Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(Unaudited)
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LifeApps
Brands Inc., including its subsidiaries. The accompanying unaudited condensed consolidated financial statements of LifeApps
Brands Inc. at March 31, 2017 and 2016 have been prepared in accordance with generally accepted accounting principles (“GAAP”)
for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included
in our annual report on Form 10-K for the year ended December 31, 2016. In management’s opinion, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading
have been included. The results of operations for the periods ended March 31, 2017 and 2016 presented are not necessarily indicative
of the results to be expected for the full year. The December 31, 2016 balance sheet has been derived from our audited financial
statements included in our annual report on Form 10-K for the year ended December 31, 2016.
We
are building health, fitness and sports communities across multiple digital platforms including mobile apps, digital sports and
fitness publications, sports and fitness products, sporting events, gateway platforms, online websites and social media.
Note
2. Summary of Significant Accounting Policies
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”),
which contemplates our continuation as a going concern. We have incurred losses to date of 2,829,712. To date we have funded our
operations through advances from a related party, issuance of convertible debt, and the sale of our common stock. We intend to
raise additional funding through third party equity or debt financing. There is no certainty that funding will be available as
needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue
our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course
of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately
generate profitable operations.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, LifeApps
Inc. and Sports One Group Inc. All material inter-company transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
Financial
Instruments
The
estimated fair values for financial instruments were determined at discrete points in time based on relevant market information.
These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts receivable,
accounts payable and accrued liabilities approximated fair value because of the short-term maturities of these instruments. The
fair value of notes payable approximated 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, 2017 and 2016
(Unaudited)
Fair
Value Measurements:
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.
Accounts
Receivable
A
significant majority of our sales are through credit cards and other electronic payment methods. When we do grant credit to our
customers it is generally in the form of short term accounts receivables, normally due in 30 days. The credit worthiness of the
customer is evaluated prior to the sale. As of March 31, 2017 all of our accounts receivable were fully reserved. There was no
bad debt expense recorded during the three month periods ended March 31, 2017 and 2016.
Intangibles
Intangibles,
which include websites and databases acquired, internet domain name costs, and customer lists, are being amortized over the expected
useful lives which we estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”) Topic 350
Intangibles – Goodwill and Other
(“ASC 350”),
the costs to obtain and register internet domain names were capitalized.
Fixed
Assets
Fixed
assets consists of furniture and equipment and are stated at cost less accumulated depreciation and accumulated impairment loss,
if any. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets. The estimated useful
lives used for financial statement purposes is 3 years.
Revenue
Recognition
Revenue
is derived primarily from the sale of sports and fitness apparel and equipment, and software applications designed for use on
mobile devices such as smart phones and tablets. Revenue is recognized only when persuasive evidence of an arrangement exists,
the fee is fixed or determinable, the product or service has been delivered, and collectability is probable.
We
sell our software directly via Internet download through third party agents. We recognize revenue when payment is received from
the agent. Payment is received net of commission paid to the agent, usually 70% to us and 30% to the agent. We record the net
amount received as revenue.
We
also publish and sell digital magazines through the internet. Magazines can be purchased as individual volumes or as a subscription.
To date we have not had any subscription sales.
Cost
of Revenue
Cost
of revenue includes the cost of amounts paid for articles, photography, editorial and production cost of the magazine and ongoing
web hosting costs. Cost of revenue related to product sales includes the direct cost of those products sold.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(Unaudited)
Research
and development, Website Development Costs, and Software Development Costs
All
research and development costs are expensed as incurred. Software development costs eligible for capitalization under ASC 350-50,
Website Development Cost
, and ASC 985-20,
Software-Costs of Software to be Sold, Leased or Marketed
, were not material
to our financial statements for the periods ended March 31, 2017 and 2016. Research and development expenses amounted to $0 for
three months ended March 31, 2017 and 2016. Research and development expenses when present are included in general and administrative
expenses.
Advertising
Costs
We
recognize advertising expense when incurred. Advertising expense was $0 and $130 for the three months ended March 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 $2,160 and
$2,145 for the for three months ended March 31, 2017 and 2016, respectively.
Income
Taxes
The
provision for income taxes is determined in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements,
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts.
For
the for three months ended March 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 for three months ended March 31, 2017 and 2016, and the outstanding stock options and warrants are anti-dilutive.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(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 recently
issued standards that are not yet effective will not have an impact on our results of operations and financial position.
Note
3. Fixed Assets
At
March 31, 2017 and December 31, 2016, fixed assets consisted of the following:
|
|
2017
|
|
|
2016
|
|
Furniture
and Equipment
|
|
$
|
7,670
|
|
|
$
|
7,670
|
|
Less
accumulated depreciation
|
|
|
(7,670
|
)
|
|
|
(7,670
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
amount charged to depreciation expense for furniture and equipment was $0 and $607 for the three months ended March 31, 2017 and
2016, respectively.
Note
4. Intangible Assets
At
March 31 2017 and December 31, 2016, intangible assets consist of the following:
|
|
2017
|
|
|
2016
|
|
Internet
domain names
|
|
$
|
58,641
|
|
|
$
|
58,641
|
|
Less
accumulated amortization
|
|
|
(58,641
|
)
|
|
|
(58,641
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Website
and data bases
|
|
$
|
56,050
|
|
|
$
|
56,050
|
|
Less
accumulated amortization
|
|
|
(56,050
|
)
|
|
|
(51,380
|
)
|
|
|
$
|
—
|
|
|
$
|
4,760
|
|
|
|
|
|
|
|
|
|
|
Customer
and supplier lists
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
Less
accumulated amortization
|
|
|
(3,600
|
)
|
|
|
(3,375
|
)
|
|
|
$
|
900
|
|
|
$
|
1,125
|
|
|
|
|
|
|
|
|
|
|
Total
intangibles
|
|
$
|
119,191
|
|
|
$
|
119,191
|
|
|
|
|
(118,291
|
)
|
|
|
(118,066
|
)
|
|
|
$
|
900
|
|
|
$
|
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 $225 and $8,419 for the three months ended March 31, 2017 and 2016,
respectively.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(Unaudited)
Estimated
future amortization expense related to the intangibles as of March 31, 2017 is as follows:
Year Ended
December 31,
|
|
|
|
|
2017
|
|
|
$
|
675
|
|
2018
|
|
|
|
225
|
|
|
|
|
$
|
900
|
|
Note
5. Amounts Due Related Parties
Parties,
which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common control or common significant influence.
Amount
due to related parties represent cash advances, salary accruals and amounts paid on our behalf by officers and shareholders of
the Company. These advances are non-interest bearing, short-term in nature and due on demand. The balance at March 31, 2017 and
December 31, 2016, was $574,854 and $536,639, respectively. Salary accruals for each period amounted to $37,500 and net cash advances
amounted to $715 and $15,000, respectively for the three months ended March 31, 2017 and 2016.
Note
6. Stockholders’ Equity
During
the three months ended March 31, 2016 we issued 597,545 shares of common stock in settlement of $8,058 in previously accrued legal
services.
Note
7. Stock Based Compensation
In
prior periods, our Board of Directors adopted the 2012 Equity Incentive Plan (“2012 Plan”), which was approved by
our shareholders. The 2012 Plan provided for the issuance of up to 666,667 shares of our common stock. During October 2015 the
Board of Directors amended the plan to increase the number of shares issuable under the LifeApps Digital Media Inc. 2012 Equity
Incentive Plan to 20,000,000, on a post-Reverse Stock Split basis. The plan provides for the award of options, stock appreciation
rights, performance share awards, and restricted stock and stock units. The plan is administered by the Board of Directors. Pursuant
to the 2012 Plan our Board of Directors granted options to purchase 418,333 shares of our common stock in periods prior to December
31, 2015. All of those options have been cancelled or lapsed as of December 31, 2016. On May 24, 2016 our Board of Directors granted
options to purchase 15,000,000 shares of our common stock to officers and or directors and a consultant. The options are exercisable
quarterly from the grant date over a four-year term.
The
fair value of the options granted, $39,000, was estimated at the date of grant using the Black-Scholes option pricing model, with
the following assumptions:
Expected life (in years)
|
|
|
4
|
|
Volatility
|
|
|
383
|
%
|
Risk Free interest rate
|
|
|
0.68
|
%
|
Dividend yield (on common stock)
|
|
|
—
|
|
Stock
based compensation expense recorded for the periods ended March 31, 2017 and 2016 was $2,437 and $0, respectively.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(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, 2017
|
|
|
|
10,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
March 31, 2017
|
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
|
3.15
|
|
|
|
—
|
|
Exercisable
March 31, 2017
|
|
|
|
1,875,000
|
|
|
$
|
.0026
|
|
|
|
3.15
|
|
|
|
—
|
|
There
will be approximately $21,125 of additional compensation expense recognized in future periods.
The
following is a summary of stock options issued to non-employees, excluding Directors:.
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value at
date of
grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 1, 2016
|
|
|
5,000,000
|
|
|
$
|
0.026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
December 31, 2016
|
|
|
5,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.15
|
|
|
$
|
—
|
|
Exercisable
December31, 2016
|
|
|
937,500
|
|
|
$
|
0.026
|
|
|
|
3.15
|
|
|
$
|
—
|
|
There
will be approximately $10,600 of additional compensation expense recognized in future periods.
Note
8. Outstanding Warrants
There
were no warrants issued during the periods ended March 31, 2017 or 2016. The following is a summary of outstanding warrants
as of March 31, 2017:
|
|
Number of
warrants
|
|
|
Exercise price
per share
|
|
|
Average
remaining
term in years
|
|
|
Aggregate
intrinsic value
at date of
grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued in connection with private placement of units in 2012
|
|
|
400,000
|
|
|
$
|
15.00
|
|
|
|
1.47
|
|
|
$
|
—
|
|
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(Unaudited)
The
warrants expire on September 20, 2017.
Note
9. Income Taxes
Income
tax provision (benefit) for the periods ended March 31, 2017 or 2016, is summarized below:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
Total
current
|
|
|
—
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(14,000
|
)
|
|
|
(21,400
|
)
|
State
|
|
|
(2,300
|
)
|
|
|
(3,500
|
)
|
Total
deferred
|
|
|
(16,300
|
)
|
|
|
(24,900
|
)
|
Increase
in valuation allowance
|
|
|
16,300
|
|
|
|
24,900
|
|
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, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Income
tax provision at the federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
income taxes, net of federal benefit
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
Increase
in valuation allowance
|
|
|
(39.5
|
)%
|
|
|
(39.5
|
)%
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
There
are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2010
through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the
consolidated statement of operations. There have been no income tax related interest or penalties assessed or recorded.
The
Company had deferred fix assets of $621,100 and $604,800 as of December 31, 2016 and 2015, respectively, resulting from net operating
loss carry-forwards of approximately $1,572,000 at December 31, 2016.
Note
10. Business Segments
We
currently have two business segments; (i) the sale of physical products (“Products”) and (ii) digital publishing (“Publishing”).
The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
The
publishing segment does not meet the quantitative threshold for disclosure as outlined ASC Topic 280
Segment Reporting.
All
of our revenue is generated in the United States and accordingly no geographic segment reporting is included.
No
customers accounted for more than 10% of our revenues in the periods March 31, 2017 and 2016.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
March
31, 2017 and 2016
(Unaudited)
Note
11. 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.