LEAFBUYER TECHNOLOGIES, INC. - Quarter Report: 2018 March (Form 10-Q)

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.

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. ☐

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Formation of the Company

 

 

 

Going Concern

 

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 and generate additional revenues 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.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform with the current period presentation.

 

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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.

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 March 31, 2018.

 

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12).  ASU 2016-12 provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications.  This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.

The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2017 and 2018.  Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.

 

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The Company has 150,000,000 shares of common stock authorized with a par value of $ 0.001 per share as of March 31, 2018.  In addition, the Company has 10,000,000 preferred stock authorized with a par value of $0.001 per share as of March 31, 2018.

In accordance with the Merger Agreement, the Company issued 2,351,355 new, pre-split shares of common stock in addition to the 6,280,000 shares that were already outstanding.  The Company also issued 324,327 new, pre-split shares of Series A Convertible Preferred Stock.  In addition, the Company accepted subscriptions in a private placement offering of 476,092 new pre-split shares of the Company’s common stock in the amount of $600,000 as well as 27,027 new pre-split shares of the Company’s Series B Convertible Preferred Stock, of which each share of Series B Convertible Preferred Stock is convertible into 16 Common Shares at any time, in the amount of $250,000.  All shares issued in accordance with the Merger Agreement are considered to be outstanding beginning January 1, 2015 as these shares relate to the change in capital structure.  Furthermore, 5,000,000 pre-split shares of common stock were retired in accordance with the Merger Agreement.  In connection with the Merger Agreement, the Company made distributions totaling $600,000 to officers of the Company.  Both Series A Convertible Preferred Stock and Series B Convertible Preferred Stock have rights to dividends when declared; however, there is no stated dividend rate and no such dividends have yet been declared by the Company.  We evaluated the convertible preferred stock agreements for derivatives and determined that they do not qualify for derivative treatment for financial reporting purposes.  We also determined this does not qualify as a beneficial conversion feature.  Accordingly, the balances have been reported at the carrying amounts.

 

On March 24, 2017, the Company effected a forward split such that 9.25 shares of Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to the forward split.  Immediately following the forward split, there were 38,000,663 shares of post-split common stock, 3,000,000 shares of post-split Series A Convertible Preferred Stock, and 250,000 shares of post-split Series B Convertible Preferred Stock outstanding.  The par value of all classes of shares remained at $0.001 per share after the forward split.  During the six months ended June 30, 2017, an additional 3,750,000 shares of post-split Series A Convertible Preferred Stock were purchased from the Company.  All references to shares herein refer to post-split shares, unless otherwise noted.

 

During the nine month’s ended March 31, 2018, the Company issued 8,000 shares of common stock for the exercise of options and $2,000 cash.  The  Company also received notice from a Preferred Stock Series B stockholder to convert 90,000 shares of preferred stock into 1,440,000 shares of common stock.

During the nine month’s ended the Company issued 137,000 shares of common stock to vendor’s for services.  These shares were valued at fair market value of $280,850 and will be amortized over 6 month’s ending in June 2018.  The Company has expensed $140,425 and the remainder of $140,425 is included in prepaid expenses at March 31, 2018.

 

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Basic net earnings or loss per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period.  Diluted net loss per share is computed similarly to basic net loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.  We have prepared the calculation of earnings or loss per share using the weighted-average number of common shares of the Company that were outstanding during the three and nine months ended March 31, 2018 and 2017.

Dilutive instruments had no effect on the calculation of earnings or loss per share during the three and nine months ended March 31, 2018 and 2017.

 

Note 8 — Stock Based Compensation

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The site’s sophisticated vendor dashboard pairs vendor data with consumer needs to find exactly what deals, products or menu items the consumer is looking for.  Vendors engage consumers through a robust 24/7 real-time dashboard that allows updates on menus, specials, jobs, and tracks return on investment reporting.

We operate in a rapidly evolving and highly regulated industry that, as has been estimated by some, will exceed $30 billion in revenue by the year 2020.  We have been and will continue to be aggressive in pursuing opportunities that we believe will benefit us in the long-term.

 

Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

Revenues increased for the three months ended March 31, 2018 compared to the same period in 2017 as we expanded our customer base and continued to implement our growth plan.  Cash received from customers increased by 42% for the three months ended March 31, 2018 compared to the same period in 2017. However, the growth in GAAP basis revenue was lower due solely to the timing of recognition of deferred revenue.  Through our national network of cannabis deals and information, we are able to reach millions of consumers monthly and are looking to continue to expand our presence in the marketplace.

 

Revenues increased for the nine months ended March 31, 2018 compared to the same period in 2017 as we expanded our customer base and continued to implement our growth plan.  Cash received from customers increased by 36% for the nine months ended March 31, 2018 compared to the same period in 2017. However, the growth in GAAP basis revenue was lower due solely to the timing of recognition of deferred revenue.  Through our national network of cannabis deals and information, we are able to reach millions of consumers monthly and are looking to continue to expand our presence in the marketplace.

 

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Liquidity and Capital Resources

 

At March 31, 2018 we had $195,593 in cash and cash equivalents.  Our cash flows from operating and financing activities were as follows:

Cash Flows

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

 

Working capital is the amount by which current assets exceed current liabilities.  We had negative working capital of $573,779 and working capital of $94,965, respectively, as of March 31, 2018 and June 30, 2017.  The decrease in working capital is due to the increase in current portion of debt and deferred revenue at March 31, 2018.

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 nine month period ended March 31, 2018.

 

There is substantial doubt about our ability to continue as a going concern.  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 and generate additional revenues 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.

 

As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2018 using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

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 March 31, 2018, 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.

 

Management is currently evaluating remediation plans for the above control deficiencies.

 Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the nine months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the Company’s recent change of control, we have added several additional employees in accounting which we hope will improve the Company’s internal control over financial reporting.

 

 

During the nine months ended March 31, 2018, the Company accepted subscription for the issuance of 1,057,500 post-split common shares for total subscriptions of $470,000 in cash.

 

During the nine month’s ended March 31, 2018, the Company issued 8,000 shares of common stock for the exercise of options and $2,000 cash.  The  Company also received notice from a Preferred Stock Series B stockholder to convert 90,000 shares of preferred stock into 1,440,000 shares of common stock.

 

During the nine month’s ended the Company issued 137,000 shares of common stock to vendor’s for services.  These shares were valued at fair market value of $280,850 and will be amortized over 6 month’s ending in June 2018.  The Company has expensed $140,425 and the remainder of $140,425 is included in prepaid expenses at March 31, 2018.

 

All of the securities set forth above were issued by the Company pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, or the provisions of Rule 504 of Regulation D promulgated under the Securities Act. All such shares issued contained a restrictive legend and the holders confirmed that they were acquiring the shares for investment and without intent to distribute the shares. All of the purchasers were friends or business associates of the Company’s management and all were experienced in making speculative investments, understood the risks associated with investments, and could afford a loss of the entire investment. The Company did not utilize an underwriter or a placement agent for any of these offerings of its securities.

 

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