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ITEM 1.
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FINANCIAL STATEMENTS
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LifeApps Brands Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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June 30,
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|
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December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
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Assets
|
|
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|
|
|
|
|
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Current assets:
|
|
|
|
|
|
|
|
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Cash
|
|
$
|
3,322
|
|
|
$
|
4,968
|
|
Other current assets
|
|
|
940
|
|
|
|
940
|
|
Total current assets
|
|
|
4,262
|
|
|
|
5,908
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Fixed assets, net of depreciation
|
|
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-
|
|
|
|
649
|
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Intangible asset, net of amortization
|
|
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1,575
|
|
|
|
10,274
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|
Total Assets
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$
|
5,837
|
|
|
$
|
16,831
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|
|
|
|
|
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Liabilities and Stockholders’ Equity (Deficit)
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|
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Current liabilities:
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|
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Accounts payable and accrued expenses
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$
|
117,632
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|
|
$
|
126,871
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Amount due to related party
|
|
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441,189
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|
|
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329,554
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Total current liabilities
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558,821
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|
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|
456,425
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|
|
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|
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Stockholders' Equity (Deficit)
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Preferred stock, $.001 par value, 10,000,000 authorized, none issued or outstanding
|
|
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Common stock, $0.001 par value, 300,000,000 shares authorized, 20,515,731 and 19,918,186 shares issued and outstanding, as of June 30, 2016 and December 31, 2015, respectively
|
|
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20,515
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|
|
|
19,918
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Additional paid in capital
|
|
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2,070,705
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|
|
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2,063,244
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Accumulated (deficit)
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|
|
(2,644,204
|
)
|
|
|
(2,522,756
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)
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Total stockholders’ (deficit)
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|
|
(552,984
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)
|
|
|
(439,594
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)
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Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
5,837
|
|
|
$
|
16,831
|
|
See the accompanying notes to the condensed
consolidated financial statements
LifeApps Digital Media Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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For the Three Months Ended
June 30,
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For the Six Months Ended
June 30,
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2016
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|
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2015
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2016
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|
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2015
|
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Revenue
|
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$
|
4,433
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|
|
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48,685
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|
|
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11,021
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|
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110,002
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Cost of revenue
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|
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1,615
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|
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39,230
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|
|
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8,071
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|
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80,074
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Gross profit (loss)
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2,818
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|
|
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9,455
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|
|
|
2,950
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|
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29,928
|
|
Operating expenses:
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|
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|
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General and administrative
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60,953
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|
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85,041
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|
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115,049
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|
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198,363
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|
Depreciation and amortization
|
|
|
322
|
|
|
|
9,666
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|
|
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9,349
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|
|
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19,333
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|
Total operating expenses
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|
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61,275
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|
|
|
94,707
|
|
|
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124,398
|
|
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217,696
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Operating loss
|
|
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(58,457
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)
|
|
|
(85,252
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)
|
|
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(121,448
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)
|
|
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(187,768
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)
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Other income and expenses:
|
|
|
|
|
|
|
|
|
|
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Change in derivative liability
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—
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|
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54,765
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|
|
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—
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|
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189,660
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Loss on debt conversion
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|
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—
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|
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—
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—
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47,500
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Interest (income) expense
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|
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—
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13,463
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|
|
|
—
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|
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28,094
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Total other income and expenses
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|
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—
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68,228
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|
|
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—
|
|
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265,254
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Net (loss)
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|
$
|
(58,457
|
)
|
|
$
|
(153,480
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)
|
|
$
|
(121,448
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)
|
|
$
|
(453,022
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)
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|
|
|
|
|
|
|
|
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|
|
|
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Per share information - basic and fully diluted:
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|
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|
|
|
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Weighted average shares outstanding
|
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20,515,731
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|
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9,534,178
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|
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20,492,493
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|
|
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8,105,425
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|
|
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Net (loss) per share
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$
|
(0.00
|
)*
|
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$
|
(0.00
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)*
|
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$
|
(0.00
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)*
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$
|
(0.00
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)*
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* Denotes a loss of less than $(0.01) per share.
See the accompanying notes to the unaudited
condensed consolidated financial statements
LifeApps Brands Inc.
Condensed Consolidated Statements of Cash
Flows
(Unaudited)
|
|
For the Six Months Ended
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|
|
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June 30,
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2016
|
|
|
2015
|
|
Net cash used in operations
|
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$
|
(38,281
|
)
|
|
$
|
(61,185
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)
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|
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|
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Cash flows from investing activities:
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Net Cash used in investing activities
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|
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-
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-
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Cash flow from financing activities:
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Related party advances
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38,635
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|
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63,050
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|
Repayments of advances from related parties
|
|
|
(2,000
|
)
|
|
|
(1,800
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)
|
Net cash provided by financing activities
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|
|
36,635
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|
|
|
61,250
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|
|
|
|
|
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Net (decrease) increase in cash
|
|
|
(1,646
|
)
|
|
|
65
|
|
Cash at beginning of period
|
|
|
4,968
|
|
|
|
19,941
|
|
Cash at end of period
|
|
$
|
3,322
|
|
|
$
|
20,006
|
|
|
|
|
|
|
|
|
|
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Non-cash financing activities:
|
|
|
|
|
|
|
|
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Conversion of notes payable to common stock
|
|
$
|
-
|
|
|
$
|
166,895
|
|
Conversion of related party loans to common stock
|
|
$
|
-
|
|
|
$
|
78,750
|
|
See the accompanying notes to the condensed
consolidated financial statements
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
Note 1. Nature of Business
Throughout this report, the terms “our,”
“we,” “us,” and the “Company” refer to LifeApps Digital Media Inc., including its subsidiaries.
The accompanying unaudited condensed consolidated financial statements of LifeApps Digital Media Inc. at June 30, 2016 and
2015 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial
statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form
10-K for the year ended December 31, 2015. In management's opinion, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of
operations for the periods ended June 30, 2016 and 2015 presented are not necessarily indicative of the results to be expected
for the full year. The December 31, 2015 balance sheet has been derived from our audited financial statements included in our annual
report on Form 10-K for the year ended December 31, 2015.
We are building health, fitness and sports
communities across multiple digital platforms including mobile apps, digital sports and fitness publications, sports and fitness
products, sporting events, gateway platforms, online websites and social media.
Note 2. Summary of Significant Accounting
Policies
The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles (“GAAP”), which contemplates our continuation
as a going concern. We have incurred losses to date of $2,644,204. To date we have funded our operations through advances from
a related party, issuance of convertible debt, and the sale of our common stock. We intend to raise additional funding through
third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial
doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize
the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability
to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and our wholly owned subsidiaries, LifeApps Inc. and Sports One Group Inc. All material
inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements
in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
Financial Instruments
The estimated fair values for financial
instruments were determined at discrete points in time based on relevant market information. These estimates involved uncertainties
and could not be determined with precision. The carrying amounts of accounts receivable, accounts payable and accrued liabilities
approximated fair value because of the short-term maturities of these instruments. The fair value of notes payable approximated
to their carrying value as generally their interest rates reflected our effective annual borrowing rate.
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
Intangibles
Intangibles, which include websites and
databases acquired, internet domain name costs, and customer lists, are being amortized over the expected useful lives which we
estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards
Codification (“ASC”) Topic 350
Intangibles – Goodwill and Other
(“ASC 350”), the costs to
obtain and register internet domain names were capitalized.
Fixed Assets
Fixed assets consists of furniture and
equipment and are stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated
on a straight line basis over the estimated useful lives of the assets. The estimated useful lives used for financial statement
purposes is 3 years.
Derivative Financial Instruments:
We do not use derivative instruments to
hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments,
we used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current
based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet
date.
Revenue Recognition
Revenue is derived primarily from the sale
of sports and fitness apparel and equipment, and software applications designed for use on mobile devices such as smart phones
and tablets. Revenue is recognized only when persuasive evidence of an arrangement exists, the fee is fixed or determinable, the
product or service has been delivered, and collectability is probable.
We sell our software directly via Internet
download through third party agents. We recognize revenue when payment is received from the agent. Payment is received net of commission
paid to the agent, usually 70% to us and 30% to the agent. We record the net amount received as revenue.
We also publish and sell digital magazines
through the internet. Magazines can be purchased as individual volumes or as a subscription. To date we have not had any subscription
sales.
Cost of Revenue
Cost of revenue includes the cost of amounts
paid for articles, photography, editorial and production cost of the magazine and ongoing web hosting costs. Cost of revenue related
to product sales includes the direct cost of those products sold.
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
Research and development, Website Development
Costs, and Software Development Costs
All research and development costs are
expensed as incurred. Software development costs eligible for capitalization under ASC 350-50,
Website Development Cost
,
and ASC 985-20,
Software-Costs of Software to be Sold, Leased or Marketed
, were not material to our financial statements
for the periods ended June 30, 2016 and 2015. Research and development expenses amounted to $200 and $0 for three months ended
June 30, 2016 and 2015, respectively and $200 and $7,797 for six months ended June 30, 2016 and 2015, respectively. Research and
development expenses were included in general and administrative expenses.
Advertising Costs
We recognize advertising expense when incurred.
Advertising expense was $130 and $912 for the three months ended June 30, 2016 and 2015, respectively and $130 and $2,851 for six
months ended June 30, 2016 and 2015, respectively.
Rent Expense
We recognize rent expense on a straight-line
basis over the reasonably assured lease term as defined in ASC Topic 840,
Leases
(“ASC 840”). Our lease is short
term and will be renewed on a month to month basis. Rent expense was $1,430 and $1,290 for the for three months ended June 30,
2016 and 2015, respectively and $3,575 and $3,354 for the for six months ended June 30, 2016 and 2015, respectively.
Equity-Based Compensation
Stock-based compensation is presented in
accordance with the guidance of ASC Topic 718,
Compensation – Stock Compensation
(“ASC 718”). Under the
provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using
an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over
the requisite service periods in our consolidated statements of operations.
Income Taxes
The provision for income taxes is determined
in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”). Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the for three and six months ended
June 30, 2016 and 2015 we did not have any interest, penalties or any significant unrecognized uncertain tax positions.
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
Earnings per share
We calculate earnings per share in accordance
with ASC Topic 260
Earnings Per Share
, which requires a dual presentation of basic and diluted earnings per share. Basic
earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Diluted earnings
per share represent basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options and
warrants. The diluted earnings per share were not calculated because we recorded net losses for the for three months ended June
30, 2016 and 2015, and the outstanding stock options and warrants are anti-dilutive.
Recent Pronouncements
From time to time, new accounting pronouncements
are issued that we adopt as of the specified effective date. We believe that the recently issued standards that are not yet effective
may not have an impact on our results of operations and financial position.
Note 3. Fixed Assets
At June 30, 2016 and December 31, 2015,
fixed assets consisted of the following:
|
|
2016
|
|
|
2015
|
|
Furniture and Equipment
|
|
$
|
7,670
|
|
|
$
|
7,670
|
|
Less accumulated depreciation
|
|
|
(7,670
|
)
|
|
|
(7,021
|
)
|
|
|
$
|
-
|
|
|
$
|
649
|
|
The amount charged to depreciation expense
furniture and equipment was $42 and $639 for of the three months ended June 30, 2016 and 2015, respectively and was $649 and $1,278
for of the six months ended June 30, 2016 and 2015, respectively.
Note 4. Intangible Assets
At June 30 2016 and December 31, 2015,
intangible assets consist of the following:
|
|
2016
|
|
|
2015
|
|
Internet domain names
|
|
$
|
58,641
|
|
|
$
|
58,641
|
|
Less accumulated amortization
|
|
|
(58,641
|
)
|
|
|
(55,062
|
)
|
|
|
$
|
-
|
|
|
$
|
3,580
|
|
|
|
|
|
|
|
|
|
|
Website and data bases
|
|
$
|
56,050
|
|
|
$
|
56,050
|
|
Less accumulated amortization
|
|
|
(56,050
|
)
|
|
|
(51,380
|
)
|
|
|
$
|
-
|
|
|
$
|
4,760
|
|
|
|
|
|
|
|
|
|
|
Customer and supplier lists
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
Less accumulated amortization
|
|
|
(2,925
|
)
|
|
|
(2,475
|
)
|
|
|
$
|
1,575
|
|
|
$
|
2,025
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
119,191
|
|
|
$
|
119,191
|
|
|
|
|
(117,616
|
)
|
|
|
(108,917
|
)
|
|
|
$
|
1,575
|
|
|
$
|
10,274
|
|
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
We recognized goodwill and identifiable
intangibles arising from the allocation of the purchase prices of assets acquired in accordance with ASC 805. Goodwill represents
the excess of cost over fair value of all identifiable assets less any liabilities assumed. We have not recognized any goodwill
in these financial statements. Additionally, ASC 805 gives guidance on five types of assets: marketing-related, customer-related,
artistic-related, contract-related, and technology based intangible assets. We identified identifiable intangibles that are marketing-related,
customer-related, and technology based.
The amount charged to amortization expense
for all intangibles was $280 and $9,028 for the three months ended June 30, 2016 and 2015, respectively and was $8,699 and $18,055
for the six months ended June 30, 2016 and 2015, respectively.
Estimated future amortization expense related
to the intangibles as of June 30, 201 is as follows:
Year Ended December 31,
|
|
|
|
2016
|
|
|
450
|
|
2017
|
|
|
900
|
|
2018
|
|
|
225
|
|
|
|
$
|
1,575
|
|
Note 5. Amounts Due Related Parties
Parties, which can be a corporation or
an individual, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating decisions. Companies are also considered to be related
if they are subject to common control or common significant influence.
Amount due to related parties represent
cash advances, salary accruals and amounts paid on our behalf by officers and shareholders of the Company. These advances are non-interest
bearing, short term in nature and due on demand. The balance at June 30, 2016 and December 31, 2015, was $441,189 and $329,554,
respectively. Salary accruals for each period amounted to $75,000 and net cash advances amounted to $38,638 and $63,050, respectively
for the six months ended June 30, 2016 and 2015.
On March 25, 2015, we entered into a debt
conversion agreement with our CEO and principal stockholder. The agreement provided the CEO with the right to convert $31,250
owed to him for working capital loans made to the Company for 1,666,667 restricted shares of our common stock. The conversion
price was based on the following formula - equal to the lesser of $1.02 or 60% of the lowest trade price ($0.0025) in the 25 trading
days previous to the conversion. (In the event that Conversion Shares are not deliverable by DWAC, an additional 10% discount
shall apply; if the shares are ineligible for deposit into the DTC system and only eligible for Xclearing deposit, an additional
5% discount shall apply; and in the case of both, an additional cumulative 15% discount shall apply.) The conversion price as
calculated was $0.01875 per share (post-split basis). We recognized a loss on conversion of $47,500, the difference between the
conversion price and the closing trading price on the date of the conversion.
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
Note 6. Convertible Notes Payable
During 2014, we executed a Promissory Note
(the “Note”) and received three draws totaling $135,000. The Note is due March 17, 2016 and provides for an original
issue discount of $15,185, which was to be amortized over 24 months, and face interest rate of 12% per annum. The Lender had the
right, at any time at its election to convert all or part of the outstanding and unpaid principal and accrued interest into shares
of our common stock. The conversion price is the lesser of $0.0485 or 60% of the lowest trading price in the 25 trading days prior
the conversion. The Note provides for additional penalties if we cannot deliver the underlying common stock on a timely basis.
The Note also provides that the principal amount may be increased, with the consent of the lender to $445,000.
We evaluated the terms of the conversion
features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's
Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a
liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.
We valued the conversion feature at origination
of all draws at $230,408 using the Black Scholes valuation model with the following assumptions: dividend yield of zero, 1.25 to
2 years to maturity, risk free interest rate of 0.38% to 0.58% and annualized volatility of 97.34% to 146%. $135,000 of the value
assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded
as reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture.
The balance of $95,408 of the value assigned to the derivative liability was recognized as origination interest on the derivative
liability and expensed on origination.
We valued the derivative liability and
the end of each accounting period the difference in value is recognized as gain or loss. At June 30, 2015 we determined the valuation
using the Black-Sholes valuation model with the following assumptions: dividend yield of zero, 0.96 years to maturity, risk free
interest rate of 0.56% and annualized volatility of 167%. We recognized $189,660 of expense for the change in value of the derivative
for the six months ended June 30, 2015.
During the six months ended June 30, 2015,
the lender converted $64,920 of the principal of the Note into 3,589,115 shares of our $0.001 common stock. The loans were fully
converted to common stock during August of 2015.
Note 7. Stockholders’ Equity
During the six months ended June 30,
2015 we issued 5,255,782 shares of common stock as a result of conversion of debt. As more fully described in Notes 5 and 6
above, of the shares issued, 3,589,115 were to an unrelated note holder and 1,666,667 were to officers and/or directors of
the Company.
During the six months ended June 30, 2016
we issued 597,545 shares of common stock in settlement of $8,058 in previously accrued legal services.
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
Note 8. Stock Based Compensation
In prior periods, our Board of Directors
adopted the 2012 Equity Incentive Plan (“2012 Plan”), which was approved by our shareholders. The 2012 Plan provided
for the issuance of up to 666,667 shares of our common stock. During October 2015 the Board of Directors amended the plan to increase
the number of shares issuable under the LifeApps Digital Media Inc. 2012 Equity Incentive Plan to 20,000,000, on a post-Reverse
Stock Split basis. The plan provides for the award of options, stock appreciation rights, performance share awards, and restricted
stock and stock units. The plan is administered by the Board of Directors. Pursuant to the 2012 Plan our Board of Directors granted
options to purchase 418,333 shares of our common stock in periods prior to December 31, 2015. All of those options have been cancelled
or lapsed as of June 30, 2016. On May 24, 2016 our Board of Directors granted options to purchase 15,000,000 shares of our common
stock to officers and or directors and a consultant. The options are exercisable quarterly from the grant date over a four-year
term.
The fair value of the options granted,
$39,000, was estimated at the date of grant using the Black-Scholes option pricing model, with the following assumptions:
Expected life (in years)
|
|
|
4
|
|
Volatility
|
|
|
383
|
%
|
Risk Free interest rate
|
|
|
0.68
|
%
|
Dividend yield (on common stock)
|
|
|
-
|
|
There was no stock based compensation expense
recorded for the periods ended June 30, 2016 and 2015 as the prior year options were fully vested during 2014 and none of the 2016
grants are currently vested.
The following is a summary of stock option
issued to employees and directors:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
240,000
|
|
|
$
|
0.57
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
3.9
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
240,000
|
|
|
$
|
.057
|
|
|
-
|
|
|
|
-
|
|
Outstanding June 30, 2016
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
|
3.9
|
|
|
|
-
|
|
Exercisable June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
There will be approximately $26,000 of
additional compensation expense recognized in future periods.
The following is a summary of stock options
issued to non-employees, excluding Directors:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic
Value at date
of grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
375,000
|
|
|
$
|
0.87
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
5,000,000
|
|
|
$
|
.0026
|
|
|
3.9
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
-
|
|
Cancelled
|
|
|
375,000
|
|
|
$
|
.87
|
|
|
-
|
|
|
-
|
|
Outstanding June 30, 2016
|
|
|
5,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.9
|
|
|
$
|
-
|
|
Exercisable June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
There will be approximately $13,000 of
additional compensation expense recognized in future periods.
Note 9. Outstanding Warrants
There were no warrants issued during the
periods ended June 30, 2016 or 2015. The following is a summary of outstanding warrants as of June 30, 2016:
|
|
Number of
warrants
|
|
|
Exercise price
per share
|
|
|
Average
remaining
term in years
|
|
|
Aggregate
intrinsic value
at date of
grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with private placement of units in 2012
|
|
|
400,000
|
|
|
$
|
15.00
|
|
|
|
1.25
|
|
|
$
|
-
|
|
The warrants expire on September 20, 2017.
Note 10. Income Taxes
Income tax provision (benefit) for the
periods ended June 30, 2016 and 2015, is summarized below:
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total current
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(41.300
|
)
|
|
|
(63,800
|
)
|
State
|
|
|
(6,700
|
)
|
|
|
(10,300
|
)
|
Total deferred
|
|
|
(48,000
|
)
|
|
|
(74,100
|
)
|
Increase in valuation allowance
|
|
|
48,000
|
|
|
|
74,100
|
|
Total provision
|
|
$
|
-
|
|
|
$
|
-
|
|
The provision for income taxes differs
from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources
and tax effects of the differences as of June 30, 2016 and 2015 are as follows:
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
June 30, 2016 and 2015
(Unaudited)
|
|
2016
|
|
|
2015
|
|
Income tax provision at the federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
Increase in valuation allowance
|
|
|
(39.5
|
)%
|
|
|
(39.5)
|
%
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
There are open statutes of limitations
for taxing authorities in federal and state jurisdictions to audit our tax returns from 2010 through the current period. Our policy
is to account for income tax related interest and penalties in income tax expense in the consolidated statement of operations.
There have been no income tax related interest or penalties assessed or recorded.
Note 11. Business Segments
We currently have two business segments;
(i) the sale of physical products (“Products”) and (ii) digital publishing (“Publishing”). The accounting
policies of the segments are the same as those described in the summary of significant accounting policies.
The publishing segment does not meet the
quantitative threshold for disclosure as outlined ASC Topic 280
Segment Reporting.
All of our revenue is generated in the
United States and accordingly no geographic segment reporting is included.
No customers accounted for more than 10%
of our revenues in the periods June 30, 2016 and 2015.
Note 12. Subsequent Events
Management has evaluated all activity and
concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in
the notes to these financial statements.
On May 21, 2016, we entered into an agreement
(the “Agreement”) with FemCap Inc. (“FemCap”) providing for the exclusive right for a 90-day period for
us to purchase FemCap’s operating assets, subject to the satisfaction of certain terms and conditions set forth in the Agreement.
Under the Agreement, we have a 90-day exclusive right to purchase FemCap’s operating assets used to market and sell FemCap™
and FemmyCycle® feminine hygiene products. Such operating assets include molds, equipment, contract rights, customer lists,
leases, accounting records and intellectual property. Terms of the Agreement include the following being delivered to FemCap:
|
a.
|
$2.0 million upfront on the closing date for the transaction;
|
|
b.
|
One million shares of our restricted common stock, with one-third vesting on each one-year anniversary of the closing date based on the founder’s continued employment by us;
|
|
c.
|
A 5% royalty on gross sales revenue from the sales of FemCap™ and FemmyCycle® products for a period of five years from the closing date; and
|
|
d.
|
A three-year employment agreement with the founder of FemCap Inc. for part-time employment to assist with the transition of knowledge and continuing development of the business and other products.
|
Conditions to closing include negotiation
of definitive agreements to the satisfaction of both parties, and our raising a minimum of $3.5 million in capital to provide for
the upfront payment, with sufficient funds remaining for development of additional products. We will not be able to complete the
purchase of FemCap’s operating assets within the 90-day exclusivity period and may never complete such purchase. Following
the end of the exclusivity period, we will have the non-exclusive right to acquire the FemCap operating assets.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”),
including our unaudited condensed consolidated financial statements as of June 30, 2016 and June 30, 2015 and for the six months
ended June 30, 2016 and 2015 and the related notes. References in this Management’s Discussion and Analysis of Financial
Condition and Results of Operations section to “us,” “we,” “our,” and similar terms refer to
LifeApps Brands Inc., a Delaware corporation. This discussion includes forward-looking statements, as that term is defined in the
federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations
and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions are used to identify forward-looking statements.
We caution you that these statements
are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many
of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements
are based. Factors that may affect our results include, but are not limited to, the risk factors in Item 2.01 in our Annual Report
on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on
April 15, 2016. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations
and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements
could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether from new information, future events or otherwise.
Overview
LifeApps Brands Inc. is an emerging growth
company and developer and designer of applications, medical and fitness products, new media, digital magazines, publications, and
next-generation social networks for sports, health, fitness and entertainment enthusiasts. We have a multimarket revenue strategy
that incorporates mobile apps, digital magazines, publications, fitness training devices, web, social media and internet TV to
engage consumers in multiple areas of sports, health, fitness and entertainment interests including medical, yoga, golf, tennis,
running, soccer, cycling, and other health, fitness and sports topics. Although we have determined to shift our business focus
to the medical, health and wellness sectors, we expect that our mobile apps will continue to be represented on the Apple App Store
and our MD Workout® mobile app will continue to be represented in the IMS Health App Script program.
LifeApps® is a licensed developer and
publisher of apps for the Apple App Store for iPhone, iPod touch, iPad and iPad mini. LifeApps® is also a licensed developer
on both Google Play and Amazon Appstore for Android. LifeApps® has distributed apps/publications on all three platforms. Moving
forward, LifeApps® is developing new apps, and exploring new opportunities pairing apps with physical retail and e-commerce/mobile-commerce
products.
Plan of Operation
LifeApps® is aggressively pushing forward
on a strategy for utilizing mobile applications related to healthcare with the LifeApps Health initiative. LifeApps Health, building
on the success of the LifeApps MDWorkout® mobile app platform, will bring together consumer mHealth lifestyle products, like-minded
medical health organizations and medically based health and fitness research organizations to create apps. The convergence of consumer
apps with medical programs and clinical research is an exciting milestone in the mHealth marketplace. LifeApps® believes that
its unique position as an established market participant in providing medically based mHealth fitness lifestyle apps will make
LifeApps Health the desired partner for medical organizations who are looking for guidance, app development and distribution into
the mHealth marketplace. We believe that we will drive revenues by targeting sports, health and fitness specific communities and
developing a relationship with their participants, delivering lifestyle content, social networking, skills and drills training,
consumer fitness devices and nutritional content across multiple platforms including, but not limited to, Apple iOS and Google
Android systems. LifeApps® plans to invest in these sports, health and fitness communities through partnerships with trusted
medical organizations, increasing brand awareness and delivering digital content of interest and digitally enhanced physical consumer
products that enrich and improve the user’s sports, health and fitness lifestyle. We intend to decrease our activities related
to our Sports One digital platform due to slowing sales and increased competition as we position ourselves for new opportunities.
At the same time, we intend to focus on merger and acquisition candidates in the medical, health and wellness sectors and/or try
to develop innovative products related to these sectors internally.
Critical Accounting Policies and Estimates
The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles (“GAAP”), which contemplates our continuation
as a going concern. As of June 30, 2016, we have incurred losses of $2,644,204. To date we have funded our operations through advances
from a related party, issuance of convertible debt, and the sale of our common stock. We intend to raise additional funding through
third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial
doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize
the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability
to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations.
Use of Estimates
The preparation of financial statements
in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
Fair Value Measurements:
ASC Topic 820, Fair Value Measurements
and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair value and expands disclosures which
are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy
prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets
and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level 1 – Quoted prices are available
in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in
Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.
Level 2 – Pricing inputs are other
than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets
and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using
highly observable inputs.
Level 3 – Significant inputs to pricing
that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring
significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value
of financial transmission rights.
Our financial instruments consist of cash
and cash equivalents, short-term trade receivables, prepaid expenses, payables, accruals and convertible notes payable. The carrying
values of cash and cash equivalents, short-term trade receivables, prepaid expenses, payables, and accruals approximate fair value
because of the short term maturities of these instruments.
Inventory
Inventory consists of finished goods, sports
and fitness products, and is stated at the lower of cost or net realizable value, with cost being determined on a first-in first-out
basis.
Intangibles
Intangibles, which include websites and
databases acquired, internet domain name costs, and customer lists, are being amortized over the expected useful lives which we
estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards
Codification (“ASC”) Topic 350 Intangibles – Goodwill and Other (“ASC 350”), the costs to obtain
and register internet domain names were capitalized.
Derivative Financial Instruments:
We do not use derivative instruments to
hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments,
we used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current
based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet
date.
Revenue Recognition
Revenue is derived primarily from the sale
of sports and fitness apparel and equipment, and software applications designed for use on mobile devices such as smart phones
and tablets. Revenue is recognized only when persuasive evidence of an arrangement exists, the fee is fixed or determinable, the
product or service has been delivered, and collectability is probable.
We sell our software directly via Internet
download through third party agents. We recognize revenue when payment is received from the agent. Payment is received net of commission
paid to the agent, usually 70% to us and 30% to the agent. We record the net amount received as revenue.
We also publish and sell digital magazines
through the internet. Magazines can be purchased as individual volumes or as a subscription. To date we have not had any subscription
sales.
Cost of Revenue
Cost of revenue includes the cost of amounts
paid for articles, photography, editorial and production cost of the magazine and ongoing web hosting costs. Cost of revenue related
to product sales includes the direct cost of those products sold.
Equity Based Payments
Equity based payments are accounted for
in accordance with ASC Topic 718, Compensation – Stock Compensation. The compensation cost is based upon fair value of the
equity instrument at the date grant. The fair value has been estimated using the Black-Sholes option pricing model.
Results of Operations
Three months ended June 30, 2016,
compared with the respective period ended June 30, 2015
Revenues for the three months ended June,
2016 and 2015 were $4,433 and $48,685, respectively. Revenues for both periods were derived primarily from the sale of sports apparel
and health and fitness products. The decrease in revenues is due to an across the board downturn in our business.
Cost of revenue normally includes our cost
of products sold and amounts paid for articles, photography, editorial and production cost of the magazine. In the future we will
incur direct cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable future we
anticipate outsourcing such costs. Cost of revenue related to product sales includes the direct cost of those products sold.
Cost of revenue for the three months ended
June 30, 2016 and 2015 was $1,615 (36.4%) and $39,230 (80.6%), respectively. This resulted in a gross profit for three months ended
June 30, 2016 and 2015 of $2,818 (63.6%) and $9,455 (19%), respectively. Costs were primarily the cost of products sold. The decrease
in gross margin is primarily due to product mix.
We had net losses of $58,457 and $153,480
for the three months ended June 30, 2016 and 2015, respectively.
The following is a breakdown of our selling,
general and administrative expenses for the three months ended June 30, 2016 and 2015:
|
|
Three months Ended June 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Difference
|
|
Personnel costs
|
|
$
|
37,495
|
|
|
$
|
45,643
|
|
|
$
|
(8,148
|
)
|
Professional fees
|
|
|
16,930
|
|
|
|
18,081
|
|
|
|
(1,151
|
)
|
Marketing and advertising
|
|
|
1,005
|
|
|
|
4,697
|
|
|
|
(3,692
|
)
|
Travel and entertainment
|
|
|
-
|
|
|
|
345
|
|
|
|
(345
|
)
|
Stock related expenses
|
|
|
599
|
|
|
|
-
|
|
|
|
599
|
|
Research and development
|
|
|
200
|
|
|
|
-
|
|
|
|
200
|
|
Rent
|
|
|
1,430
|
|
|
|
1,290
|
|
|
|
140
|
|
Other expenses
|
|
|
3,294
|
|
|
|
14,985
|
|
|
|
(11,631
|
)
|
|
|
$
|
60,953
|
|
|
$
|
85,041
|
|
|
$
|
(24,088
|
)
|
Personnel costs decreased $8,148 (21.7%)
from $45,643 for the three months ended June 30, 2016 to $37,495 for the three months ended June30, 2015. The decrease is a result
of decreases in our number of employees from four in 2015 to one (our CEO) in 2016.
Professional fees decreased $1,151 (6.8%)
from $18,081 for the three months ended June 30, 2015 to $16,930 for the three months ended June30, 2016. The decrease is a result
of decreases in our cost of SEC compliance.
Marketing and advertising decreased $3,692
(367.4%) from $4,697 for the three months ended June 30, 2015 to $1,005 for the three months ended June30, 2016. The decrease is
a result of changes in our business strategy by focusing less effort on product sales.
Research and development includes website
and applications development costs. Research and development and development activities were not significant during the quarters
ended June 30 2016 and 2015. Development is an ongoing cost and we anticipate that our development costs both for website and applications
may increase in future periods.
Our travel and entertainment expenses did
not change by a material amount during the periods presented.
All of our other
operating costs decreased as result of generally keeping cost down.
We had operating losses of $58,457 and
$85,252 for 2016 and 2015, respectively.
We value the derivative liability and the
end of each accounting period the difference in value is recognized as gain or loss. We recognized $54,765 of loss for the change
in value of the derivative for the six months ended June 30, 2015. We had no derivative liabilities in the second quarter of 2016.
Six months ended June 30, 2016, compared
with the respective period ended June 30, 2015
Revenues for the six months ended June
30, 2016 and 2015 were $11,021 and $110,002 respectively. Revenues for both periods were derived primarily from the sale of sports
apparel and health and fitness products. The decrease in revenues is due to an across the board downturn in our business.
Cost of revenue normally includes our cost
of products sold and amounts paid for articles, photography, editorial and production cost of the magazine. In the future we will
incur direct cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable future we
anticipate outsourcing such costs. Cost of revenue related to product sales includes the direct cost of those products sold.
Cost of revenue for the six months ended
June 30, 2016 and 2015 was $8,071 (73.2%) and $80,074 (72.8%) respectively. This resulted in a gross profit for the six months
ended June 30, 2016 and 2015 of $2,950 (26.8%) and $29,928 (27.2%), respectively. Costs were primarily the cost of products sold
and the margin varies depending on products sold has been sold. The decrease in gross margin is primarily to product mix.
We had net losses of $121,448 and $453,022
for the six months ended June 30, 2016 and 2015, respectively.
The following is a breakdown of our selling,
general and administrative expenses for the six months ended June 30, 2016 and 2015:
|
|
Six months Ended June 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Difference
|
|
Personnel costs
|
|
$
|
75,512
|
|
|
$
|
92,340
|
|
|
$
|
(16,798
|
)
|
Professional fees
|
|
|
18,930
|
|
|
|
40,091
|
|
|
|
(21,161
|
)
|
Marketing and advertising
|
|
|
1,745
|
|
|
|
27,427
|
|
|
|
(25,682
|
)
|
Travel and entertainment
|
|
|
-
|
|
|
|
1,990
|
|
|
|
(1,990
|
)
|
Stock related expenses
|
|
|
5,097
|
|
|
|
959
|
|
|
|
4,138
|
|
Rent
|
|
|
3,575
|
|
|
|
3,354
|
|
|
|
221
|
|
Research and development
|
|
|
200
|
|
|
|
7,797
|
|
|
|
(7,597
|
)
|
Other expenses
|
|
|
9,960
|
|
|
|
24,405
|
|
|
|
(14,444
|
)
|
|
|
$
|
115,049
|
|
|
$
|
198,363
|
|
|
$
|
(83,314
|
)
|
Personnel costs decreased $16,798 (22.2%)
from $92,340 for the six months ended June 30, 2016 to $75,512 for the six months ended June30, 2015. The decrease is a result
of decreases in our number of employees from four in 2015 to one (our CEO) in 2016.
Professional fees decreased $21,161 (111.8%)
from $40,091 for the six months ended June 30, 2015 to $18,930 for the six months ended June 30, 2016. The decrease is a result
of decreases in our cost of SEC compliance and decreased activity that required legal counsel.
Marketing and advertising decreased $25,682
(1,471.8%) from $27,427 for the six months ended June 30, 2015 to $1,745 for the six months ended June30, 2016. The decrease is
a result of changes in our business strategy by focusing less effort on product sales. Also, the six-month period of 2015 included
trade show expenses that have not recurred.
Research and development includes website
and applications development costs. Research and development expenses decreased $7,597 (3,798.5%) from $7,797 for 2015 to $200
for 2016. We made no major changes to our applications in 2016 whereas in 2015 we updated most of our applications. Development
is an ongoing cost and we anticipate that our development costs both for website and applications may increase in future periods.
Travel and entertainment decreased $1,990
from $1,990 in 2015 to $0 in 2016.
All of our other operating costs decreased
as result of generally keeping cost down.
We had operating losses of $121,448 and
$187,768 for 2016 and 2015, respectively.
We value the derivative liability and the
end of each accounting period the difference in value is recognized as gain or loss. We recognized $189,660 of loss for the change
in value of the derivative for 2015. We had no derivative liabilities in the first half of 2016. In addition, we had a loss in
2015 of $47,500 on conversion of debt due to an officer and shareholder of the Company.
Liquidity and Capital Resources
We were financed primarily by capital contributions
from members of LifeApps LLC, the predecessor to LifeApps, from short term borrowings, and through our private placement which
we completed in October 2012. Our existing sources of liquidity may not be sufficient for us to implement our initial business
plan. Our need for future capital will be dependent upon the speed at which we expand our product offerings. There are no assurances
that we will be
able raise additional capital as needed.
As of June 30, 2016, we had negative working
capital of $(554,559) as compared to $(450,517) at December 31, 2015.
During the six months ended June 30, 2016
and 2015, operations used cash of $38,281 and $61,185 respectively.
During the six months ended June 30, 2016
and 2015, we used no cash in investing activities.
During the six months ended June 30, 2016
and 2015, net cash provided by financing activities was $36,635 and $61,250, respectively.
Additionally, we received or (repaid) net amounts of $(2,000)
and $29,750 of cash advances from our chief executive officer and net amounts of $38,635 and $31,500 of cash advances from a director
and a shareholder during the six months ended June, 2016 and 2015, respectively. Also during the six months ended June 30, 2015
our chief executive converted $31,250 of cash advances into 1,666,667 shares of common stock at a conversion rate based on the
trading value of our common stock during a predetermined period.
We will continue to seek out additional
capital in the form of debt or equity under the most favorable terms we can find.
Going Concern
Our financial
statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge our
liabilities in the normal course of business for the foreseeable future. We have incurred losses since inception resulting in an
accumulated deficit of approximately $2,644,204 as of June 30, 2016 and further losses are anticipated in the development of our
business raising 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 intends to finance
operating costs over the
next twelve months with existing cash on hand and/or additional officer
and shareholder advances. These financials do not include any adjustments relating to the recoverability and reclassification of
recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.