NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LGBTQ Loyalty
Holdings, Inc. (formerly LifeApps Brands Inc.), including its subsidiaries.
On
January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating the first LGBTQ
Loyalty Preference Index ETF (the “Index ETF”) to provide the LGBTQ community with the power to influence the allocation
of capital within a financial Index ETF based upon LGBTQ consumer preferences. The Index ETF is intended to link the growing economic
influence of the LGBTQ community and their allies with many of the top Fortune 500 companies that support and implement diversity,
inclusion and equality policies within their organizations. The incorporation of diversity and inclusion in a company’s
recruitment and human resource policies is becoming a key concern to investors as part of their growing focus on ESG allocations.
Our data and analytics unequivocally reinforce that corporations that have embraced diversity and inclusion policies within their
corporate culture perform at a higher level financially than their peers. This includes advancing a more invigorated workforce
that attracts and retains the best talent. Innovation and agility have been identified as great benefits of diversity, and there
is an increasing awareness of what has come to be known as ‘the power of difference’.
On
October 30, 2019, through our wholly-owned subsidiary Loyalty Preference Index, Inc. (“LPI”) and our strategically
aligned partnerships with crowd sourced data and analytic providers, we launched the LGBTQ100 ESG Index which integrates LGBTQ
community survey data into the methodology for a benchmark listing of the nation’s highest financially performing large-cap
publicly listed corporations that our respondents believe are most committed to advancing equality. LPI is the index provider
for the LGBTQ + ESG100 ETF; LGBTQ Loyalty was the Sponsor for the prospectus that was filed by the licensed Fund Adviser ProcureAM,
and was approved by the Securities and Exchange Commission (“SEC”) in early January 2020. The LGBTQ + ESG100 ETF (the
“Fund”) seeks to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index. The Fund earns
management fees based on assets under management (“AUM”) and is expected to launch in the third quarter of 2020 on
the NASDAQ.
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.
Note
2. Summary of Significant Accounting Policies
Going
Concern
The accompanying unaudited condensed
consolidated financial statements have been prepared in conformity with principles generally accepted in the United States
(“US GAAP”), which contemplates our continuation as a going concern. We have incurred losses to date of $10,054,580
and have negative working capital of $3,461,248 as of March 31, 2020. 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. The accompanying financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Basis of Presentation
We have prepared the accompanying condensed
consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”)
for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include
all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets,
operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative
of the results that may be expected for fiscal year 2020. Certain information and footnote disclosures normally included in condensed
consolidated financial statements prepared in accordance with US GAAP have been omitted in accordance with the rules and regulations
of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited financial statements
and accompanying notes.
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements include the accounts of LGBTQ Loyalty Holdings, Inc. and our wholly owned subsidiaries, LGBTQ Loyalty, LLC, LifeApps Inc., Sports One Group Inc. and Loyalty Preference
Index, Inc. (“LPI”), which was formed on July 24, 2019. 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.
Reclassifications
The
Company has reclassified certain previously reported amounts in its consolidated financial statements. Accordingly, prior year
amounts were reclassified to conform to the current year presentation.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.
The Company generally maintains balances in various operating accounts at financial institutions that management believes to be
of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related
to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk
associated with commercial banking relationships. At March 31, 2020 and December 31, 2019, all of the Company’s
cash and cash equivalents were held at one accredited financial institution.
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 and derivative liabilities.
Our
financial instruments consist of cash, other current assets, accounts payables, accruals, and notes payable. The carrying values
of these instruments approximate fair value because of the short-term maturities. The fair
value of the Company’s convertible debentures and promissory notes approximates their carrying values as the underlying
imputed interest rates approximates the estimated current market rate for similar instruments. The derivative is measured as a
Level 3 instrument due to the various inputs which requires significant management judgment. Refer to Note 6 for detail.
The
following table is a summary of our financial instruments measured at fair value:
|
|
Fair Value Measurements
|
|
|
|
as of March 31, 2020:
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,490,271
|
|
|
$
|
1,490,271
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,490,271
|
|
|
$
|
1,490,271
|
|
|
|
Fair Value Measurements
|
|
|
|
as of December 31, 2019:
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,111,879
|
|
|
$
|
1,111,879
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,111,879
|
|
|
$
|
1,111,879
|
|
Other
Receivables – Related Party
Other
receivables represent amounts held in escrow at the Fund’s custodian. The Company expects to retrieve the funds upon commencement
of the Fund’s operations.
Intangibles
Intangibles,
which include website development costs, 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.
Website
and Software Development Costs
Website
and software costs are eligible for capitalization under ASC 350-50 and ASC 985-20, Software-Costs of Software to be Sold, Leased
or Marketed. These amounts are included in the consolidated balance sheets. Amortization of these costs will begin when the website
becomes active.
Property
and Equipment
Property
and equipment consist 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 are 3 years.
Derivative
Financial Instruments
The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting.
Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s
balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated
fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement
wherein instruments with a fixed conversion price or floor would be settled first, and interest payable in shares settle next.
Thereafter, share settlement order is based on instrument issuance date – earlier dated instruments settling before later
dated. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split,
to have an issuance date to coincide with the event giving rise to the additional shares. The policy includes all shares issuable
pursuant to debenture and preferred stock instruments as well as shares issuable under service and employment contracts and interest
on short term loans.
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.
|
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the
fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value
of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period.
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options.
The
Company measures compensation expense for its non-employee stock-based compensation under ASC 505, Equity. The fair value
of the option or warrant issued or (committed to be issued) is used to measure the transaction, as this is more reliable than
the fair value of the services received. The fair value is measured at the value of the Company’s common stock or stock
award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance
is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional
paid-in capital.
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 three months ended March 31, 2020 and 2019 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 three months ended March 31, 2020 and 2019, and the outstanding stock options and warrants are anti-dilutive. For
the three months ended March 31, 2020 and 2019, the following number of potentially dilutive shares have been excluded
from diluted net loss since such inclusion would be anti-dilutive:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock options outstanding
|
|
|
5,800,000
|
|
|
|
5,800,000
|
|
Warrants
|
|
|
7,000,000
|
|
|
|
-
|
|
Shares to be issued upon conversion of notes
|
|
|
190,488,453
|
|
|
|
-
|
|
|
|
|
203,288,453
|
|
|
|
5,800,000
|
|
Recent
Pronouncements
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
During
the year ended December 31, 2019, the Company capitalized costs pertaining to the development of the LGBTQ100 ESG Index website.
The Company began amortizing upon the launch of the index, and will amortize the costs over a three-year useful life.
At
March 31, 2020 and December 31, 2019, intangible assets, net was $97,628 and $73,076. Amortization expense was $6,448 for
the three months ended March 31, 2020.
Note
4. Notes Payable
As
of March 31, 2020 and December 31, 2019, the Company has a note payable outstanding in the amount of $5,986 and $7,986,
respectively. The note is past due at March 31, 2020 and is therefore in default. The note accrues interest at a rate of 2% per
annum.
In
January 2020, the Company issued a note payable to a lender for a principal amount of $50,000. The Company received proceeds of
$47,500 and the note matured on February 5, 2020. As of March 31, 2020, the note is past due and in default.
In December 2019, the Company issued a
promissory note to Pride Partners LLC (“Pride”) for $75,000. The note is secured, accrues interest at a rate of 10%
per annum, and matures on June 20, 2020. As of March 31, 2020, the full principal amount was outstanding.
Note
5. Convertible Notes Payable
Convertible
Note
In
February 2019, the holder of a March 2018 convertible promissory note in the original principal amount of $35,000 converted $26,920
in principal and $4,255 in interest into an aggregate of 26,398,704 shares of our common stock at a conversion price of $0.0015
per share. As the result of such conversions, this note has been repaid in full and terminated.
Convertible
Debenture
On
February 12, 2020, the Company entered into a Securities Purchase Agreement with Cavalry Fund I LP (the “Calvary Note”).
Pursuant to the terms of the Calvary Note, the lender agreed to purchase from the Company, for a purchase price of $100,000,
a 10% convertible note in the principal amount of $115,500. The Cavalry Note matures and becomes due and payable on November
11, 2020 and accrues interest at a rate of 10% per annum. The Calvary Note, plus all accrued but unpaid interest, may be prepaid
at any time prior to the maturity date.
The
Calvary Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”) equal to the lower of: (i) the lowest closing price of the common stock during the preceding twenty (20) trading
day period ending on the latest complete trading day prior to the issuance date of the Note (the “Closing Price”),
(ii) $0.04, or (iii) 60% of the lowest traded price for the Common Stock on the principal market on which the Common Stock is
then trading during the twenty (20) consecutive trading days on which at least 100 shares of Common Stock were traded including
and immediately preceding the date of conversion. Upon an event of default, the holder may elect to convert at an alternate conversion
price which is the lower of: (i) the closing price of the Common Stock on the Principal Market on the Trading Day immediately
preceding the issue date of the Calvary Note or (ii) 60% of either the lowest traded price or the closing bid price, whichever
is lower for the common stock on the principal market during any trading day in which the event of default has not been cured.
The conversion price of the Note will be further adjusted by another 15% reduction, regardless of whether there is an event of
default, if (A) the Common stock is no longer a reporting company pursuant to the Securities Exchange Act of 1934, as amended,
(B) the Note cannot be converted into free trading shares after 181 days from the issuance date of the Note, (C) the Common Stock
is chilled for deposit at DTC or becomes chilled at any point while the Note remains outstanding, (D) deposit or other additional
fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or (E) if the closing price at any time falls below
$0.015. The conversion price is subject to customary adjustments. The conversion price is not subject to a floor.
On
March 10, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up Note”.
Pursuant to the terms of the Power Up Note, the lender agreed to purchase from the Company, for a purchase price of $75,000, a
10% convertible note in the principal amount of $85,800. The Power Up Note matures and becomes due and payable on March 10, 2021
and accrues interest at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid at any
time prior to the maturity date.
The
Power Up Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on
the latest complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion
price is not subject to a floor.
During
the three months ended March 31, 2020, the Company recorded amortization of debt discount and original discount of $202,239 for
all convertible debentures. This amount is included in interest expense in our consolidated statements of operations.
The
following is a summary of the activity of the convertible notes payable and convertible debenture for the three months ended March
31, 2020:
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$
|
363,769
|
|
Issuance of convertible debenture - principal amount
|
|
|
201,300
|
|
Issuance of convertible debenture - debt discount and original issue discount
|
|
|
(201,300
|
)
|
Amortization of debt discount and original issue discount
|
|
|
202,239
|
|
Balance as of March 31, 2020
|
|
$
|
566,008
|
|
The
following comprises the balance of the convertible debenture outstanding at March 31, 2020 and December 31, 2019:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Principal amount outstanding
|
|
$
|
1,279,390
|
|
|
$
|
1,078,090
|
|
Less: Unamortized original issue discount
|
|
|
(62,571
|
)
|
|
|
(62,779
|
)
|
Less: Unamortized debt discount
|
|
|
(650,811
|
)
|
|
|
(651,542
|
)
|
|
|
$
|
566,008
|
|
|
$
|
363,769
|
|
Note
6. Derivative Liability
We
evaluated the terms of the conversion features of the debentures in accordance with ASC Topic No. 815 - 40, Derivatives and
Hedging - Contracts in Entity’s Own Stock, and determined they are indexed to the Company’s common stock and that
the conversion features meet the definition of a liability. Therefore, we bifurcated the conversion feature and accounted for
it as a separate derivative liability.
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 conversion feature at origination of the notes using the Black-Scholes valuation model. We
value the derivative liability at the end of each accounting period, and upon conversion of the underlying note or warrant, with
the difference in value recognized as gain or loss included in other income (expense) in our consolidated statements of operations.
The
original debentures had conversion features that resulted in derivative liabilities. We valued the conversion features at each
origination date with the following assumptions, on a weighted-average basis:
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
Risk-free interest rate
|
|
|
1.04
|
%
|
Expected term (in years)
|
|
|
0.86
|
|
Expected volatility
|
|
|
154.3
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Exercise price of underlying common shares
|
|
$
|
0.02
|
|
|
|
Year
Ended December 31, 2019
|
|
|
|
Tranche
1
|
|
|
Tranche
2
|
|
|
Tranche
3
|
|
|
Warrants
|
|
Risk-free
interest rate
|
|
|
2.11
|
%
|
|
|
1.75
|
%
|
|
|
1.67
|
%
|
|
|
2.11
|
%
|
Expected
term (in years)
|
|
|
1.25
|
|
|
|
1.03
|
|
|
|
0.89
|
|
|
|
1.25
|
|
Expected
volatility
|
|
|
312.4
|
%
|
|
|
303.70
|
%
|
|
|
326.88
|
%
|
|
|
312.4
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Exercise
price of underlying common shares
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
During
the three months ended March 31, 2020, the entire value of the
principal of the debentures were assigned to the derivative liability and recognized as
a debt discount on the convertible debentures. The debt discount is recorded as reduction (contra-liability) to the debentures
and are being amortized over the initial term. The balance of $118,191 was recognized as origination interest on the derivative
liability and expensed on origination. In accordance with the Company’s sequencing policy, shares issuable pursuant
to the convertible debentures would be settled subsequent to the Company’s Series B preferred stock.
The following is a summary of the activity
of the derivative liability for the three months ended March 31, 2020:
|
|
Debenture
|
|
|
Warrants
|
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$
|
1,047,977
|
|
|
$
|
63,902
|
|
|
$
|
1,111,879
|
|
Initial fair value on issuance of convertible debenture
|
|
|
293,192
|
|
|
|
-
|
|
|
|
293,192
|
|
New warrant issuances
|
|
|
-
|
|
|
|
39,690
|
|
|
|
39,690
|
|
Common stock warrant exercises
|
|
|
-
|
|
|
|
(72,431
|
)
|
|
|
(72,431
|
)
|
Change in fair value of derivative liability
|
|
|
149,102
|
|
|
|
(31,348
|
)
|
|
|
117,754
|
|
Balance as of March 31, 2020
|
|
$
|
1,490,271
|
|
|
$
|
-
|
|
|
$
|
1,490,271
|
|
Note
7. Stockholders’ Equity
Common
Stock
2020
Transactions
In
January 2020, we issued 294,994 shares of common stock to a bridge noteholder in connection with promissory notes received.
In
January 2020, we issued 6,662,312 shares to a consultant for 2019 services which were accrued at a fair value of $318,000.
In
March 2020, we issued 1,000,000 shares to Orlando Reece
pursuant to his appointment to the Board of Directors.
During
the three months ended March 31, 2020, we issued an aggregate of 4,170,000 shares of common stock to Pride Partners pursuant to
warrant exercises. Refer to Note 8.
2019
Transactions
In
January 2019, we entered into and closed a securities exchange
under a Securities Exchange Agreement (the “Securities Exchange Agreement”) with LGBT Loyalty LLC (“LGBT Loyalty”)
and Maxim Partners, LLC (“Maxim”), pursuant to which we acquired all of the membership interests of LGBT Loyalty,
making LGBT Loyalty a wholly owned subsidiary of ours, in exchange for 120,959,996 shares (the “Shares”) of our restricted
common stock and one share of our newly created Series A Convertible Preferred Stock (the “Series A Preferred Stock”).
The Shares issued to Maxim represented, upon issuance, 49.99% of our then issued and outstanding shares of common stock. On March
29, 2019 an additional 8,598,578 shares were issued to Maxim for the conversion of the Series A Convertible Preferred Stock. LGBT
Loyalty has no assets, liabilities nor operations at the exchange date, therefore, the value ascribed to the issued stock ($388,675)
has been charged to operations as expenses of the merger.
In
February 2019, we issued an aggregate of 750,000 shares of common stock to a consultant in accordance with a service contract
that provided for a 250,000 share stock grant for services performed of $7,500, as well as the exercise of 500,000 stock options
in exchange for the cancellation of $5,000 then outstanding accounts payable due to the consultant for prior services.
In
March 2019, we issued an aggregate of 8,600,298 shares of our common stock pursuant to the automatic exercise of warrants issued
to two current and prior company officers.
In
March 2019, we issued an aggregate of 3,000,000 shares of common stock to three unrelated individuals in accordance with their
appointment as directors of the Company.
During
the three months ended March 31, 2019, we issued 26,398,704 shares of our common stock to a lender pursuant to note conversions.
Series
B Convertible Preferred Stock
As
of March 31, 2020, we had $10,350 in remaining accrued Series B dividends.
Note
8. Options and Warrants
Options
As
of March 31, 2020 and December 31, 2019, we had 5,800,000 options remaining outstanding pursuant to the 2012 Equity Incentive
Plan.
There
was no stock based compensation expense for options for the three months ended March 31, 2020 and 2019. There will be no additional
compensation expense recognized in future periods.
Warrants
During
the three months ended March 31, 2020, Pride exercised an aggregate of 4,170,000 shares of common stock pursuant to the exercise
provisions of the warrant, including a simultaneous grant and exercise of 2,285,000 warrants. As of March 31, 2020, Pride had
no outstanding warrants remaining. The Company received total proceeds of $93,342 a result of the warrant exercises.
On
January 25, 2019 we issued warrants to two Company executives in exchange for the cancellation of an aggregate of $348,312 of
salary and interest accruals through December 31, 2018. The warrants were fully exercised as described in Note 7 above.
The
following is a summary of the warrant activity for the three months ended March 31, 2020:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding as of December 31, 2019
|
|
|
8,885,000
|
|
|
$
|
0.04
|
|
Granted
|
|
|
2,285,000
|
|
|
|
0.08
|
|
Exercised
|
|
|
(4,170,000
|
)
|
|
|
0.08
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of March 31, 2020
|
|
|
7,000,000
|
|
|
$
|
0.03
|
|
Note
9. Related Party Transactions
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.
Notes
Payable to Related Party
Notes
payable to related parties at March 31, 2020 and December 31, 2019 totaled $17,885 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.
Accrued
Salaries
In
March 2019, we issued an aggregate of 8,600,298 shares of our common stock pursuant to the automatic exercise of warrants issued
to two current and prior company officers. The warrants were issued in exchange for the cancellation of an aggregate of $348,312
of salary and interest accruals through December 31, 2018.
As
of March 31, 2020 and December 31, 2019, accrued salaries to our company officers and executive director totaled $171,352 and
$91,352, respectively, and is included in accrued salaries and consulting fees in our consolidated balance sheets.
Board
of Directors
In
March 2020, the Company issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the board, and recognized $17,800
in compensation expense. In March 2019, we issued an aggregate of 3,000,000 shares of common stock to three unrelated individuals
in accordance with their appointment as directors of the Company, and recognized $313,600 in compensation expense.
Total
accrued directors’ compensation of $123,750 and $80,000 at March 31, 2020 and December 31, 2019, respectively, is included
in accrued salaries and consulting fees on our consolidated balance sheets.
As
of March 31, 2020 there is an aggregate of 7,000,000 warrants outstanding to the board of directors.
A
board member is the co-founder and president of ProcureAM, LLC, the fund advisor for the Fund. As of March 31, 2020 and December
31, 2019, we have $100,000 included as other receivables of on our consolidated balance sheet, which represents amounts held in
escrow at the Fund’s custodian.
Note
10. Subsequent Events
Management
has evaluated all activity up to July 6, 2020 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 other than the following:
In
April 2020, a Series B investor converted 25,000 shares of Series B Preferred Stock for 958,333 shares of common stock.
In
May 2020, the Company cancelled the outstanding warrants and issued an aggregate of 8,000,000 shares of common stock to the board
members.
On
May 26, 2020, we entered into a Securities Purchase Agreement (the “SPA”) with an unrelated entity. Pursuant to the
terms of the SPA, the Purchaser agreed to purchase from the Company, for a purchase price of $75,000, a 10% Convertible Note (the
“Note”) in the principal amount of $85,800. The Note matures and becomes due and payable on May 26, 2021 and
accrues interest at a rate of 10% per annum (increasing to 22% upon an event of default) while the Note remains outstanding. The
Note, plus all accrued but unpaid interest and other amounts due on the Note, may be prepaid, at varying amounts, at any time
prior to the maturity date. The Note is convertible into shares of the Company’s common stock at any time at a conversion
price (the “Conversion Price”), which shall equal the Variable Conversion Price (as defined herein) (subject to equitable
adjustments by the Company relating to the Company’ securities or the securities of any subsidiary of the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price”
shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price”
means the lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the
latest complete Trading Day prior to the Conversion Date. The conversion price is subject to customary adjustments. The conversion
price is not subject to a floor.