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LEAP TECHNOLOGY INC / DE - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 1, 2014

Forward-Looking Statements

Certain statements in Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, forecasts, statements relating to the plans, objectives and expected or anticipated business, operations, development, pursuits, liquidity, capital resources, financial condition or operating results of the Company, 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 (the "Exchange Act"). These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "seek", "estimate," "budget," "intend," "strategy," "plan," "objective," "goal," "propose," "pursuit," "may," "should," "will," "would," "will be," "can", "could," "will continue," "will likely result," and similar words, statements and expressions. Forward-looking statements are based on current beliefs, expectations and assumptions that are subject to risks and uncertainties that can be difficult to predict or ascertain and which may cause the actual results to differ materially from the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of the Company, the inclusion of such information should not be regarded as a statement by the Company or any other person that these forward-looking statements (or the Company's goals, objectives, plans, pursuits, intentions, or other forward-looking information derived therefrom) will be achieved. 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:

• The ability to raise capital or obtain additional funding or financing; • The ability to execute the Company's strategy in a very competitive environment; • The degree of financial leverage and related borrowing and interest expenses; • The ability to control future operating and other expenses; • Risks associated with the capital markets and investment climate; • Risks and costs associated with acquisitions and other Opportunities (including those with sourcing, obtaining funding and financing for, and negotiating, documenting and executing on, Opportunities, as well as funding and providing for post-transaction personnel, support, working capital and other needs); • Regulatory considerations under the Investment Company Act of 1940; • Contingent liabilities; and • Other risks referenced from time to time in the Company's filings with the



Securities and Exchange Commission.

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.

11 -------------------------------------------------------------------------------- Table of Contents Business Strategy



As noted above, the Company currently has no business operations, has no revenues or revenue-producing activities (with the limited exception that, as noted above, the Company currently leases the Real Property pursuant to the Short-Term Lease), and has ongoing expenses as well as substantial indebtedness and liabilities.

During 2014, the Company's Board of Directors plans to continue to focus on, consider and pursue potential investment, joint venture and acquisition Opportunities that come to the attention of Board members or management. The Board is also evaluating other alternatives with respect to the Company and its future. This may include Opportunities introduced by Dr. Pearce or his network of contacts. Despite planning discussions regarding the Company's pursuit of Opportunities held during 2013 and early 2014 with both management and, through a Board representative, with Dr. Pearce, the Company has not identified and was not, as of June 30, 2014, pursuing any specific Opportunities. The Company has very limited management and financial resources to identify or pursue Opportunities. As noted above, the Company's internally prepared 15-month Cash Budget includes an allocation of (i) $25,000 for initial and limited commercial development plans (including limited architectural fees and permitting/development expenses, but not including actual construction costs) regarding the Real Property, and (ii) $175,000 for limited funding of the investigation and initial pursuit of possible Opportunities. The ability of the Company to identify and reach (preliminary or definitive) agreement on and/or ultimately consummate any such Opportunities is dependent upon, among other things, its ability to source and perform due diligence on available and appropriate Opportunities, and to obtain additional funding and financing for, and to negotiate, document and execute on, such Opportunities (and to fund and provide for post-transaction personnel, support, working capital and other needs as applicable).

Competition

In considering, approaching and pursuing Opportunities, the Company faces a highly competitive, rapidly evolving and difficult environment. Potential competitors for Opportunities include a wide variety of venture capital, private equity, investment and other funds, as well as individual, private and public investors, joint venture partners and acquirers, and other organizations (including strategically positioned operating companies pursuing the same or similar investment, joint venture and/or acquisition opportunities), most of which enjoy capital, access to capital and significantly greater financial, management, operational, technology and technical resources than the Company.

12 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources



The Company's cash and cash equivalents as of June 30, 2014 aggregated $805,347 which management believes, based on the Company's recent and expected operating expenses and internally prepared 15-month Cash Budget, will be sufficient to fund the Company's working capital requirements at least through March 31, 2015. As previously reported initially in the Company's December 2012 8-K and as discussed above under Note 1 ("Notes Payable to Related Parties"), in December 2012, (i) the Majority Stockholder Trust provided the Company with a $1,200,000 loan, and (ii) the maturity dates (principal and all accrued interest) on all of the Company's existing outstanding indebtedness were extended to March 31, 2015. In the event (a) the Company does not generate revenue or income sufficient to fund its operations, activities and expenses, or (b) third-party funding or financing does not become available to the Company on terms acceptable to the Company prior to the Company exhausting its existing cash and cash equivalents, the Company will not be able to fund its working capital or operations and would be entirely dependent upon the continued funding, loans and working capital advances from the Majority Stockholder Trust (which are provided in the Majority Stockholder Trust's sole discretion). The Company has received no loans, advances or funding, from the Majority Stockholder Trust or any other party, since December 2012, and 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 or furthering the commercial development of the Real Property. All of the Company's existing outstanding indebtedness is schedule to mature on March 31, 2015. There can be no assurance that the Majority Stockholder Trust (or any other affiliate of Dr. Pearce or any other party) will provide further funding or financing to the Company, or that the Majority Stockholder Trust (or any other affiliate of Dr. Pearce) will agree to extend the maturity dates on any existing indebtedness. In addition, if the Majority Stockholder Trust (or any affiliate of Dr. Pearce), in its discretion, were to provide or facilitate any such additional 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. The Company's efforts to obtain additional funding or financing to fund its continued existence beyond March 31, 2015 may require significant effort, costs and expenditures, and if the Company succeeds in obtaining such financing, the amount and terms of such financing could be onerous and result in substantial dilution of existing capital stock (particularly Class A Common Stock) ownership interests as well as increased borrowings and interest expense.

The Majority Stockholder Trust is the sole owner of the outstanding shares of the Company's Series B Preferred Stock. Dividends on the Series B Preferred Stock are cumulative and accrue at a rate of 10% per annum on the preferred stock's stated liquidation value of $1,000 per share and must be paid before any dividends may be paid on any other class or series of common or preferred stock; in addition, no other class or series of common or preferred stock may be redeemed or repurchased nor may the Series B Preferred Stock be altered or modified without the approval of the holder(s) of the Series B Preferred Stock. As of June 30, 2014, dividends of $3,213,000 were accumulated and unpaid on the Company's Series B Preferred Stock. The accumulated amount, in addition to any additional amounts that may accrue, will be charged to retained earnings, if any, or additional paid-in capital, if and/or when declared by the Company's Board of Directors.

As noted above under Note 1, other than a relatively small amount of lease income currently deriving from the Short-Term Lease, the Company has no operating revenues and, even though the Company has decided to continue to focus on, consider and (as applicable and as the Board deems appropriate) pursue potential Opportunities, there can be no assurance that this strategy will be successful or that it will generate any operating revenues or income in the future.

Financial Condition at June 30, 2014 Compared to December 31, 2013

The Company's total assets decreased from approximately $1,452,000 at the end of 2013 to approximately $1,232,000 on June 30, 2014, primarily reflecting the decrease of cash and cash equivalents used for payments of operating expenses, offset by an increase of prepaid expenses.

The Company's total liabilities increased from approximately $3,521,000 at the end of 2013 to approximately $3,564,000 at June 30, 2014, primarily due to increased (i) accounts payable and accrued expenses of approximately $5,000 and (ii) an increase in accrued interest payable to a related party of approximately $62,000, offset by a decrease in accrued professional fees of approximately $23,000.

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Table of Contents The Company's working capital decreased from approximately $995,000 at the end of 2013 to a deficit of approximately $2,732,000 at June 30, 2014, primarily reflecting the decrease of approximately $226,000 of cash used for payments of operating expenses and a decrease in accrued professional fees of approximately $23,000, offset by an increase in short-term notes payable and short-term accrued interest of approximately $3,526,000 (due on a maturity date of March 31, 2015), $3,464,000 of which was previously classified as long-term notes payable and long-term accrued interest as of December 31, 2013, and an increase of prepaid expenses of approximately $6,000 and an increase in accounts payable and accrued expenses of approximately $5,000.

Comparison of Results of Operations for the Three Months Ended June 30, 2014 to the Three Months Ended June 30, 2013

The Company's net loss before income taxes decreased from approximately $143,000 for the three months ended June 30, 2013 to approximately $132,000 for the three months ended June 30, 2014. The variance primarily reflects a decrease in professional fees of approximately $16,000 offset by an increase in general and administrative fees of approximately $4,000.

Comparison of Results of Operations for the Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013

The Company's net loss before income taxes decreased from approximately $293,000 for the six months ended June 30, 2013 to approximately $263,000 for the six months ended June 30, 2014. The variance primarily reflects a decrease in general and administrative fees of approximately $27,000.

Off-Balance Sheet Arrangements

As of June 30, 2014, the Company did not have any off-balance sheet arrangements that have or are reasonably likely to have a material effect on the current or future financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.

Note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Please see the section entitled "Forward-Looking Statements" on page 13 for important information to consider when evaluating such statements and related notes included under Item 1 hereof.


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Source: Edgar Glimpses


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