Leafbuyer Network reaches millions of consumers every month through its web-based platforms, loyalty platform and partner sites. The site’s sophisticated vendor dashboard pairs vendor data with consumer needs and presents a robust, 24/7 real-time dashboard where vendors can update menus, specials, available jobs, and more. The system helps to track the vendors’ return on investment.

 

The Company continues an aggressive push into all legal cannabis markets. Increasing the company’s marketing and sales presence in new markets is a primary objective. Along with this expansion, the Company continues to develop new technologies that will serve cannabis dispensaries and product companies in attracting and retaining consumers.

 

Leafbuyer operates in a rapidly evolving and highly regulated industry that, as has been estimated by grandviewresearch.com, to exceed $73 billion in revenue by the year 2027. The founders and board of directors has been, and will continue to be, aggressive in pursuing long-term opportunities.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Results of Operations for the years ended June 30, 2020 versus June 30, 2019

 

The following table summarizes the results of operations for the years ended June 30, 2020 and 2019:

   

 

 

Year Ended

 

 

Year Ended

 

 

 

June 30,

2020

 

 

June 30,

2019

 

 

 

 

 

 

 

 

Revenue

 

$

2,528,356

 

 

$

1,789,823

 

Cost of revenue

 

 

1,767,855

 

 

 

1,289,583

 

Gross profit

 

 

760,501

 

 

 

500,240

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling expenses

 

 

842,736

 

 

 

1,249,539

 

General and administrative

 

 

4,409,769

 

 

 

5,124,824

 

Total operating expenses

 

 

5,252,505

 

 

 

6,374,363

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,492,004

)

 

 

(5,874,123

)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,017,244

)

 

 

(679,543

)

Net loss

 

$

(5,509,248

)

 

$

(6,553,666

)

       

 
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Revenues

 

During the year ended June 30, 2020, we generated $2,528,356 of revenues, compared to revenues of $1,789,823 during the year ended June 30, 2019. The increase of $738,533 or 41% was primarily due to recent expansion of our platform that enables us to sell more to a single customer, increasing our per customer revenue and the initial expansion of our services into additional states. Our market penetration is still below 25% in Colorado and less than 1% in other states. Management expects to have continued high quarter over quarter revenue growth as we expand our platform and our geographical service area.

   

Gross profit increased to $760,501 for the period ended June 30, 2020 which was an increase of $260,261 or 52% over the same period last year of June 30, 2019.  Gross profit as a percentage of revenue increased from 28% to 30% for the period ended June 30, 2020 over June 30, 2019.

    

The overall focus of the Company is to continue to grow revenue while expanding the geographic footprint of operations. We will continue to broaden the Leafbuyer technology platform to increase the opportunity for customer value creation and upsell of our product line. Anticipated growth will come from both organic sources and acquisitions. The Company is constantly looking for acquisitions to complement the current platform and expand geographic reach.

  

Expenses

 

During the year ended June 30, 2020, we incurred total operating expenses of $5,252,505, including $4,409,769 in general and administrative expenses, and $842,736 in selling expenses. During the year ended June 30, 2019, we incurred total operating expenses of $6,374,363, including $5,124,824 in general and administrative expenses, and $1,249,539 in selling expenses The decrease of $1,121,858 or 18% was primarily due less stock compensation expense. Management expects the general and administrative expenses to continue to decrease as management focuses on getting current operations to positive cash flow.

 

Net Loss

 

During the year ended June 30, 2020 we incurred a net loss of $5,509,248, compared to a net loss of $6,553,666 for the year ended June 30, 2019.

    

Liquidity and Capital Resources

 

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these unaudited condensed consolidated financial statements with existing cash on hand and/or the private placement of common stock or obtaining debt financing. There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months.

 

At June 30, 2020 we had $1,309,912 in cash and cash equivalents.

 

 
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Cash Flows

 

Our cash flows from operating, investing and financing activities were as follows:

 

 

 

Year Ended June 30,

 

 

 

2020

 

 

2019

 

Net cash used in operating activities

 

$ (2,808,559 )

 

$ (2,888,580 )

Net cash used in investing activities

 

$ (559,667 )

 

$ (922,558 )

Net cash provided by financing activities

 

$ 4,496,491

 

 

$ 3,616,847

 

Net change in cash and cash equivalents

 

$ 1,128,265

 

 

$ (194,291 )

  

As of June 30, 2020, we had $1,309,912 in cash and cash equivalents and a working capital deficit of $1,844,178. We are dependent on funds raised through equity financing. Our cumulative net loss of $16,001,124 was funded by equity financing. During the year ended June 30, 2020, we have raised gross proceeds of $1,717,478 in cash from borrowings from related parties and through government supported disaster relief programs.

     

During the year ended June 30, 2020, we used $2,808,559 in operating activities. During the year ended June 30, 2019, we used $2,888,580 from operating activities.

    

During the year ended June 30, 2020, we used $559,667 in investing activities, primarily related to the enhancements of our software compared to $922,558 of similar investing activities during the year ended June 30, 2019.

 

Net cash flow provided by financing activities for the years ended June 30, 2020 and 2019 was approximately $4,496,491 and $3,616,847, respectively.

  

Our increase in cash and cash equivalents for the year ended June 30, 2020 was primarily borrowings from related parties and through government supported disaster relief programs.

 

During the year ended June 30, 2020, our monthly cash requirements to fund our operating activities, was approximately $100,000, compared to approximately $150,000 during the year ended June 30, 2019. In the absence of the continued sale of our common and preferred stock or advances from related parties, our cash of $1,309,912 as of June 30, 2020 is insufficient to cover our current monthly burn rate for next twelve months.

 

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand and/or the private placement of common stock. There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months from the issuance of this annual report.

  

 
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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

  

Critical Accounting Policies

 

Our audited financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our audited financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by our management.

 

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” which is effective as of the annual reporting period beginning after December 15, 2017 using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional disclosures as defined per Topic 606. We adopted Topic 606 pursuant to the method (2) and we determined that any cumulative effect for the initial application did not require an adjustment to retained earnings at July 1, 2018.

 

For revenue recognition arrangements that we determine are within the scope of Topic ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

We recognize revenue upon completion of our performance obligations or expiration of the contractual time to use services such as bulk texting.

 

Recent Accounting Guidance Adopted

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ended June 30, 2020.

  

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

 

Item 8. Financial Statements and Supplementary Data

 

The information required by Item 8 appears after the signature page of this report.

  

 
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods.

 

Item 9A. Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2020. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the fiscal year ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Management Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our management, with the participation of our principal executive officer and principal financial officer have conducted an assessment, including testing, using the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2020. The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses, which are indicative of many small companies with small staff:

 

(i)

inadequate segregation of duties consistent with control objectives; and

 

(ii)

lack of multiple levels of supervision and review.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of June 30, 2020, we determined that our disclosure controls and procedures are not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time provided in the SEC rules and forms.

 

We believe that the weaknesses identified above have not had any material effect on our financial results. We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.

  

 
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Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Management’s Remediation Plan

 

The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.

 

However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:

 

(i) appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies.

 

We will attempt to implement the remediation efforts set out herein by the end of the 2021 fiscal year. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

 

Management believes that despite our material weaknesses set forth above, our financial statements for years ended June 30, 2020 and 2019 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

Item 9B. Other Information

 

None

 

 
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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The following table sets forth certain information of our directors and officers as of the date of this report.

 

Name

 

Age

 

Position

Director/Officer Since

 

 

 

 

 

 

 

Kurt Rossner

 

51

 

Chairman, Chief Executive Officer and President

 

March 23, 2017

Mark Breen

 

48

 

Chief Financial Officer and Director

 

March 23, 2017

Michael Goerner

 

51

 

Treasurer, Chief Technology Officer and Director

 

March 23, 2017

Jeff Rudolph

 

59

 

Director

 

October 15, 2018

Kristin Baca

 

50

 

Director

 

October 15, 2018

 

Kurt Rossner, 51, Co-Founder, Chairman and Chief Executive Officer

 

Prior to founding LB Media Group in May 2013, Mr. Rossner started his career with MCI Telecommunications Corporation as a Business Sales Manager in 1993. Mr. Rossner founded several successful technology companies and was a pioneer in the Internet web hosting industry. He founded one of the largest platforms in the county, selling it to Micron Electronics (NASDAQ: MUEI) in 2000. Mr. Rossner leads the Company’s operations and overall strategic direction. He holds a Bachelor of Science Degree in Economics from The Florida State University.

 

Mark Breen, 48, Co-Founder, Director and Chief Financial Officer

 

Prior to Co-founding LB Media Group in May 2013, Mr. Breen served in various Sales Executive positions at CBS Corporation from Oct 2010 to October of 2013. Mr. Breen heads up the Company’s sales and market expansion strategy. He has worked in various sales, operation and management positions within Tribune Broadcasting, Gannett and CBS in both Chicago and Denver over his 20-year career. Mr. Breen earned a Bachelor of Arts Degree in Broadcasting from Western Illinois University

 

Michael Goerner, 51, Co-Founder, Director and Chief Technology Officer

 

Prior to founding LB Media Group in May 2013, Mr. Goerner served as the C.T.O of WHIP Systems from March 2001 to May 2013. Mr. Goerner is responsible for the technology direction of the Company and has significant experience with various Internet and IT companies. Prior thereto and from June 1998 through December 2000 to Mr. Goerner served as the Founder and C.T.O of Indigio Group. In the early 1990s he was involved in the early-stage development of successful Internet properties in the areas of online mapping, real estate, news media. Mr. Goerner has a Bachelor of Science Degree in Computer Science from Millersville University of Pennsylvania.

 

Jeff Rudolph, 59, Director

 

Mr. Rudolph is a Certified Public Accountant. He began his accounting career at Coopers & Lybrand, LLP from 1983 to 1994, where he was a staff then manager in the Corporate Finance Group (Merger & Acquisition Practice). From 1994 to 1997, he was the Managing Director of Finance and Operations for Intelligent Electronics, Inc. From 1997 to 2003, he was employed by SSDS Inc./Knowledge Workers, Inc., a leading provider of client/server and web-based network integration services. He served on the Board of Directors, as Executive Vice President, Chief Operations Officer and Chief Financial Officer throughout his time there. From 2003 to 2005, he was the Executive Vice President and Chief Financial Officer at Entrust Financial Services, Inc., a publicly traded company focused on wholesale mortgage banking and full-service mortgage lender. In 2005 he was also the President and Chief Executive Officer of the company. From 2005 to 2007, Mr. Rudolph was the Executive Vice President and Chief Financial Officer of Stonecreek Funding Investment Corp., a national private equity firm focused on acquiring portfolio companies in the residential mortgage sector. From 2009 to 2010, Mr. Rudolph was the President and Chief Executive Officer of American Civil Constructors Holdings, Inc. one of the nation’s premier construction and maintenance companies with comprehensive services including the Civil, Marine and Landscape industries. Mr. Rudolph is currently the founder and General Partner of the CFO Advisory Group, a company that specializes in providing CFO services to companies who need assistance in finding solutions to their business challenges. Mr. Rudolph earned his Master’s in Business Administration from the University of Denver and a Bachelor of Arts degree in Accounting from Wittenberg University.

  

 
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Table of Contents

 

Kristin Baca, 50, Director

 

Ms. Baca has served in various financial roles during her career. From 1998 to 1999, she was the Regional Finance Director of Countrywide Home Loans. She was responsible for monthly and quarterly reporting, interpretation of financial results, development and analysis of analytical models and evaluation of growth opportunities and resource needs. From 1999 to 2006, Ms. Baca served as the Vice President of Business/Financial for ACS. She ensured accountability, integrity and reliability of financial systems and controls as well as oversaw the activities of 35 cost centers. Ms. Baca partnered with the acquisitions department on due diligence, modeling and strategic analysis and planning. From 2006 to 2009, Ms. Baca was the Vice President and Transition Executive Payroll Shared Services at ACS. In this role, she optimized functions by creating and executing global payroll shared service models and was integral in driving enterprise goals and objectives by implementing global operational plans and resource optimization. From 1999 to 2012, she served as the Vice President of Global Technology Operations at Xerox. She managed the 1,300 employees, drove divisional objectives, boosted performance and captured both revenue and profit improvements by innovative initiatives. From 2012 to 2013, Ms. Baca was the Executive Vice and Chief Operating Officer of Healthplan Services, Inc. While there, she orchestrated top-performing, customer focused operations, encompassing member services, enrollment and billing and call center operations. Currently, Ms. Baca is the Senior Vice President of Strategy and Global Operations at Xerox/Conduent. She is responsible for leadership, staffing and budgeting for strategy, development and planning, project planning and management, client delivery and analytical review. Ms. Baca has a Master of Business Administration from Regis University and a Bachelor of Science and Arts in Finance with a minor in Economics from the University of Colorado.

 

Family Relationships

 

There are no family relationships among our directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

 

Legal Proceedings

 

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past 10 years:

 

·

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

·

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

·

being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

 

·

being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated any federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated;

 

·

any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business activity;

 

·

and judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions; or

 

·

any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.

 

Section 16(a) Beneficial Ownership Compliance Reporting

 

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file reports regarding ownership of, and transactions in, our securities with the SEC and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended June 30, 2020 our directors, executive officers and 10% stockholders complied with all applicable filing requirements.

  

 
22

Table of Contents

 

Code of Ethics

 

We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions because we have not yet finalized the content of such a code.

 

Audit Committee

 

The Audit Committee is primarily concerned with the effectiveness of the Company’s accounting policies and practices, its financial reporting and its internal accounting controls. In addition, the Audit Committee reviews and approves the scope of the annual audit of the Company’s books, reviews the findings and recommendations of the independent registered public accounting firm at the completion of their audit, and approves annual audit fees and the selection of an auditing firm. The Audit Committee met three times during the year ended June 30, 2020.

 

The Audit Committee is presently composed of three members: Jeffrey Rudolph, Kristin Baca and Kurt Rossner. The Board of Directors has determined that Kristin Baca is considered “audit committee financial expert” (as defined by rules of the SEC) and that each of the “audit committee financial expert’s” meet the independence criteria.

 

Nomination Procedures for Directors

 

We do not have a nominating committee. Our Board of Directors selects individuals to stand for election as members of the Board and does not have a policy with regards to the consideration of any director candidates recommended by our security holders. Our Board has determined that it is in the best position to evaluate our company’s requirements as well as the qualifications of each candidate when it considers a nominee for a position on our Board. If security holders wish to recommend candidates directly to our Board, they may do so by communicating directly with our President at the address specified on the cover of this annual report. There has not been any change to the procedures that our shareholder may recommend nominees to our Board of Directors.

 

Item 11. Executive Compensation

 

The following table sets forth the compensation paid or accrued by us to our President, Chief Executive Officer, Chief Financial Officer and each of our other officers for the fiscal years ended June 30, 2020, 2019 and 2018.

 

Name and principal position

 

Year

 

Salary

 

 

Bonus

 

 

Stock

awards

 

 

Option

awards

 

 

Nonequity

incentive plan

compensation

 

 

Nonqualified

deferred

compensation

earnings

 

 

All other

compensation

 

 

Total Compensation 

 

Kurt Rossner Chief Executive Officer and Director

 

2020

 

 

124,039

 

 

 

-

 

 

 

-

 

 

 

102,650

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

226,689

 

 

 

2019

 

 

110,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

110,000

 

 

 

2018

 

 

83,615

 

 

 

-

 

 

 

-

 

 

 

1,277,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,360,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Breen Chief Financial Officer, Director

 

2020

 

 

124,039

 

 

 

-

 

 

 

-

 

 

 

101,660

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

225,639

 

 

 

2019

 

 

110,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

110,000

 

 

 

2018

 

 

83,615

 

 

 

-

 

 

 

-

 

 

 

1,277,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,360,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Micheal Goener, Treasurer, Director

 

2020

 

 

106,154

 

 

 

-

 

 

 

-

 

 

 

96,350

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

202,504

 

 

 

2019

 

 

110,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

110,000

 

 

 

2018

 

 

83,615

 

 

 

-

 

 

 

-

 

 

 

1,277,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,360,615

 

   

 
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Table of Contents

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.

 

Compensation Committee

 

We currently do not have a compensation committee of the Board of Directors or a committee performing similar functions. It is the view of the Board that it is appropriate for us not to have such a committee because of our size and because the Board participates in the consideration of executive compensation. None of our executive officers served as a director or member of the compensation committee of any entity that has one or more executive officers serving on our Board.

 

Board Leadership Structure and Role in Risk Oversight

 

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles. Kurt Rossner serves as our Chairman and Chief Executive Officer. We believe it is in the best interest of the Company to have the Chairman and Chief Executive Officer roles combined due to our small size and limited resources.

 

Our Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the Board’s appetite for risk. While the Board oversees our company, our company’s management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth the ownership, as of June 30, 2020 of our common stock by each of our directors, by all of our executive officers and directors as a group and by each person known to us who is the beneficial owner of more than 5% of any class of our securities. As of June 30, 2020, there were 81,772,802 shares of our common stock issued and outstanding. All persons named have sole or shared voting and investment control with respect to the shares, except as otherwise noted. The number of shares described below includes shares which the beneficial owner described has the right to acquire within 60 days of June 30, 2020.

  

 
24

Table of Contents

 

Name and Address of Beneficial Owner (1)

 

Common

Stock

Beneficially

Owned

 

 

Percentage of

Common

Stock (2)

 

Directors and Officers:

 

 

 

 

 

 

Kurt Rossner(3)

 

 

7,250,012

 

 

 

8.9 %

Mark Breen(3)

 

 

7,250,012

 

 

 

8.9 %

Michael Goerner(3)

 

 

7,250,012

 

 

 

8.9 %

Jeffrey Rudolph

 

 

68,056

 

 

*

 

Kristin Baca

 

 

12,500

 

 

*

 

All officers and directors as a group (five persons)

 

 

21,830,592

 

 

 

26.7 %

5% Beneficial Owners:

 

 

 

 

 

 

 

 

Anson Investments Master Fund LP(4)

 

 

8,112,980

 

 

 

9.9 %

Hudson Bay Master Fund LTD(5)

 

 

8,112,980

 

 

 

9.9 %

__________

*

less than 1%

 

(1)

Except as otherwise indicated, the address of each beneficial owner is the Company’s address.

 

(2)

Applicable percentage ownership is based on 81,772,802 shares of common stock outstanding as of June 30, 2020 together with securities exercisable or convertible into shares of common stock within 60 days of June 30, 2020, for each stockholder. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of June 30, 2020, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

(3)

Excludes 1,000,000 shares of Series A Preferred Stock and 1,000,000 options granted pursuant to the Issuer’s 2017 Equity Incentive Plan. The Series A Shares are convertible into the greater of one share of Common Stock or a number of shares of Common Stock so that the Series A holders would hold 55% of the number of outstanding shares of Common Stock. The Series A Shares vote on an “as-converted” basis.

 

(4)

 

Includes 3,605,769 shares of Common Stock, 3,605,769 common shares underlying Series A Warrants and 901,442 common shares underlying Series B Warrants, which have been issued, assuming an exercise price of $0.624, or 14,999,999 Common Shares, 14,999,999 common shares underlying Series A Warrants, and 3,749,999 common shares underlying Series B Warrants, assuming a floor reset price of the Common Shares and a floor reset exercise price of the Warrants of $0.15 per share. The Series A and Series B Warrants do not allow for any exercise that would result in the beneficial ownership of greater than 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. The Series C Warrants do not allow for any exercise that would result in the beneficial ownership of greater than 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. Anson Advisors Inc., and Anson Funds Management LP, the Co-Investment Advisers of Anson Investments Master Fund LP, hold voting and dispositive power over the Common Shares held by Anson. Bruce Winson is the managing member of Anson Management GP LLC, which is the general partner of Anson Funds Management LP. Moez Kassam and Amin Nathoo are directors of Anson Advisors Inc. Mr. Winson, Mr. Kassam and Mr. Nathoo each disclaim beneficial ownership of these Common Shares except to the extent of their pecuniary interest therein. The principal business address of Anson is Walkers Corporate Limited, Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands.

 

(5)

Includes 3,605,769 shares of Common Stock, 3,605,769 common shares underlying Series A Warrants and 901,442 common shares underlying Series B Warrants, which have been issued, assuming an exercise price of $0.624, or 14,999,999 Common Shares, 14,999,999 common shares underlying Series A Warrants, and 3,749,999 common shares underlying Series B Warrants, assuming a floor reset price of the Common Shares and a floor reset exercise price of the Warrants of $0.15 per share. The Warrants do not allow for an exercise that would result in the beneficial ownership of greater than 9.99% of the outstanding common shares of the Company immediately after giving effect to the exercise. Hudson Bay Capital Management LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Each of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities.

  

 
25

Table of Contents

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

  

On July 2, 2019, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell directly to the Investors in a private offering (the “Offering”), an aggregate of 7,211,538 shares of common stock (the “Shares”), par value $0.001 per share, at $0.624 per Share or a 20% discount to the closing price as of July 2, 2019, for gross proceeds of approximately $4,500,000 before deducting offering expenses. The Purchase Agreement contains customary representations and warranties, and the Offering was subject to customary closing conditions. The Shares were offered by the Company pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Company was obligated in accordance with the terms of a Registration Rights Agreement (the “Rights Agreement”) to register the Shares and the shares of common stock underlying the warrants described below, within 90 days from the date of the Purchase Agreement.

  

As additional consideration for the purchase of the Shares, the Company agreed to issue to the Investors Series A Warrants, Series B Warrants, and Series C Warrants (collectively, the “Warrants”). The number of shares for the Warrants and exercise price of the Warrants is subject to adjustment; provided, however, on each of (i) the 3rd Trading Day following the effective date (the “Effective Date”) of the Registration Statement to be filed by the Company (the “Interim True-Up Date”), and (ii) the 6th Trading Day following the Effective Date (the “Final True-Up Date”), the Exercise Price shall be reduced, and only reduced, to equal the lower of (1) the then Exercise Price and (2) 100% of the lowest VWAP during the 2 Trading Days prior to the Interim True-Up Date or 5 Trading Days prior to the Final True-Up Date, as applicable, immediately following the Effective Date. The Series C Warrants, which are considered pre-funded, allow each Investor to purchase an amount of shares equal to the sum of (a) any shares purchased by the Investor pursuant to the Purchase Agreement that would have resulted in the beneficial ownership of greater than 4.99% of the outstanding common shares of the Company, (b) on the 3rd Trading Day following the Effective Date, if 80% of the lowest VWAP during the 2 Trading Days immediately prior to such date (“Primary Effective Date Price”) is less than $0.624, then a number of shares of Common Stock equal to such Investor’s Purchase Agreement purchase amount divided by the Primary Effective Date Price less any shares of Common Stock (i) issued at the Closing and (ii) issuable pursuant to clause (a) above, if any, and (c) on the 6th Trading Day following the Effective Date, if 80% of the lowest VWAP during the 5 Trading Days immediately prior to such date (“Secondary Effective Date Price”) is less than $0.624, then a number of shares of Common Stock equal to such Holder’s Subscription Amount at the Closing divided by the Secondary Effective Date Price less any shares of common stock (i) issued at the Closing, (ii) issuable pursuant to clause (a) above, if any, (ii) issuable pursuant to clause (b) above, if any. The Series C Warrants are exercisable at a price of $0.001 per share.

 

The Company issued 30,299,998 shares of common stock for the private placement and the issuance of the Series C Warrants. The Company received approximately $4,060,000, net of the placement fees, legal and other expenses incurred for the placement of the share. The investors received Series A Warrants to allow the Investors to purchase an aggregate of 7,018,091 shares of common stock, and Series B Warrants to allow the Investors to purchase an aggregate of 28,072,364 shares of common stock at a purchase price of $0.1603 per common share.

 

Related Person Transaction Policy

 

Our Board of Directors is responsible to approve all related party transactions. We have not adopted written policies and procedures specifically for related person transactions.

 

In March 2020, the Company entered into a promissory note with the Chief Executive Officer for $600,000 in exchange for a total of $565,000 cash payments. The note has an interest rate of 8% and matures on December 1, 2020.

 

In March 2020, the Company entered into a promissory note with the Chief Technology Officer for $50,000. The note has an interest rate of 8% and matures on January 1, 2021.

   

Director Independence

 

We currently use NASDAQ’s general definition for determining director independence, which states that “independent director” means a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship, that, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director.

 

Item 14. Principal Accountant Fees and Services

 

Audit and Non-Audit Fees

 

The following table sets forth the fees for professional audit services and the fees billed for other services rendered by our auditors, in connection with the audit of our financial statements for the years ended June 30, 2020 and 2019, and any other fees billed for services rendered by our auditors during these periods.

 

 

 

Year Ended

June 30,

2020

($)

 

 

Year Ended

June 30,

2019

($)

 

Audit fees

 

$ 44,480

 

 

$ 42,120

 

Audit-related fees

 

-0-

 

 

-0-

 

Tax fees

 

-0-

 

 

-0-

 

All other fees

 

-0-

 

 

-0-

 

Total

 

$ 44,480

 

 

$ 42,120

 

 

Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit and non-audit related fees at least annually. The Board, acting as the audit committee, pre-approved all audit related services for the year ended June 30, 2020.

 

 
26

Table of Contents

  

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

Exhibit Number

 

Exhibit Description

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

101.INS

 

XBRL Instance Document*

 

 

101.SCH

 

XBRL Taxonomy Extension Schema*

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase*

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase*

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase*

 

 

101.PRE

 

XBRL Taxonomy Presentation Linkbase*

___________ 

*

Filed herewith.

 

 

**

Furnished herewith.

 

 
27

Table of Contents

  

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: September 25, 2020 

LEAFBUYER TECHNOLOGIES, INC.

 

 

 

By:

/s/ Kurt Rossner

 

 

Kurt Rossner

 

 

Chief Executive Officer,

Director (principal executive officer)

 

 

 

By:

/s/ Mark Breen

 

 

Mark Breen

 

 

Chief Financial Officer,

Director (principal financial and accounting officer)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

Signature

 

Capacity

 

Date

 

 

 

/s/ Kurt Rossner

 

Chief Executive Officer, Director

 

September 25, 2020

Kurt Rossner

 

(Principal Executive Officer)

 

 

 

 

/s/ Mark Breen

 

Chief Financial Officer, Director

 

September 25, 2020

Mark Breen

 

(Principal Financial and Accounting Officer)

 

 

 

 

/s/ Michael Goerner

 

Chief Technology Officer, Director

 

September 25, 2020

Michael Goerner

 

 

 

 

 

 
28

Table of Contents

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Report of Independent Registered Public Accounting Firm

30

 

Consolidated Balance Sheets

31

 

Consolidated Statements of Operations

32

 

Consolidated Statements of Cash Flows

33

 

Consolidated Statements of Equity

34

 

Notes to Consolidated Financial Statements

35

 

 

 
29

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and the board of directors of Leafbuyer Technologies, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Leafbuyer Technologies, Inc. and its subsidiary (“the Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations, equity, and cash flows, for each of the two years in the period ended June 30, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2020, in conformity with generally accepted accounting principles in the United States of America.

 

Going concern uncertainty

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ B F Borgers CPA PC

 

We have served as the Company's auditor since 2017.

Lakewood, Colorado

September 25, 2020

   

 
30

Table of Contents

  

LEAFBUYER TECHNOLOGIES, INC.

Consolidated Balance Sheets

 

 

 

June 30,

2020

 

 

June 30,

2019

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 1,309,912

 

 

$ 181,647

 

Accounts receivable (net of allowance for doubtful accounts of $14,037 and $53,815, respectively)

 

 

14,037

 

 

 

68,821

 

Inventory

 

 

622

 

 

 

1,230

 

Prepaid expenses and other current assets

 

 

87,895

 

 

 

129,323

 

Total current assets

 

 

1,412,466

 

 

 

381,021

 

Noncurrent assets:

 

 

 

 

 

 

 

 

Fixed assets and intangible assets, net

 

 

3,398,370

 

 

 

3,534,174

 

     Right of use asset

 

 

165,965

 

 

 

-

 

Total assets

 

$ 4,976,801

 

 

$ 3,915,195

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 487,890

 

 

$ 290,032

 

Accrued liabilities

 

 

413,314

 

 

 

530,968

 

Deferred revenue

 

 

117,904

 

 

 

275,624

 

Lease obligation, current

 

 

103,049

 

 

 

-

 

Debt, current

 

 

2,134,487

 

 

 

2,182,247

 

Total current liabilities

 

 

3,256,644

 

 

 

3,278,871

 

     Debt, non current

 

 

1,102,478

 

 

 

-

 

     Lease obligation, net of current portion

 

 

65,149

 

 

 

-

 

Total liabilities

 

 

4,424,271

 

 

 

3,278,871

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 3,000,000 and 3,000,000 shares issued and outstanding for class A convertible preferred stock and 1,120,000 and 1,120,000 shares issued and outstanding for class B convertible preferred stock at June 30, 2020 and June 30, 2019, respectively

 

 

4,120

 

 

 

4,120

 

Common stock, $0.001 par value; 150,000,000 shares authorized; 81,772,802 shares issued and outstanding at June 30, 2020 and 47,914,967 shares issued and outstanding at June 30, 2019, respectively

 

 

81,773

 

 

 

47,915

 

Additional paid in capital

 

 

16,467,761

 

 

 

11,076,165

 

Accumulated deficit

 

 

(16,001,124

)

 

 

(10,491,876 )

Total equity (deficit)

 

 

552,530

 

 

 

636,324

 

Total liabilities and equity

 

$ 4,976,801

 

 

$ 3,915,195

 

   

See accompanying notes to consolidated financial statements.

 

 
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LEAFBUYER TECHNOLOGIES, INC.

Consolidated Statements of Operations

 

 

 

Years Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Revenue

 

$

2,528,356

 

 

$

1,789,823

 

     Cost of revenue

 

 

1,767,855

 

 

 

1,289,583

 

     Gross profit

 

 

760,501

 

 

 

500,240

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling expenses

 

 

842,736

 

 

 

1,249,539

 

General and administrative

 

 

4,409,769

 

 

 

5,124,824

 

Total operating expenses

 

 

5,252,505

 

 

 

6,374,363

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,492,004

)

 

 

(5,874,123

)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,017,244

)

 

 

(679,543

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(5,509,248

)

 

$

(6,553,666

)

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.07

)

 

$

(0.15

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

75,181,637

 

 

 

44,900,459

 

  

See accompanying notes to consolidated financial statements.

 

 
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LEAFBUYER TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows

  

 

 

Years Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(5,509,248

)

 

$

(6,553,666

)

Adjustments to reconcile net income to net cash used in operating activities

 

 

 

 

 

 

 

 

Stock based compensation

 

 

818,252

 

 

 

2,285,543

 

Stock issued for services

 

 

41,230

 

 

 

48,690

 

Amortization of note payable discount

 

 

861,699

 

 

 

573,371

 

Depreciation

 

 

695,471

 

 

 

389,257

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

54,784

 

 

 

(60,542

)

Inventory

 

 

608

 

 

 

2,300

 

Prepaid expenses and other

 

 

41,428

 

 

 

43,243

 

Accounts payable and accrued liabilities

 

 

197,858

 

 

 

(751

)

Other assets and liabilities, net

 

 

(10,641

)

 

 

383,975

 

Net cash used in operating activities

 

 

(2,808,559

)

 

 

(2,888,580

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capitalized Software

 

 

(559,667

)

 

 

(922,558

)

Net cash provided by (used in) investing activities

 

 

(559,667

)

 

 

(922,558

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of stock

 

 

4,037,888

 

 

 

1,136,847

 

Proceeds from issuance of related party debt

 

 

615,000

 

 

 

-

 

Proceeds from issuance of government relief debts

 

 

1,102,478

 

 

 

-

 

Proceeds from issuance of debt

 

 

-

 

 

 

2,700,000

 

Repayment of debt

 

 

(1,258,875

)

 

 

(220,000

)

Net cash provided by financing activities

 

 

4,496,491

 

 

 

3,616,847

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

1,128,265

 

 

 

(194,291

)

Cash and cash equivalents, beginning of period

 

 

181,647

 

 

 

375,938

 

Cash and cash equivalents, end of period

 

$

1,309,912

 

 

$

181,647

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

83,645

 

 

$

-

 

Cash paid for taxes

 

$

-

 

 

$

-

 

Issuance of common stock for acquisition of intangible assets

 

$

262,500

 

 

$

2,800,000

 

Issuance of common stock for conversion of notes payable and accrued interest

 

$

131,000

 

 

$

460,336

 

 

See accompanying notes to consolidated financial statements.

 

 
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LEAFBUYER TECHNOLOGIES, INC.

Consolidated Statements of Equity

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

# of Shares

 

 

Amount

 

 

# of Shares

 

 

Amount

 

 

APIC

 

 

Acc Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

4,120,000

 

 

$

4,120

 

 

 

42,661,228

 

 

$

42,661

 

 

$

3,133,531

 

 

$

(3,938,210

)

 

$

(757,898

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for exercise of options

 

 

-

 

 

 

-

 

 

 

367,387

 

 

 

367

 

 

 

91,480

 

 

 

-

 

 

 

91,847

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,285,543

 

 

 

-

 

 

 

2,285,543

 

Issuance of warrant for convertible note payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

257,171

 

 

 

-

 

 

 

257,171

 

Issuance of common stock in conversion of notes payable and accrued interest

 

 

-

 

 

 

-

 

 

 

123,324

 

 

 

123

 

 

 

119,800

 

 

 

-

 

 

 

119,923

 

Issuance of common stock for cash

 

 

-

 

 

 

-

 

 

 

1,116,738

 

 

 

1,117

 

 

 

1,043,883

 

 

 

-

 

 

 

1,045,000

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

72,000

 

 

 

72

 

 

 

48,618

 

 

 

-

 

 

 

48,690

 

Issuance of common stock for acquisition

 

 

-

 

 

 

-

 

 

 

2,916,667

 

 

 

2,917

 

 

 

2,797,083

 

 

 

-

 

 

 

2,800,000

 

Beneficial Conversion Feature of Notes Payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

839,378

 

 

 

-

 

 

 

839,378

 

Issuance of common stock for convertible note payable

 

 

-

 

 

 

-

 

 

 

657,623

 

 

 

658

 

 

 

459,678

 

 

 

-

 

 

 

460,336

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,553,666

)

 

 

(6,553,666

)

June 30, 2019

 

 

4,120,000

 

 

$

4,120

 

 

 

47,914,967

 

 

$

47,915

 

 

$

11,076,165

 

 

$

(10,491,876

)

 

$

636,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

-

 

 

 

-

 

 

 

30,299,998

 

 

 

30,300

 

 

 

4,007,588

 

 

 

-

 

 

 

4,037,888

 

Stock based compensation for employees

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

714,638

 

 

 

-

 

 

 

714,638

 

Issuance of Common Stock for employee Compensation

 

 

 

 

 

 

 

 

 

 

860,950

 

 

 

861

 

 

 

102,753

 

 

 

 

 

 

 

103,614

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

515,000

 

 

 

515

 

 

 

40,715

 

 

 

-

 

 

 

41,230

 

Issuance of common stock in conversion of notes payable and accrued interest

 

 

 

 

 

 

 

 

 

 

1,815,220

 

 

 

1,815

 

 

 

129,185

 

 

 

 

 

 

 

131,000

 

Beneficial Conversion Feature of Notes Payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,584

 

 

 

 

 

 

 

134,584

 

Issuance of common stock for acquisition

 

 

-

 

 

 

-

 

 

 

366,667

 

 

 

367

 

 

 

262,133

 

 

 

-

 

 

 

262,500

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,509,248

)

 

 

(5,509,248

)

June 30, 2020

 

 

4,120,000

 

 

$

4,120

 

 

 

81,772,802

 

 

$

81,773

 

 

$

16,467,761

 

 

$

(16,001,124

)

 

$

552,530

 

 

See accompanying notes to consolidated financial statements.

 

 
34

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LEAFBUYER TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

 

Note 1 — Description of Business

 

Formation of the Company

 

On March 23, 2017, AP Event Inc. (“AP” or the “Registrant”) consummated an Agreement and Plan of Merger (the “Merger Agreement”) with LB Media Group, LLC, a Colorado limited liability Company (“LB Media”), August Petrov (the principal stockholder of AP), and LB Acquisition Corp., a Colorado corporation and a wholly-owned subsidiary of AP (“Acquisition”) whereby Acquisition was merged with and into LB Media (the “Merger”). (See Note 3)

 

As a result of the Merger, LB Media became a wholly-owned subsidiary of the Registrant, and immediately following the consummation of the Merger and giving effect to the securities sold in the Offering, the members of LB Media beneficially owned approximately fifty-five percent (55%) of the issued and outstanding Common Stock of the Registrant. The Merger Agreement contains customary representations, warranties, and covenants of the Registrant and LB Media for like transactions.

 

As a result of the reorganization and name change discussed later, Leafbuyer Technologies, Inc. (“Leafbuyer”) became the publicly quoted parent holding company with LB Media becoming a wholly owned subsidiary of Leafbuyer. Upon consummation of the Agreement, Leafbuyer common stock was deemed to be registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12g-3(a) promulgated thereunder. For purposes of Rule 12g-3(a), Leafbuyer is the successor issuer to AP.

 

AP was established under the corporation laws in the State of Nevada on October 16, 2014. On March 24, 2017, the Registrant changed its name to Leafbuyer Technologies, Inc.

 

All references herein to “us,” “we,” “our,” “Leafbuyer,” or the “Company” refer to Leafbuyer Technologies, Inc. and its subsidiary, LB Media.

 

Description of Business

 

We are focused on providing valuable information for the savvy cannabis consumer looking to make a purchase via deals and a dispensary database. We connect consumers with dispensaries by working alongside businesses to showcase their unique products and build a network of loyal patrons. Our national network of cannabis deals and information reaches millions of consumers monthly.

 

LB Media 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.

 

Basis of Presentation

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

 

 
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Table of Contents

 

Going Concern

 

As of June 30, 2020, we had $1,309,912 in cash and cash equivalents and a working capital deficit of $1,844,178. We are dependent on funds raised through equity financing. Our cumulative net loss of $16,001,124 was funded by equity financing and we reported a net loss of $5,509,248 for the year ended June 30, 2020. 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.

   

Note 2 —Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The 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.

 

Use of Estimates

 

Management uses estimates and assumptions in preparing these 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 fixed assets 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 reclassifications have been made to the financial statements as of and for the year ended June 30, 2019 to conform to the presentation as of and for the year ended June 30, 2020.

 

Cash and Cash Equivalents

 

For purposes of the consolidated statements of cash flows, cash includes demand deposits, time deposits, certificates of deposit, and short-term liquid investments with original maturities of three months or less when purchased. As of June 30, 2020 and 2019, the Company did not hold any cash equivalents. The Federal Deposit Insurance Corporation provides coverage for all accounts of up to $250,000. As of June 30, 2020, the Company had $1,050,000 in excess of federally insured limits.

  

Accounts Receivable, Net

 

Accounts receivable are stated at the amount management expects to collect. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. These allowances together reflect the Company’s estimate of potential losses inherent in accounts receivable balances, based on historical loss and known factors impacting its customers. The Company does not accrue interest on past due receivables.

 

 
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Table of Contents

 

Inventory

 

Inventory consists of merchandise and is stated at the lower of cost or net realizable value, determined by last-in, first-out method or market, with appropriate consideration given to obsolescence, excessive levels, deterioration and other factors. A reserve is recorded for any inventory deemed excessive or obsolete. No reserve is considered necessary at June 30, 2020 and 2019.

 

Internal Use Software

 

The Company capitalizes certain development costs related to upgrades and enhancements to its cloud commerce platform when it is probable the expenditures will result in additional functionality. Such development costs are capitalized when the preliminary project stage is completed and it is probable that the project will be completed and the software will be used to perform the function intended. These capitalized costs include external direct costs of services consumed in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with and who devote time to internal-use software projects. Capitalization of these costs cease once the project is substantially complete and the software is ready for its intended purpose. Post configuration training and maintenance costs are expensed as incurred. Capitalized internal use software costs are recorded as part of fixed assets and intangible assets and amortized using a straight-line method, over the estimated useful life of the software, generally three to seven years, commencing when the software is ready for its intended use.

 

Impairment Assessment of Long-Lived Assets

 

The Company reviews identified intangible assets and long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. As of June 30, 2020 and 2019, there were no impairments of long-lived assets.

 

Convertible Debt and Securities

 

The Company follows beneficial conversion feature guidance in ASC 470-20, which applies to convertible stock as well as convertible debt. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. The beneficial conversion feature guidance requires recognition of the conversion option's in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as interest over the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the expense must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.

 

Stock-Based Compensation

 

The Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility and expected term. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

 

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance same principles as awards to employees. Such options are valued using the Black-Scholes option pricing model.

 

 
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Table of Contents

 

See Note 8 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation.

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. The standard is effective for interim and annual periods beginning after December 15, 2018. We adopted ASU 2018-07 on July 1, 2019 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements.

  

Loss per Share

 

Basic loss per share is computed by dividing net income 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 years ended June 30, 2020 and 2019.

 

Leases

 

Effective on July 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (“Topic 842”) using the modified retrospective method. This new accounting standard requires a lessee to recognize an asset and liability for most leases on its balance sheet. Upon adoption, right-of-use (ROU) assets and lease liabilities for operating leases were recorded in the amount of $301,885 and $308,843, respectively. Disclosure requirements for the reporting period beginning July 1, 2019 is presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840, Leases (“Topic 840”).

 

The Company elected the practical expedient method permitted under the transition guidance, which allows a carryforward of historical lease classification, the assessment on whether a contract was or contains a lease, and the initial direct costs for any leases that existed prior to July 1, 2019. The Company also elected to recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

 

Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement and leases with an initial term of 12 months or less are not included in lease liabilities or ROU asset. As most leases do not provide an implicit rate, a rate which approximates the Company’s incremental borrowing rate is used, based on the information available at commencement date, in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred. Lease agreements generally do not contain residual value guarantees or restrictive covenants. Over the lease term, the Company uses the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized in a manner that results in straight-line expense recognition.

 

 
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Table of Contents

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. As of June 30, 2020, the Company had approximately $16,000,000 of net operating loss carry forward that was unrecognized tax benefits.

  

ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There are no material uncertain tax positions at June 30, 2020, other than as disclosed in Note 6.

  

On December 22, 2017, the U.S. government enacted the Tax Act, which made significant changes to the Internal Revenue Code of 1986, as amended, including, but not limited to, reducing the U.S. corporate statutory tax rate and the net operating loss incurred after December 31, 2017 can be carried forward indefinitely and the two year net operating loss carried back was eliminated (prohibited).

 

Revenue Recognition

 

The Company adopted ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”) effective as of the annual reporting period beginning after December 15, 2017 we adopted the retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional disclosures as defined per Topic 606. We determined that any cumulative effect for the initial application did not require an adjustment to retained earnings at July 1, 2018.

 

For revenue recognition arrangements that we determine are within the scope of Topic ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

We recognize revenue upon completion of our performance obligations or expiration of the contractual time to use services such as bulk texting.

 

Costs of Services

   

Costs of services primarily consists of the costs associated with the operation of the Company’s platform, such as third party fees paid for texting services, server and hosting charges, technology support costs, amortization, maintenance costs, staff costs and other expenses directly attributable to the online marketplace services.

   

Fair Value Measurements

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, and debt are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

 
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ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The Company has no assets or liabilities valued at fair value on a recurring basis.

 

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 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. For private companies, ASU 2018-13 is effective for annual beginning after December 15, 2019. The Company is currently evaluating the effect of adopting this ASU on the Company’s consolidated financial statements.

 

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.

  

 
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Note 3 — Fixed Assets and Intangible Assets

 

Fixed Assets and intangible assets consist of the following:

 

 

 

June 30,

2020

 

 

June 30,

2019

 

 

 

 

 

 

 

 

Software platform

 

$ 4,482,225

 

 

$ 3,922,558

 

Furniture and fixtures

 

 

1,500

 

 

 

1,500

 

Less accumulated amortization

 

 

(1,085,355 )

 

 

(389,884 )

Property and equipment, net

 

$ 3,398,370

 

 

$ 3,534,174

 

 

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 2,916,667 shares of common stock, par value $0.001 per share 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 366,667 for a value of $262,500 was issued to shareholders of GTI as final settlement of the 2018 agreement. During the year ended June 30, 2020 and June 30, 2019 the Company capitalized $559,667and $922,558, respectively of software enhancements.

 

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 $695,103 during the year ended June 30, 2020 and for the same period ended 2019 amortization expenses was $388,752. Amortization expense for the next five years is as follows:

 

2021

 

$ 724,445

 

2022

 

 

724,445

 

2023

 

 

724,445

 

2024

 

 

622,359

 

Thereafter

 

 

602,676

 

Total Unamortized Expense

 

$ 3,398,370

 

 

Note 4— Capital Stock and Equity Transactions

 

The Company has 150,000,000 shares of common stock authorized with a par value of $0.001 per share as of June 30, 2020. In addition, the Company has 10,000,000 preferred stock authorized with a par value of $0.001 per share as of June 30, 2020.

 

On April 19, 2018, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA II PN Ltd. (“Investor”), a Cayman Island exempt limited partnership and an affiliate of Yorkville Advisors Global, LLC, whereby the Company sold and the Investor purchased 869,565 shares (the “Initial Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) for the purchase price of One Million Dollars ($1,000,000), Additionally, under the SEDA the Company may sell to the Investor up to $5 million of shares of Common Stock over a two-year commitment period. Under the terms of the SEDA, the Company may from time to time, in its discretion, sell newly issued shares of its common stock to the Investor at a discount to market of 8% of the lowest daily volume weighted average price during the relevant pricing period. The Company is obligated to register the Initial Shares, the Commitment Shares (as defined below), and the shares of Common Stock issuable under the SEDA pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”).

 

The Company is not obligated to utilize any portion of the SEDA and there are no minimum commitments or minimum use penalties provided the Company does not terminate the SEDA by October 2020 wherein the Company would be required to pay a termination fee of $100,000. The Company issued One Hundred Thousand (100,000) shares of Common Stock as a commitment fee (the “Commitment Shares”) to an affiliate of the Investor. The total amount of funds that ultimately can be raised under the SEDA over the two-year term will depend on the market price for the Company’s common stock and the number of shares actually sold.

 

 
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The SEDA does not impose any restrictions on the Company’s operating activities. During the term of the SEDA, the Investor is prohibited from engaging in any short selling or hedging transactions related to the Common Stock.

 

In connection with the SEDA, the Company engaged Garden State Securities, Inc. (“GSS”) as its exclusive selling/placement agent. In connection with the transactions set forth in the SEDA, GSS shall receive a fee equal to 10% of the purchase price of the Initial Shares in cash plus warrants to purchase 86,957 shares of Common Stock at an exercise price of $1.15 per share, expiring in five years. GSS will also receive a cash fee equal to 5% of the amount paid by the Investor for each Advance under the SEDA.

 

During October and November 2018, the Company used the SEDA to receive $1,045,000. The Company issued 1,116,738 common shares which were valued at fair market at the date issued.

 

On July 2, 2019, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell directly to the Investors in a private offering (the “Offering”), an aggregate of 7,211,538 shares of common stock (the “Shares”), par value $0.001 per share, at $0.624 per Share or a 20% discount to the closing price as of July 2, 2019, for gross proceeds of approximately $4,500,000 before deducting offering expenses. The Purchase Agreement contained customary representations and warranties. The Shares were offered by the Company pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The Company was obligated in accordance with the terms of a Registration Rights Agreement (the “Rights Agreement”) to register the Shares and the shares of common stock underlying the warrants described below, within 90 days from the date of the Purchase Agreement. All shares of common stock and shares of common stock underlying the warrants have been registered.

 

As additional consideration for the purchase of the Shares, the Company agreed to issue to the Investors Series A Warrants, Series B Warrants, and Series C Warrants (collectively, the “Warrants”). The number of shares for the Warrants and exercise price of the Warrants is subject to adjustment; provided, however, on each of (i) the 3rd Trading Day following the effective date (the “Effective Date”) of the Registration Statement to be filed by the Company (the “Interim True-Up Date”), and (ii) the 6th Trading Day following the Effective Date (the “Final True-Up Date”), the Exercise Price shall be reduced, and only reduced, to equal the lower of (1) the then Exercise Price and (2) 100% of the lowest VWAP during the 2 Trading Days prior to the Interim True-Up Date or 5 Trading Days prior to the Final True-Up Date, as applicable, immediately following the Effective Date. The Series C Warrants, which are considered pre-funded, allow each Investor to purchase an amount of shares equal to the sum of (a) any shares purchased by the Investor pursuant to the Purchase Agreement that would have resulted in the beneficial ownership of greater than 4.99% of the outstanding common shares of the Company, (b) on the 3rd Trading Day following the Effective Date, if 80% of the lowest VWAP during the 2 Trading Days immediately prior to such date (“Primary Effective Date Price”) is less than $0.624, then a number of shares of Common Stock equal to such Investor’s Purchase Agreement purchase amount divided by the Primary Effective Date Price less any shares of Common Stock (i) issued at the Closing and (ii) issuable pursuant to clause (a) above, if any, and (c) on the 6th Trading Day following the Effective Date, if 80% of the lowest VWAP during the 5 Trading Days immediately prior to such date (“Secondary Effective Date Price”) is less than $0.624, then a number of shares of Common Stock equal to such Holder’s Subscription Amount at the Closing divided by the Secondary Effective Date Price less any shares of common stock (i) issued at the Closing, (ii) issuable pursuant to clause (a) above, if any, (ii) issuable pursuant to clause (b) above, if any. The Series C Warrants are exercisable at a price of $0.001 per share.

 

In connection with the Purchase Agreement, the Company engaged Dawson James as its exclusive selling/placement agent. In connection with the transactions set forth in the Purchase Agreement, Dawson James received a fee equal to 10% of the Offering in cash plus warrants to purchase 360,577 shares of Common Stock at an exercise price of $0.78 per share, expiring in five years.

 

 
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The Company issued 30,299,998 shares of common stock pursuant to the Purchase Agreement, as well as the exercise of the Series C Warrants and fees paid in shares of common stock. The Company received approximately $4,038,000, net of the placement fees, legal and other expenses incurred for the placement of the Shares. The Investors received Series A Warrants to allow the Investors to purchase an aggregate of 7,018,090 shares of common stock, and Series B Warrants to allow the Investors to purchase an aggregate of 28,072,364 shares of common stock at a purchase price of $0.1603 per common share. If the investors choose to exercise all Series A and Series B Warrants, the Company would receive proceeds of $5,625,000.

 

The Series A Preferred Shares of 3,000,000 units are convertible into the greater of one share of Common Stock or a number of shares of Common Stock so that the Series A holders would hold 55% of the number of outstanding shares of Common Stock. The Series A Shares vote on an “as-converted” basis. The Series B Convertible Preferred Stock of 1,120,000 units are convertible into 1,120,000 common shares.

  

Issuance of Common Stock

 

During the year ended June 30, 2020 the Company issued 860,950 shares of Common Stock to employees. These shares were valued at fair market value of $103,614 and expensed in the accompanying Consolidated Statement of Operations.

 

During the year ended June 30, 2020, the Company issued 1,815,220 shares of Common Stock to Note Payable Holders are satisfaction of these obligations. These shares were valued at fair market value of $131,000.

 

During the year ended June 30, 2020, the Company issued 366,667 shares of Common Stock to shareholders of GTI as additional consideration for the 2019 software acquisition. These shares were valued at fair market value of $262,500.

 

During the year ended June 30, 2020, the Company accepted subscriptions for the issuance of 30,299,998 shares of Common Stock for total subscriptions of $4,037,888 in cash, as described above.

 

During the year ended June 30, 2020, the Company issued 500,000 shares of Common Stock to vendors for services rendered. These shares were valued at fair market value of $40,000 and expensed in the accompanying Consolidated Statement of Operations.

   

During the year ended June 30, 2020, the Company issued a total of 15,000 shares of Common Stock to two members of the Board of Directors for services rendered. These shares were valued at fair market value of $1,230 and expensed in the accompanying Consolidated Statements of Operations.

  

During the year ended June 30, 2019, the Company issued 367,387 shares of Common Stock to employees and consultants related to the exercise of stock options. The Company received $91,847 for the issuance of these shares.

 

During the year ended June 30, 2019, the Company accepted subscriptions for the issuance of 1,116,738 shares of Common Stock for total subscriptions of $1,045,000 in cash.

 

During the year ended June 30, 2019, the Company issued 62,000 shares of Common Stock to vendors for services rendered. These shares were valued at fair market value of $40,560 and expensed in the accompanying Consolidated Statements of Operations.

 

During the year ended June 30, 2019, the Company issued a total of 10,000 shares of Common Stock to two members of the Board of Directors for services rendered. These shares were valued at fair market value of $8,130 and expensed in the accompanying Consolidated Statements of Operations.

 

 
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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 $193,052, accruing at 12% at June 30, 2020, 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. On April 15, 2019, the investor has agreed to extend the Convertible Note for six months to September 2019 and as of June 30, 2020, the Convertible Note is payable upon demand.

 

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. As of June 30, 2020, $220,000 of the Notes have been fully extinguished and the remaining $220,000 is in default and payable upon demand.

 

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”). 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 which resulted in the issuance of common stock valued at $131,000 and the repricing of the beneficial conversion feature impacting additional paid in capital by $134,584. As of June 30, 2020, $533,000 of the Notes have been fully extinguished as $402,000 of debt repayment and the issuance of common stock valued at $131,000. The remaining principal of $390,125 is due on August 2020. The unamortized discounts to the note as of June 30, 2020 are $43,727.

     

During the year ended June 30, 2020, the Company entered into a promissory note with a related party (see Note 8) 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. The note has an interest rate of 8% and matures on December 1, 2020.

 

During the year ended June 30, 2020, the Company entered into a promissory note with a related party (see Note 8) with a face value of $50,000. The note has an interest rate of 8% and matures on January 1, 2021.

 

 
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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 May 29, 2020, the Company was granted a loan from American Express National Bank in the aggregate amount of $602,478, 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 May 29, 2020, matures on May 29, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on December 29, 2020. The Note may be prepaid by the Borrower 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.

 

The Company recognized $981,423 and $479,678 of interest expense for the years ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and 2019, accrued interest on the above notes was $186,360 and $118,193, respectively. The weighted average interest rates as of June 30, 2020 and 2019 was 5.65% and 6.80%.

 

Notes payable and long-term debt outstanding as of June 30, 2020 and 2019 are summarized below:

 

 

 

Maturity Date

 

June 30,

2020

 

 

June 30,

2019

 

12% $150,000 Convertible Note Payable, net of unamortized discount of $0 and $14,320, respectively

 

Due on Demand

 

$ 150,000

 

 

$ 150,000

 

10% $440,000 Convertible Note Payable, net of unamortized discount of $0 and $28,589, respectively

 

Due on Demand

 

 

440,000

 

 

 

411,411

 

10% $220,000 Convertible Note Payable, net of unamortized discount of $0 and $14,295, respectively

 

Due on Demand

 

 

 

 

 

205,705

 

10% $220,000 Convertible Note Payable, net of unamortized discount of $0 and $14,295, respectively

 

Due on Demand

 

 

220,000

 

 

 

205,705

 

7% $426,667 Convertible Note Payable, net of unamortized discount of $35,866 and $314,40, respectively

 

August 15, 2020

 

 

182,326

 

 

 

112,266

 

7% $106,667 Convertible Note Payable, net of unamortized discount of $78,601

 

August 15, 2020

 

 

 

 

 

28,066

 

7% $213,333 Convertible Note Payable, net of unamortized discount of $0 and $153,786, respectively

 

 September 20, 2020

 

 

 —

 

 

 

 59,547

 

7% $213,333 Convertible Note Payable, net of unamortized discount of $28,492 and $153,786, respectively

 

September 20, 2020

 

 

164,072

 

 

 

59,547

 

5% Note Payable

 

Due on Demand

 

 

 

 

 

600,000

 

8% $600,000 Related party Note Payable, net of unamortized discount of $21,911

 

December 1, 2020

 

 

578,089

 

 

 

 

8% $50,000 Related Party Note Payable

 

January 1, 2021

 

 

50,000

 

 

 

 

5% Note Payable

 

Due on Demand

(1) 

 

350,000

 

 

 

350,000

 

1% PPP Note Payable

 

May 29, 2022

 

 

602,478

 

 

 

 

3.75% SBA EIDL Note Payable

 

April 30, 2050

 

 

500,000

 

 

 

 

Total notes payable

 

 

 

 

3,236,965

 

 

 

2,182,247

 

Less current portion of notes payable

 

 

 

 

2,134,487

 

 

 

2,182,247

 

Notes payable, less current portion

 

 

 

$ 1,102,478

 

 

$

 

__________ 

(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.

 

 
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Note 6 —Commitments and Contingencies

 

The Company records tax contingencies when the exposure item becomes probable and reasonably estimable. As of June 30, 2020, 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 legal cannabis markets.

 

The Company was affected in March by the COVID-19 outbreak and worldwide pandemic. The Company saw some postponements in orders in the first few weeks March 2020 but by the end of March 2020 orders stabilized to a normal level. The Company has made a significant pivot to have the complete solution when it comes to online ordering and communication.

 

Note 8 — Stock Based Compensation and Payments

 

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 20,000,000. The options are exercisable for a period of up to 10 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 20,000,000 through consent of stockholders to amend and restate the equity incentive plan.

 

The following table reflects the continuity of stock options for the years ended June 30, 2020:

 

A summary of stock option activity is as follows:

 

 

 

June 30,

2020

 

 

 

 

 

Number of options outstanding:

 

 

 

Beginning of year

 

 

4,598,823

 

Granted

 

 

13,593,375

 

Exercised, converted

 

 

-

 

Forfeited / exchanged / modification

 

 

(5,633,823 )

 

 

 

 

 

End of period

 

 

12,558,375

 

 

 

 

 

 

Number of options vested at end of period

 

 

1,428,197

 

Number of options available for grant at end of period

 

 

5,257,288

 

 

 

 

 

 

Weighted average option prices per share:

 

 

 

 

Granted during the period

 

$ 0.07

 

Exercised during the period

 

$ 0.00

 

Terminated during the period

 

$ 0.45

 

Outstanding at end of period

 

$ 0.07

 

Exercisable at end of period

 

$ 0.07

 

   

 
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The average fair value of stock options granted was estimated to be $0.07 per share for the period ended June 30, 2020. This estimate was made using the Black-Scholes option pricing model and the following weighted average assumptions:

 

 

 

2020

 

 

 

 

Expected option life (years)

 

2 - 4

 

Expected stock price volatility

 

227 to 230

%

Expected dividend yield

 

 

 

Risk-free interest rate

 

0.44 to 0.54

%

 

Stock-based compensation expense attributable to stock options was approximately $714,638 for the year ended June 30, 2020. As of June 30, 2020, there was approximately $783,222 of unrecognized compensation expense related to 12,552,375 unvested stock options outstanding, and the weighted average vesting period for those options was 3 years.

 

Warrants

 

At June 30, 2020, 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

 

 

 

2.80

 

 

$ 1.15

 

Warrants-Issued with Convertible Notes

 

 

600,000

 

 

 

3.23

 

 

$ 0.75

 

Warrants – Securities Purchase Agreement

 

 

360,577

 

 

 

4.02

 

 

$ 0.78

 

Warrants A – Securities Purchase Agreement

 

 

7,018,090

 

 

 

.02

 

 

$ 0.16

 

Warrants B – Securities Purchase Agreement

 

 

28,072,364

 

 

 

4.02

 

 

$ 0.16

 

Total

 

 

36,137,988

 

 

 

 

 

 

 

 

 

  

Note 9 — Related Party Transactions

 

In March 2020, the Company entered into a promissory note with the Chief Executive Officer for $600,000 in exchange for a total of $565,000 cash payments. The note has an interest rate of 8% and matures on December 1, 2020.

 

In March 2020, the Company entered into a promissory note with the Chief Technology Officer for $50,000. The note has an interest rate of 8% and matures on January 1, 2021.

 

 
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Table of Contents

 

Note 10 — Leases

 

The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases maturing as of June 30:

 

 

 

Operating

Leases

 

2021

 

$

125,419

 

2022

 

 

70,843

 

Thereafter

 

 

-

 

Total minimum lease payments including interest

 

 

196,262

 

Less: Amounts representing interest

 

 

(28,064

Present value of minimum lease payments

 

 

168,198

 

Less:  Current portion of lease liabilities

 

 

(103,049

Non-current portion of lease liabilities

 

$

65,149

 

 

 

 

 

 

Cash payments on lease liabilities

 

$

146,692

 

Weighted average remaining lease term

 

1 year

 

Weighted average discount rate

 

 

10

%

 

Note 11 — Subsequent Events

 

Certain Promissory Notes outstanding as of June 30, 2020 matured in August and September of 2020 and the Company expects the Notes and accrued interest to be converted into Common Stock.

 

The Company has evaluated subsequent events through September 25, 2020 and has not identified any other items requiring additional disclosure.

  

 
48

 

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