Le@P Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2016
(Unaudited)
Le@P Technology, Inc. (the “Company”)
currently has no business operations, no revenues or revenue-producing activities. As further discussed below, the Company has limited cash, and ongoing expenses as well as substantial indebtedness and liabilities
.
As previously reported i
n the Company’s Current Report on Form 8-K and 8-K/A dated December 31, 2015 (the “December 2015 8-K”), in December 2015 the Company received a $100,000 loan (the “December 2015 Loan”), on the terms disclosed (including a 2.50% interest rate and maturity date for principal and all accrued interest of March 31, 2017), from the
M. Lee Pearce Living Trust (the “Majority Stockholder Trust”), of which the Company’s indirect and beneficial majority stockholder, M. Lee Pearce, M.D. (“Dr. Pearce”), is the 100% beneficial owner (Dr. Pearce, together with entities owned or controlled by him that own capital stock of the Company, are collectively referred to as the “Majority Stockholder”)
. The Majority Stockholder’s beneficial ownership of the Company’s issued and outstanding capital stock is reported under Item 12 (in the section entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”) below. The Company has received no additional loans, advances or funding, from the Majority Stockholder Trust or any other party, since December 2015.
As reported on the Form 8-K dated April 15, 2016 (the “April 2016 8-K), the Company entered into a material definitive agreement on April 15, 2016 to sell real property owned by the Company’s wholly-owned subsidiary Parkson Property, L.L.C.
The contract provided for (i) a gross sale price of $1.4 million (all cash, with no financing contingency), (ii) an escrow deposit from Buyer of $100,000, (iii) a 90-day “free look” period (the “Inspection Period”) during which Buyer could conduct a Phase I environmental assessment and other tests, surveys, investigations and inspections, (iv) conveyance of the property by special warranty deed at a closing to occur within fifteen (15) days of the end of the Inspection Period, (v) closing costs to be paid by the parties, and (vi) other matters included in Florida Association of Realtors form contracts addressing the sale and purchase of vacant land. In addition,
commissions of 3% were to be paid to the Buyer’s agent and 3% to the Company’s agent. The Company’s agent was Marquette Realty Advisors, Inc. The Company’s Class B Director, Chairman and President (Timothy C. Lincoln) is the principal and beneficial owner of Marquette Realty Advisors, Inc
which received a $42,000 commission from the proceeds of the sale
.
As reported on the Company’s Current Report on Form 8-K dated September 1, 2016, on July 14, 2016, the Buyer requested a Feasibility Extension period through August 15, 2016. The Company and Buyer entered into an amendment to the vacant land contract through August 15, 2016. In consideration for the extension, the amendment included a non-refundable $20,000 extension fee. All other amounts, terms and conditions were unamended. The Company received the $20,000 extension fee on July 22, 2016.
The Company engaged an independent fairness expert to value the Parkson Property and to give an opinion of the fairness of the commissions to be paid. The fairness expert deemed the commissions to be paid as reasonable and customary, and the Parkson property was valued at $1,300,000.
On September 1, 2016, the Company completed the sale of the Parkson Property under the amounts, terms and conditions described above. Accordingly, the Company recognized a gain on the sale of the property of $923,154 for the three and nine
months
ended September 30, 2016. The Company incurred general and administrative expenses related to the property of $1,841 and $2,447 for the three months ended September 30, 2016 and 2015, respectively, and $6,646 and $7,342 for the nine months ended September 30, 2016 and 2015, respectively, which is included in
gain (
loss
)
from discontinued operations.
The Company’s total indebtedness outstanding
as of September 30, 2016
was $3,063,424 (excluding accrued interest in the amount of $57,702). The Company’s indebtedness substantially exceeds the book value of its assets. As noted above, in December 2015, (i) the Company received the
$100,000 December 2015 Loan from
Majority Stockholder Trust,
and (ii) through the
December 2015 Parkson Replacement Note, the lender thereunder (an entity wholly-owned by Dr. Pearce), among other things, extended the maturity date (principal and all accrued interest) under that note from March 31, 2016 to March 31, 2017. In addition, as previously reported i
n the Company’s December 2015 8-K and 8-K/A, in December 2015, the
Majority Stockholder Trust, among other things, agreed to extend the maturity date (principal and all accrued interest) on its other outstanding “working capital” loans to the Company (totaling
$2,963,424
in principal amount as of December 31, 2015
, excluding the $100,000 December 2015 Loan amount
), such that t
he principal and all accrued interest (at the rate of 2.50% per annum) are due in one lump sum on March 31, 2017.
During 2016, the Company’s Board of Directors (the “Board” or “Board of Directors”) considered and intended to pursue, subject to budget and cash constraints, potential acquisition and possibly joint venture and investment opportunities (particularly those in the health care technology, products and services and life sciences arenas) (“Opportunities”) that may have come to the attention of Board members or management, including Opportunities introduced by Dr. Pearce or his network of contacts. None of the Opportunities came to fruition.
On September 6, 2016, our board of directors unanimously approved a Plan of Dissolution subject to approval of a majority of the stockholders of the Company. On November
14
, 2016, the Majority Stockholder, which holds approximately 96% of the voting power of the Company’s outstanding shares of common stock and all of the outstanding shares of our Class B Common Stock and Series A Preferred Stock, consented in writing under Section 228 of the
Delaware General Corporation Law (“DGCL”)
approving adoption of the Plan of Dissolution. Accordingly, no vote of any other stockholder is necessary and no additional stockholder votes on this matter will be solicited.
November
4
, 2016, has been fixed as the record date for the determination of our stockholders entitled to receive an Information Statement pursuant to the provisions of the Securities Exchange Act of 1934 with respect to the dissolution of the Company. As of the close of business on the record date,
the Majority Stockholder beneficially owned, in the aggregate, 62,597,409 shares of the Company’s Class A Common Stock, representing approximately 96% of our outstanding shares of Class A Common Stock, and all of the outstanding shares of Class B Common Stock and Series B Preferred Stock.
On November
14
, 2016, the Company filed a preliminary information statement with the Securities Exchange Commission. Upon becoming final, the Information Statement will be provided to holders of the Company’s common stock pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended (“Rule 14c-2”). This Information Statement will contain a detailed description of the Plan of Dissolution. This Information Statement will also constitute the notice to the Company's stockholders of taking of a corporate action without a meeting by less than unanimous written consent of the stockholders, as required by Section 228(e) of the Delaware General Corporation Law. Pursuant to Rule 14c-2, the corporate actions will not be effective until at least twenty (20) calendar days after the mailing of the Information Statement to the Company’s stockholders.
The adoption of the Plan of Dissolution constitutes full and complete authority for the Board and officers
and Majority Stockholder
, without further stockholder action, to do and perform any and all acts, and to make, execute and deliver any and all agreements, conveyances, assignments, transfers, certificates and other documents of any kind and character that the Board or such officers deem necessary, appropriate or advisable: (i) to dissolve the Company in accordance with the laws of the State of Delaware and cause its withdrawal from all jurisdictions in which it is authorized to do business; (ii) to sell, dispose, convey, transfer and deliver all of the remaining assets and properties of the Company; (iii) to satisfy or provide for the satisfaction of the Company’s obligations in accordance with Sections 280 and 281 of the DGCL; and (iv) to distribute any properties and assets of the Company and all remaining funds pro rata to the Company’s stockholders and in accordance with the distribution rights of the Company’s then outstanding shares of capital stock.
Due to the size of our liabilities
and lack of any significant assets
,
HOLDERS OF SHARES OF OUR COMMON STOCK HAVE NO PROSPECT OF RECEIVING A DISTRIBUTION OF ANY KIND AS A RESULT OF THE LIQUIDATION AND DISSOLUTION
.
Under the Plan of Dissolution, the Company will take the following actions at such times the Board of Directors, in its sole and absolute discretion, deems necessary, appropriate or advisable:
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file a certificate of dissolution with the Delaware Secretary of State in accordance with the Plan of Dissolution (the “Certificate of Dissolution”);
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cease conducting normal business operations, except as may be required to wind-up our business affairs;
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sell, exchange or otherwise dispose of all or substantially all of the Company’s non-cash property and assets, including but not limited to its remaining tangible assets, intellectual property and other intangible assets;
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pay or make reasonable provision as reasonably likely for payment of our liabilities and obligations, including setting aside a contingency reserve, consisting of cash or other assets that our board of directors believes to be adequate for payment of our known liabilities, as well as claims that are unknown or have not yet arisen but that are likely to arise or become known to us within ten years; and
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take all actions required or permitted under the dissolution procedures of Section 281(b) of the DGCL.
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In addition, the Company and Mary Thomas agreed to terminate her employment as the Acting Principal Financial Officer, Chief Accounting Officer, Vice-President, Treasurer and Secretary, as well as her position as a Class A Director effective at the close of business on September 1, 2016.
Operating Losses and Cash Flow Deficiencies
As noted above and in previous reports filed by the Company with
the Securities Exchange Commission (the “SEC”)
,
the Company
currently has no business operations, no revenues or revenue-producing activities, and has limited cash, and ongoing expenses as well as substantial indebtedness and liabilities
.
Throughout its recent history, the Company has relied entirely upon the Majority Stockholder Trust (and other affiliates of Dr. Pearce) to fund working capital and expenses (and to extend maturities on indebtedness owing to the Majority Stockholder Trust and other affiliates of Dr. Pearce), acting in its (and their) discretion. The Company has received no loans, advances or funding, from the Majority Stockholder Trust or any other party, since December 2015. Neither the Majority Stockholder Trust nor any other party has
made any commitment or undertaken any obligation
to provide additional funding or financing to the Company (or to extend the maturity dates on existing indebtedness), including in connection with working capital needs, preparing, negotiating, reaching a definitive agreement with respect to or consummating any Opportunities
. As a result
of the
approved plan
of
dissolution,
the Majority Stockholder Trust (or any other affiliate of Dr.
Pearce or any other party) does not intend to make further advances or
extend the maturity dates on any existing indebtedness.
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2.
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Summary of Significant Accounting Policies
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Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial information have been included. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
The condensed consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Le@P Technology, Inc. Annual Report on Form 10-K for the year ended December 31, 2015.
Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Recent Accounting Pronouncements
Refer to the consolidated financial statements and footnotes thereto included in the Le@P Technology, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 for recent accounting pronouncements.
Other pronouncements have been issued but the Company does not believe that their adoption will have a significant impact on the financial position or results of operations.
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3.
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Notes Payable to Related Parties
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As noted above, Le@P Technology, Inc.’s wholly-owned subsidiary, Parkson,
owned
the Real Property. Parkson purchased the Real Property on September 28, 2001 from Bay Colony Associates, Ltd. (“Bay Colony”), an entity wholly-owned by Dr. Pearce, in exchange for a two-month note in the amount of $37,500, and a five-year note (the “Long Term Note”) and related mortgage in the amount of $712,500. The purchase price was based on an independent third-party appraisal. As previously reported in the Company’s December 2015 8-K and 8-K/A, the Long Term Note was replaced a number of times and
was
evidenced by the December 2015 Parkson Replacement Note (as defined above) in the principal amount of $916,183. The December 2015 Parkson Replacement Note bears interest at the rate of 2.50% per annum, with both principal and all accrued interest due in one lump sum on March 31, 2017. On September 1, 2016, the note was paid in full, along with accrued interest in the amount of $15,437, from the proceeds on the sale of the property
discussed in Note 1
.
As previously reported in the Company’s December 2015 8-K and 8-K/A, and as discussed above, the Majority Stockholder Trust, of which Dr. Pearce is the 100% beneficial owner, provided the Company with the $100,000 December 2015 Loan in December 2015. The Company has received no additional loans, advances or funding, from the Majority Stockholder Trust or any other party, since December of 2015.
In addition to the December 2015 Loan, the Majority Stockholder Trust previously made other working capital loans to the Company, which were, prior to their combination and extension (as described below), evidenced by a combined promissory note made by the Company in favor of the Majority Stockholder Trust and dated December 27, 2014 (in the original principal amount of $2,852,359) (the “2014 Working Capital Note”). The maturity date of the 2014 Working Capital Note was, prior to its agreed extension (as described below), March 31, 2016.
As previously reported initially in the Company’s December 2015 8-K and 8-K/A, and as discussed above, on December 31, 2015, the Majority Stockholder Trust, as holder of and payee under the 2014 Working Capital Note, agreed: (i) to extend the maturity date of the total outstanding indebtedness under the 2014 Working Capital Note from March 31, 2016 to March 31, 2017 (the “Extended Maturity Date”), and (ii) to combine the total outstanding indebtedness evidenced by and under the December 2015 Loan (as described above) and the 2014 Working Capital Note (including its outstanding principal amount and accrued interest through December 30, 2015) into a single promissory note, thereby replacing the 2014 Working Capital Note with a 2015 Combined Promissory Note (Working Capital) dated December 31, 2015 in the principal amount of $3,063,424 (the “2015 Combined Promissory Note”). The principal and all accrued interest – at the agreed rate of 2.50% per annum – under the 2015 Combined Promissory Note are due in one lump sum on the Extended Maturity Date of March 31, 2017. Other than the new (combined) principal amount, which includes the principal amount of the December
2015
Loan, the reduction of the rate to 2.50% per annum from 3.75% per annum, and the extension of the maturity date, in each case as noted above, the terms of the 2014 Working Capital Note were not changed and this note (and the obligations thereunder) is now incorporated in and replaced and evidenced by the 2015 Combined Promissory Note.
Throughout its recent history, the Company has relied entirely upon the Majority Stockholder Trust (and other affiliates of Dr. Pearce) to fund working capital and expenses (and to extend maturities on indebtedness owing to the Majority Stockholder Trust and other affiliates of Dr. Pearce), acting in its (and their) discretion. The Company has received no loans, advances or funding, from the Majority Stockholder Trust or any other party, since December 2015. Neither the Majority Stockholder Trust nor any other party has
made any commitment or undertaken any obligation
to provide additional funding or financing to the Company (or to extend the maturity dates on existing indebtedness). There can be no assurance that the Majority Stockholder Trust (or any other affiliate of the Majority Stockholder or any other party) will provide funding or financing to the Company, or that the Majority Stockholder Trust (or any other affiliate of the Majority Stockholder) will agree to extend the maturity dates on any existing indebtedness. In addition, if the Majority Stockholder Trust (or any affiliate of the Majority Stockholder), in its discretion, were to provide or facilitate any such funding or financing, there can be no assurance that the Majority Stockholder Trust would continue to do so (or extend maturity dates on existing indebtedness) in the future, or regarding the amount, terms, restrictions or conditions of any such funding or financing.
All of the Company’s existing outstanding indebtedness is scheduled to mature on March 31, 2017. The total amount of such indebtedness (principal and interest), all due to related parties, as of September 30, 2016 was $3,121,126.
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4.
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Financial Instruments and Fair Values
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The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments.
The fair values of all other financial instruments, including debt, approximate their book values as the instruments are short-term in nature or contain market rates of interest.
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5.
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Provision for Income Taxes
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The Company does not have provision for income taxes as the taxable income for the three and nine months ended September 30, 2016 will be offset by previously unrecognized net operating loss carryforwards that are available.