|
ITEM 1.
|
FINANCIAL STATEMENTS
|
LifeApps Brands Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,084
|
|
|
$
|
1,388
|
|
Other current assets
|
|
|
595
|
|
|
|
940
|
|
Total current assets
|
|
|
2,679
|
|
|
|
2,328
|
|
Intangible asset, net of amortization
|
|
|
675
|
|
|
|
1,125
|
|
Total Assets
|
|
$
|
3,354
|
|
|
$
|
3,453
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
130,708
|
|
|
$
|
130,708
|
|
Amounts due to related party
|
|
|
653,949
|
|
|
|
536,639
|
|
Total current liabilities
|
|
|
784,657
|
|
|
|
667,347
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 10,000,000 authorized, none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 300,000,000 shares authorized, 25,311,186 shares issued and outstanding, as of June 30, 2017 and December 31, 2016
|
|
|
25,311
|
|
|
|
25,311
|
|
Additional paid in capital
|
|
|
2,104,232
|
|
|
|
2,099,358
|
|
Accumulated (deficit)
|
|
|
(2,910,846
|
)
|
|
|
(2,788,563
|
)
|
Total stockholders’ (deficit)
|
|
|
(781,303
|
)
|
|
|
(663,894
|
)
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
3,354
|
|
|
$
|
3,453
|
|
See the accompanying notes to the condensed
consolidated financial statements
LifeApps Digital Media Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
1,251
|
|
|
|
4,433
|
|
|
|
2,306
|
|
|
|
11,021
|
|
Cost of revenue
|
|
|
—
|
|
|
|
1,615
|
|
|
|
49
|
|
|
|
8,071
|
|
Gross profit (loss)
|
|
|
1,251
|
|
|
|
2,818
|
|
|
|
2,257
|
|
|
|
2,950
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
82,161
|
|
|
|
60,953
|
|
|
|
124,090
|
|
|
|
115,049
|
|
Depreciation and amortization
|
|
|
225
|
|
|
|
322
|
|
|
|
450
|
|
|
|
9,349
|
|
Total operating expenses
|
|
|
82,386
|
|
|
|
61,275
|
|
|
|
124,540
|
|
|
|
124,398,
|
|
(Loss) before income taxes
|
|
|
(81,135
|
)
|
|
|
(58,457
|
)
|
|
|
(122,283
|
)
|
|
|
(121,448
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net (loss)
|
|
$
|
(81,135
|
)
|
|
$
|
(58,457
|
)
|
|
$
|
(122,283
|
)
|
|
$
|
(121,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Per share information - basic and fully diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
25,311,186
|
|
|
|
20,515,731
|
|
|
|
25,311,186
|
|
|
|
20,492,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share
|
|
$
|
(0.00
|
)*
|
|
$
|
(0.00
|
)*
|
|
$
|
(0.00
|
)*
|
|
$
|
(0.00
|
)*
|
* 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
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash used in operations
|
|
$
|
(41,614
|
)
|
|
$
|
(38,281
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Net Cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Related party advances
|
|
|
42,310
|
|
|
|
38,635
|
|
Repayments of advances from related parties
|
|
|
—
|
|
|
|
(2,000
|
)
|
Net cash provided by financing activities
|
|
|
42,310
|
|
|
|
36,635
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
696
|
|
|
|
(1,646
|
)
|
Cash at beginning of period
|
|
|
1,388
|
|
|
|
4,968
|
|
Cash at end of period
|
|
$
|
2,084
|
|
|
$
|
3,322
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Conversion of accounts payable to common stock
|
|
$
|
—
|
|
|
$
|
8,058
|
|
Officer salary accrual
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
See the accompanying notes to the condensed
consolidated financial statements
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2017 and 2016
(Unaudited)
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LifeApps
Brands Inc., including its subsidiaries. The accompanying unaudited condensed consolidated financial statements of LifeApps Brnads
Inc. at June 30, 2017 and 2016 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, 2016. 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, 2017 and 2016 presented are not necessarily indicative
of the results to be expected for the full year. The December 31, 2016 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, 2016.
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 $2,910,846. 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, 2017 and 2016
(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, 2017 and 2016
(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, 2017 and 2016. Research and development expenses amounted to $0 and
$200 for three months ended June 30, 2017 and 2016, respectively and $0 and $200 for six months ended June 30, 2017 and 2016,
respectively. Research and development expenses were included in general and administrative expenses.
Advertising
Costs
We
recognize advertising expense when incurred. Advertising expense was $0 and $130 for the three months ended June 30, 2017 and
2016, respectively and $0 and $130 for six months ended June 30, 2017 and 2016, 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 $1,452 and
$1,430 for the for three months ended June 30, 2017 and 2016, respectively and $3,612 and $3,575 for the for six months ended
June 30, 2017 and 2016, 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, 2017 and 2016 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, 2017 and 2016
(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, 2017 and 2016, 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, 2017 and December 31, 2016, fixed assets consisted of the following:
|
|
2017
|
|
|
2016
|
|
Furniture and Equipment
|
|
$
|
7,670
|
|
|
$
|
7,670
|
|
Less accumulated depreciation
|
|
|
(7,670
|
)
|
|
|
(7,670
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
amount charged to depreciation expense furniture and equipment was $0 and $42 for of the three months ended June 30, 2017 and
2016, respectively and was $0 and $649 for of the six months ended June 30, 2017 and 2016, respectively.
Note
4. Intangible Assets
At
June 30, 2017 and December 31, 2016, intangible assets consist of the following:
|
|
2017
|
|
|
2016
|
|
Internet domain names
|
|
$
|
58,641
|
|
|
$
|
58,641
|
|
Less accumulated amortization
|
|
|
(58,641
|
)
|
|
|
(58,641
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Website and data bases
|
|
$
|
56,050
|
|
|
$
|
56,050
|
|
Less accumulated amortization
|
|
|
(56,050
|
)
|
|
|
(56,050
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Customer and supplier lists
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
Less accumulated amortization
|
|
|
(3,825
|
)
|
|
|
(3,375
|
)
|
|
|
$
|
675
|
|
|
$
|
1,125
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
119,191
|
|
|
$
|
119,191
|
|
|
|
|
(118,516
|
)
|
|
|
(118,066
|
)
|
|
|
$
|
675
|
|
|
$
|
1,125
|
|
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2017 and 2016
(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 $225 and $280 for the three months ended June 30, 2017 and 2016,
respectively and was $450 and $8,699 for the six months ended June 30, 2017 and 2016, respectively.
Estimated
future amortization expense related to the intangibles as of June 30, 2017 is as follows:
Year Ended December 31,
|
|
|
|
2017
|
|
|
450
|
|
2018
|
|
|
225
|
|
|
|
$
|
675
|
|
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, 2017 and
December 31, 2016, was $653,949 and $536,639, respectively. Salary accruals for each period amounted to $75,000 and net cash advances
amounted to $42,310 and $38,638, respectively for the six months ended June 30, 2017 and 2016, and were included in amounts due
to related party.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2017 and 2016
(Unaudited)
Note
7. 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 December 31, 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)
|
|
|
—
|
|
Stock
based compensation expense recorded for the periods ended June 30, 2017 and 2016 was $2,437 and $0, respectively.
The
following is a summary of stock options issued to employees and directors:
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2017
|
|
|
|
10,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding June 30, 2017
|
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
|
2.9
|
|
|
|
—
|
|
Exercisable June 30, 2017
|
|
|
|
2,500,000
|
|
|
$
|
.0026
|
|
|
|
2.9
|
|
|
|
—
|
|
There
will be approximately $19,500 of additional compensation expense recognized in future periods.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2017 and 2016
(Unaudited)
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
|
|
|
|
5,000,000
|
|
|
$
|
0.026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding June 30, 2017
|
|
|
|
5,000,000
|
|
|
$
|
0.0026
|
|
|
|
2.9
|
|
|
$
|
—
|
|
Exercisable June 30, 2017
|
|
|
|
1,250,000
|
|
|
$
|
0.026
|
|
|
|
2.9
|
|
|
$
|
—
|
|
There
will be approximately $9,750 of additional compensation expense recognized in future periods.
Note
8. Outstanding Warrants
There
were no warrants issued during the periods ended June 30, 2017 or 2016. The following is a summary of outstanding warrants as
of June 30, 2017:
|
|
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.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2017 and 2016
(Unaudited)
Note
10. Income Taxes
Income
tax provision (benefit) for the periods ended June 30, 2017 and 2016, is summarized below:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total
current
|
|
|
—
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(41,600
|
)
|
|
|
(41,300
|
)
|
State
|
|
|
(6,700
|
)
|
|
|
(6,700
|
)
|
Total
deferred
|
|
|
(48,300
|
)
|
|
|
(48,000
|
)
|
Increase
in valuation allowance
|
|
|
48,300
|
|
|
|
48,000
|
|
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, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
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.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
June
30, 2017 and 2016
(Unaudited)
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, 2017 and 2016.
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.
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, 2017 and June 30, 2016 and for the six months ended June 30, 2017 and 2016 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, 2016 filed with the Securities and Exchange Commission
(the “SEC”) on April 18, 2017. 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®
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®
intends to continue to develop and license the LifeApps Mobile App Platform. We will research and seek out aligned companies with
need for tutorial based apps for mobile and we will work to create new revenue through development and licensing of our presentation
format for their use. We will pursue a business model of physical-tied-to-mobile, combining mobile app training with a physical
retail product. LifeApps® is developing a suite of software tools and enhanced customer experiences that will enable us to
scale the LifeApps Mobile App Platform through technology enhancements.
LifeApps®
intends to monetize and drive revenue through a combination of its software development, e-commerce/mobile-commerce of mobile
applications and in-app sales, subscriptions and advertising across all platforms.
Our
SportsOne business has been curtailed in order to better utilize resources to serve the new direction and focus of the Company.
The
Company’s acquisition strategy of purchasing companies, development resources and assets that are aligned with our areas
of interest can further aid in our entering additional market segments. We will actively research and engage in the acquisition
of companies and resources that can expedite our entrance into new markets, or strengthen our position in existing ones.
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, 2017, we have incurred losses of $2,910,846. 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, 2017, compared with the three months ended June 30, 2016
Revenues
for the three months ended June 30, 2017 and 2016 were $1,251 and $4,433, 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, 2017 and 2016 was $0 (0%) and $1,615 (36.4%), respectively. This resulted in a
gross profit for three months ended June 30, 2017 and 2016 of $1,251 (100%) and $2,818 (63.6%), respectively. Costs were primarily
the cost of products sold. The increase in gross margin is primarily due to product mix.
We
had net losses of $81,135 and $58,457 for the three months ended June 30, 2017 and 2016, respectively.
The
following is a breakdown of our selling, general and administrative expenses for the three months ended June 30, 2017 and 2016:
|
|
Three
months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Difference
|
|
Personnel
costs
|
|
$
|
37,500
|
|
|
$
|
37,495
|
|
|
$
|
(5
|
)
|
Professional
fees
|
|
|
32,000
|
|
|
|
16,930
|
|
|
|
15,070
|
|
Marketing
and advertising
|
|
|
3,495
|
|
|
|
1,005
|
|
|
|
2,490
|
|
Travel
and entertainment
|
|
|
2,610
|
|
|
|
—
|
|
|
|
2,610
|
|
Stock
related expenses
|
|
|
2,437
|
|
|
|
599
|
|
|
|
1.838
|
|
Research
and development
|
|
|
—
|
|
|
|
200
|
|
|
|
(200
|
)
|
Rent
|
|
|
1,452
|
|
|
|
1,430
|
|
|
|
22
|
|
Other
expenses
|
|
|
2,667
|
|
|
|
3,294
|
|
|
|
(626
|
)
|
|
|
$
|
82,161
|
|
|
$
|
60,953
|
|
|
$
|
21,208
|
)
|
Personnel
costs were constant for the periods and consist solely of accrual of officer salary pursuant to an employment contract.
Professional
fees increased $15,070 (47.1%) from $16,930 for the three months ended June 30, 2016 to $32,000 for the three months ended June
30, 2017. The increase is a result of timing of accounting and legal services rendered and a contract payment for business development
services.
Marketing
and advertising increased $2,490 (71.2%) from $1,005 for the three months ended June 30, 2016 to $3,495 for the three months ended
June30, 2017. The increase is a result of a consulting contract for new market research.
Research
and development includes website and applications development costs. Research and development and development activities were
not significant during the quarters ended June 30, 2017 and 2016. Development is an ongoing cost and we anticipate that our development
costs both for website and applications may increase in future periods.
Travel
expenses increased $2,610 (100%) from $0 for the three months ended June 30, 2016 to $2,610 for the three months ended June 30,
2017. The increase is due to executive travel in connection with the new marketing research effort.
All
of our other operating costs decreased as result of generally keeping costs down.
We
had operating losses of $81,135 and $58,457 for 2017and 2016, respectively.
Six
months ended June 30, 2017, compared with the six months ended June 30, 2016
Revenues
for the six months ended June 30, 2017 and 2016 were $2,306 and $11,021 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, 2017 and 2016 was $49 (2.1%) and $8,071 (73.2%) respectively. This resulted in a
gross profit for the six months ended June 30, 2017 and 2016 of $2,950 (26.8%) and $2,950 26.8%), 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 $122,283 and $121,448 for the six months ended June 30, 2017 and 2016, respectively.
The
following is a breakdown of our selling, general and administrative expenses for the six months ended June 30, 2017 and 2016:
|
|
Six
months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Difference
|
|
Personnel
costs
|
|
$
|
75,000
|
|
|
$
|
75,512
|
|
|
$
|
(512
|
)
|
Professional
fees
|
|
|
32,000
|
|
|
|
18,930
|
|
|
|
13,070
|
|
Marketing
and advertising
|
|
|
3,495
|
|
|
|
1,745
|
|
|
|
1,750
|
|
Travel
and entertainment
|
|
|
2,610
|
|
|
|
—
|
|
|
|
2,610
|
|
Stock
related expenses
|
|
|
4,874
|
|
|
|
5,097
|
|
|
|
(223
|
)
|
Rent
|
|
|
3,612
|
|
|
|
3,575
|
|
|
|
37
|
|
Research
and development
|
|
|
—
|
|
|
|
200
|
|
|
|
(200
|
)
|
Other
expenses
|
|
|
2,499
|
|
|
|
9.960
|
|
|
|
(7,461
|
)
|
|
|
$
|
124,090
|
|
|
$
|
115,049
|
|
|
$
|
9,041
|
|
Personnel
costs were constant for the periods and consist solely of accrual of officer salary pursuant to an employment contract.
Professional
fees increased $13,070 (40.8%) from $18,930 for the six months ended June 30, 2016 to $32,000 for the six months ended June 30,
2017. The increase is a result of timing of accounting and legal services rendered and a contract payment for business development
services.
Marketing
and advertising increased $1,750 (50.1%) from $1,745 for the six months ended June 30, 2016 to $3,495 for the six months ended
June 30, 2017. The increase is a result of a consulting contract for new market research.
Research
and development includes website and applications development costs. Research and development and development activities were
not significant during the quarters ended June 30, 2017 and 2016. Development is an ongoing cost and we anticipate that our development
costs both for website and applications may increase in future periods.
Travel
expenses increased $2,610 (100%) from $0 for the six months ended June 30, 2016 to $2,610 for the six months ended June 30, 2017.
The increase is due to executive travel in connection with the new marketing research effort.
All
of our other operating costs decreased as result of generally keeping costs down.
We
had operating losses of $122,283 and $121,448 for 2017 and 2016, respectively.
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, 2017, we had negative working capital of $(781,978) as compared to negative working capital of $(665,019) at December
31, 2016.
During
the six months ended June 30, 2017 and 2016, operations used cash of $41,614 and $38,281 respectively.
During
the six months ended June 30, 2017 and 2016, we used no cash in investing activities.
During
the six months ended June 30, 2017 and 2016, net cash provided by financing activities was $42,310 and $36,635, respectively.
Additionally,
we received or (repaid) net amounts of $12,810 and $(2,000) of cash advances from our chief executive officer and net amounts
of $29,500 and $38,635 of cash advances from a director and shareholders during the six months ended June, 2017 and 2016, respectively.
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 $2,910,846 as of June 30, 2017 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.