NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2020
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.
On
June 24, 2020, we formed two wholly-owned subsidiaries, Crowdex Equity Inc. and Advancing Equality Financial Network, Inc.
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 $10,503,660 and have negative working
capital of $3,378,893 as of June 30, 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., Loyalty Preference Index, Inc, Crowdex Equity
Inc. and Advancing Equality Financial Network, Inc. All material inter-company transactions and balances have been eliminated
in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with US 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. The reclassifications did not change the previously
reported results of operations.
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 June 30, 2020 and December 31, 2019, all of the Company’s cash and
cash equivalents were held at one accredited financial institution and there were no uninsured amounts in excess of FDIC limits.
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 June 30, 2020:
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,253,922
|
|
|
$
|
1,253,922
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,253,922
|
|
|
$
|
1,253,922
|
|
|
|
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.
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 and six months ended June 30, 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 and six months ended June 30, 2020 and 2019, and the outstanding stock options and warrants are anti-dilutive. For
the three and six months ended June 30, 2020 and 2019, the following number of potentially dilutive shares have been excluded
from diluted net loss since such inclusion would be anti-dilutive:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Stock options outstanding
|
|
|
1,800,000
|
|
|
|
5,800,000
|
|
Shares to be issued upon conversion of notes
|
|
|
173,870,349
|
|
|
|
7,311,593
|
|
|
|
|
175,670,349
|
|
|
|
13,111,593
|
|
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
June 30, 2020 and December 31, 2019, intangible assets, net was $91,181 and $73,076, respectively. Amortization expense
was $6,448 and $12,896, respectively, for the three and six months ended June 30, 2020.
Note
4. Notes Payable
As
of June 30, 2020 and December 31, 2019, the Company has a note payable outstanding in the amount of $4,986 and $7,986, respectively.
The note is past due at June 30, 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 June 30, 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 June 30, 2020, the note is past due and in default.
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.
On
May 26, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up May Note”.
Pursuant to the terms of the Power Up May 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 May Note matures and becomes due and payable on May 26,
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 May 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 and six months ended June 30, 2020, the Company recorded amortization of debt discount and original discount of $201,028
and $403,267, respectively, 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 six months ended June
30, 2020:
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$
|
363,769
|
|
Issuance of convertible debenture - principal amount
|
|
|
287,100
|
|
Issuance of convertible debenture - debt discount and original issue discount
|
|
|
(287,100
|
)
|
Amortization of debt discount and original issue discount
|
|
|
403,267
|
|
Balance as of June 30, 2020
|
|
$
|
767,036
|
|
The
following comprises the balance of the convertible debenture outstanding at June 30, 2020 and December 31, 2019:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Principal amount outstanding
|
|
$
|
1,365,190
|
|
|
$
|
1,078,090
|
|
Less: Unamortized original issue discount
|
|
|
(41,313
|
)
|
|
|
(62,779
|
)
|
Less: Unamortized debt discount
|
|
|
(556,841
|
)
|
|
|
(651,542
|
)
|
|
|
$
|
767,036
|
|
|
$
|
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:
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2020
|
|
Risk-free interest rate
|
|
|
0.78
|
%
|
Expected term (in years)
|
|
|
0.90
|
|
Expected volatility
|
|
|
161.9
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Exercise price of underlying common shares
|
|
$
|
0.01
|
|
|
|
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 six months ended June 30, 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 $249,469 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 six months ended June 30, 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
|
|
|
499,469
|
|
|
|
-
|
|
|
|
499,469
|
|
New warrant issuances
|
|
|
-
|
|
|
|
39,690
|
|
|
|
39,690
|
|
Common stock warrant exercises
|
|
|
-
|
|
|
|
(72,244
|
)
|
|
|
(72,244
|
)
|
Change in fair value of derivative liability
|
|
|
(293,524
|
)
|
|
|
(31,348
|
)
|
|
|
(324,872
|
)
|
Balance as of June 30, 2020
|
|
$
|
1,253,922
|
|
|
$
|
-
|
|
|
$
|
1,253,922
|
|
Note
7. Stockholders’ Equity (Deficit)
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.
During
the six months ended June 30, 2020, we issued an aggregate of 10,052,318 shares of common stock to consultants for 2019 services
which were accrued at a fair value of $459,417.
In
March 2020, we issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the Board of Directors.
In
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation.
In
April 2020, we issued 90,216 shares and 958,333 shares of common stock to a Series B Preferred Stock investor for accrued dividends
and conversion of 25,000 shares of the Series B Preferred Stock.
In
May 2020, we issued an aggregate of 12,889,267 shares of common stock to executives, officers and consultants for services rendered
for a total fair value of $139,215.
In
June 2020, two option holders exercised their outstanding options for a total of 4,000,000 shares of common stock at an exercise
price of $0.0026. The value of $10,400 was converted from outstanding accounts payable.
During
the six months ended June 30, 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. On June 4, 2019 we entered into a Securities Exchange Agreement with Maxim pursuant to which the Maxim exchanged 129,558,574
shares of common stock for 129,559 shares of our Series C Preferred Stock.
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 and April 2019, we issued an aggregate of 5,000,000 shares of common stock to five unrelated individuals in accordance with
their appointment as directors of the Company.
During
the six months ended June 30, 2019, we issued 26,586,204 shares of our common stock to a lender pursuant to note conversions.
Series
B Convertible Preferred Stock
As
of June 30, 2020, we had $8,625 in remaining accrued Series B dividends.
Note
8. Options and Warrants
Options
As
of June 30, 2020 and December 31, 2019, we had 1,800,000 and 5,800,000 options, respectively, remaining outstanding pursuant
to the 2012 Equity Incentive Plan.
There
was no stock based compensation expense for options for the six months ended June 30, 2020 and 2019. There will be no additional
compensation expense recognized in future periods.
Warrants
During
the six months ended June 30, 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 June 30, 2020, Pride had no
outstanding warrants remaining. The Company received total proceeds of $93,342 a result of the warrant exercises.
In
May 2020, we cancelled warrants that were issued in 2019 to board members to purchase an aggregate of 7,000,000 shares of our
common stock. See Note 9.
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 six months ended June 30, 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
|
|
|
(7,000,000
|
)
|
|
|
0.03
|
|
Outstanding as of June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
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 June 30, 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 June 30, 2020 and December 31, 2019, accrued salaries to our company officers and executive director totaled $193,552 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
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation, including 3,942,161 shares pursuant to accrued
monthly fees and 8,000,000 shares pursuant to 2020 annual compensation. In conjunction with this transaction, we cancelled 7,000,000
warrants that were issued to the board in December 2019. We accounted for the modification in accordance with ASC 718-20-35. Total
fair value of the shares issued and warrant modification was $214,595.
In
March and April 2019, we issued an aggregate of 5,000,000 shares of common stock to five unrelated individuals in accordance with
their appointment as directors of the Company, and recognized $555,401 in compensation expense.
Total
accrued directors’ compensation of $50,834 and $80,000 at June 30, 2020 and December 31, 2019, respectively, is included
in accrued salaries and consulting fees on our consolidated balance sheets.
A
board member is the co-founder and president of ProcureAM, LLC, the fund advisor for the Fund. As of June 30, 2020 and December
31, 2019, we have $100,000 included as other receivables 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 August 14, 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:
Effective July 14, 2020, the Company and
Calvary Fund I LP entered into an amendment to the Calvary Note to extend the maturity date of the note from November 11, 2020
to December 31, 2020, prohibit any conversions of the note prior to October 31, 2020, and extend the prepayment option from August
9, 2020 to December 31, 2020.
On August 11, 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 $132,000, a 12% Convertible Note (the “Note”) in the principal
amount of $150,000. The Note matures and becomes due and payable on August 11, 2021 and accrues interest at a rate of 12% per
annum while the Note remains outstanding. The Note may be prepaid on a monthly basis commencing six months after closing. The
Note is convertible into shares of the Company’s common stock at any time at a conversion price (“Conversion Price”)
equal to the lesser of (i) Current Market Price and (ii) the Variable Conversion Price. The Variable Conversion Price shall mean
100% multiplied by the Market Price (representing a discount rate of 0%). Market Price means the average of the previous 5 days
volume weighted average price. In connection with the Note, the Company issued two common stock purchase warrants to purchase
up to an aggregate of 15,000,000 shares of common stock (separately, "Warrant A" and "Warrant B", and together,
the "Warrants" and each a "Warrant"), upon the terms and subject to the limitations and conditions set forth
in the Note.