Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LifeApps
Brands Inc., including its subsidiaries. The accompanying unaudited condensed consolidated financial statements of LifeApps
Brands Inc. at March 31, 2018 and 2017 have been prepared in accordance with generally accepted accounting principles (“GAAP”)
for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included
in our annual report on Form 10-K for the year ended December 31, 2017. In management’s opinion, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading
have been included. The results of operations for the periods ended March 31, 2018 and 2017 presented are not necessarily indicative
of the results to be expected for the full year. The December 31, 2017 balance sheet has been derived from our audited financial
statements included in our annual report on Form 10-K for the year ended December 31, 2017.
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
Business Condition
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 $3,270,837 and have negative working
capital. To date we have funded our operations through advances from related parties, 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.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
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, 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. The Company’s intangible assets have been fully
amortized and are no longer of use in our current business activities.
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 years. 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
ASC Topic
606, “Revenue
from Contracts with Customers” establishes principles for reporting information about the nature, amount, timing and uncertainty
of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.
Revenues are recognized when control of the promised goods or
services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange
for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue
to be recognized as it fulfills its obligations under each of its agreements:
|
●
|
identify the contract with a customer;
|
|
●
|
identify the performance obligations in the contract;
|
|
●
|
determine the transaction price;
|
|
●
|
allocate the transaction price to performance obligations in the contract; and
|
|
●
|
recognize revenue as the performance obligation is satisfied.
|
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
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.
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 for the three months ended March 31, 2018 and 2017, respectively. We had no research and development
expenses for the three months ended March 31, 2018 and 2017, respectively.
Advertising
Costs
We
recognize advertising expense when incurred. We had no advertising expense for the three months ended March 31, 2018 and 2017,
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 $255 and $2,160 for the
three months ended March 31, 2018 and 2017, 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 periods ended March 31, 2018 and 2017 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 periods ended March 31, 2018 and 2017, and the outstanding stock options and warrants are anti-dilutive.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
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. The adoption of this standard did not have an effect on the Company’s financial statements.
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. The adoption of this standard did not have an effect on the Company’s financial statements.
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.
The adoption of this standard did not have an effect on the Company’s financial statements
.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
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
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. 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 March 31, 2018
and December 31, 2017 was $10,445 and $7,675, respectively. Notes payable to related parties at March 31, 2018 and December 31,
2017 totaled $17,585 with a 2% annual interest rate. Currently the company has defaulted on all of their related party loan obligations.
Forbearance has been granted by the related parties on all loans. Salary accruals for the three-month periods ended March 31,
2018 and 2017 amounted to $81,000 and $37,500 respectively and net cash advances amounted to $2,770 and $715, respectively for
the periods ended March 31, 2018 and 2017. Total unpaid accrued salary was $682,154 and $601,154 as of March 31, 2018 and December 31, 2017, respectively.
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. Effective as of January
1, 2018, the agreements were modified to remove the conversion right provisions.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
During the period ended March 31, 2018 we recorded interest accruals of $658 related to the contracts.
Note
4.
Note Payable
Note payable to an unrelated third party amounted to $19,486 and $20,000 at March 31, 2018 and December
31, 2017, respectively with an interest rate of 2%. The note is past due and is,
therefore, in default.
Note
5. Convertible Note Payable
On
March 6, 2018, we executed a Promissory Note (the “2018 Note”) to an unrelated entity and received an aggregate
of $32,000. The Note has an initial term of one year and provides for an original issue discount of $3,000, which is being amortized
over the initial term. The note carries face interest rates of 12% per annum. The Lender
has the right, at any time and/or 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 a two-day average of the lowest trading price in the 15 range of trading days prior the conversion. The Notes provide for additional
penalties if we cannot deliver the underlying common stock on a timely basis.
We
evaluated the terms of the conversion features of the convertible note in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own
Stock and determined it is indexed to the Company’s common stock and that the conversion features meet the definition of a liability
and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.
We
valued the conversion feature at origination of the Note at $55,118 using the Black Scholes valuation model with the following
assumptions: dividend yield of zero, 1 year to maturity, risk free interest rate of 3.03% and annualized volatility of 298.79%.
$32,000 of the value assigned to the derivative liability was recognized as a debt discount on
the
convertible debenture. The debt discount was recorded as reduction (contra-liability) to the convertible Note and is being amortized
over the initial term of the convertible Note. The balance of $23,118 of the value assigned to the derivative liability was recognized
as origination interest on the derivative liability and expensed on origination.
To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free
interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability
may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial
statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss
recorded.
We
value the derivative liability and at the end of each accounting period with the difference in value is recognized as gain or
loss. At March 31, 2018 we determined the valuation using the Black-Sholes valuation model with the following assumptions: dividend
yield of zero, .94 years to maturity, risk free interest rate of 2.85% and annualized volatility of 289.61%. We recognized $15,730
of expense for the change in value of the derivative for the three months ended March 31, 2018. Interest expense for the period
includes $23,118 of origination interest, amortization of debt discounts of $2,394 and interest accrual of $288.
At
March 31, 2018 the balance of the Note is comprised of the following:
Face amount of Note
|
|
$
|
35,000
|
|
Original issue discount
|
|
|
(2,795
|
)
|
Debt discount
|
|
|
(29,808
|
)
|
|
|
$
|
2,397
|
|
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
Note
6. Stockholders’ Equity
During
the period ended March 31, 2018 we issued 3,000,000 shares of common stock in connection with consulting agreements with
two unrelated entities. The shares were valued at fair value of $44,100, based on the respective trading prices of our
common stock on the dates the agreements were signed.
Additionally,
we recorded $48,990 of amortization of deferred officer compensation during the period ended March 31, 2018.
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)
|
|
|
—
|
|
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 options for the periods ended March 31, 2018 and 2017 amounted to $0 and $2,437.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
The
following is a summary of stock options issued to employees and directors:
|
|
Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Term
(in years)
|
|
|
Aggregate Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2018
|
|
|
15,946,688
|
|
|
$
|
0.0054
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
March 31, 2018
|
|
|
15,946,688
|
|
|
$
|
0.0054
|
|
|
|
3.1
|
|
|
$
|
—
|
|
Exercisable
March 31, 2018
|
|
|
15,946,688
|
|
|
$
|
0.0054
|
|
|
|
3.1
|
|
|
$
|
—
|
|
There
will be no 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, 2018
|
|
|
1,300,000
|
|
|
$
|
0.0083
|
|
|
|
4.4
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding March 31, 2018
|
|
|
1,300,000
|
|
|
$
|
0.0083
|
|
|
|
4.1
|
|
|
$
|
—
|
|
Exercisable March 31, 2018
|
|
|
1,300,000
|
|
|
$
|
0.0083
|
|
|
|
4.1
|
|
|
$
|
—
|
|
There
will be no additional compensation expense recognized in future periods.
Note
8. Outstanding Warrants
There
were no warrants issued during the periods ended March 31, 2018 and 2017. The 400,000 previously outstanding warrants expired
on September 20, 2017.
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 period ended March 31, 2018 reflect certain effects of the Act which
includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2018 and 2017
(Unaudited)
Income
tax provision (benefit) for the periods ended March 31, 2018 and 2017, is summarized below:
|
|
2018
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total current
|
|
|
—
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal (21% tax rate in 2018)
|
|
|
(28,400
|
)
|
|
|
(14,000
|
)
|
State
|
|
|
(7,400
|
)
|
|
|
(2,300
|
)
|
Total deferred
|
|
|
(35,800
|
)
|
|
|
(16,300
|
)
|
Valuation allowance
|
|
|
35,800
|
|
|
|
16,300
|
|
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 March 31, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
Income tax provision at the
federal statutory rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
Increase in valuation
allowance
|
|
|
(26.5
|
%)
|
|
|
(39.5
|
%)
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Components
of the net deferred income tax assets at March 31, 2018 and December 31, 2017 were as follows:
|
|
2018
|
|
|
2017
|
|
Net operating loss carryovers
(adjusted for revised tax rate)
|
|
$
|
399,900
|
|
|
$
|
364,100
|
|
Valuation allowance
|
|
|
(399,900
|
)
|
|
|
(364,100
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In
accordance with ASC 740, at March 31, 2018 and 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 $399,900 and $364,100, respectively.
As
of March 31, 2018, we had cumulative net operating loss carry forwards of $1,874,000 which expire from 2032 through 2038.
There
are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2010
through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the
consolidated statement of operations. There have been no income tax related interest or penalties assessed or recorded.
Note
10. Subsequent Events
Management
has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in these financial
statements or disclosure in the notes to these financial statements.