PART
I
Organizational
History
Through
our wholly owned subsidiary LifeApps, Inc., we are a licensed developer and publisher of apps for the Apple Apps Store for iPhone,
iPod touch, iPad and iPad mini. We are also a licensed developer on both Google Play and Amazon Appstore for Android. We have
distributed apps on all three platforms. We are currently not targeting our revenue strategy on further development of additional
apps or updating or expanding on apps that we have developed but, will instead, make our primary focus the development and operation
of various new business operations that we intend to establish. As set forth below, on January 25, 2019, we acquired LGBT Loyalty
LLC and intend to create a LGBTQ Loyalty Preference Index (the “Index”) that will provide the LGBT community with
the power to influence the allocation of capital within the Index based upon their consumer preferences. The Index is intended
to link the economic power of the LGBTQ community with many of the top companies that support and market their products to the
LGBTQ demographic. We also plan to create ancillary businesses that are intended to complement and support the Index including
LGBTQ Loyalty Sponsorship which
will be established
to promote the
Index
along with the companies from around the world that desire to
market and advertise directly to LGBTQ consumers. We intend to join forces with some of the most recognizable LGBTQ community
leaders from around the world and have them become LGBTQ Loyalty Sponsorship members. The LGBTQ Loyalty Sponsorship is expected
to incorporate marketing and support of the companies included in the Index. All companies will be offered the opportunity to
purchase LGBTQ Loyalty Sponsorship packages.
We also plan to develop a digital media network
that will specialize in targeting highly sought-after niche demographic audiences. In that regard, we intend to focus on two core
businesses, an LGBTQ Advertising Network and an LGBTQ Media Network. Through our digital platform, we expect to aggregate content
from around the world. We also intend to create original content along with sponsored content in a 24/7 digital network. The LGBTQ
Advertising Network is intended to assist brands in global targeting of the LGBTQ demographic. The LGBTQ Advertising Network is
expected to provide advertisers and brands with over 300 mainstream digital platforms and access to this loyal, affluent and ever-expanding
audience. We intend to deliver to our audience relevant sponsored content marketing message across all spectrums of digitally
connected devices. We believe that our unique value proposition to our audience and sponsors will be the ability to deliver aggregated
and original content, with emphasis on interactive content and captive video.
We
were incorporated in the state of Delaware as Prime Time Travel, Inc. on November 23, 2010, for the purpose of creating and managing
trips to destination locations for youth basketball teams. On August 23, 2012, we filed an Amended and Restated Certificate of
Incorporation with the Delaware Secretary of State to, among other things, change our name from Prime Time Travel, Inc. to LifeApps
Digital Media Inc., and increase our authorized capitalization to 310,000,000 shares, consisting of 300,000,000 shares of common
stock, $0.001 par value per share, and 10,000,000 shares of blank check preferred stock, $0.001 par value per share.
On
September 5, 2012, we effected a 15-for-1 forward stock split in the form of a dividend to holders of our common stock as of record
on September 4, 2012.
On
September 20, 2012, LifeApps Acquisition Corp., a wholly owned Nevada subsidiary of ours, merged with and into LifeApps Inc.,
which had been organized as a California limited liability company on July 13, 2009, and was converted to a Nevada corporation
on September 7, 2012 in anticipation of the merger. In connection with the merger, each share of LifeApps common stock was cancelled
and converted into the right to receive 400 shares of our common stock. LifeApps was the surviving corporation of that merger.
As a result of the merger, we acquired the business of LifeApps. Immediately following the merger, we split off our wholly owned
subsidiary, Prime Time Split Corp., a Delaware corporation, through the exchange of 6,000,000 shares of our common stock for all
of the issued and outstanding shares of common stock of Split Corp. All of our assets and liabilities immediately following the
merger, excluding any assets and liabilities assumed in the merger, were transferred to Split Corp.
On
December 31, 2015, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State to (i) change our corporate name to LifeApps Brands Inc., (ii) effect a one-for-fifteen (1:15) reverse stock
split (the “Reverse Split”) of our common stock, $0.001 par value per share, and (iii) increase our authorized capitalization
from 300,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001
per share, to 500,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. The Reverse Split and Name Change took effect on OTC Markets at the commencement of business on January 7, 2016,
at which time our common stock began trading on a post-reverse split basis.
On
January 24, 2019 we filed a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock with the
Delaware Secretary of State to create a series of preferred stock designated Series A Convertible Preferred Stock (the “Series
A Preferred Stock”) consisting of one share. The share of Series A Preferred Stock was issued to Maxim Partners, LLC, a
New York limited liability company (“Maxim”) in connection with the January 25, 2019 Securities Exchange Agreement
described below. The Series A Preferred Stock has no voting, liquidation or other rights other than the right to convert into
common stock. The Series A Preferred Stock will automatically convert into additional shares of our restricted common stock immediately
after such time that (i) the number of shares of our authorized common stock is increased from 500,000,000 to 1,000,000,000 shares
(the “Share Increase”); and (ii) the January 25, 2019 warrants issued to Brian Neal, our President, and Robert Gayman,
our former Executive Management Consultant, at the closing of the securities exchange transaction described below (the “Management
Warrants”) are automatically exercised for shares of our restricted common stock. The Management Warrants represent common
stock purchase warrants that were issuable to Robert Blair, our Chief Executive Officer, Brian Neal and Robert Gayman, and/or
their designees or assignees (collectively, the “Management Holders”) in exchange for the cancellation of all amounts
due to the Management Holders by us as of, but not including, January 1, 2019, which amounts consisted solely of accrued salaries
and /or consulting fees earned by the Management Holders through December 31, 2018, plus interest due thereon. These amounts consisted
of $161,629 due to Robert Blair, representing $154,600 of compensation and $7,029 of interest, $25,054 due to Brian Neal, representing
$24,000 of compensation and $1,054 of interest and $161,629 due to Robert Gayman, representing $154,600 of compensation and $7,029
of interest. Prior to their issuance, Robert Blair gifted his right to receive Management Warrants to Brian Neal. The Management
Warrants are automatically exercisable for shares of our restricted common stock following the Share Increase at an exercise price
equal to a 10% discount to the volume weighted average price (“VWAP”) for our common stock during the three trading
days ending on the seventh trading day following the date on which this Current Report is filed with the Securities and Exchange
Commission. Except as otherwise provided below, the share of Series A Preferred Stock is automatically convertible into 99.98%
of the number of shares issued upon the automatic exercise of the Management Warrants. However, upon the conversion of the Series
A Preferred Stock, Maxim may not own more than 49.99% of our then issued and outstanding common stock. In the event that the full
conversion of the Series A Preferred Stock would result in Maxim owning more than 49.99% of our then issued and outstanding common
stock, the conversion will be limited to such number of shares that will result in Maxim owning 49.99% of our then issued and
outstanding common stock and the issuance of the remaining shares issuable upon conversion will be deferred until such time that
their issuance will not increase Maxim ‘s ownership of our common stock to more than 49.99%.
On
January 25, 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement (the “Securities
Exchange Agreement”) with LGBT Loyalty LLC, a New York limited liability company (“LGBT Loyalty”), and 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 of our restricted common stock and one share of our newly created Series A Convertible
Preferred Stock (the “Series A Preferred Stock”). The common stock issued to Maxim represented, upon issuance, 49.99%
of our then issued and outstanding shares of common stock. Effective March 26, 2019, the share of Series A Convertible Preferred
Stock was converted into
8,598,578
shares of our common stock.
On
March 26, 2019, we filed a Certificate of Amendment to our Certificate of Incorporation to increase our authorized capitalization
from 500,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $0.001
per share, to 1,000,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value
$0.001 per share. As the result of the filing of the Certificate of Amendment, the Management Warrants were automatically exercised
for 8,600,298 shares of our common stock and following such exercise the outstanding share of Series A Preferred Stock was automatically
converted into 8,598,578 shares of common stock.
On
April 3, 2019 we filed a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock with the
Delaware Secretary of State to create a new class of preferred stock, $0.001 par value per share, designated Series B Convertible
Preferred Stock (“Series B Preferred Stock”) and authorized the issuance of up to 1,500,000 shares of Series B Preferred
Stock. The Series B Preferred Stock has no voting, liquidation or other rights other than the right to receive dividends and to
convert into common stock. The stated value of each share of Series B Convertible Preferred for purposes of conversions and dividends
is $1.15 (the “Conversion/Dividend Stated Value”). The stated value of each share of Series B Convertible Preferred
for purposes of redemptions is $1.35 (the “Redemption Stated Value”). Subject to earlier conversion or redemption,
the Series B Preferred Stock will automatically convert into fully paid and non-accessible shares of our common stock 24 months
following the date of issuance of such Series B Preferred Stock without any action or payment required on the part of the holder
of the Series B Convertible Preferred Stock. Subject to a floor price limitation of $0.03 per share, the automatic conversion
price to which the Conversion/Dividend Stated Value will be applied will be the lower of (i) $0.10 per share of common stock;
or (ii) a 20% discount to the lowest volume weighted average price (“VWAP”) for our common stock on our principal
trading market during the five (5) trading days immediately prior to the automatic conversion date. Subject to earlier conversion
or redemption, the Series B Preferred Stock will also automatically convert into fully paid and non-assessable shares of common
stock upon the conversion terms provided above if (i) the closing sale price for our common stock on our principal trading market
closes at or above $0.20 for 10 consecutive trading days;(ii) our common stock is uplisted to NASDAQ or a national securities
exchange; or (iii) we complete an offering of securities resulting in aggregate gross proceeds of not less than $3,000,000. Notwithstanding
the foregoing, the automatic conversion events set forth in (i), (ii) and (iii) above are not applicable during the 180 day period
following the issuance date or if the common stock issuable upon conversion is not registered or subject to sale pursuant to Rule
144 or another exemption from the registration requirements of the Securities Act of 1933, as amended. Commencing 180 days after
the issuance date, the holders of Series B Preferred Stock will have the right to convert their Series B Convertible Preferred
at any time into common stock on the same conversion terms applicable to automatic conversions. Absent the prior written approval
of the Company, all automatic and optional conversions of Series B Preferred Stock must be for a minimum of 5,000 shares of Series
B Preferred except in cases where the holder owns less than 5,000 shares and is converting all Series B Preferred shares then
owned by the holder. No fractional shares of common stock will be issued upon conversions of the Series B Convertible Preferred.
In lieu of any fractional share to which the holder would otherwise be entitled, we will round up to the next full share. Dividends
at the rate of 12% per annum (1% per month) are payable on the Conversion/Dividend Stated Value of the Series B Preferred Stock
in cash or stock at our discretion. Dividends are payable at the end of each month following the applicable issuance date. Dividends
payable in stock will be calculated based on the 5-day VWAP during each of the last 5 trading days of the month for which payment
is being made. To the extent that a month for which dividends are payable does not involve a full month because shares of Series
B Preferred Stock were issued, redeemed, or converted during such month, the dividend payable shall be pro-rated to reflect the
number of days of such month that the dividend applies to. In all events, dividends shall not be payable for periods following
redemption, conversion or the 24 month anniversary of the applicable issuance date. The Series B Preferred Stock is redeemable
in cash by us at any time prior to conversion upon five business days prior written notice to the holder at the Redemption Stated
Value for each share being redeemed. The automatic and optional conversion price will be appropriately adjusted to reflect stock
splits, stock dividends (exclusive of the dividends payable on the Series B Preferred Stock) business combinations and similar
recapitalization.
Our
fiscal year end is December 31.
Unless
the context indicates otherwise, all references in this Annual Report to “LifeApps®” “the Company,”
“we,” “us” and “our” refer to LifeApps Brands Inc. and its subsidiaries, LifeApps Inc., Sports
One Group Inc. and LGBT Loyalty LLC.
Business
Overview
On
January 25, 2019, we entered into and closed a Securities Exchange Agreement pursuant to which LGBT Loyalty became a wholly owned
subsidiary of ours. Through LGBT Loyalty, we intend to create, establish, develop, manage and fund an LGBTQ Loyalty Preference
Index (the “Index”). The Index is expected to be the first “preference” index to survey a representative
group of the LGBTQ community to determine which companies within the S&P 500 best support and are supported by the LGBTQ community.
We have signed a Letter of Intent to partner with ProcureAM in the creation and development of the Index. ProcureAM will also
advise as to the additional service providers for the Index including outside Index Counsel, Index Calculation Agent, Bank Custodian,
PR Firm, Data Collection Agent, Index Data Compiler, Listing Agent, Public Auditor and Index Advisors. The LGBTQ demographic has
proven itself to be a fiercely loyal consumer group supporting companies and their brands. In addition, we are developing a business
model designed for businesses to promote and showcase their support for the LGBTQ community.
We
also plan to create additional businesses that will enhance the Index, including LGBTQ Loyalty Sponsorship which we intend to
establish to promote the growth of the
Index
. We will pursue partnerships
with socially conscious companies globally that seek to market and advertise directly to LGBTQ consumers. We also intend to partner
with some of the most recognizable LGBTQ community leaders from around the world to have them become LGBTQ Loyalty Sponsorship
members that will promote the
Index
. The LGBTQ Loyalty Sponsorship will incorporate
marketing and support of the companies included in the
Index
. Companies within the
Index will be given the opportunity to purchase LGBTQ Loyalty Sponsorship packages.
Sponsorship
packages will be tier priced starting at ten thousand dollars for a first level package and increasing to one million dollars
for a gold level package. We plan to utilize the networking and relationships of our Board of Directors to promote the LGBTQ Loyalty
Sponsorship packages. We also intend to focus on two complimentary businesses, an LGBTQ Advertising Network and an LGBTQ Media
Network. The LGBTQ Advertising Network will offer a direct link to the companies that desire to deliver a customized marketing
campaign to the LGBTQ consumer. We intend to offer our expertise including our own survey data to help companies develop their
targeted message in a powerful delivery network. The LGBTQ Media Network will aggregate content from around the world in a 24/7
digital delivery format that is intended to target the highly desired spending power of the LGBTQ consumer.
In
connection with the Securities Exchange Agreement and the closing thereunder, no changes were made to the composition of our Board
of Directors (the “Board”) or executive officers. Accordingly, immediately following the closing, our Board continued
to be comprised of Robert Blair and Lawrence Roan, and our executive officers continued to be comprised of Robert Blair (Chief
Executive Officer and Chief Financial Officer) and Brian Neal (President). Effective March 8, 2019, we appointed Barney Frank
and Billy Bean to our board. Effective March 25, 2019, we appointed Martina Navratilova to our board.
The
Securities Exchange Agreement also provides that during the six month period following the January 25, 2019 closing under the
Securities Exchange Agreement (i) we cannot enter into any financing transactions without the prior written consent of Maxim,
which consent cannot be unreasonably withheld, and (ii) we cannot issue any equity or debt securities without the prior written
consent of Maxim, which consent cannot be unreasonably withheld. As further provided in the Securities Exchange Agreement, since
its formation, LGBT Loyalty has had no material operations, assets or liabilities.
We
are a licensed developer and publisher of apps for the Apple App 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/publications on all three platforms.
Moving forward we will focus on the development of niche demographic media networks. Our management team has selected the LGBT
marketplace as their first audience to target for the following reasons: the LGBT community is estimated to have four times the
buying power of Hispanics and African Americans, two times the buying power of Asian Americans and four times the buying power
of millennials, and they are extremely loyal and consistent consumers. At current growth rates, the purchasing power of the US
LGBT community is estimated to exceed 1 trillion dollars by 2020. Currently, the LGBT audience is fragmented across multiple sites.
We will target this audience directly with community specific content, blogs, stories and video. Currently there are an estimated
19.6 million people who identify themselves as LGBT in the US. They represent an estimated 890 billion dollars of buying power
in the US and an estimated 3 trillion dollars globally. Same-sex households have an estimated 23% higher median income as compared
to mainstream households. They are believed to be 1.23 times more likely to buy brands that reflect their style and they are believed
to be 1.56 times more likely to consider themselves a spender rather than a saver. Our focus will be to aggregate the LGBT audience
through a powerful database marketing platform.
We
will continue to explore acquisitions of companies and new technologies. In addition, we will also explore the acquisition of
consumer related products as well. Such acquisitions will be considered where the purchase can help increase our revenues or enable
us to attain assets that will allow us to gain technological advances that would be more costly to develop than to purchase.
Our
Products
We
intend to create a LGBTQ Loyalty Preference Index. We will attempt to grow and publicize the Index through an LGBTQ Loyalty Sponsorship
program. LGBTQ Loyalty Sponsorship packages will be offered to companies that support the LGBTQ community. We also intend to create
a LGBTQ Advertising Network and a LGBTQ Media Network. The LGBTQ Loyalty Preference Index will survey and select up to 100 of
the most influential companies that support and market their products and services to LGBTQ consumers. Our LGBTQ Loyalty Sponsorships
and LGBTQ Membership Programs will be offered to all companies that express an interest in promoting their support for the LGBTQ
community through marketing, hiring practices, charitable giving and other forms of support. The LGBTQ Advertising Network will
deliver market specific messaging to this powerful consumer group and will be available to assist companies in tailoring their
advertising for the greatest impact. The LGBTQ Media Network will attract viewers through breaking news and relevant content from
the world of news, entertainment, sports, politics, travel and health and fitness. The LGBTQ Media Network will aggregate content
from around the world in a 24/7 digital delivery format that is intended to target the highly desired spending power of the LGBTQ
consumer. Subject to our receipt of required financing, we expect to launch our products during the fourth quarter of 2019.
Revenue
We
intend to monetize and drive revenue through development of the LGBTQ Loyalty Preference Index. We will receive a percentage of
the revenues derived from the Index. We expect the Index to reach the break-even point when its holdings of funds under management
are approximately $40,000,000. We also intend to drive revenue through ancillary businesses that will support and be supported
by the LGBTQ Loyalty Preference Index. Our LGBTQ Loyalty Sponsorships and LGBTQ Membership Programs are intended to produce revenue
through direct sales of the offerings to companies who desire to be recognized as supportive of the LGBTQ community. The LGBTQ
Advertising Network and LGBTQ Media Network are expected to drive revenue as a vehicle to market and advertise to the highly sought-after
LGBTQ consumer demographic.
Convertible
Loans
On
November 9, 2015 an individual (the “Lender”) made an unsecured convertible loan to LifeApps Brands Inc. (the “Company”)
due and payable on March 21, 2016, in the principal amount of $25,000 bearing interest at the rate of 10% per annum. The loan
was evidenced in writing by the Company and the Lender when made and was convertible into shares of the Company’s common
stock (“Common Stock”) at a price of $0.75 per share. On October 27, 2016 the Company and the Lender entered into
a Debt Conversion Agreement in which they agreed to revise the conversion price from $0.75 per share to $0.0055 per share, which
was the closing sale price for the Common Stock on October 27, 2016 and to convert the principal amount of the loan at the revised
conversion price into 4,545,455 shares of Common Stock. In consideration of the revised conversion terms, the Lender agreed to
waive the accrued interest due on the loan.
During
the period April 2, 2016 through August 7, 2017 the Lender made unsecured loans to us in the aggregate principal amount of $55,500.
Effective December 19, 2017 the Lender converted $54,000 of the $55,500 in loan principal then owed to her by us, into 5,400,000
shares of our common stock at a conversion price of $0.01 per share and forgave all interest accrued on the converted amount.
Effective
December 19, 2017 Lawrence Roan, a director, converted $39,935 of the $41,500 in debt owed to him by us, into 3,993,500 shares
of our common stock at a conversion price of $0.01 per share and forgave the balance of the debt, including, all accrued interest
due thereon. He also forgave all accrued interest due on the converted amount.
Effective
March 6, 2018 we entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) pursuant
to which we issued to Power Up a $35,000 convertible promissory note dated March 6, 2018 (the “Power Up Note”). The
Power Up Note entitled the holder to 12% interest per annum and had a maturity date of March 6, 2019. Power Up had the right to
convert the Power Up Note into shares of our common stock beginning on the date which is 180 days from the issuance date of the
Power Up Note, at a price equal to 58% of the lowest trading price for our common stock during the 15 trading day period ending
on the last complete trading date prior to the date of conversion, provided, however, that Power Up could not convert the Power
Up Note to the extent that such conversion would result in Power Up’s beneficial ownership being in excess of 4.99% of our
issued and outstanding common stock together with all shares owned by Power Up and its affiliates at the time of conversion. The
Securities Purchase Agreement contained a Right of First Refusal in favor of the Purchaser and the Note contained a Most Favored
Nation provision in favor of the Holder. The Securities Purchase Agreement also subjected us to substantial penalties in the event
of a default. As the result of our failure to timely file a periodic report, we were in default under the Power Up Note. As a
result, the principal balance due on the Power Up Note was increased from $35,000 to $52,500 and we also incurred interest penalties.
During the period September 20, 2018 through February 11, 2019, Power Up converted the principal and interest due on the Power
Up Note into an aggregate of 33,481,522 shares at conversion prices ranging from $0.0045 to $0.0015 per share. Effective February
11, 2019, the Power Up Note has been fully converted and terminated.
On
August 7, 2018 and December 19, 2018 we received loans of $10,000 and $5,000, respectively, from a lender. On March 7, 2019, the
lender agreed to convert the $15,000 in loan principal into shares of our common stock at a conversion price of $0.08 per share
resulting in an issuance obligation of 187,500 shares. We have yet to issue the shares, but expect to issue them in the near future.
The lender also agreed to waive all interest due on the loans.
Advisory/Consulting
Agreements
Wellfleet
Consulting Agreement
On
January 8, 2018 we entered into a 90-day Consulting Agreement (the “Wellfleet Agreement”), effective as of January
1, 2018, with Wellfleet Partners, Inc. (“Wellfleet”) in recognition of past and future financial, management consulting
and advisory and due diligence services provided and to be provided to us by Wellfleet. In consideration thereof, we paid Wellfleet
$7,500 in cash and issued an aggregate of 2,500,000 shares of our restricted common stock to two designees of Wellfleet.
Uptick
Agreement
On
January 26, 2018 we entered into an Advisory Agreement with Uptick Capital, LLC. (“Uptick”) pursuant to which Uptick
provided us with marketing and financial advice. The Advisory Agreement had a term of 30 days. We issued 500,000 shares of our
restricted common stock under the Advisory Agreement.
Business
Strategy
Our
business strategy will include worldwide promotion of the LGBTQ Loyalty Preference Index.
Findings
from LGBTQ economic experts have highlighted the value of LGBTQ brand loyalty. More than an estimated seventy-five percent of
LGBTQ adults and their friends, family, and relatives have said they would switch to brands that are known to be LGBTQ friendly.
LGBTQ
Loyalty Sponsorship will be established to promote the Index along with the companies that market and advertise to LGBTQ consumers.
We expect to join forces with some of the most recognizable individuals from around the world to become LGBTQ Loyalty Sponsorship
Members and publicize the Index. The LGBTQ Loyalty Sponsorship will incorporate marketing and support of the companies included
in the Index. Companies will be offered the opportunity to purchase LGBT Loyalty Sponsorship packages starting at ten-thousand
dollars and up to one million dollars. All Sponsorship packages will include use of the LGBTQ Loyalty Logo and recognition on
our Website Supporters page. More elaborate LGBTQ Loyalty Sponsorship packages will include access to our survey data, coordinated
events with LGBTQ Loyalty Sponsorship Members, involvement in developing survey questions and recognition through press releases,
photo opportunities and event media.
We
are also in development of a LGBTQ Advertising Network and a LGBT Media Network to assist businesses and brands in the creation
and distribution of specific content targeting the highly desired spending power of the LGBTQ consumer.
Our
business strategy is targeted to the estimated three trillion-dollar global purchasing power of the LGBTQ consumer demographic.
More than nineteen million people identify themselves as LGBTQ in the US and the LGBTQ community is composed of some of the most
loyalty driven consumers in the world.
Many
Fortune 500 companies have mandated diversity and equality as part of their annual marketing spend. Our mission is to become the
worlds’ largest media and advertising network marketplace for connecting companies with LGBTQ consumers around the globe.
Some of the companies currently advertising to the LGBTQ community include AT&T, Lexus, Procter & Gamble, American Airlines,
Bristol-Myers Squibb, Johnson & Johnson, Burger King, Subaru, Orbitz, Miller-Coors, and HBO. The foremost desire for LGBTQ
consumers is to see themselves more widely represented in all forms of advertising. In the US, 66 percent of LGBTQ consumers say
that they don’t see their lifestyle represented enough in advertising. Data has estimated that LGBT consumers in the US,
UK and Germany are more likely than the general public to act after seeing an advertisement. We intend to deliver sponsored advertising
content through this network of the most popular mainstream entertainment websites covering News, Health & Fitness, Travel
& Leisure, Business and Sports. We believe that our sponsored advertising content will inspire an authentic relationship between
advertisers and consumers. These advertisers desire an authentic relationship with the LGBTQ community. We intend to not only
help them create powerful content but we will make sure their content hits the consumer bullseye.
We
believe that the LGBTQ demographic is one of the most highly sought-after economic groups in the world from corporate America
down to the local business owner. What makes targeting and supporting this dynamic demographic even more extraordinary and rewarding
is that friends, family, employers, employees, teachers, coaches and fans of our community so loyally support the brands, products
and services that in turn support us. We further believe that this loyalty across the board is time tested, proven, growing and
expanding and ultimately extremely rewarding to all that are embraced by the LGBTQ community.
We
have achieved no revenues to date from our LGBT related operations and no assurance can be given that we will achieve revenues
or profitability in the future.
Competition
We
believe that we are creating the first LGBTQ Loyalty Preference Index. We have identified Pride Performance & Holdings (“Pride”),
an entity which gives individuals an opportunity to invest in companies that support equality in the workplace for their lesbian,
gay, bisexual and transgender employees as a competitor. However, Pride appears to focus mainly on the hiring of LGBT individuals
and we do not see this as direct competition as our Index will be created through surveying and preferencing the top companies
in the S&P 500 that best support the LGBTQ community.
Government
Regulation
We
are subject to a number of domestic and foreign laws and regulations that affect our business. Not only are these laws constantly
evolving, which could result in them being interpreted in ways that could harm our business, but legislation is also continually
being introduced that may affect both the content of our products and their distribution.
Further,
because our services are available worldwide, certain foreign jurisdictions and others may claim that we are required to comply
with their laws, including in jurisdictions where we have no local entity, employees or infrastructure.
Employees
As
of December 31, 2018, we had a total of three employees, all of whom were full time employees. None of our employees are represented
by a collective bargaining agreement. We consider our relations with our employees to be good.
Properties
Our
principal executive office is located at 2435 Dixie Highway, Wilton Manors, Florida 33305 and our telephone number is (954) 947-6133.
The property is currently being rented on a month to month basis at a rate of $250 per month.
Legal
Proceedings
We
may, from time to time, be a party to litigation that arises in the normal course of our business operations. Currently, no legal
proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in
the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition.
Available
Information
We
are subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”). Reports filed with
the SEC pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, can be inspected and
copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain
information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies of
these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available on
the SEC’s website (http://www.sec.gov).
An
investment in our securities involves a high degree of risk. You should not invest in our securities if you cannot afford to lose
your entire investment. In deciding whether you should invest in our securities, you should carefully consider the following information
together with all of the other information contained in this Current Report. Any of the following risk factors can cause our business,
prospects, financial condition or results of operations to suffer and you to lose all or part of your investment.
Risks
Related to Our Business
We
have a limited operating history and are subject to the risks encountered by early-stage companies.
Because
we have a limited operating history, you should consider and evaluate our operating prospects in light of the risks and uncertainties
frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:
|
|
●
|
risks
that we may not have sufficient capital to achieve our growth strategy;
|
|
|
●
|
risks
that we may not develop and operate our proposed LGBT related businesses in a manner that enables us to be profitable and
meet our customers’ requirements;
|
|
|
●
|
risks
that our growth strategy may not be successful; and
|
|
|
●
|
risks
that fluctuations in our operating results will be significant relative to our revenues.
|
These
risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the
other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed.
Our
independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.
Our
financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered
public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring net losses and expressing
substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon
our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures,
and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the outcome
of this uncertainty. However, if adequate funds are not available to us when we need it, and we are unable to enter into some
form of strategic relationship that will give us access to additional cash resources, we will be required to even further curtail
our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.
Our
LGBTQ related business operations may subject us to the prejudices of those opposed to the existence and expansion of LGBT rights.
As
an LGBTQ focused company, we recognize that certain individuals or groups will not look favorably upon our LGBTQ related operations
and strategies and may seek to impede the development and expansion of our businesses.
We
have a history of net losses, may incur substantial net losses in the future and may not achieve profitability.
We
have incurred significant losses since inception. As of December 31, 2018, we had an accumulated deficit of $3,880,234. We expect
to incur increased costs in order to implement additional initiatives designed to increase revenues. If our revenues do not increase
to offset these additional expenses or if we experience unexpected increases in operating expenses, we will continue to incur
significant losses and will not become profitable. If we are not able to significantly increase our revenues, we will likely not
be able to achieve profitability in the future.
We
may not be able to secure additional financing as and when needed.
We
will need to raise significant additional funds to develop and support our business operations, respond to competitive pressures,
acquire or invest in complementary or competitive businesses or technologies, or take advantage of unanticipated opportunities.
We cannot be sure that this financing will be available on acceptable terms or at all. Furthermore, any debt financing, if available,
may involve restrictive covenants, which may limit our operating flexibility with respect to business matters. If additional funds
are raised through the issuance of equity securities, the percentage ownership of our existing shareholders will be reduced, our
shareholders may experience additional dilution in net book value, and such equity securities may have rights, preferences, or
privileges senior to those of our existing shareholders. If adequate funds are not available on acceptable terms or at all, we
may be unable to develop or enhance our services and products, take advantage of future opportunities, repay debt obligations
as they become due, or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects,
financial condition, and results of operations.
If
we lose the services of our Chief Executive and Financial Officer or other members of our senior management team, we may not be
able to execute our business strategy.
Our
success depends in a large part upon the continued service of our senior management team. In particular, our Chief Executive and
Financial Officer, Robert A. Blair, is critical to our vision, strategic direction, culture, products and technology. We do not
maintain key-man insurance for Mr. Blair or any other member of our senior management team. The loss of our Chief Executive and
Financial Officer, even temporarily, or any other member of senior management would harm our business.
Risks
Related to Our Common Stock
Because
our 2012 merger was a reverse merger, we may not be able to attract the attention of major brokerage firms, which may limit the
liquidity of our common stock and may make it more difficult for us to raise additional capital in the future.
Additional
risks may exist because our 2012 merger was a “reverse merger.” Certain SEC rules are more restrictive when applied
to reverse merger companies, such as the ability of stockholders to resell their shares of common stock pursuant to Rule 144.
In addition, securities analysts of major brokerage firms may not provide coverage of our common stock following the Merger because
there may be little incentive for brokerage firms to recommend the purchase of our common stock. As a result, our common stock
may have limited liquidity and investors may have difficulty selling it. In addition, we cannot assure you that brokerage firms
will want to conduct any secondary offerings on our behalf if we seek to raise additional capital in the future. Our inability
to raise additional capital may have a material adverse effect on our business.
We
do not expect to pay dividends on our common stock.
We
have no plans to pay dividends on our common stock for the foreseeable future. Because we do not plan to pay dividends on our
common stock, our stock may be less attractive to some investors, which could adversely affect our stock price.
If
we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could
be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring
that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial
statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the
Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. Our failure
to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have
a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial
reports, which could have an adverse effect on the price of our Common Stock. In addition, if our efforts to comply with new or
changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities
related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Our
common stock is considered a “penny stock,” which is likely to limit its liquidity and make it more difficult for
us to raise additional capital in the future.
The
market price of our common stock is, and will likely remain for the foreseeable future, less than $5.00 per share, and therefore
will be a “penny stock” according to SEC rules, unless our common stock is listed on a national securities exchange.
The OTC Bulletin Board is not a national securities exchange. Designation as a “penny stock” requires any broker or
dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability
of brokers or dealers to sell our common stock and may affect the ability of current holders of our common stock to sell their
shares. Such rules may also deter broker-dealers from recommending or selling the common stock, which may further limit its liquidity.
This may also make it more difficult for us to raise additional capital in the future.
The
price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The
future trading price of our common stock may become highly volatile and could fluctuate in response to factors such as:
|
|
●
|
actual
or anticipated variations in our operating results;
|
|
|
●
|
announcements
of developments by us or our competitors;
|
|
|
●
|
announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
|
|
|
●
|
adoption
of new accounting standards affecting our industry;
|
|
|
●
|
additions
or departures of key personnel;
|
|
|
●
|
sales
of our common stock or other securities in the open market; and
|
|
|
●
|
other
events or factors, many beyond our control.
|
You
may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 1,010,000,000 shares of capital stock
consisting of 1,000,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to be
determined by our Board of Directors. As of April 10, 2019, there were 289,291,798 shares of our common stock and 125,000 shares
of our Series B Preferred Stock outstanding. There are 2,753,312 shares of our common stock reserved for issuance under our 2012
Equity Incentive Plan (the “2012 Plan”). Under the Plan, options to purchase 5,800,000 shares of our common stock
are presently outstanding.
Any
future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and
could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger
pool of outstanding equity. As described above, we may need to raise additional capital through public or private offerings of
our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
We may also issue such securities in connection with hiring or retaining employees and consultants, as payment to providers of
goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may at any time
authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total
number of authorized common and preferred shares set forth in our certificate of incorporation. The terms of equity securities
issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences,
superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect.
Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure
on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price (or
exercise prices) below the price at which shares of the common stock are then traded.
We
may obtain additional capital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.
Without
any stockholder vote or action, our Board of Directors may designate and approve for issuance shares of our preferred stock. The
terms of any preferred stock may include priority claims to assets and dividends and special voting rights which could limit the
rights of the holders of our common stock. The designation and issuance of preferred stock favorable to current management or
stockholders could make any possible takeover of us or the removal of our management more difficult.
ITEM
1B. UNRESOLVED STAFF COMMENTS
We
have no unresolved staff comments.
ITEM
2. PROPERTIES
Our
principal executive office is located 4235 Dixie Highway, Wilton Manors, FL 33305 and our telephone number is (954) 947-6133.
The property is currently being rented on a month to month basis at a rate of $250 per month.
We
do not own any real estate.
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm business. We are currently not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on business, financial condition or operating results.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
On
February 1, 2012, our common stock became listed for quotation on the OTC Bulletin Board, originally under the symbol “PTRV.”
Our symbol changed to “LFAP” on September 12, 2012 in connection with our name change to “LifeApps Digital Media
Inc.” and remained “LFAP” following our name change to “LifeApps Brands Inc.” Since December 7,
2012, our common stock has been quoted solely on the OTC Markets Group, Inc.’s marketplace.
The
trading of our common stock began on March 26, 2012. The following table sets forth the high and low closing bid prices for our
common stock for the fiscal quarters indicated as reported on OTC Markets. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual transactions. Our common stock is thinly traded and, thus,
pricing of our common stock on OTC Markets does not necessarily represent its fair market value. The prices give retroactive effect
to our one-for-fifteen reverse stock split which took effect on January 7, 2016.
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
$
|
0.168
|
|
|
$
|
0.0025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
$
|
0.0075
|
|
|
$
|
0.0026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
$
|
0.008
|
|
|
$
|
0.0064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
$
|
0.0101
|
|
|
$
|
0.006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
$
|
0.0151
|
|
|
$
|
0.008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
$
|
0.015
|
|
|
$
|
0.0053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
$
|
0.0182
|
|
|
$
|
0.006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
$
|
0.021
|
|
|
$
|
0.0045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
$
|
0.0074
|
|
|
$
|
0.0045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
$
|
0.0055
|
|
|
$
|
0.0036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
$
|
0.011
|
|
|
$
|
0.0053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,2016
|
|
|
$
|
0.046
|
|
|
$
|
0.0022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
$
|
0.006
|
|
|
$
|
0.0025
|
|
As
of April 10, 2019 there were 289,291,798 shares of our common stock issued and outstanding, no shares issuable upon exercise of
warrants and 5,800,000 shares issuable upon exercise of outstanding options. On that date, there were 28 holders of record of
shares of our common stock.
Dividend
Policy
We
have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our
business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent
upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems
relevant.
Recent
Sales of Unregistered Securities
On
May 24, 2016 we granted and issued an aggregate of 15,000,000 non-statutory stock options under our 2012 Equity Incentive Plan
to four persons including our Chief Executive Officer, Robert Gayman (6,000,000 options), Directors Lawrence P. Roan (3,000,000
options) and Dr. Howard Fuller (1,000,000 options) and a Consultant, Gregory P. Hanson (5,000,000 options). Each option is exercisable
to purchase one share of our common stock upon vesting at an exercise price of $0.0026 per share. The options have a term of 4
years and vest quarterly on the three, six, nine and twelve month anniversaries of the date of grant.
Effective
October 27, 2016, we issued 4,545,455 shares of our common stock in connection with a lender’s conversion of a November
9, 2015 loan in the principal amount of $25,000.
Effective
January 8, 2016 we issued 597,545 shares of our restricted common stock to our corporate and securities counsel in consideration
of services rendered.
In
August 2016, we issued 250,000 shares of common stock to our corporate and securities counsel in consideration of their agreement
to temporarily defer payment of legal fees due to it for services rendered.
Pursuant
to our December 19, 2017 Employment Services Agreement with Robert A. Blair, effective December 19, 2017 we issued 2,000,000 shares
of our restricted common stock to Mr. Blair.
Pursuant
to our December 19, 2017 Employment Services Agreement with Brian Neal, effective January 1, 2018 we issued 50,500,000 shares
of our restricted common stock to Brian Neal.
Effective
December 19,2017 Lawrence Roan, a director, converted $39,935 of the $41,500 in debt owed to him by us into 3,993,500 shares of
our common stock at a conversion price of $0.01 per share and forgave the balance of the debt, including all accrued interest
due thereon. He also forgave all interest accrued on the converted amount.
Effective
December 19, 2017 Lesly Thompson converted $54,000 of the $55,500 in debt principal owed to her by us into 5,400,000 shares of
our common stock at a conversion price of $0.01 per share and forgave all accrued interest due on the converted amount.
Effective
December 19,2017 we issued 1,000,000 stock options to Howard Fuller, 1,000,000 stock options to a consultant and we issued 4,946,688
stock options to Robert Gayman pursuant to our December 19, 2017 Executive Management Consultant Agreement with Robert Gayman.
All of the options vested on issuance, have a term of 5 years and an exercise price of $0.01 per share.
Effective
December 19, 2017 we issued 500,000 shares of our common stock to our securities counsel to temporarily defer payment of legal
fees due to it for services rendered.
Effective
January 8, 2018 we issued an aggregate of 2,500,000 shares of our restricted common stock to two designees of a consultant pursuant
to a January 8, 2018 Consulting Agreement.
Effective
January 28, 2018 we issued 500,000 shares of our restricted common stock to Uptick Capital LLC., pursuant to a January 26, 2018
Advisory Agreement.
On
March 6, 2018 we issued a $35,000 convertible promissory note to Power Up Lending Group Ltd. (“Power Up”). During
the period September 20, 2018 through February 11, 2019, Power Up converted the note including penalty amounts and interest into
an aggregate of 33,481,522 shares of our common stock.
On
October 25, 2018 we issued 1,000,000 shares to an advisor in consideration of $24,875 in accounting, tax and advisory services.
On
December 5, 2018 we issued an aggregate of 2,750,000 shares of our restricted common stock to one person pursuant to (i) an August
7, 2018 $10,000 promissory note, as amended, due on February 15, 2019 (750,000 shares) and (ii) a $10,000
Securities Purchase Agreement dated August 7, 2018 (2,000,000 shares). The shares were deemed to have been issued as of August
7, 2018.
On
December 5, 2018 we issued 10,946,688 shares of our restricted common stock to Robert Gayman pursuant to the exercise of (i) 6,000,000
stock options at an exercise price of $0.0026 per share or an aggregate of $15,600, and (ii) 4,946,688 stock options at an exercise
price of $0.01 per share or an aggregate of $49,467, the payment for which was made by making a corresponding deduction to amounts
owed by us to Mr. Gayman.
On
December 5, 2018 we issued 500,000 shares to our corporate counsel in consideration of its deferment, on a temporary basis, of
legal fees due to it by us for services rendered.
Effective
December 27, 2018 we issued and sold an aggregate of 8,000,000 shares of our common stock to two persons at a price of $0.005
per share or an aggregate of $40,000.
Effective
January 25, 2019, in connection with the closing under the January 25, 2019 Securities Exchange Agreement, we issued 120,959,996
shares of our common stock and one share of our Series A Convertible Preferred Stock to Maxim Partners, LLC.
Effective
March 26, 2019 the share of Series A Convertible Preferred Stock was automatically converted into 8,598,578 shares of our common
stock.
Effective
January 25, 2019 we issued common stock purchase warrants to Brian Neal and Robert Gayman in consideration of amounts due by us
to Brian Neal, Robert Gayman and Robert Blair as of, but not including, January 1, 2019 (See Item 1. Business – Organizational
History). Effective March 26, 2019 the warrants held by Brian Neal were automatically converted into 4,609,458 shares of our common
stock and the warrants held by Robert Gayman were automatically converted into 3,990,840 shares of our common stock.
Effective
February 20, 2019 we issued 250,000 shares to a consultant pursuant to a Consulting Agreement made as of February 20, 2019 and
issued an additional 500,000 shares to the consultant pursuant to his exercise of 500,000 stock options at a price of $0.01 per
share or an aggregate of $5,000.
Effective
March 8, 2019, we issued 1,000,000 shares to each of Barney Frank and Billy Bean in connection with their respective appointments
to our Board of Directors. Effective March 25, 2019 we issued 1,000,000 shares to Martina Navratilova in connection with her appointment
to our Board of Directors.
Effective
April 3, 2019, we issued 125,000 shares of our Series B Convertible Preferred Stock to five persons at a price of $1.00 per share
or an aggregate of $125,000.
All
of the foregoing issuances of securities were made in reliance on Section 4(a)(2) of the Securities Act of 1933 as amended.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
|
ITEM 7.
|
MANAGEMENT’S DISC
USSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited
consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. References
in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,”
“our,” and similar terms refer to LifeApps Brands Inc., a Delaware corporation. This discussion includes forward-looking
statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties,
such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,”
“plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions are used to identify
forward-looking statements.
We
caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections
upon which the statements are based. See “Note Regarding Forward-Looking Statements.” Our actual results could differ
materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors”
and elsewhere in this Annual Report. Any one or more of these uncertainties, risks and other influences could materially affect
our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results,
performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake
no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Critical
Accounting Policies and Estimates
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”),
which contemplates our continuation as a going concern. As of December 31, 2018, we have incurred losses of $3,880,234. To date
we have funded our operations through advances from a related party, issuance of convertible debt, and the sale of our common
stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding
will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern.
Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities
in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing
losses, and ultimately generate profitable operations.
Use
of Estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
Fair
Value Measurements:
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines
the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
Level
2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of
the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities
or contracts or priced with models using highly observable inputs.
Level
3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of cash and cash equivalents, short-term trade receivables, prepaid expenses, payables, accruals
and convertible notes payable. The carrying values of cash and cash equivalents, short-term trade receivables, prepaid expenses,
payables, and accruals approximate fair value because of the short-term maturities of these instruments.
Intangibles
Intangibles,
which include websites and databases acquired, internet domain name costs, and customer lists, are being amortized over the expected
useful lives which we estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”) Topic 350
Intangibles – Goodwill and Other
(“ASC 350”),
the costs to obtain and register internet domain names were capitalized.
Derivative
Financial Instruments:
We
do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based
derivative financial instruments, we used a Black Scholes valuation model to value the derivative instruments at inception and
on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance
sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required
within 12 months of the balance sheet date.
Revenue
Recognition
Revenue
is derived primarily from the sale of sports and fitness apparel and equipment, and software applications designed for use on
mobile devices such as smart phones and tablets. Revenue is recognized only when persuasive evidence of an arrangement exists,
the fee is fixed or determinable, the product or service has been delivered, and collectability is probable.
We
sell our software directly via Internet download through third party agents. We recognize revenue when payment is received from
the agent. Payment is received net of commission paid to the agent, usually 70% to us and 30% to the agent. We record the net
amount received as revenue.
We
also publish and sell digital magazines through the internet. Magazines can be purchased as individual volumes or as a subscription.
To date we have not had any subscription sales.
Cost
of Revenue
Cost
of revenue includes the cost of amounts paid for articles, photography, editorial and production cost of the magazine and ongoing
web hosting costs. Cost of revenue related to product sales includes the direct cost of those products sold.
Equity
Based Payments
Equity
based payments are accounted for in accordance with ASC Topic 718,
Compensation – Stock Compensation.
The compensation
cost is based upon fair value of the equity instrument at the date grant. The fair value has been estimated using the Black-Sholes
option pricing model.
Results
of Operations
Year
ended December 31, 2018 Compared to the Year ended December 31, 2017
(References
to 2018 and 2017 are to the years ended December 31, 2018 and 2017 respectively, unless otherwise specified.)
Revenues
for 2018 and 2017 were $2,574 and $3,793, respectively. Revenues were primarily from the sale of sports apparel and health and
fitness products. We continue to have a limited number of apps in the Apple App store.
In
the future we will incur direct cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable
future we anticipate outsourcing such costs.
Cost
of revenue for 2018 and 2017 was $0 and $49 (1.3%), and respectively. This resulted in a gross profit for 2018 and 2017 of $2,574
(100 %) and $3,744 (98.7%), respectively. Costs were primarily the cost of products sold.
The
following is a breakdown of our selling, general and administrative expenses for 2018 and 2017:
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
% Change
|
|
|
Personnel costs
|
|
$
|
347,713
|
|
|
$
|
154,800
|
|
|
$
|
192,913
|
|
|
|
125
|
%
|
|
Professional fees
|
|
|
160,226
|
|
|
|
36,710
|
|
|
|
123,516
|
|
|
|
336
|
%
|
|
Marketing, and promotion advertising
|
|
|
—
|
|
|
|
3,495
|
|
|
|
(3,495
|
)
|
|
|
—
|
|
|
Equity based payments and expenses
|
|
|
—
|
|
|
|
53,880
|
|
|
|
(53,880
|
)
|
|
|
—
|
|
|
Consulting fees
|
|
|
218,532
|
|
|
|
—
|
|
|
|
218,532
|
|
|
|
—
|
|
|
Travel and entertainment
|
|
|
10,827
|
|
|
|
3,022
|
|
|
|
7,805
|
|
|
|
258
|
%
|
|
Rent expense
|
|
|
255
|
|
|
|
4,350
|
|
|
|
(4,095
|
)
|
|
|
-94
|
%
|
|
Other expenses
|
|
|
10,410
|
|
|
|
3,337
|
|
|
|
7,073
|
|
|
|
212
|
%
|
|
|
|
$
|
747,963
|
|
|
$
|
259,594
|
|
|
$
|
488,369
|
|
|
|
|
|
Personnel
costs in 2018 consist primarily of unpaid salary accruals for our chief executive officer and president ($174,000) and the amortization
of deferred officer compensation ($173,713). Personnel costs in 2017 consist primarily of unpaid salary accruals for our chief
executive officer.
Professional
fees increased $123,516 (336%) from $36,710 in 2017 to $160,226 in 2018. The increase is a result of the timing of the services
provided for auditing and legal services and additional legal services related to changes in the Company’s planned operations.
Consulting
expense during the year ended December 31, 2018 consisted principally of $150,000 of costs accrued for our former chief executive
officer and $22,705 of amortization of deferred compensation. Additionally, we had $45,827 of costs associated with common stock
issued in connection with consulting contracts with third parties.
Amounts
charged to equity-based payment expense for the options granted to employees and non-employees was $53,880 for the year ended
December 31, 2017.
Travel
expenses increased by $7,805 for the year ended December 31, 2018 as a result of the change in our proposed business operations.
Rent
expense decreased by $4,095 for the year ended December 31, 2018. The decrease is a result of the change in our principal office
location.
There
was no marketing expense recorded during year ended December 31, 2018 due to the proposed change in our business operation.
All
of our other operating costs were not significant in the aggregate.
Interest
and derivative expenses are primarily related to a convertible note payable to a third-party lender that was secured during the
quarter ended March 31, 2018 and interest accrued pursuant to employment and consulting contracts..
We
had operating and net losses of $745,539 and $256,825 for 2018 and 2017, respectively. The increase in net loss for 2018 is due
primarily to personnel costs, consulting fees and professional fees.
Liquidity
and Capital Resources
Our
existing sources of liquidity may not be sufficient for us to implement our continuing business plan. Our need for future capital
will be dependent upon the speed at which we expand our product offerings. There are no assurances that we will be able raise
additional capital as and when needed.
As
of December 31, 2018, we had a working capital deficit of $710,855 as compared to a working capital deficit of $769,355 at December
31, 2017.
During
the year ended December 31, 2018, operations used cash of $63,775 as compared to cash of $49,611 for the year ended December 31,
2017.
There
was no investing activity during the years ended December 31, 2018 and 2017.
During
the year ended December 31, 2018 financing activities provided cash of $103,599. During the year ended December 31, 2017 financing
activities provided cash of $49,310.
We
received $32,000 as proceeds from a convertible note payable to a third-party lender during the year ended December 31, 2018.
Also, we received an aggregate of $70,000 from the issuance of common stock and notes payable from three unrelated entities.
During 2018 related parties and shareholders provided $3,599 in cash to finance the Company.
During 2017 related parties and shareholders provided a net amount of $29,310 in cash to finance the Company.
We
will continue to seek out additional capital in the form of debt or equity under the most favorable terms we can find.
Off-Balance
Sheet Arrangements
None.
Contractual
Obligations
Not
applicable.
|
ITEM
7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not
applicable
|
ITEM
8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Our
consolidated financial statements are included beginning immediately following the signature page to this report. See Item 15
for a list of the consolidated financial statements included herein.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
On
January 23, 2018 (the “Resignation Date”) Pritchett, Siler & Hardy, P.C. (“PSH”) resigned as our independent
registered public accounting firm following PSH’s acquisition by Haynie & Company, CPA (“Haynie & Company”).
On January 23, 2018, we engaged Haynie & Company, Salt Lake City, Utah, as our new independent registered public accounting
firm. The change of our independent registered public accounting firm from PSH to Haynie & Company was approved unanimously
by our board of directors.
The
reports of PSH on our financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse or
disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that
such reports included a going concern qualification.
During
the fiscal years ended December 31, 2016 and 2015 and through the Resignation Date, there were (i) no disagreements between us
and PSH on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures,
which disagreement, if not resolved to the satisfaction of PSH, would have caused PSH to make reference thereto in their reports
on the consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
During
our fiscal years ended December 31, 2016 and 2015 and in the subsequent interim period through the Resignation Date, we have not
consulted with Haynie & Company regarding either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and
neither a written report nor oral advice was provided to us that Haynie & Company concluded was an important factor considered
by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event
(as described in Item 304(a)(1)(v) of Regulation S-K).
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our senior management, including our Chief Executive Officer and our Chief Financial
Officer, we performed an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act, as of the end of the period covered by this annual report (the “Evaluation Date”).
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018, for
the reasons set forth below under “Management’s Report on Internal Control over Financial Reporting”, our disclosure
controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed
by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.
Internal
control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
Management
recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or
detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods
because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
A
material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more
than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Under
the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an
evaluation of the effectiveness of our internal control over financial reporting, as of the Evaluation Date, based on the framework
set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in 2013. Based on its evaluation under this framework, for the reasons set forth below, management concluded that our internal
control over financial reporting was not effective as of the Evaluation Date.
Management
assessed the effectiveness of the Company’s internal control over financial reporting as of the Evaluation Date and Management
has identified the following deficiencies that, when aggregated, may possibly be viewed as a material weakness in our internal
control over financial reporting as of that date:
|
|
●
|
We
do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is
an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations
or listing standards, it is management’s view that such a committee is an important internal control over financial
reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls
and procedures.
|
|
|
|
|
|
|
●
|
We
have inadequate segregation of duties. We have an inadequate number of personnel to properly implement control procedures.
|
Management
believes that the lack of a functioning audit committee may result in ineffective oversight in the establishment and monitoring
of required internal controls and procedures, which could result in a material misstatement in our financial statements in future
periods.
Management,
including our Chief Executive Officer and Chief Financial Officer, has discussed the possible material weakness noted above with
our independent registered public accounting firm. Due to the nature of this possible material weakness, there is a more than
remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would
not be prevented or detected.
This
Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to rules of the SEC that permit us to provide only management’s report in this Annual Report.
Changes
in Internal Controls
There
were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2018 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s
Remediation Initiatives
In
an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, subject to
receipt of necessary funding, we plan to initiate the following series of measures:
We
expect to increase our personnel resources and technical accounting expertise within the Company’s accounting function.
We also plan to appoint one or more additional outside directors to our board of directors who shall be appointed to an audit
committee resulting in a fully functioning audit committee which will undertake the oversight in the establishment and monitoring
of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.
We
anticipate that these initiatives can be implemented in conjunction with the growth of our business.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control
systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system
must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but
are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
|
ITEM
9B.
|
OTHER
INFORMATION
|
Not
applicable.
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Executive
Officers and Directors
Below
are the names of and certain information regarding the Company’s executive officers and directors as of April 19, 2018.
|
Name
|
|
Age
|
|
Title
|
|
Date
of Appointment as a Director
|
|
|
|
|
|
|
|
|
|
Robert A. Blair
|
|
54
|
|
Chief Executive Officer, Chief Financial Officer
and Director
|
|
December 19, 2017
|
|
|
|
|
|
|
|
|
|
Brian Neal
|
|
54
|
|
President
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Lawrence Patrick Roan
|
|
59
|
|
Director
|
|
September 15, 2018
|
|
|
|
|
|
|
|
|
|
Barney Frank
|
|
78
|
|
Director
|
|
March 8, 2019
|
|
|
|
|
|
|
|
|
|
William (“Billy”) D. Bean
|
|
54
|
|
Director
|
|
March 8, 2019
|
|
|
|
|
|
|
|
|
|
Martina Navratilova
|
|
62
|
|
Director
|
|
March 25, 2019
|
Directors
are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Executive
officers are appointed by the Board of Directors and serve at its pleasure.
The
principal occupation and business experience during at least the past five years for our executive officers and directors is as
follows:
Robert
A. Blair
Robert
A. Blair brings to us a rich history in professional tennis, sports management and directing digital media platforms. His vision
and passion coupled with an impressive portfolio of business success is leading us in an exciting new direction for revenue and
growth in the LGBTQ Digital Media Marketplace. His skill in developing and delivering cutting edge marketing techniques and his
passion for serving the community in the highly desired LGBTQ marketspace is expected to enable us to become a global leader in
this market. From January 2015 until May 2016 Mr. Blair served as Chief Executive Officer of Multimedia Platforms Inc., (“MPI”)
a multimedia, technology and publishing company. He became the Chairman of MPI in May 2016 and became CEO again in September 2016.
MPI filed for Chapter 11 bankruptcy protection on October 4, 2016. Mr. Blair resigned from MPI in December 2017. We believe that
Robert A. Blair is qualified to serve on our board of directors based upon his industry and management experience.
Brian
Neal
Brian
Neal owned and operated personal training studios and gyms successfully in Atlanta, Georgia and Fort Lauderdale, Florida as a
premier LGBTQ fitness leader and instructor. Mr. Neal founded a 501-c3 Fitness & Health Foundation to support LGBTQ community
members suffering with HIV/AIDS by providing complimentary gym memberships, personal trainers, nutrition classes, yoga classes
and life coaching to ensure these community members could fight HIV/AIDS with a healthy lifestyle and a support group that would
encourage and support their efforts. In 2007, Mr. Neal co-founded Multimedia Platforms, Inc. which became one of the largest LGBTQ
media companies in the United States. Mr. Neal brings nearly 15 years of working within the LGBTQ community and is recognized
as a pioneer in the LGBTQ digital sector. Mr. Neal is 38 years old and resides in Los Angeles, CA with his life partner of 15
years.
Lawrence
Patrick Roan, Director
Lawrence
Patrick Roan has been a National Account Manager for Poly Print Packaging Company since February 2018. From April 2008 until September
2016 Mr. Roan served as a National Account Manager for Ultra Flex Packaging Company in their consumer packaging division. He has
over twenty years of sales and marketing experience in the commercial printing and consumer packaging business. Mr. Roan was previously
with Exopack, LLC, as a National Account Manager for their consumer plastics business. He managed high volume national accounts
as well as key developmental market accounts, and was responsible for transitioning customers with multiple manufacturing sites
throughout the U.S. He is a graduate of the University of Iowa and resides in Southern California. We believe that Lawrence Roan
is qualified to serve on our board of directors based upon his management experience.
Barney
Frank, Director
Barney
Frank is a graduate of Harvard College and Harvard Law School. He was the Executive Assistant to the mayor of Boston from 1968-1970;
he was the Administrative Assistant to former Congressman Michael Harrington from 1971-1972 and a Massachusetts State Representative
from 1973-1980. Mr. Frank was a US Congressman, representing the 4th District of Massachusetts from 1981-2013. As Chair of the
House Financial Services Committee, from 2007-2010, he was the co-author of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the regulatory overhaul signed into law in July 2010. In 1987 he became the first Member of Congress voluntarily to acknowledge
that he is gay, and in 2012 became the first sitting Member of Congress to marry a same-sex partner, James Ready. He has written
two books: Speaking Frankly, in 1992, a critique of some aspects of the Democrats approach to public policy; and a political memoir
published in 2015 titled “Frank: From the Great Society to Same Sex Marriage.” The book was nominated for a Triangle
Award and co-won the Randy Shilts Award for Gay Nonfiction. He has also written chapters in two other books, one on LGBT rights
and more recently on the response to the financial crisis. He has taught at Harvard, Boston University, the University of Massachusetts
Boston and the University of Massachusetts Dartmouth. Before joining government, he was a political activist, including his participation
as a volunteer in the Mississippi Freedom Summer in 1964. Mr. Frank also serves on the Board of directors of Signature Bank Corp.
We believe Mr. Frank is qualified to serve on our Board of Directors based upon his industry and professional background.
William
(“Billy”) D. Bean, Director
Billy
Bean is a former professional baseball player and is currently a major league baseball (“MLB”) front office executive
serving as Vice President and Special Assistant to the Commissioner. As a senior advisor to Commissioner Rob Manfred, his role
focuses on baseball’s social responsibility initiatives and LGBT inclusion. Among his responsibilities, Mr. Bean works with
MLB’s 30 clubs to bring awareness to all players, coaches, managers, umpires, employees, and stakeholders throughout baseball
to ensure an equitable, inclusive, and supportive workplace for everyone. On July 14, 2014, Mr. Bean was announced as MLB’s
first-ever Ambassador for Inclusion. He played major league baseball from 1987-1995. He broke into the big leagues with the Detroit
Tigers, and tied a major-league record with four hits in his first game. He went on to play for the Los Angeles Dodgers and the
San Diego Padres. Mr. Bean was a two-time “All-America” outfielder at Loyola Marymount University before graduating
with a degree in Business Administration. During the 1986 season, Bean led the Loyola Marymount Lions to a midseason #1 national
ranking and a berth into the College World Series in Omaha, Nebraska. Mr. Bean is a member of the MLB Owner’s Diversity
and Inclusion Committee, and was instrumental in the development of MLB’s ‘Shred Hate’ bullying prevention program,
a ground breaking educational youth campaign and partnership with ESPN. He is also the author of the book, “Going the Other
Way: Lessons from a Life in and out of Major League Baseball.” We believe Mr. Bean is qualified to serve on our Board of
Directors based upon his industry and management experience.
Martina
Navratilova, Director
Martina
Navratilova is a former professional tennis player deemed by many to be the most successful female tennis player of the U.S. Open
era. Over a career spanning four decades, Ms. Navratilova won 59 Grand Slam titles, including a record 9 Wimbledon singles championships,
167 singles and 177 doubles championships. Over the course of her tennis career, Ms. Navratilova was distinguished as the Women’s
Tennis Association’s (“WTA”) “Tour Player of the Year” seven times, named the Associated Press’s
“Female Athlete of the Year” and declared one of the “Top Forty Athletes of All-Time” by Sports Illustrated.
After being inducted into the International Tennis Hall of Fame, she continued to take part in WTA events as well as the 2004
Olympics Games. As she approached her 50th birthday in 2006, she decided to leave the tour circuit behind after her final Grand
Slam, a mixed-doubles championship with Bob Bryan at the U.S. Open making her the oldest player to ever win a Grand Slam title.
Ms. Navratilova provides commentary to the Tennis Channel’s audience during its coverage of the Grand Slams. She is an ambassador
for the WTA and is a regular commentator for the British Broadcasting Corporation and Tennis Channel at Wimbledon. Ms. Navratilova
also works for BT Sport and appears regularly on their tennis commentary. She spends as much time as she can with her family in
Miami, and often finds herself traveling the world, speaking at events, playing in numerous exhibition matches, and tirelessly
promoting all of the issues that are close to her heart. As one of the first openly gay sports figures, she has spent much of
her career overcoming prejudices and stereotypes, giving up millions of dollars in endorsements and sponsorships as a result of
her insistence on living a life of integrity and honesty. Since coming out in 1981, she has been an inspiring and vocal advocate
for equal rights and a strong supporter of many charities benefiting the LGBT community. She has received numerous awards from
many of the most influential organizations within the LGBT community. We believe Ms. Navratilova is qualified to serve on our
Board of Directors based upon her industry and professional background.
Family
Relationships
There
are no family relationships among our Directors or Executive Officers.
Involvement
in Certain Legal Proceedings
Except
as described above, none of our directors or executive officers has been involved in any of the following events during the past
ten years:
|
|
●
|
Any bankruptcy petition filed by or against
any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within
two years prior to that time;
|
|
|
●
|
Any conviction in a criminal proceeding or being
subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
|
|
|
●
|
Being subject to any order, judgment, or decree,
not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities;
or
|
|
|
●
|
Being found by a court of competent jurisdiction
(in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities
or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Board
Committees
The
Company currently has not established any committees of the Board of Directors. Our Board of Directors may designate from among
its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a
nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended
by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire
Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board
it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand
the size of our board and allocate responsibilities accordingly.
Audit
Committee Financial Expert
We
have no separate audit committee at this time. The entire Board of Directors oversees our audits and auditing procedures. The
Board of Directors has determined that no director is an “audit committee financial expert” within the meaning of
Item 407(d)(5) for SEC regulation S-K.
Board
of Directors and Corporate Governance
Our
Board of Directors consists of five members, Robert A. Blair, Lawrence P. Roan, Barney Frank, Billy Bean and Martina Navratilova.
Board
Independence
We
are not currently listed on any national securities exchange or quoted on an inter-dealer quotation system that has a requirement
that certain of the members of the Board of Directors be independent. However, the Board of Directors has made a determination
as to which of its members are independent. In evaluating the independence of its members and the composition of the committees
of the Board of Directors, the Board utilizes the definition of “independence” developed by the Nasdaq Stock Market
and in SEC rules, including the rules relating to the independence standards in audit committee members and the non-employee director
definition of Rule 16b-3 promulgated under the Exchange Act.
The
Board of Directors expects to continue to evaluate whether and to what extent the members of the Board are independent. The Company
intends to appoint persons to the Board who will meet the corporate governance requirements imposed by a national securities exchange.
Therefore, the Company expects that a majority of its directors will be independent directors of which at least one director will
qualify as an “audit committee financial expert,” within the meaning of SEC rules.
Three
of our current directors, Barney Frank, Billy Bean and Martina Navratilova, are “independent” directors as that term
is defined by the listing standards of the Nasdaq Stock Market and SEC rules, including the rules relating to the independence
standards for audit committee members and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.
Shareholder
Communications
Currently,
we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date,
no security holders have made any such recommendations.
Code
of Ethics
We
have adopted a written Code of Ethics. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote
honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with
applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A
copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics,
please make written request to our Chief Executive Officer, c/o LifeApps Brands Inc., 2435 Dixie Highway, Wilton Manors, FL 33305.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of a registered class of our equity
securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, officers
and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms that we received with respect to the fiscal year ended December 31, 2018,
we believe that each person who at any time during the fiscal year was a director, officer or beneficial owner of more than 10%
of our common stock, satisfied their Section 16(a) filing requirements although Robert Gayman filed a report on a late basis.
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
The
following table sets forth information concerning the total compensation paid or accrued by us during the fiscal years ended December
31, 2018 and 2017 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us
at any time during the fiscal year ended December 31, 2018; (ii) our two most highly compensated executive officers, other than
the principal executive officer, who were serving as executive officers at the end of the fiscal year ended December 31, 2018
who received annual compensation during the fiscal year ended December 31, 2018 in excess of $100,000; and (iii) up to two additional
individuals for whom disclosure would have been provided pursuant to (ii) above but for the fact that they were not serving as
executive officers at the end of the fiscal year ended December 31, 2018.
Summary
Compensation Table
|
Name & Principal Position
|
|
Fiscal Year ended December 31
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
Non-Qualified Deferred Compensation Earnings ($)
|
|
|
All Other Compensation ($)
|
|
|
Total ($)
|
|
|
Robert A. Blair, CEO
|
|
2018
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
6,600
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
156,600
|
|
|
|
|
2017
|
|
|
|
4,600
|
|
|
|
0
|
|
|
|
13,200
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
17,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Neal, President
|
|
2018
|
|
|
|
24,000
|
|
|
|
0
|
|
|
|
167,113
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
191,113
|
|
|
|
|
2017
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Outstanding
Equity Awards at December 31, 2018
The
following table provides information regarding outstanding equity awards held by our named executive officers as of December 31,
2018.
|
|
|
Option Awards
|
|
|
Name
|
|
Grant Date
|
|
Number of
Securities
Underlying
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration Date
|
|
|
Robert A. Blair
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
$
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Neal
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
$
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
Compensation
We
reimburse all members of our board of directors for their direct out of pocket expenses incurred in attending meetings of our
board. We did not compensate our directors for serving as such during the year ended December 31, 2018.
Employment
Agreements
On
December 19, 2017 we entered into an Employment Services Agreement which was amended effective January 1, 2018 and November 1,
2018 (as amended, the “Blair Agreement”) with Robert A. Blair pursuant to which Mr. Blair is serving as our Chief
Executive Officer, Chief Financial Officer and a Director. The Blair Agreement runs through January 31, 2023 and is subject to
automatic renewal for successive periods of one year unless either we or Mr. Blair gives the other written notice of intention
to not renew at least 30 days prior to the end of the existing term. The Blair Agreement provides for a base annual salary of
$150,000, a one-year severance period in the event the Blair Agreement is terminated by us without cause or by Mr. Blair for good
reason, and the issuance of 2,000,000 shares of our common stock to Mr. Blair. Mr. Blair’s base salary payments are payable
in bi-weekly installments. In the event any salary payments are not made within 30 days of the due date, they will accrue interest
at the rate of 10% per annum. The Blair Agreement contains customary termination provisions including terminations with or without
cause, for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision
which provides that all of the work produced by Mr. Blair, which is created, designed, conceived or developed by Mr. Blair in
the course of his employment under the Blair Agreement belongs to us.
On
December 19, 2017 we entered into an Employment Services Agreement which was amended effective January 1, 2018 and November 1,
2018 (as amended, the “Neal Agreement”) with Brian Neal, effective as of January 1, 2018, pursuant to which Mr. Neal
serves as our President. The Neal Agreement runs through January 31, 2023 and is subject to automatic renewal for successive periods
of one year unless either we or Mr. Neal gives the other written notice of intention to not renew at least 30 days prior to the
end of the existing term. The Neal Agreement provides for a base annual salary of $24,000, a one-year severance period in the
event the Neal Agreement is terminated by us without cause of by Mr. Neal for good reason, and the issuance of 50,500,000 shares
of our common stock to Mr. Neal. Mr. Neal’s base salary payments are payable in bi-weekly installments. In the event any
salary payments are not made within 30 days of the due date, they will accrue interest at the rate 10% per annum. The Neal Agreement
contains customary termination provisions including terminations with or without cause, for good reason or voluntarily, non-competition
and non-solicitation provisions, and an inventions and patents provision which provides that all of the work produced by Mr. Neal,
which is created, designed, conceived or developed by Mr. Blair in the course of his employment under the Neal Agreement belongs
to us.
On
December 19, 2017 we entered into an Executive Management Consulting Agreement with Robert Gayman which was amended effective
January 1, 2018 and November 1, 2018 (as amended, the “Gayman Agreement”) pursuant to which Mr. Gayman was to provide
advice and assistance to our management in the areas of corporate development, financing, marketing and public company guidance.
The Gayman Agreement was to run through January 31, 2023. The Gayman Agreement was subject to automatic renewal for successive
periods of one year unless either we or Mr. Gayman gave the other written notice of intention to not renew at least 30 days prior
to the end of the existing term. The Gayman Agreement provided for cash payments to Mr. Gayman at the rate of $150,000 per year,
payable in bi-weekly installments, and the issuance of 4,946,688 stock options, subject to immediate vesting, with a term of five
years and an exercise price of $0.01 per share. In the event any cash payments were not made within 30 days of their due date,
they accrued interest at the rate of 10% per annum. The Gayman Agreement contained non-competition and non-solicitation provisions,
and an invention and patents provision which provided that all of the work produced by Mr. Gayman, which was created, designed,
conceived or developed by Mr. Gayman in the course of his engagement under the Gayman Agreement belongs to us. Effective February
15, 2019, we and Robert Gayman mutually agreed to terminate the Gayman Agreement.
In
connection with the amendments to the Blair Agreement, Neal Agreement and Gayman Agreement, provisions which had required us to
issue shares of preferred stock to Messrs. Neal and Gayman and to approve a new Equity Incentive Plan were terminated.
On
November 1, 2018 we entered into an Employment Services Agreement (the “Roan Agreement”) with Lawrence Roan pursuant
to which Mr. Roan is serving as our Executive Director. The Roan Agreement has a 63-month term and is subject to automatic renewal
for successive periods of one year unless either we or Mr. Roan gives the other written notice of intention to not renew at least
30 days prior to the end of the existing term. The Roan Agreement provides for a base annual salary of $100,000 and a two-year
severance period in the event the Roan Agreement is terminated by us without cause or by Mr. Roan for good reason. Mr. Roan’s
base salary payments are payable in bi-weekly installments. The Roan Agreement contains customary termination provisions including
terminations with or without cause, for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions
and patents provision which provides that all of the work produced by Mr. Roan, which is created, designed, conceived or developed
by Mr. Roan in the course of his employment under the Roan Agreement belongs to us. In January 2019 Mr. Roan agreed to waive salary
payments due to him under the Roan Agreement for the period November 1, 2018 through December 31, 2018.
|
ITEM 12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership of our common stock, our only outstanding class
of voting stock, known by us as of April 10, 2019, by:
|
|
●
|
each person or entity
known by us to be the beneficial owner of more than 5% of our common stock;
|
|
|
●
|
each of our executive
officers; and
|
|
|
●
|
all of our directors
and executive officers as a group.
|
Except
as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common
stock owned by them, except to the extent such power may be shared with a spouse.
Unless
otherwise noted, the address of each person below is c/o LifeApps Brands, Inc., 2435 Dixie Highway, Wilton Manors, FL 33305.
Title
of Class: Common Stock
|
Name
and Address of Beneficial Owner
|
|
Amount
and Nature
of Beneficial
Ownership
(1)
|
|
Percentage
of Class
(2)
|
|
|
Beneficial Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxim
Partners, LLC
402
Lexington Avenue
New
York, NY 10174
|
|
129,558,574 shares,
direct
|
(3)
|
44.78
|
%
|
|
|
|
|
|
|
|
|
Robert
Gayman
3042
Soft Horizon Way
Las
Vegas, NV 89135
|
|
19,170,860 shares,
direct
|
(4)
|
6.63
|
%
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Blair
|
|
2,000,000 shares,
direct
|
|
0.69
|
%
|
|
Brian Neal
|
|
55,109,458 shares,
direct
|
(5)
|
19.05
|
%
|
|
Lawrence P. Roan
|
|
12,654,525 shares,
direct
|
(6)
|
4.33
|
%
|
|
Barney Frank
|
|
1,000,000 shares,
direct
|
|
0.35
|
%
|
|
Billy Bean
|
|
1,000,000 shares,
direct
|
|
0.35
|
%
|
|
Martina Navratilova
|
|
1,000,000 shares,
direct
|
|
0.35
|
%
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(6 persons)
|
|
72,763,983 shares,
direct
|
(5)(6)
|
24.9
|
%
|
|
|
(1)
|
Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”). For this purpose,
a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares (a) the power to vote, or to direct the voting of, such security and/or (b) the
power to dispose, or to direct the disposition of, such security. Shares of common stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of April 10, 2019, are deemed outstanding for computing
the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of
any other person.
|
|
|
(2)
|
Percentages based upon 289,291,798 shares of
common stock outstanding as of April 10, 2019.
|
|
|
(3)
|
Includes 8,598,578
shares of common stock issued effective March 26, 2019 pursuant to the automatic conversion of the outstanding share of Series
A Convertible Preferred Stock immediately following the filing of the Charter Amendment and the Management Warrant Exercises.
The Management Warrants were held by Brian Neal, our President, and Robert Gayman, our former Executive Management Consultant,
and were issued in connection with the cancellation of an aggregate of $348,312 in compensation and interest due by us to
Brian Neal, Robert Gayman and Robert A. Blair, our Chief Executive Officer and Chief Financial Officer, through and including
December 31, 2018. The Management Warrants were automatically exercised for shares of our restricted common stock
following the filing of the Charter Amendment at an exercise price equal to $0.0405 per share which represented a 10% discount
to $0.0450 which represented the volume weighted average price for our common stock during the three trading days ending on
the seventh trading day following January 31, 2019, the date on which we filed a Current Report on Form 8-K disclosing the
execution of and closing under the Securities Exchange Agreement. The Series A Convertible Preferred Stock converted into
8,598,578 shares of our restricted common stock which equaled 99.98% of the number of shares issued upon the Management Warrant
Exercises.
|
|
|
(4)
|
Includes 3,990,840
shares of common stock issued effective March 26, 2019 upon the exercise of Management Warrants owned by Mr. Gayman. The Management
Warrants owned by Mr. Gayman were issued in connection with the cancellation of an aggregate of $161,629 in compensation and
interest due by us to Mr. Gayman through and including December 31, 2018. The Management Warrants were automatically exercised
for shares of our restricted common stock following the filing of the Charter Amendment at an exercise price of $0.0405
per share which represented a 10% discount to $0.0450 which represented the volume weighted average price for our common
stock during the three trading days ending on the seventh trading day following January 31, 2019, the date on which we filed
a Current Report on Form 8-K disclosing the execution of and closing under the Securities Exchange Agreement.
|
|
|
(5)
|
Includes 4,609,458
shares of common stock issued effective March 26, 2019 upon the exercise of Management Warrants owned by Mr. Neal. The Management
Warrants owned by Mr. Neal were issued in connection with the cancellation of an aggregate of $186,683 in compensation and
interest due by us to Mr. Neal and Robert A. Blair through and including December 31, 2018. The Management Warrants were automatically
exercised for shares of our restricted common stock following the filing of the Charter Amendment at an exercise price of
$0.0405 per share which represented a 10% discount to $0.0450 which represented the volume weighted average price
for our common stock during the three trading days ending on the seventh trading day following January 31, 2019, the date
on which we filed a Current Report on Form 8-K disclosing the execution of and closing under the Securities Exchange Agreement.
|
|
|
(6)
|
Includes 3,000,000 shares underlying 3,000,000
presently exercisable stock options.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
On
September 10, 2012, our Board of Directors and stockholders owning a majority of our outstanding shares adopted our 2012 Equity
Incentive Plan. A total of 666,667 shares of our common stock were originally reserved for issuance under the 2012 Plan but effective
December 31, 2015, this amount was increased to 20,000,000 (post-split basis). If an incentive award granted under the 2012 Plan
expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award,
the shares subject to such award and the surrendered shares will become available for further awards under the 2012 Plan.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information as of December 31, 2018, with respect to the shares of common stock that may be issued under
our existing equity compensation plans:
|
Plan
Category
|
|
Number
of
shares
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
|
|
|
Weighted-
Average
exercise
price
of
outstanding
options,
warrants
and rights
|
|
|
Number
of
shares
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
shares
reflected in
the first
column)
|
|
|
Equity compensation plans
approved by security holders
|
|
|
6,300,000
|
|
|
|
0.0049
|
|
|
|
2,753,312
|
|
|
Equity
compensation plans not approved by securities holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
6,300,000
|
|
|
|
0.0049
|
|
|
|
2,753,312
|
|
As
of December 31, 2018, we have 6,300,000 outstanding stock options under the 2012 Plan issued to employees and consultants to purchase
an aggregate of 6,300,000 shares of our common stock. Of these 2012 Plan options, there are outstanding 4,300,000 four-year options
issued on May 24, 2016 exercisable for 4,300,000 shares with an exercise price of $0.0026 per share, and 2,000,000 five-year options
issued on December 19, 2017 exercisable for 2,000,000 shares with an exercise price of $0.01 per share. During the year ended
December 31, 2018 an aggregate of 10,946,688 options were exercised and no options were canceled. During the year ended December
31, 2017 an aggregate of 4,700,000 options were cancelled.
See
“Executive Compensation” for information regarding individual equity compensation arrangements received by our executive
officers pursuant to their employment agreements with us.
2012
Equity Incentive Plan
The
Board of Directors and stockholders owning a majority of our outstanding shares adopted the 2012 Equity Incentive Plan (the “2012
Plan”) on September 10, 2012. A total of 20,000,000 shares of our common stock were reserved for issuance under the 2012
Plan 6,300,000 of which were issued and outstanding at December 31, 2018 and 10,946,688 of which have been exercised. If an incentive
award granted under the 2012 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us
in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further
awards under the 2012 Plan.
Shares
issued under the 2012 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future
awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the
2012 Plan. In addition, the number of shares of common stock subject to the 2012 Plan and the number of shares and terms of any
incentive award are expected to be adjusted in the event of any stock dividend, spin-off, split-up, stock split, reverse stock
split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar
transaction.
Administration
It
is expected that the compensation committee of the Board, or the Board in the absence of such a committee, will administer the
2012 Plan. Subject to the terms of the 2012 Plan, the compensation committee would have complete authority and discretion to determine
the terms of awards under the 2012 Plan.
Eligible
Recipients
Any
officer or other employee of the Company or its affiliates, or an individual that the Company or an affiliate has engaged to become
an officer or employee, or a consultant or advisor who provides services to the Company or its affiliates, including a non-employee
director of the Board, is eligible to receive awards under the 2012 Plan.
Grants
The
2012 Plan authorizes the grant to eligible recipients of nonqualified stock options, incentive stock options, restricted stock
awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986,
as amended (the “Code”) and stock appreciation rights, as described below:
Options
granted under the 2012 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified
exercise price per share. The exercise price for shares of common stock covered by an option cannot be less than the
fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant. Such awards may
include vesting requirements.
Restricted
stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which
may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more
performance goals for restricted stock units.
The
compensation committee may make performance grants, each of which will contain performance goals for the award, including the
performance criteria, the target and maximum amounts payable, and other terms and conditions.
Stock
awards are permissible. The compensation committee will establish the number of shares of common stock to be awarded
and the terms applicable to each award, including performance restrictions.
Stock
appreciation rights or SARs, entitle the participant to receive a distribution in an amount not to exceed the number of shares
of common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of
common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR.
Duration,
Amendment, and Termination
The
Board may amend, suspend or terminate the 2012 Plan without stockholder approval or ratification at any time or from time to time. No
change may be made that increases the total number of shares of common stock reserved for issuance pursuant to incentive awards
or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized
by our stockholders within one year. Unless sooner terminated, the 2012 Plan terminates ten years after it is adopted.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Transactions
Involving LFAP and/or LFAP Stockholders
On
September 20, 2012, Robert Gayman, our former CEO, entered into an employment contract, the significant terms of which are as
follows:
|
|
●
|
annual base salary of $150,000 per annum;
|
|
|
●
|
annual bonus at such time and in such amount
as may be determined by the Board of Directors; and
|
|
|
●
|
participation in 2012 Equity Incentive Plan
as determined by the Board of Directors.
|
The
Employment Agreement was terminated on December 19, 2017 in connection with Mr. Gayman’s resignation as our CEO and President.
On
May 24, 2016 we granted and issued an aggregate of 15,000,000 non-statutory stock options under our 2012 Equity Incentive Plan
to four persons including our Chief Executive Officer, Robert Gayman (6,000,000 options), Directors Lawrence P. Roan (3,000,000
options) and Dr. Howard Fuller (1,000,000 options) and a Consultant, Gregory P. Hanson (5,000,000 options). Each option is exercisable
to purchase one share of our common stock upon vesting at an exercise price of $0.0026 per share. The options have a term of 4
years and vest quarterly on the three, six, nine and twelve month anniversaries of the date of grant. On September 21, 2017 we
reached an agreement with Gregory P. Hanson to cancel 4,700,000 options.
On
December 19, 2017 we entered an Employment Agreement with Robert A. Blair and Brian Neal and an Executive Management Consulting
Agreement with Robert Gayman as set forth in Item 11. Executive Compensation – Employment Agreement. Each such agreement
was amended on each of January 1, 2018 and November 1, 2018.
During
the year ended December 31, 2017, Mr. Gayman advanced the Company $16,310 to pay operating expenses. In addition, he did not receive
$150,000 of his salary which has been accrued on the Company’s financial statements.
During
the year ended December 31, 2017, a director loaned the Company $2,500 and a principal shareholder loaned the Company $10,500
to pay operating expenses.
During
the year ended December 31, 2016, Mr. Gayman advanced the Company $7,450 to pay operating expenses. In addition, he did not receive
$150,000 of his salary which has been accrued on the Company’s financial statements.
During
the year ended December 31, 2016, a director loaned the Company $29,635 and a principal shareholder loaned the Company $45,000
to pay operating expenses.
Effective
October 27, 2016, we issued 4,545,455 shares of our common stock in connection with a Lesly A. Thompson conversion of a November
9, 2015 loan in the principal amount of $25,000.
Effective
December 19,2017 Lawrence Roan, a director, converted $39,935 of the $41,500 in debt owed to him by us, into 3,993,500 shares
of our common stock at a conversion price of $0.01 per share and forgave the balance of the debt, including all accrued interest
due thereon. He also forgave all interest accrued on the converted amount.
Effective
December 19, 2017 Lesly A Thompson converted $54,000 of the $55,500 principal amount of debt owed to her by us, into 5,400,000
shares of our common stock at a conversion price of $0.01 per share and forgave all accrued interest due on the converted amount.
Effective
December 19, 2017 we issued 1,000,000 stock options to Howard Fuller, and we issued 4,946,688 stock options to Robert Gayman pursuant
to our December 19, 2017 Executive Management Consultant Agreement with Robert Gayman. We also issued 1,000,000 stock options
to a consultant of the company. All of the options vested on issuance, have a term of 5 years and an exercise price of $0.01 per
share.
In
December 2018, Robert Gayman forgave $526,887 due to him by us.
On
January 25, 2019, in connection with the closing of the January 25, 2019 Securities Exchange Agreement we issued 120,959,996 shares
of our common stock and one share of our Series A Convertible Preferred Stock to Maxim in exchange for all of the membership interests
of LGBT Loyalty LLC. Effective March 26, 2019, the share of Series A Convertible Preferred Stock was automatically converted into
8,598,578 shares of our common stock.
On
November 1, 2018, we entered into an Employment Services Agreement with Lawrence Roan (see Item 11. Executive Compensation –
Employment Agreements).
On
January 25, 2019 we issued common stock purchase warrants to Brian Neal (the “Neal Warrants”) and Robert Gayman (the
“Gayman Warrants”) in consideration of amounts due to Brian Neal, Robert Gayman and Robert Blair at the close of business
on December 31, 2018. Effective March 26, 2019, the Neal Warrants were automatically converted into 4,609,458 shares of our common
stock and the Gayman Warrants were automatically converted into 3,990,840 shares of our common stock (see Item 1. – Business).
On
December 5, 2018 we issued 10,946,688 shares of our restricted common stock to Robert Gayman pursuant to the exercise of (i) 6,000,000
stock options at an exercise price of $0.0026 per share or an aggregate of $15,600, and (ii) 4,946,688 stock options at an exercise
price of $0.01 per share or an aggregate of $49,467, the payment for which was made by making a corresponding deduction to amounts
owed by us to Mr. Gayman.
In
connection with the March 2019 appointments of Barney Frank, Billy Bean and Martina Navratilova to our Board of Directors, we
issued 1,000,000 shares of our restricted common stock to each of them. We also agreed to pay each of them an annual fee of $25,000
for serving as a Director, payable in monthly installments. We also granted each of them the right to participate in the commission
program we intend to establish with respect to direct (20% commission) and indirect (10% commission) sales related to our LGBT
Loyalty Sponsorship Programs.
In
March 2019, Bobby Blair was granted the right to participate in the commission program relating to our LGBTQ Loyalty Sponsorship
Program with a 20% commission for a direct sale and 5% commission for assisting the sale of a Sponsorship.
Director
Independence
We
are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has
requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time
required to have our Board of Directors comprised of a majority of “Independent Directors.”
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
Audit
Fees
|
Fee Category
|
|
Fiscal year ended
December 31,
2018
|
|
|
Fiscal Year Ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Audit fees (1)
|
|
$
|
42,900
|
|
|
$
|
27,500
|
|
|
Audit-related fees (2)
|
|
|
|
|
|
|
|
|
|
Tax fees (3)
|
|
|
|
|
|
|
|
|
|
All other fees (4)
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
42,900
|
|
|
$
|
27,500
|
|
(1)
Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for
reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that
are normally provided in connection with statutory or regulatory filings or engagements.
(2)
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit
or review of our consolidated financial statements but are not reported under “Audit fees.”
(3)
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4)
All other fees consist of fees billed for all other services.
Audit
Committee’s Pre-Approval Practice
Prior
to our engagement of our independent auditor, such engagement was approved by our board of directors. The services provided
under this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. Pursuant our requirements, the independent auditors and management are
required to report to our board of directors at least quarterly regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for the services performed to date. Our board of directors may
also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us
for the years ended December 31, 2018 and 2017, were approved by our board of directors.
Notes
to Consolidated Financial Statements
December
31, 2018 and 2017
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LifeApps
Brands Inc., including its subsidiaries.
Through
our wholly owned subsidiary LifeApps, Inc., we are a licensed developer and publisher of apps for the Apple Apps Store for iPhone,
iPod touch, iPad and iPad mini. We are also a licensed developer on both Google Play and Amazon Appstore for Android. We have
distributed apps on all three platforms.
Moving
forward we intend to create a LGBTQ Loyalty Preference Index. We will attempt to support and grow the Index through an LGBTQ
Loyalty Sponsorship program. LGBTQ Loyalty Sponsorship packages will be offered to companies with a desire to market their products
and services to the LGBTQ community. We also intend to develop a digital media network specializing in targeting highly sought-after
niche demographic audiences. The company will focus on two core businesses, an LGBT Ad Network and an LGBT Digital Network.
Through our digital platform we will aggregate content from around the world. We will create original content along with
sponsored content in a 24/7 digital network. The LGBT Ad Network will assist brands in global targeting of the LGBT demographic.
The Ad Network will provide advertisers and brands with over 300 mainstream digital platforms and a "bullseye"
on this loyal, affluent and ever-expanding audience. We will deliver to our audience with a relevant sponsored content marketing
message across all spectrums of digitally connected devices. Our unique value proposition to our audience and sponsors is the
ability deliver aggregated and original content, with emphasis on interactive content and captive video.
Note
2. Summary of Significant Accounting Policies
Going
Concern
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”),
which contemplates our continuation as a going concern. We have incurred losses to date of $3,880,234 and have negative working
capital. To date we have funded our operations through advances from a related party, issuance of convertible debt, and the sale
of our common stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty
that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going
concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our
liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments
and ongoing losses, and ultimately generate profitable operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, LifeApps
Inc., and Sports One Group Inc. All material inter-company transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
Financial
Instruments
The
estimated fair values for financial instruments were determined at discrete points in time based on relevant market information.
These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts payable and
accrued liabilities approximated fair value because of the short-term maturities of these instruments. The fair value of notes
payable approximated to their carrying value as generally their interest rates reflected our effective annual borrowing rate.
Fair
Value Measurements:
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines
the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
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, short-term trade receivables, prepaid expenses, payables, accruals and convertible notes
payable. The carrying values of cash and cash equivalents, short-term trade receivables, prepaid expenses, payables, and accruals
approximate fair value because of the short term maturities of these instruments.
Intangibles
Intangibles,
which include websites and databases acquired, internet domain name costs, and customer lists, are being amortized over the expected
useful lives which we estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”) Topic 350
Intangibles – Goodwill and Other
(“ASC 350”),
the costs to obtain and register internet domain names were capitalized.
Fixed
Assets
Fixed
assets consists of furniture and equipment and are stated at cost less accumulated depreciation and accumulated impairment
loss, if any. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets. The
estimated useful lives used for financial statement purposes 3 years. Fixed assets have been fully depreciated as of December
31, 2018 and 2017.
Derivative
Financial Instruments:
We
do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based
derivative financial instruments, we used a Black Scholes valuation model to value the derivative instruments at inception and
on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance
sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required
within 12 months of the balance sheet date.
Revenue
Recognition
ASC
Topic
606, “
Revenue from Contracts with Customers”
establishes principles
for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s
contracts to provide goods or services to customers.
Revenues
are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order
to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
|
●
|
identify
the contract with a customer;
|
|
|
●
|
identify the performance
obligations in the contract;
|
|
|
●
|
determine the transaction
price;
|
|
|
●
|
allocate the transaction price to performance
obligations in the contract; and
|
|
|
●
|
recognize revenue
as the performance obligation is satisfied.
|
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.
Rent
Expense
We
recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 840, Leases (“ASC
840”). Our lease is short term and will be renewed on a month to month basis. Rent expense was $255 and $4,350 for the years
ended December 31, 2108 and 2017, respectively.
Equity-Based
Compensation
Stock-based
compensation is presented in accordance with the guidance of ASC Topic 718,
Compensation – Stock Compensation
(“ASC
718”). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards
on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service periods in our consolidated statements of operations.
Income
Taxes
The
provision for income taxes is determined in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements,
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts.
For
the years ended December 31, 2018 and 2017 we did not have any interest, penalties or any significant unrecognized uncertain tax
positions.
Earnings
per share
We
calculate earnings per share in accordance with ASC Topic 260
Earnings Per Share
, which requires a dual presentation of
basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding
during the fiscal year. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive
effect of outstanding stock options and warrants. The diluted earnings per share were not calculated because we recorded net losses
for the years ended December 31, 2018 and 2017, and the outstanding stock options and warrants are anti-dilutive. Weighted average
shares outstanding would have increased by approximately 2,902,500 and 7,528,000 for the years ended December 31, 2018 and 2017
on a fully diluted basis as a result of outstanding stock options and warrants.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, to improve financial reporting about leasing transactions. This
ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset
on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to
make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s
right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for
sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the
accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for
targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The
amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)
must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial
Statements.
In
January 2017, the FASB issued ASU No. 2017-04,
Intangibles - Goodwill and Other,
which eliminates step two of the
quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then
a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment.
Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a
reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying
amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated
to the reporting unit. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as
of January 1, 2017, and is to be applied on a prospective basis.
In
August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging
Activities
, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the
timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately
in income. The amendments in this ASU are effective for the Company in the first quarter of 2019.
In
November 2017, the FASB has issued ASU No. 2017-14,
Income Statement—Reporting Comprehensive Income
(Topic 220),
Revenue Recognition
(Topic 605), and
Revenue from Contracts with Customers
(Topic 606). ASU 2017-14 includes amendments
to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification). ASU 2017-14 amends the Codification
to incorporate the following previously issued guidance from the SEC. ‘The amendments in ASU No. 2017-14 amends the Codification
to incorporate SEC Staff Accounting Bulletin (SAB) No. 116 and SEC Interpretive Release on Vaccines for Federal Government Stockpiles
(SEC Release No. 33-10403) that bring existing SEC staff guidance into conformity with the FASB’s adoption of and amendments
to ASC Topic 606, Revenue from Contracts with Customers.
In
September 2017, the FASB has issued ASU No. 2017-13,
Revenue Recognition
(Topic 605),
Revenue from Contracts with Customers
(Topic 606),
Leases
(Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement
at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments
in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and
ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as
amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and
ASU 2016-02.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Note
3. Intangible Assets
At
December 31, 2018 and 2017, intangible assets consist of the following:
|
|
|
2018
|
|
|
2017
|
|
|
Internet domain names
|
|
$
|
58,641
|
|
|
$
|
58,641
|
|
|
Website and data bases
|
|
|
56,050
|
|
|
|
56,050
|
|
|
Customer and supplier lists
|
|
|
4,500
|
|
|
|
4,500
|
|
|
Total intangibles
|
|
|
119,191
|
|
|
|
119,191
|
|
|
Less accumulated amortization
|
|
|
(119,191
|
)
|
|
|
(119,041
|
)
|
|
|
|
$
|
—
|
|
|
$
|
150
|
|
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 $150 and $975 for the years ended December 31, 2018 and 2017, respectively.
Estimated future amortization expense related to the intangibles as of December 31, 2018 is $-.
Note
4. Related Party Transactions – Officer and Shareholder Advances
Parties,
which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common control or common significant influence.
Amounts
due related party represents cash advances, salary accruals, notes payable, and amounts paid on our behalf by an officer and shareholders
of the Company. These advances are non-interest bearing, short term in nature and due on demand. The balance at December 31, 2018
and 2017, was $10,974 and $7,675, respectively. Notes payable to related parties at December 31, 2018 and 2017 totaled $17,585
with a 2% annual interest rate. Currently the company has defaulted on all of its related party loan obligations. Forbearance
has been granted by the related parties on all loans. Salary accruals for each year amounted to $324,000 and $154,600 respectively
and net cash advances amounted to $3,599 and $29,310, respectively for the years ended December 31, 2018 and 2017. The maximum
amount owed to related parties during the years ended December 31, 2018 and 2017 were $968,781 and $735,949. During December 2018
the former chief executive and current shareholder of the Company agreed to cancel an aggregate of $576,354 of amounts due him
as of December 31, 2017 by way of a capital contribution of $526,887 and the exercise of stock options for 10,946,688 shares of
common stock having an aggregate exercise price of $49,467.
Total unpaid accrued salary
was $348,800 and $601,154 as of December 31, 2018 and 2017, respectively. Subsequent to December 31, 2018 all parties to the employment
and service agreements converted amounts due thereunder at December 31, 2018 into shares of common stock.
On
December 19, 2017 we entered into an Employment Services Agreements with our Chief Executive Officer and our President and an
Executive Management Consulting Agreement with our former Chief Executive Officer. The Agreements have a two-year term and are
subject to automatic renewal for successive periods of one year unless either we or the counterparties give the other written
notice of intention to not renew at least 30 days prior to the end of the existing term. The Agreement with our current and former
Chief Executive Officers provide for base compensation of $150,000 and a base annual salary of $24,000 for our President. The
compensation payments are payable in bi-weekly installments. In the event any of the payments are not made within 30 days of the
due date, they will accrue interest at the rate of 10% per annum.
The
Agreements contain customary termination provisions including terminations with or without cause, for good reason or voluntarily,
non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all the work produced
by the counterparties, which is created, designed, conceived or developed by them in the course of their employment under the
Agreements belong to us. Effective as of January 1, 2018, the agreements were modified to remove the conversion right provisions.
On February 15, 2019 the Executive Management Consulting Agreement with our former Chief Executive Officer was terminated by mutual
agreement.
During
the year ended December 31, 2018 we recorded interest accruals of $14,788 related to the agreements.
Note
5.
Note Payable
Notes
payable consisted
of
two unrelated third parties amounted to $33,000 at
December
31, 2018 and $20,000 to a single unrelated third party
at December 31, 2017 with an
interest rates of 2% and 7% per annum. One of the notes in the amount of $18,000 at December 31, 2018 is past due and is,
therefore, in default. The other notes issued in August and December of 2018 aggregating $15,000 are in default status
subsequent to the balance sheet date. The August note provided for the issuance of 750,000 shares of common stock as
additional interest due at the October 4, 2018 maturity date. The shares were valued at the then current market value of
$6,727.
In
December 2017, a director of the Company and a shareholder converted an aggregate of $94,135 of advances into 9,393,500 shares
of our $.001 par value common stock using an agreed upon rate of $.01 per share as the conversion rate. Additionally, $1,565 of
debt and accrued interest was forgiven. The gain on the transaction was accounted for as an increase to paid in capital.
Note
6. Convertible Note Payable
On
March 6, 2018, we executed a Promissory Note (the “2018 Note”) to an unrelated entity and received an aggregate of
$32,000. The Note has an initial term of one year and provides for an original issue discount of $3,000, which is being amortized
over the initial term. The note carries an interest rate of 12% per annum. The Lender has the right, at any time and/or after
180 days at their election to convert all or part of the outstanding and unpaid principal and accrued interest into shares of
our common stock. The conversion price is 58% of a two-day average of the lowest trading price in the 15 range of trading days
prior the conversion. The Notes provide for additional penalties if we cannot deliver the underlying common stock on a timely
basis.
We
evaluated the terms of the conversion features of the convertible note in accordance with ASC Topic No. 815 - 40, Derivatives
and Hedging - Contracts in Entity’s Own Stock and determined it is indexed to the Company’s common stock and that the conversion
features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate
derivative liability.
We
valued the conversion feature at origination of the Note at $55,118 using the Black Scholes valuation model with the following
assumptions: dividend yield of zero, 1 year to maturity, risk free interest rate of 3.03% and annualized volatility of 298.79%.
$32,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The
debt discount was recorded as reduction (contra-liability) to the convertible Note and is being amortized over the initial term
of the convertible Note. The balance of $23,118 of the value assigned to the derivative liability was recognized as origination
interest on the derivative liability and expensed on origination.
To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free
interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability
may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial
statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss
recorded.
During
the quarter ended September 30, 2018, the company became subject to a penalty assessment of $17,500 due to a loan covenant violation.
Such amount has been expensed as additional interest. Additionally, the fair value of the derivative liability associated with
the penalty amounted to $29,265 and has been recorded as additional interest expense.
On
September 20, 2018, the lender exercised conversion rights pursuant to the loan agreement and converted $8,000 of the loan principal
into 1,777,778 shares of common stock. The company recognized an aggregate of $10,375 of shareholder equity as a result of the
conversion based of a fair value calculation at the conversion date and related adjustments to remaining loan discounts applicable
to the converted loan amount. On December 31, 2018, the lender exercised conversion rights pursuant to the loan agreement and
converted $8,000 of the loan principal into 5,305,040 shares of common stock. The company recognized an aggregate of $7,583 of
shareholder equity as a result of the conversion based of a fair value calculation at the conversion date and related adjustments
to remaining loan discounts applicable to the converted loan amount.
We
value the derivative liability at the end of each accounting period with the difference in value recognized as gain or loss.
At
December 31
, 2018 we
determined the valuation using the Black-Sholes valuation model with the following assumptions: dividend yield of zero, .18
years to maturity, risk free interest rate of 2.63% and annualized volatility of 101%. We recognized a $35,051 gain for
the change in value of the derivative for the year ended December 31, 2018. Interest expense for the
year ended
December 31,
2018 includes $52,383 of origination interest, amortization of debt
discounts of $33,779 and interest accrual of $5,352.
At
December 31, 2018
the balance
of the Note is comprised of the following:
|
Face amount of Note
|
|
$
|
36,500
|
|
|
Original issue discount
|
|
|
(534
|
)
|
|
Debt discount
|
|
|
(1,901
|
)
|
|
|
|
$
|
34,065
|
|
As
described in Note 11, the note balance and accrued interest was fully converted to shares of common stock subsequent to December
31, 2018.
Note
7. Stockholders’ Equity
During
the
year ended December 31, 2018
we
issued 5,250,000 shares of common stock for services of four unrelated entities. The shares were valued at the respective trading
prices of our common stock on the dates the issuances were approved by our Board of Directors.
During
the year ended December 31, 2018 three unrelated third parties purchased an aggregate of 11,000,000 shares of common stock for
$55,000 cash at $.005 per share. One of the parties made a loan to the company in the amount of $10,000. The loan provided for
a stock grant of 750,000 shares of common stock.
Also,
as described in Note 6, the company issued 7,082,818 shares of common stock pursuant to a debt-to-equity conversion.
Also,
as described in Note 5, the company issued 10,946,688 shares of common stock pursuant to the exercise of stock options.
During
the year ended December 31, 2017 we issued 9,393,500 shares of common stock for the conversion of shareholder debt as more fully
described in Note 6 above.
Additionally,
we issued an aggregate of 52,500,000 shares to two individuals, who have become officers of the Company, under employment contracts
as described in Note 4 above which resulted in a change of control of the company. The contracts became effective on January 1,
2018; therefore, the related expense has been deferred in the accompanying financial statements. The shares were valued at the
closing price of the Company’s common stock at the date the contracts were signed. The Company is amortizing the $346,500
of compensation expense over the initial two-year terms of the employment contracts. We recorded $195,956 of amortization of deferred
officer compensation during the Year ended December 31, 2018.
Also,
during the year ended December 31, 2017 we issued 500,000 shares of common stock for legal services. The shares were for current
services and were valued at $.0066 per share, the closing price of our stock at the date the shares were authorized.
Note
8. Options
Stock
based compensation expense for options issued pursuant to our 2012 Equity Incentive Plan for years ended December 31, 2018 and
2017 amounted to $0 and $7,312.
There will be no additional compensation expense recognized
in future periods.
The
following is a summary of stock option issued to pursuant to the plan:
|
|
|
|
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
|
Aggregate Intrinsic Value at date of grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2017
|
|
|
|
15,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
|
Granted
|
|
|
|
6,946,688
|
|
|
$
|
.01
|
|
|
|
5.0
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled
|
|
|
|
(4,700,000
|
)
|
|
$
|
(.0026
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding December 31, 2017
|
|
|
|
17,246,688
|
|
|
$
|
0.0056
|
|
|
|
3.4
|
|
|
|
—
|
|
|
Granted
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
(10,946,688
|
)
|
|
$
|
(0.0059
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding December 31, 2018
|
|
|
|
6,300,000
|
|
|
$
|
0.0049
|
|
|
|
2.4
|
|
|
|
—
|
|
|
Exercisable December 31, 2018
|
|
|
|
6,300,000
|
|
|
$
|
0.0049
|
|
|
|
2.4
|
|
|
|
—
|
|
Note
9. Outstanding Warrants
There
were no warrants issued during the years ended December 31, 2018 or 2017. The 400,000 previously outstanding warrants expired
on September 20, 2017.
Note
10. Income Taxes
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law. The Company has completed a review of the accounting for the effects of the Act during the quarter ended December
31, 2017. The Company’s financial statements for the year ended December 31, 2017 reflect certain effects of the Act which
includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
Income
tax provision (benefit) for the years ended December 31, 2018 and 2017, is summarized below:
|
|
|
2018
|
|
|
2017
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
Total current
|
|
|
—
|
|
|
|
—
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal (21% tax rate in 2018)
|
|
|
(130,000
|
)
|
|
|
(68,900
|
)
|
|
State
|
|
|
(34,100
|
)
|
|
|
(11,200
|
)
|
|
Total deferred
|
|
|
(164,100
|
)
|
|
|
(80,100
|
)
|
|
Increase in valuation allowance
|
|
|
164,100
|
|
|
|
80,100
|
|
|
Total provision
|
|
$
|
—
|
|
|
$
|
—
|
|
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes. The sources and tax effects of the differences as of December 31, 2017 and 2016 are as follows:
|
|
|
2018
|
|
|
2017
|
|
|
Income tax provision at the federal statutory rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
|
State income taxes, net of federal benefit
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
|
Increase in valuation allowance
|
|
|
(26.5
|
%)
|
|
|
(39.5
|
%)
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Components
of the net deferred income tax assets at December 31, 2017 and 2016 were as follows:
|
|
|
2018
|
|
|
2017
|
|
|
Net operating loss carryovers (2017 adjusted for revised tax rate)
|
|
$
|
528,200
|
|
|
$
|
364,100
|
|
|
Valuation allowance
|
|
|
(528,200
|
)
|
|
|
(364,100
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance with ASC 740, at December 31, 2018 we determined that a valuation allowance should be recognized against deferred tax
assets because, based on the weight of available evidence, it is more likely than not (i.e., greater than 50% probability) that
some portion or all of the deferred tax asset will not be realized in the future. We recognized a reserve of 100% of the amounts
of the deferred tax benefit in the amount of $528,200.
As
of December 31, 2018, we had cumulative net operating loss carry forwards of $2,358,000 which expire from 2033 through 2038.
There
are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2010
through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the
consolidated statement of operations. There have been no income tax related interest or penalties assessed or recorded.
Note
11. 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 years ended December 31, 2018 and 2017.
Note
12. Subsequent Events
On
January 25, 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement (the “Securities
Exchange Agreement”) with LGBT Loyalty LLC, a New York limited liability company (“LGBT Loyalty”), and Maxim
Partners, LLC, a New York limited liability company (“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. Through LGBT Loyalty, we intend to create, establish, develop, manage and fund a LGBT Preference Index, LGBT Exchange Traded
Fund and/or LGBT Loyalty Sponsor Fund.
The
Series A Preferred Stock has no voting, liquidation or other rights other than the right to convert into common stock. The Series
A Preferred Stock will automatically convert into additional shares of our restricted common stock immediately after such time
that (i) the number of shares of our authorized common stock is increased from 500,000,000 to 1,000,000,000 shares (the “Share
Increase”); and (ii) the January 25, 2019 warrants issued to Brian Neal, our President, and Robert Gayman, our Executive
Management Consultant, at the closing of the securities exchange transaction (the “Management Warrants”) are automatically
exercised for shares of our restricted common stock. The Management Warrants represent common stock purchase warrants that were
issuable to Robert Blair, our Chief Executive Officer, Brian Neal and Robert Gayman, and/or their designees or assignees (collectively,
the “Management Holders”) in exchange for the cancellation of all amounts due to the Management Holders by us as of,
but not including, January 1, 2019, which amounts consisted solely of accrued salaries and/or consulting fees earned by the Management
Holders through December 31, 2018, plus interest due thereon. These amounts consisted of $161,629 due to Robert Blair, representing
$154,600 of compensation and $7,029 of interest, $25,054 due to Brian Neal, representing $24,000 of compensation and $1,054 of
interest and $161,629 due to Robert Gayman, representing $154,600 of compensation and $7,029 of interest. Prior to their issuance,
Robert Blair gifted his right to receive Management Warrants to Brian Neal. The Management Warrants are automatically exercisable
for shares of our restricted common stock following the Share Increase at an exercise price equal to a 10% discount to the volume
weighted average price (“VWAP”) for our common stock during the three trading days ending on the seventh trading day
following the date on which this Current Report is filed with the Securities and Exchange Commission. Except as otherwise provided
below, the share of Series A Preferred Stock is automatically convertible into 99.98% of the number of shares issued upon the
automatic exercise of the Management Warrants. However, upon the conversion of the Series A Preferred Stock, Maxim may not own
more than 49.99% of our then issued and outstanding common stock.
In
the event that the full conversion of the Series A Preferred Stock would result in Maxim owning more than 49.99% of our then issued
and outstanding common stock, the conversion will be limited to such number of shares that will result in Maxim owning 49.99%
of our then issued and outstanding common stock and the issuance of the remaining shares issuable upon conversion will be deferred
until such time that their issuance will not increase Maxim’s ownership of our common stock to more than 49.99%.
During
the period February 6, 2019 through and including February 11, 2019, the holder of a March 6, 2018 convertible promissory
note (the “Note”) in the original principal amount of $35,000 converted $26,920 in principal and $4,255 in interest
into an aggregate of 20,763,440 shares of our common stock at a conversion price of $0.0015 per share. As the result of such conversions,
the Note has been repaid in full and terminated. The shares were issued in reliance on Section 4(a)(2) of the Securities
Act of 1933, as amended.
On
March 8, 2019 we increased the size of our Board of Directors to four persons and appointed Barney Frank and Billy Bean to the
vacant director positions created thereby. In connection with such appointments, we issued 1,000,000 shares of our restricted
common stock to each of Barney Frank and Billy Bean. We also agreed to pay each of them an annual fee of $25,000 for serving as
a director (the “Annual Fee”). The Annual Fee payable to Mr. Frank is payable in cash and the Annual Fee payable to
Mr. Bean is payable in stock. We also granted each of Mr. Frank and Mr. Bean the right to participate in the commission
program we intend to establish with respect to direct (20% commissions) and indirect (10% commissions) sales related to our LGBT
Loyalty Sponsorship Programs, the terms of which will be set forth in separate agreements between us and each of Messrs. Frank
and Bean.
On
March 25, 2019 our Board of Directors appointed Martina Navratilova to our Board of Directors. In connection with such appointment
we issued 1,000,000 shares of our restricted common stock to Ms. Navratilova. We also agreed to pay Ms. Navratilova an annual
fee of $25,000 in common stock payable in monthly installments on a pro-rata basis and valued based on the 5-trading day volume
weighted average price for our common stock during the last five trading days preceding the month of payment. The shares will
be issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.
Effective
March 26, 2019 we issued 4,609,458 and 3,990,840 shares of our restricted common stock to Brian Neal and Robert Gayman, respectively,
pursuant to the automatic exercise of warrants issued to Messrs. Neal and Gayman on January 25, 2019. The automatic exercise was
triggered by the March 26, 2019 filing of a Certificate of Amendment (the “Certificate of Amendment”) to our Certificate
of Incorporation which increased our authorized capitalization. Effective March 26, 2019, we issued 8,598,578 shares of our restricted
common stock to the holder of the outstanding share of our Series A Convertible Preferred Stock pursuant to the automatic
conversion triggered by the filing of the Certificate of Amendment and the automatic exercise of the warrants referenced above.
The share issuances referenced above were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the
Securities Act of 1933, as amended.
On
March 26, 2019 we filed a Certificate of Amendment to our Certificate of Incorporation to increase our authorized capitalization
to 1,000,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value
per share. As set forth in our Definitive Information Statement under Section 14(c) of the Securities Exchange Act of 1934,
as amended, which was filed on February 26, 2019, the amendment to our Certificate of Incorporation was approved by our Board
of Directors and the holders of a majority of our outstanding common stock by written consents dated February 11, 2019.
On
April 3, 2019 we filed a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock with the
Delaware Secretary of State to create a new class of preferred stock, $0.001 par value per share, designated Series B Convertible
Preferred Stock (“Series B Preferred Stock”) and authorized the issuance of up to 1,500,000 shares of Series B Preferred
Stock. The Series B Preferred Stock has no voting, liquidation or other rights other than the right to receive dividends and to
convert into common stock. The stated value of each share of Series B Convertible Preferred for purposes of conversions and dividends
is $1.15 (the “Conversion/Dividend Stated Value”). The stated value of each share of Series B Convertible Preferred
for purposes of redemptions is $1.35 (the “Redemption Stated Value”).
Subject
to earlier conversion or redemption, the Series B Preferred Stock will automatically convert into fully paid and non-accessible
shares of our common stock 24 months following the date of issuance of such Series B Preferred Stock without any action or payment
required on the part of the holder of the Series B Convertible Preferred Stock. Subject to a floor price limitation of $0.03 per
share, the automatic conversion price to which the Conversion/Dividend Stated Value will be applied will be the lower of (i) $0.10
per share of common stock; or (ii) a 20% discount to the lowest volume weighted average price (“VWAP”) for our common
stock on our principal trading market during the five (5) trading days immediately prior to the automatic conversion date.
Subject
to earlier conversion or redemption, the Series B Preferred Stock will also automatically convert into fully paid and non-assessable
shares of common stock upon the conversion terms provided above if (i) the closing sale price for our common stock on our principal
trading market closes at or above $0.20 for 10 consecutive trading days;(ii) our common stock is up listed to NASDAQ or a national
securities exchange; or (iii) we complete an offering of securities resulting in aggregate gross proceeds of not less than $3,000,000.
Notwithstanding the foregoing, the automatic conversion events set forth in (i), (ii) and (iii) above are not applicable during
the 180 day period following the issuance date or if the common stock issuable upon conversion is not registered or subject to
sale pursuant to Rule 144 or another exemption from the registration requirements of the Securities Act of 1933, as amended.
Commencing
180 days after the issuance date, the holders of Series B Preferred Stock will have the right to convert their Series B Convertible
Preferred at any time into Common Stock on the same conversion terms applicable to automatic conversions.
Absent
the prior written approval of the Company, all automatic and optional conversions of Series B Preferred Stock must be for a minimum
of 5,000 shares of Series B Preferred except in cases where the holder owns less than 5,000 shares and is converting all
Series B Preferred shares then owned by the holder. No fractional shares of Common Stock will be issued upon conversions
of the Series B Convertible Preferred. In lieu of any fractional share to which the holder would otherwise be entitled, the
Company will round up to the next full share.
Dividends
at the rate of 12% per annum (1% per month) are payable on the Conversion/Dividend Stated Value of the Series B Preferred Stock
in cash or stock at our discretion. Dividends are payable at the end of each month following the applicable issuance date. Dividends
payable in stock will be calculated based on the 5-day VWAP during each of the last 5 trading days of the month for which payment
is being made. To the extent that a month for which dividends are payable does not involve a full month because shares of Series B
Preferred Stock were issued, redeemed, or converted during such month, the dividend payable shall be pro-rated to reflect the
number of days of such month that the dividend applies to. In all events, dividends shall not be payable for periods following
redemption, conversion or the 24 month anniversary of the applicable issuance date.
The
Series B Preferred Stock is redeemable in cash by us at any time prior to conversion upon five business days prior written notice
to the holder at the Redemption Stated Value for each share being redeemed.
The
automatic and optional conversion price will be appropriately adjusted to reflect stock splits, stock dividends (exclusive of
the dividends payable on the Series B Preferred Stock) business combinations and similar recapitalization.
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.