UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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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
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the transition
period from _________ to_________
Commission file number:
333-206745
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LEAFBUYER TECHNOLOGIES, INC.
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(Exact name of
registrant as specified in its charter)
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Nevada
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38-3944821
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(State or other
jurisdiction
of incorporation or
organization)
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(I.R.S. Employer
Identification No.)
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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:
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Title of each
class
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Trading
Symbol(s)
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Name of each
exchange on which registered
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None
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None
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None
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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.
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Large accelerated
filer
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Accelerated filer
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Non-accelerated
filer
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Smaller reporting
company
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Emerging growth
company
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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
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.
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.
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).
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.
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:
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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;
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variations in quarterly
operating results from the expectations of securities analysts or
investors;
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revisions in securities
analysts’ estimates or reductions in security analysts’
coverage;
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announcements of new
products or services by us or our competitors;
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reductions in the
market share of our products and services;
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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;
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investor perception of
our industry or prospects;
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insider selling or
buying;
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investors entering into
short sale contracts;
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regulatory developments
affecting our industry; and
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additions or departures
of key personnel.
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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.
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.
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.
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.
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.
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.
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.
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
|
)
|
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.
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.
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.
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.
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
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.
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.
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 |
|
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.
|
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.
|
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.
PART IV
Item 15.
Exhibits, Financial Statement Schedules
___________
|
*
|
Filed herewith.
|
|
|
|
|
**
|
Furnished herewith.
|
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
|
|
|
|
|
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 |
|
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.
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.
Leafbuyer Technologies (QB) (USOTC:LBUY)
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