Notes to
Condensed Consolidated Financial Statements
September 30,
2007
(Unaudited)
Le@P Technology,
Inc. and Subsidiaries (“Le@P” or the “Company”), formerly known
as Seal Holdings Corporation, is a holding company that is actively pursuing its
strategy of acquiring and commercializing synergistic technologies to develop advanced
products. The Company plans to structure its acquisitions (as the purchase of
controlling interests or otherwise) to avoid subjecting the Company to requirements and
regulation as an investment company under the Investment Company Act of 1940. The
Company appointed Dr. Donald J. Ciappenelli as the Chief Executive Officer and Chairman
of the Board in November 2006, and established an office in the Boston area in February
2007 to maximize the Company’s opportunities to find and develop new technologies
and businesses that fit its model for rapid growth in important markets.
Operating Losses and Cash
Flow Deficiencies
The Company has
experienced operating losses and deficiencies in operating cash flows. Until the
Company has operations or other revenue generating activities to become self
sufficient, the Company will remain dependent upon other sources of capital. In the
past, such capital has come from the Company’s Majority Stockholder and the
proceeds from the Company’s sale of its investment in Healthology, Inc.
(“Healthology”).
On September 30,
1999, the Company’s Chairman and majority stockholder or his affiliates (e.g. the
2005 Trust) (collectively, the “Majority Stockholder”) agreed to provide
Le@P up to $10 million to finance working capital requirements and future acquisitions,
as approved by the Company’s Board of Directors (the “Funding
Commitment”). Through December 31, 2005, the Company received $8,475,000 under
the Funding Commitment, and, separately, unsecured working capital loans aggregating
$2,814,487 (the “Notes”) from the Majority Stockholder. On March 17, 2006,
the Majority Stockholder agreed to convert the Notes into equity pursuant to an
Exchange and Termination Agreement (“Exchange Agreement”) under which (a)
the Majority Stockholder exchanged the $3.14 million of principal and accrued interest
under the Notes (“Note Balance”) for 31,414,706 shares of Class A Common
Stock, and (b) the Company terminated the Funding Commitment. The Exchange Agreement
closed on May 12, 2006.
The Company
anticipates that the remaining proceeds from the Healthology disposition will be
sufficient to cover operating expenses through the fiscal year end.
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2.
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Summary of
Significant Accounting Policies
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Basis of
Presentation
The accompanying
condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not
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include all of
the information and footnotes required by accounting principles generally accepted in
the United States of America for complete 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 month periods ended September 30, 2007 are not
necessarily indicative of the results that may be expected for the year ending December
31, 2007.
The condensed
consolidated balance sheet at December 31, 2006 has been derived from the audited
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 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-KSB for the year ended
December 31, 2006.
Consolidation
The accompanying
condensed consolidated financial statements include the accounts of Le@P Technology,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Recent Accounting
Pronouncements
In September
2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157,
Fair Value Measurements, which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
provisions of SFAS 157 are effective as of the beginning of the Company’s 2008
fiscal year. The Company has determined that this standard will not have a material
effect on its financial statements.
In February
2007, the FASB issued SFAS 159, the Fair Value Option for Financial Assets and
Financial Liabilities, which permits entities to choose to measure many financial
instruments and certain other items at fair value. The provisions of SFAS are effective
as of the beginning of the Company’s 2008 fiscal year. The Company has determined
that this standard will not have a material effect on its financial
statements.
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3.
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Note Payable to
Related Parties
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Effective
September 28, 2001, the Company purchased land and buildings in Broward County, Florida
from the Majority Stockholder for Notes Payable (the “Real Estate Loan”).
The Company recorded the land and buildings at fair value as determined by an
independent third-party appraisal. The Real Estate Loan consisted of a short-term
$37,500 obligation due and paid on November 28, 2001, and a $562,500 long-term mortgage
note (the “Long-Term Note”), bearing interest at 7% per annum. All accrued
interest under the Long-Term Note became due September 28, 2004 with regular monthly
interest payments due thereafter. The Company paid the accrued interest of $118,125 on
October 12, 2004, and continued to pay the regular monthly interest payments. Principal
and accrued interest under the Long-Term Note were due in one lump sum on September 28,
2006. On March 17, 2006, the Company refinanced the Long-Term Note at the same 7%
interest rate and extended the maturity of both principal and interest payments, until
January 8, 2008.
On October 24,
2007, the Company amended the long-term note and extended the maturity date until
January 8, 2010. The note continues to bear interest at the rate of 7% per annum, and
accrued interest and
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principal are
due in one lump sum on the maturity date. As a result of the amendment, the note
payable is presented as long-term in the accompanying condensed consolidated balance
sheets.
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4.
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Related Party
Transactions
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The Majority
Stockholder, directly or indirectly, owned a number of real estate entities with which
the Company has done or currently does business. Through March 15, 2006, the Company
was renting administrative office space on a month-to-month basis from one such real
estate entity at approximately $4,100 per month. On March 15, 2007, the Company entered
into a lease agreement effective April 1, 2007 for this office space for approximately
$4,100 per month. The lease is for one year with two one year options. The Majority
Stockholder sold the building to an unrelated party on March 16, 2007, and the lease
transferred to the unrelated party.
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Item
2.
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Management’s
Discussion and Analysis or Plan of Operation
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Forward Looking
Statements
Certain
statements in Management’s Discussion and Analysis (“MD&A”),
other than purely historical information, including estimates, projections, statements
relating to the Company’s business strategy and expected liquidity, and the
assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements generally are
identified by the words “believes,” “project,”
“expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,”
“will,” “would,” “will be,” “will
continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially
from the forward-looking statements. Factors, risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking statements herein
include, without limitation, the items listed below:
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The ability to raise
capital;
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The ability to
execute the Company’s strategy in a very competitive
environment;
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The degree of
financial leverage;
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The ability to
control future operating and other expenses;
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Risks associated
with the capital markets and investment climate;
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Risks associated
with acquisitions and their integration;
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Regulatory
considerations under the Investment Company Act of 1940;
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Contingent
liabilities; and
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Other risks referenced
from time to time in the Company’s filings with the Securities and
Exchange Commission.
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The Company
undertakes no obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Business
Strategy
The
Company’s January 10, 2005 sale of its investment in Healthology to iVillage,
Inc. generated cash exceeding $3,300,000 and 17,347 restricted shares of iVillage
(which the Company subsequently sold for $147,449 on June 20, 2006).
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On November 1,
2006, the Company appointed Dr. Donald J. Ciappenelli as the Chief Executive Officer of
the Company and Chairman of its Board of Directors. In addition, on March 5, 2007 the
Company hired Dr. Howard Benjamin as Vice-President of Research and Development. In the
latter part of 2006 and continuing through September 30, 2007, the Company has
vigorously pursued its strategy of acquiring and commercializing synergistic
technologies to develop advanced products, and decided to open an office in the Boston
area to maximize the Company’s opportunities to find and develop new technologies
and start-up companies that fit its business model for rapid growth in important
markets.
The Company may
also make other acquisitions or investments outside of its normal business plan in
order to achieve other objectives, including investments necessary to maintain its
exclusion from regulation as an investment company under the ‘40 Act.
Competition
The Company
faces a highly competitive, rapidly evolving business environment in seeking to
identify and capitalize upon acquisition or investment opportunities. Competitors
include a wide variety of venture capital, private equity, mutual funds, private
investors, and other organizations, many with access to public capital and greater
financial and technical resources than the Company.
Liquidity and Cash
Requirements
The Company
anticipates that its cash and short term treasury investments, aggregating to
approximately $2.1 million as of September 30, 2007, will cover its operating expenses
at least through the fiscal year end, and the Company intends during this period to
seek and capitalize upon opportunities for acquisitions and investments to enhance
shareholder value.
Financial Condition at
September 30, 2007 Compared to December 31, 2006
The
Company’s total assets decreased from $3.52 million at the end of 2006 to $2.63
million at September 30, 2007, primarily reflecting the expenditure of cash to pay
operating expenses during the first nine months of 2007, an increase in prepaid
expenses of approximately $10,000, and an increase of accounts receivable of
approximately $19,000.
The
Company’s total liabilities decreased from approximately $783,000 at the end of
2006 to approximately $758,000 at September 30, 2007, primarily due to the payment of
accrued professional fees incurred in the recruitment of the Chief Executive
Officer.
Comparison of
Results of Operations for the Nine Months Ended September 30, 2007 to the Nine Months
Ended September 30, 2006
The
Company’s net operating loss increased from approximately $212,000 for the nine
months ended September 30, 2006 to approximately $1,170,000 for the nine months ended
September 30, 2007. The increase was due to an increase in salaries and benefits of
approximately $362,000 and stock-based compensation expense of approximately $308,000
from the addition of the Chief Executive Officer and Vice-President. In addition,
professional fees, including amounts expended in connection with the recruitment of the
new Chief Executive Officer and Vice President, increased by approximately
$285,000.
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