PART
I
Organizational
History
Through
our wholly owned subsidiary LifeApps, Inc., we are a licensed developer and publisher of apps for the Apple Apps Store for iPhone,
iPod touch, iPad and iPad mini. We are also a licensed developer on both Google Play and Amazon Appstore for Android. We have
distributed apps on all three platforms. Moving forward we are developing a digital media network specializing in targeting highly
sought-after niche demographic audiences. We will focus on two core businesses, an LGBT Ad Network and an LGBT Digital Network.
Through our digital platform we will aggregate content from around the world. We will create original content along with sponsored
content in a 24/7 digital network. The LGBT Ad Network will assist brands in global targeting of the LGBT demographic. The Ad
Network will provide advertisers and brands with over 300 mainstream digital platforms and a "bullseye" on this
loyal, affluent and ever-expanding audience. We will deliver to our audience with a relevant sponsored content marketing message
across all spectrums of digitally connected devices. Our unique value proposition to our audience and sponsors is the ability
deliver aggregated and original content, with emphasis on interactive content and captive video.
We
were incorporated in the state of Delaware as Prime Time Travel, Inc. on November 23, 2010, for the purpose of creating and managing
trips to destination locations for youth basketball teams. On August 23, 2012, we filed an Amended and Restated Certificate
of Incorporation with the Delaware Secretary of State to, among other things, change our name from Prime Time Travel, Inc. to
LifeApps Digital Media Inc., and increase our authorized capitalization to 310,000,000 shares, consisting of 300,000,000 shares
of common stock, $0.001 par value per share, and 10,000,000 shares of blank check preferred stock, $0.001 par value per share.
On
September 5, 2012, we effected a 15-for-1 forward stock split in the form of a dividend to holders of our common stock as of record
on September 4, 2012.
On
September 20, 2012, LifeApps Acquisition Corp., a wholly owned Nevada subsidiary of ours, merged with and into LifeApps Inc.,
which had been organized as a California limited liability company on July 13, 2009, and was converted to a Nevada corporation
on September 7, 2012 in anticipation of the merger. In connection with the merger, each share of LifeApps common stock
was cancelled and converted into the right to receive 400 shares of our common stock. LifeApps was the surviving corporation of
that Merger. As a result of the Merger, we acquired the business of LifeApps, and are continuing the existing business operations
of LifeApps as our primary business operations.
Immediately
following the merger, we split off our wholly owned subsidiary, Prime Time Split Corp., a Delaware corporation, through the exchange
of 6,000,000 shares of our common stock for all of the issued and outstanding shares of common stock of Split Corp. All
of our assets and liabilities immediately following the merger, excluding any assets and liabilities assumed in the merger, were
transferred to Split Corp.
On
December 31, 2015, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State to (i) change our corporate name to LifeApps Brands Inc., (ii) effect a one-for-fifteen (1:15) reverse stock
split (the “Reverse Split”) of our common stock, $0.001 par value per share, and (iii) increase our authorized capitalization
from 300,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001
per share, to 500,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. The Reverse Split and Name Change took effect on OTC Markets at the commencement of business on January 7, 2016,
at which time our common stock began trading on a post-reverse split basis.
Our
fiscal year end is December 31.
Unless
the context indicates otherwise, all references in this Annual Report to “LifeApps®” “the Company,”
“we,” “us” and “our” refer to LifeApps Brands Inc. and its subsidiaries, LifeApps Inc., and
Sports One Group Inc.
Business
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 will focus on the development of niche demographic media networks. The management
team has selected the LGBT marketplace as their first audience to target for the following reasons: The LGBT community has four
times the buying power of Hispanics and African Americans, two times the buying power of Asian Americans and four times the buying
power of millennials, and they are extremely loyal and consistent consumers. At current growth rates purchasing power of
the LGBT community is expected to exceed 1 trillion dollars by 2020. (Accenture) Currently the LGBT audience is fragmented across
multiple sites. We will target this audience directly with community specific content, blogs, stories and video. Currently there
are 19.6 million people who identify themselves as LGBT in the US. They represent 890 billion dollars of buying power in the US
and 3 trillion dollars globally. (Witeck/Selig Center) Same-sex households have 23% higher median income as compared to mainstream
households. (Prudential) They are 1.23 times more likely to buy brands that reflect their style and they are 1.56 times more likely
to consider themselves a spender rather than a saver. (comScore) Our focus will be to aggregate the LGBT audience through a powerful
database marketing platform.
LifeApps®
is also expanding its revenue generating potential through the creation of new gateway digital platforms that combine e-commerce
with mobile-commerce solutions to act as conduits or meeting places for users to engage in the commerce. These gateway platforms
can also be utilized and distributed across the broader base of the LifeApps® suite of products.
LifeApps®
will continue to explore acquisitions of companies and new technologies. In addition, the company will also explore the acquisition
of consumer related products as well. Such acquisitions will be considered where the purchase can help increase our revenues or
enable the Company to attain assets that will allow us to gain technological advances that would be more costly to develop than
to purchase.
LifeApps®
will continue a flexible approach as opportunities arise from the emergence of these rapidly evolving mobile hardware and software
markets. LifeApps® will focus resources where they will be the most effective at growing the business and driving revenues.
LifeApps® ability for internal development and external purchase of new technologies and companies will depend upon its ability
to raise future financing.
Our
Products
LifeApps
Media Network Platform
LifeApps
will focus on two major revenue platform initiatives both currently in late stage product development. Our first priority will
be to launch a global website platform that will aggregate original and outsourced content with an emphasis on interactive content
and captive video.
Our
second initiative will be to license technology and software in order to launch the LGBT Ad Network. The Network will provide
advertising sponsors and brands with over 300 mainstream digital platforms to get their message out and hit the “bullseye”
on this loyal, affluent and ever-expanding audience. We will utilize a powerful and relevant sponsored-content marketing message
across all spectrums of digitally connected devices.
The
combined platforms are expected to provide our audience and advertising sponsors with a highly targeted map to navigate the enormous
and growing LGBT community. Our 360-degree approach includes data to pinpoint advertising and marketing campaigns designed to
connect and create strategic partnerships. Our prior experience ensures educated decision-making and confidence in planning, approach,
and execution of campaigns and partnerships that provide quantifiable results. The marketing content strategy campaigns are based
on our expertise and insight of what drives LGBT consumer engagement disseminating relevant content to each of the vertical demographics.
Revenue
LifeApps®
intends to monetize and drive revenue through development of niche media networks. We will target LGBT consumers on mainstream
websites with native content through our direct access to over 300 global leading cross-over entertainment and LGBT specific websites.
Additionally, we will utilize mobile apps and social media platforms to provide an immense world-wide LGBT audience reach. We
intend to be a disruptive LGBT Ad Network and an industry leader by delivering digital content campaigns across display, mobile
and video inventory. Our Ad network campaign rates will start at $15,000 and range to $50,000 per month, with a forecast average
of $50,000 a month per advertising sponsor in year one and growing to an average of $75,000 a month per advertising sponsor in
year two.
Our
LGBT Media Content Agency is expected to bridge the gap and help companies to better understand how to authentically and directly
engage with the LGBT consumer. We will do this through our proprietary application, which incorporates original and aggregated
content integrated into an LGBT audience network. The Agency range rate will start at $25,000 and increase to $150,000. We are
projecting an average of $75,000 a month per advertising sponsor for the first year and accelerating to $150,000 a month per advertising
sponsor in year two.
Business
Strategy
Our strategy will include worldwide application of the LGBT network. Fortune 500 companies have now mandated
diversity and equality as part of their annual marketing spend. Our mission is to become the worlds largest media and advertising
network marketplace for connecting companies with LGBT consumers around the globe. Some of the companies currently advertising
to the LGBT community include; AT&T, Lexus, Procter & Gamble, American Airlines, Bristol-Myers Squibb, Johnson & Johnson,
Burger King, Subaru, Orbitz, Miller-Coors, HBO and many others. The foremost desire for LGBT consumers is to see themselves more
widely represented in all forms of advertising. In the US 66 percent of LGBT consumers say that they don’t see their lifestyle
represented enough in advertising. (YouGov) Data has estimated that LGBT consumers in the US, UK and Germany are more likely than
the general public to act after seeing an advertisement. LifeApps has a licensing agreement in place that will allow placement
of LGBT specific content over 300 mainstream networks worldwide. We will deliver sponsored advertising content through this network
of the most popular mainstream entertainment websites covering News, Health & Fitness, Travel & Leisure, Business and
Sports. Our sponsored advertising content will inspire an authentic relationship between advertisers and the consumer. These advertisers
desire an authentic relationship with the LGBT community. We will not only help them create content but we will make sure their
content hits the consumer bullseye.
We
believe that the LGBT demographic is one of the most highly sought-after economic groups in the world from corporate America down
to the local business owner. What makes targeting and supporting this dynamic demographic even more extraordinary and rewarding
is that friends, family, employers, employees, teachers, coaches and fans of our community so loyally support the brands, products
and services that in turn support us. We further believe that this loyalty across the board is time tested, proven, growing and
expanding and ultimately extremely rewarding to all that are embraced by the LGBT community.
Competition
The
development, distribution and sale of digital publications and apps is a highly competitive business, characterized by frequent
product introductions and rapidly emerging new platforms, technologies and storefronts. For end users, we compete primarily on
the basis of quality, brand, customer reviews and price. We compete for promotional and deck placement based on these factors,
as well as the relationship with the digital storefront owner or wireless carrier, historical performance, perception of sales
potential and relationships with licensors of brands and other intellectual property. For content and brand licensors, we compete
based on royalty and other economic terms, perceptions of development quality, porting abilities, speed of execution, distribution
breadth and relationships with storefront owners or carriers. We also compete for experienced and talented employees.
With
respect to digital publications and apps that we publish for smartphones and tablets, we compete with a continually increasing
number of companies, including Meredith Publishing, WebMD and many well-funded private companies. We also compete for consumer
spending with large companies, such as NIKE and Electronic Arts. In addition, given the open nature of the development and distribution
for smartphones and tablets, we also compete or will compete with a vast number of small companies and individuals who are able
to create and launch digital publications and apps and other content for these mobile devices utilizing relatively limited resources
and with relatively limited start-up time or expertise. The proliferation of titles in these open developer channels makes it
difficult for us to differentiate ourselves from other developers and to compete for end users who purchase content for their
smartphones and tablets without substantially increasing spending to market our products or increasing our development costs.
Most
of our competitors’ and our potential competitors’ advantages over us, either globally or in particular geographic
markets, include the following:
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significantly
greater revenues and financial resources;
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stronger
brand and consumer recognition regionally or worldwide;
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greater
experience with the digital publications and apps business model;
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the
capacity to leverage their marketing expenditures across a broader portfolio of mobile
and non-mobile products;
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larger
installed customer bases from related platforms such as console gaming or social networking
websites to which they can market and sell mobile games;
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more
substantial intellectual property of their own from which they can develop games without
having to pay royalties;
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lower
labor and development costs and better overall economies of scale;
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greater
resources to make acquisitions;
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greater
platform-specific focus, experience and expertise; and
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broader
global distribution and presence.
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Convertible
Loans
On
November 9, 2015 an individual (the “Lender”) made an unsecured convertible loan to LifeApps Brands Inc. (the “Company”)
due and payable on March 21, 2016, in the principal amount of $25,000 bearing interest at the rate of 10% per annum. The loan
was evidenced in writing by the Company and the Lender when made and was convertible into shares of the Company’s common
stock (“Common Stock”) at a price of $0.75 per share. On October 27, 2016 the Company and the Lender entered into
a Debt Conversion Agreement in which they agreed to revise the conversion price from $0.75 per share to $0.0055 per share, which
was the closing sale price for the Common Stock on October 27, 2016 and to convert the principal amount of the loan at the revised
conversion price into 4,545,455 shares of Common Stock. In consideration of the revised conversion terms, the Lender agreed to
waive the accrued interest due on the loan.
On
April 5, 2016 the Lender made an unsecured loan to the Company in the principal amount of $15,000 bearing interest at the rate
of 10% per annum. The loan was evidenced in writing by the Company and the Lender on October 27, 2016 at which time the parties
determined that the loan, including the accrued interest due thereon, be due and payable on April 5, 2017 (the “Maturity
Date”) and that it be convertible into Common Stock at a conversion price of $0.0055 per share which was the closing price
for the Common Stock on October 27, 2016.
Effective
December 19, 2017 the Lender converted $54,000 of the $55,500 in debt then owed to her by us, into 5,400,000 shares of our common
stock at a conversion price of $0.01 per share and forgave all interest accrued on the converted amount.
Effective
December 19, 2017 Lawrence Roan, a director, converted $39,935 of the $41,500 in debt owed to him by us, into 3,993,500 shares
of our common stock at a conversion price of $0.01 per share and forgave the balance of the debt, including, all accrued interest
due thereon. He also forgave all accrued interest due on the converted amount.
Effective
March 6, 2018 we entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) pursuant
to which we issued to Power Up a $35,000 convertible promissory note dated March 6, 2018 (the “Power Up Note”). The
Power Up Note entitles the holder to 12% interest per annum and matures on March 6, 2019.
Power
Up may convert the Power Up Note into shares of our common stock beginning on the date which is 180 days from the issuance date
of the Power Up Note, at a price equal to 58% of the lowest trading price for our common stock during the 15 trading day period
ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the
Power Up Note to the extent that such conversion would result in Power Up’s beneficial ownership being in excess of 4.99%
of our issued and outstanding common stock together with all shares owned by Power Up and its affiliates at the time of conversion.
If
we prepay the Power Up Note within 30 days of its issuance, we must pay all of the principal and accrued interest at a cash redemption
premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note , then
such redemption premium is 120%; if such repayment is made from the 61st to the 90th day after issuance, then such redemption
premium is 125%; if such repayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%;
if such repayment is made from the 121
st
to the 150
th
day after issuance, then such redemption premium is
135%; and if such repayment is made from the 151
st
day to the 180
th
day after issuance then such redemption
premium is 140%. After the expiration of the 180 days following the issuance, we have no further right of pre-payment.
Our
transfer agent has reserved 48,275,862 shares of our common stock to cover potential conversions of the Power Up Note. The funds
for the Power Up Note were received by us on March 6, 2018.
The
Securities Purchase Agreement contains a Right of First Refusal in favor of the Purchaser and the Note contains a Most Favored
Notion provision in favor of the Holder. Such agreements also subject us to substantial penalties in the event of a default.
The
foregoing descriptions of the Power Up Note and Securities Purchase Agreement are qualified in their entirety by reference to
the full text of the form of the Power Up Note and Securities Purchase Agreement, copies of which are filed herewith as Exhibit
10.15 and 10.16 respectively and are incorporated by reference herein.
Failed
FemCap Acquisition
On
May 21, 2016, we and FemCap Inc. (“FemCap”) entered into an agreement (the “Agreement”) providing for
the exclusive right for a 90-day period for us to purchase FemCap, subject to the satisfaction of certain terms and conditions
set forth in the Agreement. Under the Agreement, we had 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 included molds, equipment,
contract rights, customer lists, leases, accounting records and intellectual property. We were not able to complete the purchase
of FemCap within the 90 day timeline and determined not to proceed further with the transaction.
Gents
LOI
On
June 1, 2017 we entered into a non-binding Letter of Intent (“LOI”) with Gents Group, Inc. (“Gents”),
a men’s lifestyle and fashion company, regarding our prospective purchase of substantially all of Gents’ operating
assets and certain liabilities (up to $150,000) in exchange for up to 10,000,000 shares of our common stock. The LOI had a 45-day
term which was subject to a mutual cancellation and extension option. We were not able to complete the asset purchase during the
term of the LOI.
Wellfleet
Consulting Agreement
On
January 8, 2018 we entered into a 90-day Consulting Agreement (the “Wellfleet Agreement”), effective as of January
1, 2018, with Wellfleet Partners, Inc. (“Wellfleet”) in recognition of past and future financial, management consulting
and advisory and due diligence services provided and to be provided to us by Wellfleet. In consideration thereof, we paid Wellfleet
$7,500 in cash and issued an aggregate of 2,500,000 shares of our restricted common stock to two designees of Wellfleet.
Uptick
Agreement
On
January 26, 2018 we entered into an Advisory Agreement with Uptick Capital, LLC. (“Uptick”) pursuant to which Uptick
provided us with marketing and financial advice. The Advisory Agreement had a term of 30 days. We issued 500,000 shares of our
restricted common stock under the Advisory Agreement.
Government
Regulation
We
are subject to a number of domestic and foreign laws and regulations that affect our business. Not only are these laws constantly
evolving, which could result in them being interpreted in ways that could harm our business, but legislation is also continually
being introduced that may affect both the content of our products and their distribution.
We
are also subject to federal, state and foreign laws regarding privacy and the protection of the information that we collect regarding
our users. We currently collect certain personally identifiable information regarding our customers and expect in the future to
collect additional personally identifiable information regarding our customers. Any concerns about our practices with regard to
the collection, use, disclosure, or security of personal information or other privacy related matters, even if unfounded, could
damage our reputation and operating results. We post our privacy policy and our terms of service on our corporate website. In
these policies, we describe our practices concerning the use, transmission and disclosure of the information that we collect regarding
our users. Any failure by us to comply with our posted privacy policy, terms of service or privacy related laws and regulations
could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the
interpretation of data protection laws, and their application to the mobile gaming industry is unclear and in a state of flux.
There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or
region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying
international requirements could cause us to incur additional costs and change our business practices. Further, any failure by
us to adequately protect our users’ privacy and data could result in a loss of player confidence in our services and ultimately
in a loss of users, which could adversely affect our business.
In
the area of information security and data protection, many states have passed laws requiring notification to users when there
is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act or requiring
the adoption of minimum information security standards that are often vaguely defined and difficult to implement. The costs of
compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our
part to comply with these laws may subject us to significant liabilities.
We
sometimes offer our customers various types of sweepstakes, giveaways and promotional opportunities. We are subject to laws in
a number of jurisdictions concerning the operation and offering of such activities and games, many of which are still evolving
and could be interpreted in ways that could harm our business. Any court ruling or other governmental action that imposes liability
on providers of online services could result in criminal or civil liability and could harm our business.
In
addition, the advertisers that advertise with our apps are subject to Federal Trade Commission and state rules on advertising
and marketing on the Internet, including truth-in advertising rules, online advertising disclosures and the CAN-SPAM Act (Controlling
the Assault of Non-Solicited Pornography and Marketing Act) of 2003. To date, we have not been materially impacted
by these rules because our platforms are designed to ensure that proper disclosures are made in connection with every publication. We
cannot predict the impact of future regulations on either us or advertisers that advertise with our apps.
Further,
because our services are available worldwide, certain foreign jurisdictions and others may claim that we are required to comply
with their laws, including in jurisdictions where we have no local entity, employees or infrastructure.
Employees
As
of December 31, 2017, we had a total of 2 employees, all of whom are full time employees. None of our employees
are represented by a collective bargaining agreement. We consider our relations with our employees to be good.
Properties
Our principal executive office is located
at 2435 Dixie Highway, Wilton, Florida 33305 and our telephone number is (858) 577-1746. The property is currently being
rented on a month to month basis at a rate of $250 per month.
Legal
Proceedings
We
are, from time to time, a party to litigation that arises in the normal course of our business operations. Currently,
no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us
that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial
condition.
Available
Information
We
are subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”). Reports
filed with the SEC pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, can be inspected
and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may
obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies
of these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available
on the SEC’s website (http://www.sec.gov).
An
investment in our securities involves a high degree of risk. You should not invest in our securities if you cannot afford to lose
your entire investment. In deciding whether you should invest in our securities, you should carefully consider the following information
together with all of the other information contained in this Current Report. Any of the following risk factors can cause our business,
prospects, financial condition or results of operations to suffer and you to lose all or part of your investment.
Risks
Related to Our Business
We
have a limited operating history and are subject to the risks encountered by early-stage companies.
Because
our operating company has a limited operating history, you should consider and evaluate our operating prospects in light of the
risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:
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risks
that we may not have sufficient capital to achieve our growth strategy;
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risks
that we may not develop our product and service offerings in a manner that enables us
to be profitable and meet our customers’ requirements;
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risks
that our growth strategy may not be successful; and
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risks
that fluctuations in our operating results will be significant relative to our revenues.
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These
risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the
other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed.
Our
independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.
Our
financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered
public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring net losses and expressing
substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon
our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures,
and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the outcome
of this uncertainty. However, if adequate funds are not available to us when we need it, and we are unable to enter into some
form of strategic relationship that will give us access to additional cash resources, we will be required to even further curtail
our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.
We
have a history of net losses, may incur substantial net losses in the future and may not achieve profitability.
We
have incurred significant losses since inception. As of December 31, 2017, we had an accumulated deficit of $3,045,388. We expect
to incur increased costs in order to implement additional initiatives designed to increase revenues. If our revenues do not increase
to offset these additional expenses or if we experience unexpected increases in operating expenses, we will continue to incur
significant losses and will not become profitable. If we are not able to significantly increase our revenues, we will likely not
be able to achieve profitability in the future.
We
may not be able to secure additional financing as and when needed.
We
will need to raise significant additional funds to support our growth, develop new or enhanced services and products, respond
to competitive pressures, acquire or invest in complementary or competitive businesses or technologies, or take advantage of unanticipated
opportunities. We cannot be sure that this financing will be available on acceptable terms or at all. Furthermore, any debt financing,
if available, may involve restrictive covenants, which may limit our operating flexibility with respect to business matters. If
additional funds are raised through the issuance of equity securities, the percentage ownership of our existing shareholders will
be reduced, our shareholders may experience additional dilution in net book value, and such equity securities may have rights,
preferences, or privileges senior to those of our existing shareholders. If adequate funds are not available on acceptable terms
or at all, we may be unable to develop or enhance our services and products, take advantage of future opportunities, repay debt
obligations as they become due, or respond to competitive pressures, any of which would have a material adverse effect on our
business, prospects, financial condition, and results of operations.
If
we lose the services of our Chief Executive and Financial Officer or other members of our senior management team, we may not be
able to execute our business strategy.
Our
success depends in a large part upon the continued service of our senior management team. In particular, our Chief Executive and
Financial Officer, Robert A. Blair, is critical to our vision, strategic direction, culture, products and technology. We do not
maintain key-man insurance for Mr. Blair or any other member of our senior management team. The loss of our Chief Executive
and Financial Officer, even temporarily, or any other member of senior management would harm our business.
Risks
Related to Our Common Stock
Because
our 2012 merger was a reverse merger, we may not be able to attract the attention of major brokerage firms, which may limit the
liquidity of our Common Stock and may make it more difficult for us to raise additional capital in the future.
Additional
risks may exist because our 2012 merger was a “reverse merger.” Certain SEC rules are more restrictive when applied
to reverse merger companies, such as the ability of stockholders to resell their shares of Common Stock pursuant to Rule 144.
In addition, securities analysts of major brokerage firms may not provide coverage of our Common Stock following the Merger because
there may be little incentive for brokerage firms to recommend the purchase of our Common Stock. As a result, our Common Stock
may have limited liquidity and investors may have difficulty selling it. In addition, we cannot assure you that brokerage firms
will want to conduct any secondary offerings on our behalf if we seek to raise additional capital in the future. Our inability
to raise additional capital may have a material adverse effect on our business.
We
do not expect to pay dividends on our Common Stock.
We
have no plans to pay dividends on our Common Stock for the foreseeable future. Because we do not plan to pay dividends on our
Common Stock, our stock may be less attractive to some investors, which could adversely affect our stock price.
If
we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could
be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring
that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial
statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the
Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. Our failure
to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have
a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial
reports, which could have an adverse effect on the price of our Common Stock. In addition, if our efforts to comply with new or
changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities
related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
An
active trading market for our Common Stock may not develop or be sustained.
No
active trading market for our Common Stock presently exists. We cannot assure you that a market for our Common Stock will develop
in the foreseeable future or, if developed, that it will be sustained.
Our
Common Stock is considered a “penny stock,” which is likely to limit its liquidity and make it more difficult for
us to raise additional capital in the future.
The
market price of our Common Stock is, and will likely remain for the foreseeable future, less than $5.00 per share, and therefore
will be a “penny stock” according to SEC rules, unless our Common Stock is listed on a national securities exchange.
The OTC Bulletin Board is not a national securities exchange. Designation as a “penny stock” requires any broker or
dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability
of brokers or dealers to sell our Common Stock and may affect the ability of current holders of our Common Stock to sell their
shares. Such rules may also deter broker-dealers from recommending or selling the Common Stock, which may further limit its liquidity.
This may also make it more difficult for us to raise additional capital in the future.
The
price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The
future trading price of our common stock may become highly volatile and could fluctuate in response to factors such as:
|
●
|
actual
or anticipated variations in our operating results;
|
|
●
|
announcements
of developments by us or our competitors;
|
|
●
|
announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures
or capital commitments;
|
|
●
|
adoption
of new accounting standards affecting our industry;
|
|
●
|
additions
or departures of key personnel;
|
|
●
|
sales
of our common stock or other securities in the open market; and
|
|
●
|
other
events or factors, many beyond our control.
|
You
may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 510,000,000 shares of capital
stock consisting of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to
be determined by our Board of Directors. As of March 31, 2018, there were 90,704,686 shares of our common stock and no shares
of our preferred stock outstanding. There are 2,753,312 shares of our common stock reserved for issuance under our 2012 Equity
Incentive Plan (the “2012 Plan”). Under the Plan, options to purchase 17,246,688 shares of our common stock are presently
outstanding.
Any
future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and
could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger
pool of outstanding equity. As described above, we may need to raise additional capital through public or private offerings of
our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
We may also issue such securities in connection with hiring or retaining employees and consultants, as payment to providers of
goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may
at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to
the total number of authorized common and preferred shares set forth in our certificate of incorporation. The terms of equity
securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation
preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive
effect. Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward
pressure on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price
(or exercise prices) below the price at which shares of the common stock are then traded.
We
may obtain additional capital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.
Without
any stockholder vote or action, our Board of Directors may designate and approve for issuance shares of our preferred stock. The
terms of any preferred stock may include priority claims to assets and dividends and special voting rights which could limit the
rights of the holders of our common stock. The designation and issuance of preferred stock favorable to current
management or stockholders could make any possible takeover of us or the removal of our management more difficult.
ITEM
1B.
UNRESOLVED
STAFF COMMENTS
We
have no unresolved staff comments.
ITEM
2. PROPERTIES
Our
principal executive office is located 4235 Dixie Highway, Wilton, FL 33305 and our telephone number is (858) 577-1746. The
property is currently being rented on a month to month basis at a rate of $250 per month.
We
do not own any real estate.
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm business. We are currently not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on business, financial condition or operating results.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
On
February 1, 2012, our common stock became listed for quotation on the OTC Bulletin Board, originally under the symbol “PTRV.”
Our symbol changed to “LFAP” on September 12, 2012 in connection with our name change to “LifeApps Digital Media
Inc.” and remained “LFAP” following our name change to “LifeApps Brands Inc.” Since December 7,
2012, our common stock has been quoted solely on the OTC Markets Group, Inc.’s marketplace.
The
trading of our common stock began on March 26, 2012. The following table sets forth the high and low closing bid prices for our
common stock for the fiscal quarters indicated as reported on OTC Markets. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual transactions. Our common stock is thinly traded and, thus,
pricing of our common stock on OTC Markets does not necessarily represent its fair market value. The prices give retroactive effect
to our one-for-fifteen reverse stock split which took effect on January 7, 2016.
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
March
31, 2018
|
|
$
|
0.0151
|
|
|
$
|
0.008
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
$
|
0.015
|
|
|
$
|
0.0053
|
|
|
|
|
|
|
|
|
|
|
September
30, 2017
|
|
$
|
0.0182
|
|
|
$
|
0.006
|
|
|
|
|
|
|
|
|
|
|
June
30, 2017
|
|
$
|
0.021
|
|
|
$
|
0.0045
|
|
|
|
|
|
|
|
|
|
|
March
31, 2017
|
|
$
|
0.0074
|
|
|
$
|
0.0045
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
$
|
0.0055
|
|
|
$
|
0.0036
|
|
|
|
|
|
|
|
|
|
|
September
30, 2016
|
|
$
|
0.011
|
|
|
$
|
0.0053
|
|
|
|
|
|
|
|
|
|
|
June
30,2016
|
|
$
|
0.046
|
|
|
$
|
0.0022
|
|
|
|
|
|
|
|
|
|
|
March
31, 2016
|
|
$
|
0.006
|
|
|
$
|
0.0025
|
|
As
of April 19, 2018 there were 90,704,686 shares of our common stock issued and outstanding, no shares issuable upon exercise of
warrants and 17,246,688 shares issuable upon exercise of outstanding options. On that date, there were 20 holders of record of
shares of our common stock.
Dividend
Policy
We
have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements
of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be
dependent upon our financial condition, results of operations, capital requirements and such other factors as the board of directors
deems relevant.
Recent
Sales of Unregistered Securities
On
May 24, 2016 we granted and issued an aggregate of 15,000,000 non-statutory stock options under our 2012 Equity Incentive Plan
to four persons including our Chief Executive Officer, Robert Gayman (6,000,000 options), Directors Lawrence P. Roan (3,000,000
options) and Dr. Howard Fuller (1,000,000 options) and a Consultant, Gregory P. Hanson (5,000,000 options). Each option is exercisable
to purchase one share of our common stock upon vesting at an exercise price of $0.0026 per share. The options have a term of 4
years and vest quarterly on the three, six, nine and twelve month anniversaries of the date of grant.
Effective
October 27, 2016, we issued 4,545,455 shares of our common stock in connection with a lender’s conversion of a November
9, 2015 loan in the principal amount of $25,000.
Effective
January 8, 2016 we issued 597,545 shares of our restricted common stock to our corporate and securities counsel in consideration
of services rendered.
In
August 2016, we issued 250,000 shares of common stock to our corporate and securities counsel in consideration of their agreement
to temporarily defer payment of legal fees due to it for services rendered.
Pursuant
to our December 19, 2017 Employment Services Agreement with Robert A. Blair, effective December 19, 2017 we issued 2,000,000 shares
of our restricted common stock to Mr. Blair.
Pursuant
to our December 19, 2017 Employment Services Agreement with Brian Neal, effective January 1, 2018 we issued 50,500,000 shares
of our restricted common stock to Brian Neal.
Effective
December 19,2017 Lawrence Roan, a director, converted $39,935 of the $41,500 in debt owed to him by us, into 3,993,500 shares
of our common stock at a conversion price of $0.01 per share and forgave the balance of the debt, including all accrued interest
due thereon. He also forgave all interest accrued on the converted amount.
Effective
December 19, 2017 Lesly Thompson converted $54,000 of the $55,500 in debt owed to her by us, into 5,400,000 shares of our common
stock at a conversion price of $0.01 per share and forgave all accrued interest due on the converted amount.
Effective
December 19,2017 we issued 1,000,000 stock options to Howard Fuller, 1,000,000 stock options to a consultant and we issued 4,946,688
stock options to Robert Gayman pursuant to our December 19, 2017 Executive Management Consultant Agreement with Robert Gayman.
All of the options vested on issuance, have a term of 5 years and an exercise price of $0.01 per share.
Effective
December 19, 2017 we issued 500,000 shares of our common stock to our securities counsel to temporarily defer payment of legal
fees due to it for services rendered.
Effective
January 8, 2018 we issued an aggregate of 2,500,000 shares of our restricted common stock to two designees of a consultant pursuant
to a January 8, 2018 Consulting Agreement.
Effective
January 28, 2018 we issued 500,000 shares of our restricted common stock to Uptick Capital LLC., pursuant to a January 26, 2018
Advisory Agreement.
On
March 6, 2018 we issued a $35,000 convertible promissory note to Power Up Lending Group Ltd.
All
of the foregoing issuances of securities were made in reliance on Section 4 (a) (2) of the Securities Act of 1933 as amended.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited
consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. References
in this Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. See “Note Regarding Forward-Looking Statements.” Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors”
and elsewhere in this Annual Report. 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.
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 December 31, 2017, we have incurred losses of $3,045,388. 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.
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
Year
ended December 31, 2017 Compared to the Year ended December 31, 2016
(References
to 2017 and 2016 are to the years ended December 31, 2017 and 2016 respectively, unless otherwise specified.)
Revenues
for 2017 and 2016 were $3,793 and $12,055, respectively. Revenues are primarily from the sale of sports apparel and health and
fitness products. We continue to have a limited number of apps in the Apple App store.
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 for 2017 and 2016 was $49 (1.3%) and $8,171 (67.8%), and respectively. This resulted in a gross profit for 2017 and
2016 of $3,744 (98.7%) and $3,884 (32.2%), respectively. Costs were primarily the cost of products sold.
The
following is a breakdown of our selling, general and administrative expenses for 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Personnel
costs
|
|
$
|
154,800
|
|
|
$
|
150,819
|
|
Professional
fees
|
|
|
36,710
|
|
|
|
72,710
|
|
Marketing,
and promotion advertising
|
|
|
3,495
|
|
|
|
3,284
|
|
Equity
based payments and expenses
|
|
|
53,880
|
|
|
|
9,971
|
|
Research
and development
|
|
|
—
|
|
|
|
200
|
|
Travel
and entertainment
|
|
|
3,022
|
|
|
|
2,820
|
|
Rent
expense
|
|
|
4,350
|
|
|
|
7,815
|
|
Other
expenses
|
|
|
3,337
|
|
|
|
12,272
|
|
|
|
$
|
259,594
|
|
|
$
|
259,892
|
|
Personnel
costs consist primarily of unpaid salary accrual for our chief executive officer.
Professional
fees decreased $36,000 (49.5%) from $72,710 for 2016 to $36,710 in 2017 primarily due to lower cost for our regulatory compliance.
Amounts
charged to equity-based payment expense for the options granted to employees and non-employees was $4,874 and $19,628 for 2016
and 2017, respectively.
Research
and development includes website and applications development costs and were not significant for the years presented.
Travel
and entertainment did not vary by an appreciable amount during the periods presented
The
decrease in rent expense of $3,465 (44.3%) from $7,815 in 2016 to $4,350 in 2017 is due to relocation of our corporate headquarters
to a lower cost facility.
All
of our other operating costs decreased as result of generally keeping costs down.
We
had operating and net losses of $256,825 and $265,807 for 2017 and 2016, respectively. The decrease in net loss for 2017 is due
primarily to reduced operating expenses.
Liquidity
and Capital Resources
Our
existing sources of liquidity may not be sufficient for us to implement our continuing 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 and when needed.
As
of December 31, 2017, we had a working capital deficit of $769,355 as compared to a working capital deficit of $665,019 at December
31, 2016.
During
the year ended December 31, 2017, operations used cash of $49,614 as compared to cash of $85,664 for the year ended December 31,
2016.
There
was no investing activity during the years ended December 31, 2017 and 2016.
During
the year ended December 31, 2017 financing activities provided cash of $49,310. During the year ended December 31, 2016 financing
activities provided cash of $82,085.
During
2017 related parties and shareholders provided a net amount of $29,310 in cash to finance the Company. Additionally, the Company
made an accrual of officer salaries in the amount of $154,600.
During
2016 related parties and a shareholder provided a net amount of $82,085 in cash to finance the Company. Additionally, the Company
made an accrual of officer salaries in the amount of $150,000.
We
will continue to seek out additional capital in the form of debt or equity under the most favorable terms we can find.
Off-Balance
Sheet Arrangements
None.
Contractual
Obligations
Not
applicable.
|
ITEM
7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not
applicable
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our
consolidated financial statements are included beginning immediately following the signature page to this report. See Item 15
for a list of the consolidated financial statements included herein.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
On
January 23, 2018 (the “Resignation Date”) Pritchett, Siler & Hardy, P.C. (“PSH”) resigned as our independent
registered public accounting firm following PSH’s acquisition by Haynie & Company, CPA (“Haynie & Company”).
On January 23, 2018, we engaged Haynie & Company, Salt Lake City, Utah, as our new independent registered public accounting
firm. The change of our independent registered public accounting firm from PSH to Haynie & Company was approved unanimously
by our board of directors.
The
reports of PSH on our financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse or
disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that
such reports included a going concern qualification.
During
the fiscal years ended December 31, 2016 and 2015 and through the Resignation Date, there were (i) no disagreements between us
and PSH on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures,
which disagreement, if not resolved to the satisfaction of PSH, would have caused PSH to make reference thereto in their reports
on the consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
During
pur fiscal years ended December 31, 2016 and 2015 and in the subsequent interim period through the Resignation Date, we have not
consulted with Haynie & Company regarding either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and
neither a written report nor oral advice was provided to us that Haynie & Company concluded was an important factor considered
by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event
(as described in Item 304(a)(1)(v) of Regulation S-K).
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our senior management, including our Chief Executive Officer and our Chief Financial
Officer, we performed an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act, as of the end of the period covered by this annual report (the “Evaluation Date”).
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017, for
the reasons set forth below under “Management’s Report on Internal Control over Financial Reporting”, our disclosure
controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed
by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.
Internal
control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Management
recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or
detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods
because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
A
material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more
than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Under
the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an
evaluation of the effectiveness of our internal control over financial reporting, as of the Evaluation Date, based on the framework
set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in 1992. Based on its evaluation under this framework, for the reasons set forth below, management concluded that our internal
control over financial reporting was not effective as of the Evaluation Date.
Management
assessed the effectiveness of the Company’s internal control over financial reporting as of the Evaluation Date and Management
has identified the following deficiencies that, when aggregated, may possibly be viewed as a material weakness in our internal
control over financial reporting as of that date:
|
●
|
We
do not have an audit committee. While we are not currently obligated to have an audit
committee, including a member who is an “audit committee financial expert,”
as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards,
it is management’s view that such a committee is an important internal control
over financial reporting, the lack of which may result in ineffective oversight in the
establishment and monitoring of internal controls and procedures.
|
|
●
|
We
do not have a majority of independent directors on our board of directors. This may result
in ineffective oversight in the establishment and monitoring of required internal controls
and procedures.
|
|
●
|
We
have inadequate segregation of duties. We have an inadequate number of personnel to properly
implement control procedures.
|
Management
believes that the lack of a functioning audit committee and the lack of a majority of independent directors on our board of directors
may result in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could
result in a material misstatement in our financial statements in future periods.
Management,
including our Chief Executive Officer and Chief Financial Officer, has discussed the possible material weakness noted above with
our independent registered public accounting firm. Due to the nature of this possible material weakness, there is a more than
remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would
not be prevented or detected.
This
Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes
in Internal Controls
There
were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2017 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s
Remediation Initiatives
In
an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, subject to
receipt of necessary funding, we plan to initiate the following series of measures:
We
expect to increase our personnel resources and technical accounting expertise within the Company’s accounting function.
We also plan to appoint one or more additional outside directors to our board of directors who shall be appointed to an audit
committee resulting in a fully functioning audit committee which will undertake the oversight in the establishment and monitoring
of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.
Management
believes that the appointment of one or more additional independent directors, who shall be appointed to a fully functioning audit
committee, will remedy the lack of a functioning audit committee and a lack of a majority of independent directors on our Board.
We
anticipate that these initiatives can be implemented in conjunction with the growth of our business.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control
systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system
must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but
are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
|
ITEM
9B.
|
OTHER
INFORMATION
|
Not
applicable.
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Executive
Officers and Directors
Below
are the names of and certain information regarding the Company’s executive officers and directors as of April 19, 2018.
Name
|
|
Age
|
|
Title
|
|
Date
of Appointment as a Director
|
|
|
|
|
|
|
|
Robert A.
Blair
|
|
53
|
|
Chief Executive
Officer, Chief Financial Officer and Director
|
|
December
19, 2017
|
|
|
|
|
|
|
|
Brian Neal
|
|
53
|
|
President
|
|
N/A
|
|
|
|
|
|
|
|
Lawrence Patrick
Roan
|
|
58
|
|
Director
|
|
September
15, 2018
|
Directors
are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Executive
officers are appointed by the Board of Directors and serve at its pleasure.
The
principal occupation and business experience during at least the past five years for our executive officers and directors is as
follows:
Robert
A. Blair
Robert
A. Blair brings to us a rich history in professional tennis, sports management and directing digital media platforms. His vision
and passion coupled with an impressive portfolio of business success is leading us in an exciting new direction for revenue and
growth in the LGBTQ Digital Media Marketplace. His skill in developing and delivering cutting edge marketing techniques and his
passion for serving the community in the highly desired LGBTQ marketspace is expected to enable us to become a global leader in
this market. From January 2015 until May 2016 Mr. Blair served as Chief Executive Officer of Multimedia Platforms Inc., (“MPI”)
a multimedia, technology and publishing company. He became the Chairman of MPI in May 2016 and became CEO again in September 2016.
MPI filed for Chapter 11 bankruptcy protection on October 4, 2016. Mr. Blair resigned from MPI in December 2017. We believe that
Robert A. Blair is qualified to serve on our board of directors based upon his industry and management experience.
Brian
Neal
Brian
Neal owned and operated personal training studios and gyms successfully in Atlanta, Georgia and Fort Lauderdale, Florida as a
premier LGBTQ fitness leader and instructor. Mr. Neal founded a 501-c3 Fitness & Health Foundation to support LGBTQ community
members suffering with HIV/AIDS by providing complimentary gym memberships, personal trainers, nutrition classes, yoga classes
and life coaching to ensure these community members could fight HIV/AIDS with a healthy lifestyle and a support group that would
encourage and support their efforts. In 2007, Mr. Neal co-founded Multimedia Platforms, Inc. which became one of the largest LGBTQ
media companies in the United States. Mr. Neal brings nearly 15 years of working within the LGBTQ community and is recognized
as a pioneer in the LGBTQ digital sector. Mr. Neal is 38 years old and resides in Los Angeles, CA with his life partner of 15
years.
Lawrence
Patrick Roan, Director
Lawrence
Patrick Roan has been a National Account Manager for Poly Print Packaging Company since February 2018. From April 2008 until September
2016 Mr. Roan served as a National Account Manager for Ultra Flex Packaging Company in their consumer packaging division. He has
over twenty years of sales and marketing experience in the commercial printing and consumer packaging business. Mr. Roan was previously
with Exopack, LLC, as a National Account Manager for their consumer plastics business. He managed high volume national accounts
as well as key developmental market accounts, and was responsible for transitioning customers with multiple manufacturing sites
throughout the U.S. He is a graduate of the University of Iowa and resides in Southern California. We believe that Lawrence Roan
is qualified to serve on our board of directors based upon his management experience.
Family
Relationships
There
are no family relationships among our Directors or Executive Officers.
Involvement
in Certain Legal Proceedings
Except
as described above, none of our directors or executive officers has been involved in any of the following events during the past
ten years:
|
●
|
Any
bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years
prior to that time;
|
|
●
|
Any
conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offences);
|
|
●
|
Being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his or her involvement in any type of business, securities
or banking activities; or
|
|
●
|
Being
found by a court of competent jurisdiction (in a civil action), the Commission or the
Commodity Futures Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Board
Committees
The
Company currently has not established any committees of the Board of Directors. Our Board of Directors may designate
from among its members an executive committee and one or more other committees in the future. We do not have a nominating
committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any
director candidates recommended by security holders. To date, other than as described above, no security holders have
made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed
by committees. Given the present size of our board it is not practical for us to have committees. If we
are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities
accordingly.
Audit
Committee Financial Expert
We
have no separate audit committee at this time. The entire Board of Directors oversees our audits and auditing procedures. The
Board of Directors has at this time not determined whether any director is an “audit committee financial expert” within
the meaning of Item 407(d)(5) for SEC regulation S-K.
Board
of Directors and Corporate Governance
Our
Board of Directors consists of two members, Robert A. Blair and Lawrence P. Roan.
Board
Independence
We
are not currently listed on any national securities exchange or quoted on an inter-dealer quotation system that has a requirement
that certain of the members of the Board of Directors be independent. However, the Board of Directors has made a determination
as to which of its members are independent. In evaluating the independence of its members and the composition of the committees
of the Board of Directors, the Board utilizes the definition of “independence” developed by the Nasdaq Stock Market
and in SEC rules, including the rules relating to the independence standards in audit committee members and the non-employee director
definition of Rule 16b-3 promulgated under the Exchange Act.
The
Board of Directors expects to continue to evaluate whether and to what extent the members of the Board are independent. The Company
intends to appoint persons to the Board who will meet the corporate governance requirements imposed by a national securities exchange.
Therefore, the Company expects that a majority of its directors will be independent directors of which at least one director will
qualify as an “audit committee financial expert,” within the meaning of SEC rules.
None
of our current directors are an “independent” director as that term is defined by the listing standards of the Nasdaq
Stock Market and SEC rules, including the rules relating to the independence standards for audit committee members and the non-employee
director definition of Rule 16b-3 promulgated under the Exchange Act.
Shareholder
Communications
Currently,
we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date,
no security holders have made any such recommendations.
Code
of Ethics
We
have adopted a written Code of Ethics. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote
honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with
applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A
copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics,
please make written request to our Chief Executive Officer, c/o LifeApps Brands Inc., 2435 Dixie Highway, Wilton, FL 33305.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of a registered class of our equity
securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, officers
and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms that we received with respect to the fiscal year ended December 31, 2017,
we believe that each person who at any time during the fiscal year was a director, officer or beneficial owner of more than 10%
of our Common Stock, satisfied their Section 16(a) filing requirements although Robert Gayman, Lawrence Roan, Lesly Thompson,
Howard Fuller and Robert Blair filed reports on a late basis.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table sets forth information concerning the total compensation paid or accrued by us during the fiscal years ended December
31, 2017 and 2016 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us
at any time during the fiscal year ended December 31, 2017; (ii) our two most highly compensated executive officers other than
the principal executive officer who were serving as executive officers at the end of the fiscal year ended December 31, 2016 who
received annual compensation during the fiscal year ended December 31, 2017 in excess of $100,000; and (iii) up to two additional
individuals who received annual compensation during the fiscal year ended December 31, 2017 in excess of $100,000 and who were
not serving as executive officers of at the end of the fiscal year ended December 31, 2017.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
&
Principal
Position
|
|
Fiscal
Year
ended
December
31,
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan
Compensation
|
|
|
Non-Qualified
Deferred
Compensation
Earnings ($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Robert Gayman, CEO
|
|
|
2017
|
|
|
$
|
150,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
45,410
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
195,410
|
|
|
|
|
2016
|
|
|
$
|
150,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,600
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
165,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Blair, CEO
|
|
|
2017
|
|
|
$
|
4,600
|
|
|
|
0
|
|
|
$
|
13,200
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
17,800
|
|
|
|
|
2016
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
Outstanding
Equity Awards at December 31, 2017
The
following table provides information regarding outstanding equity awards held by our named executive officers as of December 31,
2017.
|
|
Option
Awards
|
Name
|
|
Grant
Date
|
|
Number
of
Securities
Underlying
Options
(#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration Date
|
Robert
Gayman
|
|
December
19, 2017
|
|
|
4,946,688
|
|
|
|
0
|
|
|
$
|
0.01
|
|
|
December
19, 2022
|
|
|
May
24, 2016
|
|
|
6,000,000
|
|
|
|
0
|
|
|
$
|
0.0026
|
|
|
May
24, 2020
|
Robert
A. Blair
|
|
N/A
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
Compensation
We
reimburse all members of our board of directors for their direct out of pocket expenses incurred in attending meetings of our
board. We did not compensate our directors for serving as such during the year ended December 31, 2017 other than Howard
Fuller. Mr. Fuller received 1,000,000 options with a term of five years and an exercise price of $0.01 per share on December 19,
2017.
Employment
Agreements
On
September 20, 2012, Robert Gayman, our CEO, entered into an employment contract, the significant terms of which are as follows:
|
●
|
initial
period of employment is twenty-four months and may be automatically extended for twelve
month periods thereafter;
|
|
●
|
annual
base salary of $150,000 per annum;
|
|
●
|
annual
bonus at such time and in such amount as may be determined by the Board of Directors;
and
|
|
●
|
participation
in 2012 Equity Incentive Plan as determined by the Board of Directors.
|
On
September 20, 2017, the employment period under Mr. Gayman’s employment contract automatically renewed until September 20,
2018 but on December 19, 2017, Mr. Gayman resigned in connection with our corporate restructuring.
On
May 24, 2016 we granted and issued 6,000,000 non-statutory stock options under our 2012 Equity Incentive Plan to Robert Gayman.
Each option is exercisable to purchase one share of our common stock upon vesting at an exercise price of $0.0026 per share. The
options have a term of 4 years and vest quarterly on the three, six, nine and twelve month anniversaries of the date of grant.
On
December 19, 2017 we entered into an Employment Services Agreement (the “Blair Agreement”) with Robert A. Blair pursuant
to which Mr. Blair is serving as our Chief Executive Officer, Chief Financial Officer and a Director. The Blair Agreement has
a two-year term and is subject to automatic renewal for successive periods of one year unless either we or Mr. Blair gives the
other written notice of intention to not renew at least 30 days prior to the end of the existing term. The Blair Agreement provides
for a base annual salary of $150,000, a one-year severance period in the event the Blair Agreement is terminated by us without
cause or by Mr. Blair for good reason, and the issuance of 2,000,000 shares of our common stock to Mr. Blair. Mr. Blair’s
base salary payments are payable in bi-weekly installments. In the event any salary payments are not made within 30 days of the
due date, they will accrue interest at the rate of 10% per annum and Mr. Blair will have the right, in his sole discretion, to
convert such payments, in whole or in part, into shares of our common stock at 50% of the value weighted average price for our
common stock during the 20 trading days immediately preceding the date on which we are provided with a Notice of Conversion. The
Blair Agreement requires us to approve a 2018 Equity Incentive Plan within 120 days of the effective date of the Blair Agreement
from which stock options or other equity incentive securities may be issued to Mr. Blair, our other employees and our advisors
and consultants. The Blair Agreement contains customary termination provisions including terminations with or without cause, for
good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which provides
that all of the work produced by Mr. Blair, which is created, designed, conceived or developed by Mr. Blair in the course of his
employment under the Blair Agreement belongs to us.
On
December 19, 2017 we entered into an Employment Services Agreement (the “Neal Agreement”) with Brian Neal, effective
as of January 1, 2018, pursuant to which Mr. Neal serves as our President. The Neal Agreement has a two-year term and is subject
to automatic renewal for successive periods of one year unless either we or Mr. Neal gives the other written notice of intention
to not renew at least 30 days prior to the end of the existing term. The Neal Agreement provides for a base annual salary of $24,000,
a one-year severance period in the event the Neal Agreement is terminated by us without cause of by Mr. Neal for good reason,
and the issuance of 50,500,000 shares of our common stock to Mr. Neal. Mr. Neal’s base salary payments are payable in bi-weekly
installments. In the event any salary payments are not made within 30 days of the due date, they will accrue interest at the rate
10% per annum and Mr. Neal will have the right in his sole discretion, to convert such payments, in whole or in part, into shares
of our common stock at 50% of the value weighted average price for our conversion stock during the 20 trading days immediately
preceding the date or when we are provided with a Notice of Conversion. The Neal Agreement requires us to approve a 2018 Equity
Incentive Plan within 120 days of the execution date of the Neal Agreement from which stock options or other equity incentive
securities may be issued to Mr. Neal, our other employees and our advisors and consultants. We have also agreed to create a class
of voting preferred stock within 120 days from the execution date of the Neal Agreement and to issue 50% of the shares of such
class to Mr. Neal. The Neal Agreement contains customary termination provisions including terminations with or without cause,
for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which
provides that all of the work produced by Mr. Neal, which is created, designed, conceived or developed by Mr. Blair in the course
of his employment under the Neal Agreement belongs to us.
On
December 19, 2017 we entered into a two-year Executive Management Consulting Agreement with Robert Gayman (the “Gayman Agreement”)
pursuant to which Mr. Gayman is providing advice and assistance to our management in the areas of corporate development, financing,
marketing and public company guidance. The Gayman Agreement is subject to automatic renewal for successive periods of one year
unless either we or Mr. Gayman gives the other written notice of intention to not renew at least 30 days prior to the end of the
existing term. The Gayman Agreement provides for cash payments to Mr. Gayman at the rate of $150,000 per year, payable in bi-weekly
installments, and the issuance of 4,946,688 stock options, subject to immediate vesting, with a term of five years and an exercise
price of $0.01 per share. In the event any cash payments are not made within 30 days of their due date, they will accrue interest
at the rate of 10% per annum and Mr. Gayman will have the right, in his sole discretion, to convert such payments, in whole or
in part, into shares of our common stock at 50% of the value weighted average price for our common stock during the 20 trading
days immediately preceding the date on which we are provided with a Notice of Conversion. We have also agreed to create a class
of voting preferred stock within 120 days of the date of the Gayman Agreement and to issue 50% of the shares of such class to
Mr. Gayman. The Gayman Agreement contains non-competition and non-solicitation provisions, and an invention and patents provision
which provides that all of the work produced by Mr. Gayman, which is created, designed, conceived or developed by Mr. Gayman in
the course of his engagement under the Gayman Agreement belongs to us.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The
following table sets forth information with respect to the beneficial ownership of our common stock as of April 19, 2018, by (i)
each stockholder known by us to be the beneficial owner of more than 5% of our common stock, (ii) each of our directors and executive
officers, and (iii) all of our directors and executive officers as a group. Our only class of voting securities is our common
stock. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and
investment power with respect to the shares of our common stock beneficially owned by such person, except to the extent such power
may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement.
To our knowledge, there are no pending arrangements, including any pledges by any person of securities of the Company, the operation
of which may at a subsequent date result in a change in control of the Company.
Unless
otherwise indicated in the following table, the address for each person named in the table is c/o LifeApps Brands Inc., 2435 Dixie
Highway, Wilton, Fl 33305.
Title
of Class: Common Stock
Name and Address of Beneficial Owner
|
|
Amount and Nature
of Beneficial
Ownership
(1)
|
|
|
Percentage
of Class
(2)
|
|
|
|
|
|
|
|
|
Robert A. Blair
|
|
|
2,000,000
|
|
|
|
2.2
|
%
|
Brian Neal
|
|
|
50,500,000
|
|
|
|
55.68
|
%
|
Lawrence Patrick Roan
|
|
|
12,654,525
|
(2)
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (3 persons)
|
|
|
65,154,525
|
(2)
|
|
|
69.5
|
%
|
|
|
|
|
|
|
|
|
|
Lesly A. Thompson
5408 Cody Drive
West Des Moines, IA 50266
|
|
|
9,545,455
|
|
|
|
10.52
|
%
|
|
|
|
|
|
|
|
|
|
Robert
Gayman
10120 W Flamingo Road #4632
Las
Vegas, NV 88147
|
|
|
15,180,020
|
(3)
|
|
|
14.93
|
%
|
Except
as otherwise indicated, the persons named in this table have sole voting, investment and dispositive power with respect to all
shares of common stock listed, which includes shares of common stock that such persons have the right to acquire within 60 days
from April 19, 2018.
(1)
Percentages are based upon 90,704,686 shares of our common stock outstanding as of April 19, 2018.
(2)
Includes 3,000,000 shares of our common stock that may be issued to Mr. Roan within 60 days of April 19, 2018 upon exercise of
stock options granted under our 2012 Equity Incentive Plan.
(3)
Includes 10,946,688 shares of our common stock that may be issued to Mr. Gayman within 60 days of April 19, 2018 upon exercise
of stock options granted under our 2012 Equity Incentive Plan.
Securities
Authorized for Issuance Under Equity Compensation Plans
On
September 10, 2012, our Board of Directors and stockholders owning a majority of our outstanding shares adopted our 2012 Equity
Incentive Plan. A total of 666,667 shares of our common stock were originally reserved for issuance under the 2012 Plan but effective
December 31, 2015, this amount was increased to 20,000,000 (post-split basis). If an incentive award granted under the 2012 Plan
expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award,
the shares subject to such award and the surrendered shares will become available for further awards under the 2012 Plan.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of December 31, 2017, with respect to the shares of common stock that may be issued under
our existing equity compensation plans:
Plan Category
|
|
Number of
shares
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
|
|
|
Weighted-
Average
exercise
price
of
outstanding
options,
warrants
and rights
|
|
|
Number of
shares
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
shares
reflected in
the first
column)
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
17,246,688
|
|
|
$
|
0.0056
|
|
|
|
2,753,312
|
|
Equity compensation plans not approved by securities holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,246,688
|
|
|
$
|
0.0056
|
|
|
|
2,753,312
|
|
As
of December 31, 2017, we have 17,246,688 outstanding stock options under the 2012 Plan issued to employees and consultants to
purchase an aggregate of 17,246,688 shares of our common stock. Of these 2012 Plan options, there are outstanding 10,300,000 four-year
options issued on May 24 ,2016 exercisable for 10,300,000 shares with an exercise price of $0.0026 per share, and 6,946,000 five-year
options issued on December 19,2017 exercisable for 6,946,000 shares with an exercise price of $0.01 per share. During the year
ended December 31, 2017 an aggregate of 4,700,000 options were canceled. During the year ended December 31, 2016 an aggregate
of 615,000 options expired.
See
“Executive Compensation” for information regarding individual equity compensation arrangements received by our executive
officers pursuant to their employment agreements with us.
2012
Equity Incentive Plan
The
Board of Directors and stockholders owning a majority of our outstanding shares adopted the 2012 Equity Incentive Plan (the “2012
Plan”) on September 10, 2012. A total of 20,000,000 shares of our common stock are reserved for issuance under the 2012
Plan 17,246,688 of which are presently issued and outstanding. If an incentive award granted under the 2012 Plan expires,
terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the
shares subject to such award and the surrendered shares will become available for further awards under the 2012 Plan.
Shares
issued under the 2012 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future
awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the
2012 Plan. In addition, the number of shares of common stock subject to the 2012 Plan and the number of shares and terms of any
incentive award are expected to be adjusted in the event of any stock dividend, spin-off, split-up, stock split, reverse stock
split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar
transaction.
Administration
It
is expected that the compensation committee of the Board, or the Board in the absence of such a committee, will administer the
2012 Plan. Subject to the terms of the 2012 Plan, the compensation committee would have complete authority and discretion to determine
the terms of awards under the 2012 Plan.
Eligible
Recipients
Any
officer or other employee of the Company or its affiliates, or an individual that the Company or an affiliate has engaged to become
an officer or employee, or a consultant or advisor who provides services to the Company or its affiliates, including a non-employee
director of the Board, is eligible to receive awards under the 2012 Plan.
Grants
The
2012 Plan authorizes the grant to eligible recipients of nonqualified stock options, incentive stock options, restricted stock
awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986,
as amended (the “Code”) and stock appreciation rights, as described below:
Options
granted under the 2012 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified
exercise price per share. The exercise price for shares of common stock covered by an option cannot be less than the
fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant. Such awards may
include vesting requirements.
Restricted
stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which
may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more
performance goals for restricted stock units.
The
compensation committee may make performance grants, each of which will contain performance goals for the award, including the
performance criteria, the target and maximum amounts payable, and other terms and conditions.
Stock
awards are permissible. The compensation committee will establish the number of shares of common stock to be awarded
and the terms applicable to each award, including performance restrictions.
Stock
appreciation rights or SARs, entitle the participant to receive a distribution in an amount not to exceed the number of shares
of common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of
common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR.
Duration,
Amendment, and Termination
The
Board may amend, suspend or terminate the 2012 Plan without stockholder approval or ratification at any time or from time to time. No
change may be made that increases the total number of shares of common stock reserved for issuance pursuant to incentive awards
or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized
by our stockholders within one year. Unless sooner terminated, the 2012 Plan terminates ten years after it is adopted.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Transactions
Involving LFAP and/or LFAP Stockholders
On
September 20, 2012, Robert Gayman, our former CEO, entered into an employment contract, the significant terms of which are as
follows:
|
●
|
annual
base salary of $150,000 per annum;
|
|
●
|
annual
bonus at such time and in such amount as may be determined by the Board of Directors;
and
|
|
●
|
participation
in 2012 Equity Incentive Plan as determined by the Board of Directors.
|
The
Employment Agreement was terminated on December 19, 2017 in connection with Mr. Gayman’s resignation as our CEO and President.
On
May 24, 2016 we granted and issued an aggregate of 15,000,000 non-statutory stock options under our 2012 Equity Incentive Plan
to four persons including our Chief Executive Officer, Robert Gayman (6,000,000 options), Directors Lawrence P. Roan (3,000,000
options) and Dr. Howard Fuller (1,000,000 options) and a Consultant, Gregory P. Hanson (5,000,000 options). Each option is exercisable
to purchase one share of our common stock upon vesting at an exercise price of $0.0026 per share. The options have a term of 4
years and vest quarterly on the three, six, nine and twelve month anniversaries of the date of grant. On September 21, 2017 we
reached an agreement with Gregory P. Hanson to cancel 4,700,000 options.
On
December 19, 2017 we entered an Employment Agreement with Robert A. Blair and Brian Neal and an Executive Management Consulting
Agreement with Robert Gayman as set forth in Item 11. Executive Compensation – Employment Agreement.
During
the year ended December 31, 2017, Mr. Gayman advanced the Company $16,310 to pay operating expenses. In addition, he did not receive
$150,000 of his salary which has been accrued on the Company’s financial statements.
During
the year ended December 31, 2017, a director loaned the Company $2,500 and a principal shareholder loaned the Company $10,500
to pay operating expenses.
During
the year ended December 31, 2016, Mr. Gayman advanced the Company $7,450 to pay operating expenses. In addition, he did not receive
$150,000 of his salary which has been accrued on the Company’s financial statements.
During
the year ended December 31, 2016, a director loaned the Company $29,635 and a principal shareholder loaned the Company $45,000
to pay operating expenses.
Effective
October 27, 2016, we issued 4,545,455 shares of our common stock in connection with a Lesly A. Thompson conversion of a November
9, 2015 loan in the principal amount of $25,000.
Effective
December 19,2017 Lawrence Roan, a director, converted $39,935 of the $41,500 in debt owed to him by us, into 3,993,500 shares
of our common stock at a conversion price of $0.01 per share and forgave the balance of the debt, including all accrued interest
due thereon. He also forgave all interest accrued on the converted amount.
Effective
December 19, 2017 Lesly A Thompson converted $54,000 of the $55,500 in debt owed to her by us, into 5,400,000 shares of our common
stock at a conversion price of $0.01 per share and forgave all accrued interest due on the converted amount.
Effective
December 19, 2017 we issued 1,000,000 stock options to Howard Fuller, and we issued 4,946,688 stock options to Robert Gayman pursuant
to our December 19, 2017 Executive Management Consultant Agreement with Robert Gayman. We also issued 1,000,000 stock options
to a consultant of the company. All of the options vested on issuance, have a term of 5 years and an exercise price of $0.01 per
share.
Director
Independence
We
are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has
requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time
required to have our Board of Directors comprised of a majority of “Independent Directors.”
|
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Audit
Fees
|
|
|
|
|
|
|
Fee Category
|
|
Fiscal Year Ended
December 31, 2017
|
|
|
Fiscal year ended
December 31,
2016
|
|
|
|
|
|
|
|
|
Audit fees (1)
|
|
$
|
27,500
|
|
|
$
|
20,500
|
|
Audit-related fees (2)
|
|
|
|
|
|
|
—
|
|
Tax fees (3)
|
|
|
|
|
|
|
—
|
|
All other fees (4)
|
|
|
|
|
|
|
—
|
|
Total fees
|
|
$
|
27,500
|
|
|
$
|
20,500
|
|
(1)
Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for
reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that
are normally provided in connection with statutory or regulatory filings or engagements.
(2)
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit
or review of our consolidated financial statements but are not reported under “Audit fees.”
(3)
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4)
All other fees consist of fees billed for all other services.
Audit
Committee’s Pre-Approval Practice
Prior
to our engagement of our independent auditor, such engagement was approved by our board of directors. The services provided under
this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is generally
provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally
subject to a specific budget. Pursuant our requirements, the independent auditors and management are required to report to our
board of directors at least quarterly regarding the extent of services provided by the independent auditors in accordance with
this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services
on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us for the year ended December 31, 2017,
were approved by our board of directors.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LifeApps
Brands Inc., including its subsidiaries.
Through
our wholly owned subsidiary LifeApps, Inc., we are a licensed developer and publisher of apps for the Apple Apps Store for iPhone,
iPod touch, iPad and iPad mini. We are also a licensed developer on both Google Play and Amazon Appstore for Android. We have
distributed apps on all three platforms.
Moving
forward we are developing a digital media network specializing in targeting highly sought-after niche demographic audiences. The
company will focus on two core businesses, an LGBT Ad Network and an LGBT Digital Network. Through our digital platform we will
aggregate content from around the world. We will create original content along with sponsored content in a 24/7 digital network.
The LGBT Ad Network will assist brands in global targeting of the LGBT demographic. The Ad Network will provide advertisers
and brands with over 300 mainstream digital platforms and a “bullseye” on this loyal, affluent and ever-expanding audience.
We will deliver to our audience with a relevant sponsored content marketing message across all spectrums of digitally connected
devices. Our unique value proposition to our audience and sponsors is the ability deliver aggregated and original content, with
emphasis on interactive content and captive video.
Note
2. Summary of Significant Accounting Policies
Going
Concern
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 $3,045,388 and have negative working
capital. 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 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.
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.
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
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, 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.
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 3 year
s.
The Company’s fixed assets were fully depreciated and abandoned in prior 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 Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
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 years ended December 31, 2017 and 2016. Research and development expenses amounted to $- and $200
for years ended December 31, 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 $- and $130 for the years ended December 31, 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 $4,350 and $7,815 for the
years ended December 31, 2107 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 years ended December 31, 2017 and 2016 we did not have any interest, penalties or any significant unrecognized uncertain tax
positions.
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 years ended December 31, 2017 and 2016, and the outstanding stock options and warrants are anti-dilutive.
Weighted
average shares outstanding would have increased by approximately 7,528,000 and 9,650,000 for the years ended December 31,2017
and 2016 on a fully diluted basis.
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
Recent
Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, to improve financial reporting about leasing transactions. This
ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset
on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to
make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s
right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for
sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the
accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for
targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The
amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)
must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial
Statements.
In
November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows - Restricted Cash
, which
requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents
in the statement of cash flows. The guidance will be effective for the Company in its first quarter of fiscal 2018. Early adoption
is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal
year that includes that interim period. The new standard must be adopted retrospectively.
In
January 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other,
which eliminates
step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting
unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to
determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative
test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined
by the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed
the total amount of goodwill allocated to the reporting unit. The standard is effective for the Company in the first quarter of
2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis.
In
March 2017, the FASB issued ASU No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost
, which changes how employers that sponsor defined benefit pension or other postretirement
benefit plans present the net periodic benefit cost in the statement of operations. The new guidance requires entities to report
the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost
are required to be presented in the statement of operations separately from the service cost component and outside the subtotal
of loss from operations. ASU 2017-07 also provides that only the service cost component is eligible for capitalization. The
standard is effective for the Company in the first quarter of 2018, with adoption to be applied on a retrospective basis.
In
May 2017, the FASB issued ASU No. 2017-09,
Compensation-Stock Compensation: Scope of Modification Accounting
,
which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based
payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should
only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the
changes are considered non-substantive. The amendments of this ASU are effective for the Company in the first quarter of 2018,
with early adoption permitted.
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
In
August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging
Activities
, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on
the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately
in income. The amendments in this ASU are effective for the Company in the first quarter of 2019.
In
November 2017, the FASB has issued ASU No. 2017-14,
Income Statement—Reporting Comprehensive Income
(Topic 220),
Revenue Recognition
(Topic 605), and
Revenue from Contracts with Customers
(Topic 606). ASU 2017-14 includes amendments
to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification). ASU 2017-14 amends the Codification
to incorporate the following previously issued guidance from the SEC. ‘The amendments in ASU No. 2017-14 amends the Codification
to incorporate SEC Staff Accounting Bulletin (SAB) No. 116 and SEC Interpretive Release on Vaccines for Federal Government Stockpiles
(SEC Release No. 33-10403) that bring existing SEC staff guidance into conformity with the FASB’s adoption of and amendments
to ASC Topic 606, Revenue from Contracts with Customers.
In
September 2017, the FASB has issued ASU No. 2017-13,
Revenue Recognition
(Topic 605),
Revenue from Contracts with Customers
(Topic 606),
Leases
(Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement
at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments
in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and
ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as
amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and
ASU 2016-02.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Note
3. Intangible Assets
At December 31, 2017 and 2016, intangible
assets consist of the following:
|
|
2017
|
|
|
2016
|
|
Internet domain names
|
|
$
|
58,641
|
|
|
$
|
58,641
|
|
Website and data bases
|
|
|
56,050
|
|
|
|
56,050
|
|
Customer and supplier lists
|
|
|
4,500
|
|
|
|
4,500
|
|
Total intangibles
|
|
$
|
119,191
|
|
|
$
|
119,191
|
|
Less accumulated amortization
|
|
|
(119,041
|
)
|
|
|
(118,066
|
)
|
|
|
$
|
150
|
|
|
$
|
1,125
|
|
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 $975 and $9,149 for the years ended December 31, 2017 and 2016,
respectively. Estimated future amortization expense related to the intangibles as of December 31, 2017 is $150.
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
Note
4. Related Party Transactions – Officer and Shareholder Advances
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.
Amounts
due related party represents cash advances, salary accruals, notes payable, and amounts paid on our behalf by an officer and shareholders
of the Company. These advances are non-interest bearing, short term in nature and due on demand. The balance at December 31, 2017
and 2016, was $7,675 and $90,088, respectively. Notes payable to related parties at December 31, 2017 totaled $17,585 with a 2%
annual interest rate. Currently the company has defaulted in all of their related party loan obligations. Forbearance has been
granted by the related parties on all loans. Salary accruals for each year amounted to $154,600 and $150,000 respectively and
net cash advances amounted to $29,310 and $82,085, respectively for the years ended December 31, 2017 and 2016. The maximum
amount owed to related parties during the years ended December 31, 2017 and 2016 were $735,949 and $536,639 respectively.
In
December 2017, a director of the Company and a shareholder converted an aggregate of $94,135 of advances into 9,393,500 shares
of our $.001 par value common stock using an agreed upon rate of $.01 per share as the conversion rate. Additionally, $1,565 of
debt and accrued interest was forgiven. The gain on the transaction was accounted for as an increase to paid in capital.
On
December 19, 2017 we entered into an Employment Services Agreements with our Chief Executive Officer and our President and an
Executive Management Consulting Agreement with our former Chief Executive Officer. The Agreements have a two-year term and are
subject to automatic renewal for successive periods of one year unless either we or the counterparties give the other written
notice of intention to not renew at least 30 days prior to the end of the existing term. The Agreement with our current and former
Chief Executive Officers provide for base compensation of $150,000 and a base annual salary of $24,000 for our President. The
compensation payments are payable in bi-weekly installments. In the event any of the payments are not made within 30 days of the
due date, they will accrue interest at the rate of 10% per annum and the officers and consultant will have the right, in their
sole discretion, to convert such payments, in whole or in part, into shares of our common stock at 50% of the value weighted average
price for our common stock during the 20 trading days immediately preceding the date on which we are provided with a Notice of
Conversion. The Agreements require us to approve a 2018 Equity Incentive Plan within 120 days of the effective date of the Agreements
from which stock options or other equity incentive securities may be issued to employees and our advisors and consultants. The
Agreements contains customary termination provisions including terminations with or without cause, for good reason or voluntarily,
non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all the work produced
by the counterparties, which is created, designed, conceived or developed by them in the course of their employment under the
Agreements belong to us.
The
agreements became effective on January1, 2018. It is expected that the Company will incur additional expenses for interest and
the fair value of the beneficial conversion provisions of the Agreements should it be unable to make the contractual payments
in a timely manner.
Note 5.
Notes
Payable
Notes
payable to an unrelated third party totaling $ 20,000 at the end of 2017 and $0 during 2016 with and interest rate of 2%. The
agreement allows the debt to be converted to shares of common stock at an agreed upon price. The note is past due and is,
therefore, in default.
Note
6. Stockholders’ Equity
During
the year ended December 31, 2017 we issued 9,393,500 shares of common stock for the conversion of shareholder debt as more fully
described in Note 4 above.
Additionally,
we issued an aggregate of 52,500,000 shares to two individuals, who have become officers of the Company, under employment
contracts as described in Note 4 above, which resulted in a change of control of the company. The contracts became effective
on December 19, 2017 and January 1, 2018; therefore, the related expense has been deferred in the accompanying
financial statements. The shares were valued at the closing price of the Company’s common stock at the date the
contracts were signed. The Company expects to amortize the $346,500 of compensation expense over the initial two-year terms
of the employment contracts.
Also,
during the year ended December 31, 2017 we issued 500,000 shares of common stock for legal services. The shares were for current
services and were valued at $.0066 per share, the closing price of our stock at the date the shares were authorized.
During
the year ended December 31, 2016 we issued 597,545 shares of common stock in settlement of $8,058 in previously accrued legal
services and issued an additional 250,000 shares for current services valued at $.0143 per share, the closing price of our stock
at the date the shares were authorized.
On
October 27, 2016, we issued 4,545,455 shares of common stock to a shareholder for the conversion of $25,000 of working capital
advances.
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
Note
7. Options
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 four-year options to purchase 15,000,000 shares of our common stock to officers and or
directors and a consultant. The options vested quarterly during the initial year following the grant date.
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 for the year ended December 31, 2016 amounted to $4,874.
On
December 19, 2017 our Board of Directors granted options to purchase 6,946,688 shares of our common stock to an officer, a consultant
and a director. The options were fully vested when issued and are exercisable for a term of five years.
The
fair value of the options granted, $63,770, was estimated at the date of grant using the Black-Scholes option pricing model, with
the following assumptions:
Expected life (in years)
|
|
|
5
|
|
Volatility
|
|
|
311
|
%
|
Risk Free interest rate
|
|
|
1.71
|
%
|
Dividend yield (on common stock)
|
|
|
—
|
|
Stock
based compensation expense for the year ended December 31, 2017 amounted to $53,179
The
following is a summary of stock option issued to employees and directors:
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
|
|
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
|
|
|
5,946,688
|
|
|
$
|
.01
|
|
|
|
5.0
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
December 31, 2017
|
|
|
15,946,688
|
|
|
$
|
.0054
|
|
|
|
3.36
|
|
|
|
—
|
|
Exercisable
December 31, 2017
|
|
|
15,946,688
|
|
|
$
|
.0071
|
|
|
|
3.98
|
|
|
|
—
|
|
There
will be approximately $44,700 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, 2017
|
|
|
5,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
1,000,000
|
|
|
$
|
.01
|
|
|
|
5
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
4,700,000
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2017
|
|
|
1,300,000
|
|
|
$
|
0.0083
|
|
|
|
4.4
|
|
|
$
|
—
|
|
Exercisable December31, 2017
|
|
|
1,300,000
|
|
|
$
|
0.0083
|
|
|
|
4.4
|
|
|
$
|
—
|
|
There
will be approximately $0 of additional compensation expense recognized in future periods.
The following is a summary of stock option
issued to employees and directors during 2016:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2016
|
|
|
240,000
|
|
|
$
|
0.57
|
|
|
|
.43
|
|
|
|
—
|
|
Granted
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
240,000
|
|
|
$
|
.057
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
Exercisable December 31, 2016
|
|
|
1,250,000
|
|
|
$
|
.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
The following is a summary of stock options
issued to non-employees, excluding Directors during 2016:
|
|
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
|
|
|
|
3.4
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
375,000
|
|
|
$
|
.87
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
5,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.4
|
|
|
$
|
—
|
|
Exercisable December31, 2016
|
|
|
625,000
|
|
|
$
|
—
|
|
|
|
3.4
|
|
|
$
|
—
|
|
Note
8. Outstanding Warrants
There
were no warrants issued during the years ended December 31, 2017 or 2016. The 400,000 previously outstanding warrants
expired on September 20, 2017.
LifeApps
Brands Inc.
Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
(Continued)
Note
9. Income Taxes
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law. The Company has completed a review of the accounting for the effects of the Act during the quarter ended December
31, 2017. The Company’s financial statements for the year ended December 31, 2017 reflect certain effects of the Act which
includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
Income
tax provision (benefit) for the years ended December 31, 2017 and 2016, is summarized below:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total current
|
|
|
—
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal (34% tax rate)
|
|
|
(68,900
|
)
|
|
|
(89,300
|
)
|
State
|
|
|
(11,200
|
)
|
|
|
(14,400
|
)
|
Total deferred
|
|
|
(80,100
|
)
|
|
|
(103,700
|
)
|
Valuation allowance
|
|
|
80,100
|
|
|
|
103,700
|
|
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 December 31, 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
|
%
|
Components
of the net deferred income tax assets at December 31, 2017 and 2016 were as follows:
|
|
2017
|
|
|
2016
|
|
Net operating loss carryovers (2017 adjusted for revised tax rate)
|
|
$
|
364,100
|
|
|
$
|
604,800
|
|
Valuation allowance
|
|
|
(364,100
|
)
|
|
|
(604,800
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In
accordance with ASC 740, at December 31, 2017 we determined that a valuation allowance should be recognized against deferred tax
assets because, based on the weight of available evidence, it is more likely than not (i.e., greater than 50% probability) that
some portion or all of the deferred tax asset will not be realized in the future. We recognized a reserve of 100% of the amounts
of the deferred tax benefit in the amount of $364,100.
As
of December 31, 2017, we had cumulative net operating loss carry forwards of $1,734,000 which expire from 2032 through 2037.
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 Consolidated Financial Statements
December
31, 2017and 2016
(Continued)
Note
10. Subsequent Events
On
January 8, 2018 we entered into a 90-day Consulting Agreement (the “Wellfleet Agreement”), effective as of January
1, 2018, with Wellfleet Partners, Inc. (“Wellfleet”) in recognition of past and future financial, management consulting
and advisory and due diligence services provided and to be provided to us by Wellfleet. In consideration thereof, we paid Wellfleet
$7,500 in cash and issued an aggregate of 2,500,000 shares of our restricted common stock to two designees of Wellfleet.
On
March 6, 2018, we executed a $35,000 principal amount Convertible Promissory Note (the “Note”) to an unrelated
entity. The Note has an initial term of one year accrues interest at 12% per annum. The lender has the right, at any time
after 180 days at their 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 58% of the lowest trading price in the 15 range of trading days prior the
conversion.
On
January 26, 2018 we entered into an Advisory Agreement with Uptick Capital, LLC. (“Uptick”) pursuant to which Uptick
provided us with marketing and financial advice. The Advisory Agreement had a term of 30 days. We issued 500,000 shares of our
restricted common stock under the Advisory Agreement.