Notes
to Condensed Consolidated Financial Statements
September
30, 2019 and 2018
(Unaudited)
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LGBTQ
Loyalty Holdings, Inc., (formerly LifeApps Brands Inc.) including its subsidiaries. The accompanying unaudited condensed
consolidated financial statements of LGBTQ Loyalty Holdings, Inc. at and for the periods ended September 30, 2019 and 2018
have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial
statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in
our annual report on Form 10-K for the year ended December 31, 2018. In management’s opinion, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial
statements not misleading have been included. The results of operations for the periods ended September 30, 2019 and 2018
presented are not necessarily indicative of the results to be expected for the full year. The December 31, 2018 condensed
consolidated balance sheet has been derived from our audited financial statements included in our annual report
on Form 10-K for the year ended December 31, 2018.
On
January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating a LGBTQ Loyalty
Preference Index (the “Index”) to provide the LGBTQ 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.
On
October 30, 2019, we launched the LGBTQ100 ESG Index, which references LGBTQ community survey data in the methodology for a benchmark
listing of the nation’s highest financially performing companies that our respondents believe are most committed to advancing
equality.
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 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.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Note
2. Summary of Significant Accounting Policies
Going
Concern
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates
our continuation as a going concern. We have incurred losses to date of $8,092,081 and have negative working capital of
$672,961. To date we have funded our operations through advances from related parties, issuances of convertible debt, and the
sale of our common and preferred 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 unaudited
condensed consolidated 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 unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries,
LGBTQ Loyalty, LLC, LifeApps Inc., Sports One Group Inc. and Loyalty Preference Index, Inc. (“LPI”),
which was formed on July 24, 2019. All material inter-company transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Derivative
Liabilities
The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative
accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities
in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes
changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing
policy regarding share settlement wherein instruments with a fixed conversion price or floor would be settled first, and interest payable in shares settle next.
Thereafter, share settlement order is based on instrument issuance date – earlier dated instruments settling before
later dated. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a
stock split, to have an issuance date to coincide with the event giving rise to the additional shares. The policy includes
all shares issuable pursuant to debenture and preferred stock instruments as well as shares issuable under service and
employment contracts and interest on short term loans.
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”),
ASC Topic 350 Intangibles – Goodwill and Other (“ASC 350”),
the costs to obtain and register internet domain names were capitalized. We expended $10,000 and $0 for website development
for the three months ended September 30, 2019 and 2018, respectively and $47,500 and $0 for the nine months ended September
30, 2019 and 2018, respectively. Amortization of these costs will begin when the website becomes active.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
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
was derived primarily from the sale of sports and fitness apparel and equipment.
Website
and software development costs
Website
and software costs are eligible for capitalization under ASC
350-50 and ASC 985-20, Software-Costs of Software to be Sold, Leased or Marketed. We expended $10,000 and $0 for website development
for the three months ended September 30, 2019 and 2018, respectively and $47,500 and $0 for the nine months ended September 30,
2019 and 2018, respectively. Amortization of these costs will begin when the website becomes active.
Rent
Expense
We
recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 842,
Leases (“ASC 842”). Our membership agreement for shared office space expires on May 31, 2020. Rent expense
was $13,671 and $0 for the three months ended September 30, 2019 and 2018, respectively and $17,894 and $255 for the nine months
ended September 30, 2019 and 2018, respectively. We adopted ASC 842 on its effective date of January 1, 2019. The adoption did not have any effect on
our condensed consolidated financial statements.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Earnings
per share
We
calculate earnings per share in accordance with ASC Topic 260 Earnings Per Share, which requires a dual presentation of
basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding
during the fiscal year. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive
effect of outstanding stock options and warrants. The diluted earnings per share were not calculated because we recorded net losses
for the periods ended September 30, 2019 and 2018, and the outstanding stock options and warrants are anti-dilutive.
Weighted average shares outstanding would
have increased by approximately 7,717,000 and 3,098,000 for the nine months ended September 30, 2019 and 2018, respectively, and
7,252,000 and 2,885,000 for the three months ended September 30, 2019 and 2018, respectively, on a fully diluted basis.
Recent
Pronouncements
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Note
3. Related Party Transactions – Officer, Director and Shareholder Advances
Amounts due to related party represent cash advances, salary accruals, notes payable, and amounts paid on
our behalf by an officer, director and shareholders of the Company. The cash advances are non-interest bearing, short term in nature
and due on demand. The balance of our cash advances at September 30, 2019 and December 31, 2018 was $10,900 and $10,974, respectively.
Salary accruals as of September 30, 2019 and December 31, 2018 amounted to $116,250 and $348,800, respectively. Payments of accrued
salaries for the three-month periods ended September 30, 2019 and 2018 amounted to $82,500 and $0, respectively. Payments of accrued
salaries for the nine-month periods ended September 30, 2019 and 2018 amounted to $162,750 and $0, respectively.
Notes payable to related parties at September 30, 2019 and December 31, 2018 totaled
$17,885 with a 2% annual interest rate. Currently the Company has defaulted on all of their related party loan obligations. Forbearance
has been granted by the related parties on all loans. Net cash advances to the Company amounted to $0 and $3,029, respectively,
for the periods ended September 30, 2019 and 2018.
During
the nine months ended September 30, 2019 we began the accrual of director’s fees for five individuals at the rate of $25,000
per annum. Four of the directors have agreed to receive their fee payments in shares of the Company’s common stock with
the number of shares to be issued based on the 5-day average trading price of the stock at the end of each month. During the three
and nine months ended September 30, 2019 we accrued an aggregate of $31,250 and $68,750, respectively, for director fees. As of
September 30, 2019, an aggregate of 649,080 shares of our common stock are issuable pursuant to the director compensation agreements.
On March 21, 2019 all parties to the employment and service agreements converted amounts due thereunder at December 31, 2018 into
8,600,298 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 Agreements with our current and former Chief Executive Officers
provide for base compensation of $150,000. We also have a separate Agreement with our President that provides for a base
annual salary of $24,000. 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 accrue interest at the rate of 10% per annum.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Each
of the foregoing 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 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 three months ended September 30, 2019 and 2018 we recorded interest accruals of $694 and $5,736, respectively, related to
the contracts. During the nine months ended September 30, 2019 and 2018 we recorded interest accruals of $7,179 and $7,976, respectively,
related to the contracts.
Note
4. Notes Payable
Notes
payable to unrelated third parties amounted to $10,986 at September 30, 2019 and $33,000 at December 31, 2018 with interest
rates of 2% and 7% per annum, respectively. The note in the amount of $10,986 at September 30, 2019 is past due and is, therefore,
in default. The other notes were issued in August and December of 2018 aggregating $15,000. 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 of 187,500 shares during the quarter ended June 30, 2019. The lender also agreed to waive all interest due on the
loans. During the nine months ended September 30, 2019, the Company repaid $7,014 pertaining to these notes.
Note
5. Convertible Note Payable
On
March 6, 2018, we executed a Promissory Note (the “2018 Note”) to an unrelated entity and received an aggregate of
$32,000. The 2018 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 2018 Note carries a face interest rate of 12% per annum. The lender had 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 was 58% of a two-day average of the lowest trading price in the range of 15 trading
days prior to the conversion. The 2018 Note provided for additional penalties if we could not 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.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
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
valued the derivative liability at estimated fair market value and at the end of each accounting period. The difference
in value is recognized as gain or loss in the statement of operations.
During
the period February 6, 2019 through and including February 11, 2019, the holder of the 2018 Note in the original principal amount
of $35,000 converted the remaining $26,920 in principal and $4,255 in interest into an aggregate of 26,398,734 shares of our common
stock at a conversion price of $0.0015 per share. As the result of such conversions, the 2018 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.
Note
6. Long-term Debt
On
June 4, 2019 (the “Closing Date”), we entered into and closed a Securities Purchase Agreement (the “SPA”)
with Pride Partners LLC (the “Purchaser” or “Pride”), a New York limited liability company, pursuant
to which for a purchase price of $500,000, the Purchaser purchased $550,000 in principal amount of a 10% Original Issue Discount
Senior Convertible Debenture (the “Debenture”) due 15 months following the date of issuance and an 18 month common
stock purchase warrant (the “Warrant”) exercisable for up to 6,250,000 shares (subject to adjustment thereunder) of
our common stock.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Subject
to earlier conversion or redemption, the Debenture is due on June 4, 2020 (the “Maturity Date”). At any time after
June 4, 2019, the Debenture is convertible, in whole or in part, into shares of common stock (the “Conversion Shares”)
at the option of the holder, at any time and from time to time (subject to a 4.99% beneficial ownership limitation). If, on the
Maturity Date, the outstanding principal balance of the Debenture is $50,000 or less, the Debenture, including all accrued and
unpaid interest then due thereon, is automatically convertible into common stock. Subject to adjustment, the per share conversion
price for the Debenture on any conversion date is the lesser of (i) $0.1069 or (ii) 85% of the lowest single trading date volume
weighted average price for our Common stock during the 5 trading days prior to the conversion date. No later than the earlier
of (i) 2 trading days after our receipt of a notice of conversion and (ii) the number of trading days comprising the standard
settlement period after our receipt of a notice of conversion, we are required to deliver Conversion Shares which, when permitted
under applicable securities laws, will be delivered free of restrictive legends and trading restrictions. In the event that we
fail to deliver Conversion Shares by the applicable delivery date, the holder may rescind such conversion until such time that
the Conversion Shares are received by the holder. Our failure to timely deliver Conversion Shares subjects us to the payment of
liquidated damages to the holder as well as buy-in liability under circumstances where the holder is required to purchase Common
Stock in the open market in satisfaction of a sale by the holder of Conversion Shares which the holder was entitled to receive.
We are required to reserve and keep available from our authorized and unissued shares of Common Stock a sufficient number of shares
to cover conversions of the Debenture. The number and amount of Conversion Shares issuable upon conversion is subject to adjustment
in the event of stock splits and stock dividends. The Debenture also provides for full ratchet anti-dilution price adjustments
under circumstances where, during the term of the Debenture, we issue Common Stock or common stock equivalents, exclusive of certain
exempt issuances, at prices below the then applicable Debenture conversion price. The Debenture further provides for adjustments
in the event of certain rights offerings, pro rata distributions to shareholders and fundamental transactions. The Debenture is
subject to optional redemption by us, for cash, in whole or in part, upon 20 trading days prior written notice by us but only
in the event, unless waived by the holder, we satisfy certain equity conditions (as such term is defined in the
Debenture) during such 20 trading day period. Penalty interest is payable by us if we fail to effect an optional redemption by
the applicable optional redemption date. The Debenture subjects us to negative covenants while the Debenture is outstanding.
We
evaluated the terms of the conversion features of the Debenture and the Warrant 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.
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 condensed
consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding
non-cash gain or loss recorded.
We
valued the conversion features at origination of the Debenture and the Warrant at $962,887 using the Black Scholes valuation model
with the following assumptions: dividend yield of zero, 1.25 year to maturity, risk free interest rate of 2.11% and annualized
volatility of 312.4%. $500,000 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 debenture and is being amortized
over the initial term of the convertible debenture.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
The
balance of $462,887 of the value assigned to the derivative liability was recognized as origination interest on the derivative
liability and expensed on origination. In accordance with the Company’s sequencing policy, shares issuable pursuant to the
convertible debenture would be settled subsequent to the Company’s Series B preferred stock as described in Note 1.
On
August 27, 2019, the Company entered into Amendment No. 1 to Securities Purchase Agreement, Debentures and Registration Rights
Agreement (the “Amendment”) with Pride. Pursuant to the terms of the Amendment, Pride agreed to purchase an additional
$220,000 in principal amount of 10% Original Issue Discount Senior Convertible Debenture for $200,000 in cash, $100,000 of which
was paid at signing of the Amendment and the remaining $100,000 of which was paid on September 16, 2019. As a result of this additional
investment, the Company amended the currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued
to Pride on June 4, 2019 to increase the face value of the debenture from $550,000 to $770,000. No additional warrants were included
in the amended agreement.
We
valued the conversion features of the additional Debenture at $237,149 using the Black Scholes valuation model with the following
assumptions: dividend yield of zero, 1 year to maturity, risk free interest rate of 1.75% and annualized volatility of 303.7%.
$200,000 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 debenture and is being amortized over the remaining
term of the convertible debenture. The balance of $37,149 of the value assigned to the derivative liability was recognized as
origination interest on the derivative liability and expensed on origination.
During
the period from August 14, 2019 to September 30, 2019 the Purchaser exercised an aggregate of 1,405,000 shares of common stock
pursuant to the exercise provisions of the Warrant. The company received an aggregate of $51,569 as a result of the Warrant
exercises.
During
the period from July 25, 2019 to August 14, 2019 the Purchaser converted an aggregate of $21,910 of the Debenture into an aggregate
of 427,500 shares of common stock. The company recognized $18,925 of interest expense related to the write-off of discounts related
to the conversion amounts.
A
summary of the derivative liability associated with the SPA for the period ended September 30, 2019 is as follows:
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
Debenture
|
|
|
Warrant
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Initial valuation
|
|
$
|
469,956
|
|
|
$
|
492,931
|
|
|
$
|
962,887
|
|
Additional funding
|
|
|
237,149
|
|
|
|
|
|
|
|
237,149
|
|
Warrant exercises
|
|
|
|
|
|
|
(65,991
|
)
|
|
|
(65,991
|
)
|
Debenture conversions
|
|
|
(24,137
|
)
|
|
|
|
|
|
|
(24,137
|
)
|
Change in derivative value
|
|
|
573,392
|
|
|
|
(80,991
|
)
|
|
|
492,401
|
|
Balance at September 30, 2019
|
|
$
|
1,256,360
|
|
|
$
|
345,949
|
|
|
$
|
1,602,309
|
|
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Note
7. Stockholders’ Equity
Common
Stock
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 (“LGBT Loyalty”) and Maxim Partners, LLC (“Maxim”),
pursuant to which we acquired all of the membership interests of LGBT Loyalty, making LGBT Loyalty a wholly owned subsidiary of
ours, in exchange for 120,959,996 shares (the “Shares”) of our restricted common stock and one share of our newly
created Series A Convertible Preferred Stock (the “Series A Preferred Stock”). The Shares issued to Maxim represented,
upon issuance, 49.99% of our then issued and outstanding shares of common stock. On March 29, 2019 an additional 8,598,578 shares
were issued to Maxim for the conversion of the Series A Convertible Preferred Stock. LGBT Loyalty has no assets, liabilities nor
operations at the exchange date, therefore, the value ascribed to the issued stock ($388,675) has been charged to operations as
expenses of the merger.
Effective
February 20, 2019 we issued an aggregate of 750,000 shares of restricted common stock to a consultant in accordance with a service
contract that provided for a 250,000 share stock grant and the exercise of 500,000 stock options in exchange for the cancellation
of $5,000 then outstanding accounts payable due to the consultant for prior services.
During
the nine months ended September 30, 2019 we issued an aggregate of 3,000,000 shares of restricted common stock to three unrelated
individuals in accordance with their appointment as directors of the Company.
Effective
March 26, 2019 we issued an aggregate of 8,600,298 shares of our restricted common stock pursuant to the automatic exercise of
warrants issued to two current and prior company officers on January 25, 2019. The warrants were issued in exchange for the cancellation
of an aggregate of $348,312 of salary and interest accruals through December 31, 2018.
During
the period ended September 30, 2019 we issued 2,000,000 shares of common stock in connection with consulting agreements
with two unrelated entities. The shares were valued at the respective trading prices of our common stock on the dates the agreements
were signed.
On
June 26, 2019 we issued 187,500 shares of restricted common stock in connection with the conversion of notes payable as described
in Note 4 above.
During
the quarter ended September 30, 2019 we issued an aggregate of 1,832,500 shares of common stock to Pride as described in Note
6. Also during the quarter ended September 30, 2019 we issued 16,794 shares and 734,918 shares of common stock to a Series B Preferred
Stock investor for accrued dividends and conversion of 25,000 shares of the Series B Preferred Stock.
Series
B Convertible Preferred 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.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
The
stated value of each share of Series B Convertible Preferred Stock 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”). On April 3, 2019 we received an aggregate of $125,000 from the issuance of 125,000
shares of the Series B Convertible Preferred Stock. Each $25,000 of the preferred stock is convertible into $28,750 worth of
common stock. The discount between the $28,750 and $25,000 for each $25,000 investment has been recognized and amortized. Additionally,
the Preferred Stock contains a Beneficial Conversion Feature (BCF) that has been recognized. The BCF is the difference between
the conversion price and the market price at inception multiplied by the number of common shares into which the Preferred Stock
is convertible. The BCF is also treated as a discount on the Preferred Stock, which is amortized over the life of the instrument.
Amortization of the discount will continue through April 3, 2021 and amounted to $50,913 for the period ended September
30, 2019. 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.
In
September 2019, a Series B investor converted 25,000 shares of Series B Preferred Stock for 734,918 shares of common stock.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Series
C Convertible Preferred Stock
On
June 3, 2019 we filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible
Preferred Stock (the “Series C COD”) with the Delaware Secretary of State to create a new class of preferred
stock, $0.001 par value per share, designated Series C Convertible Preferred Stock (“Series C Preferred Stock”)
and authorized the issuance of up to 129,559 shares of Series C Preferred Stock. On the Closing Date, all of the 129,559
shares of Series C Preferred Stock were issued to Pride, the assignee of Maxim. On June 4, 2019 we entered into a Securities Exchange
Agreement with Maxim (the “Holder”) pursuant to which the Holder exchanged 129,558,574 shares of Common Stock for
129,559 shares (the “Exchange Shares”) of our Series C Preferred Stock (the “Share Exchange”). At
the request of the Holder, the Exchange Shares were issued to Holder’s assignee. The Series C Preferred Stock
has no voting or other rights other than the right to receive dividends on a pari passu basis with holders of our Common Stock,
the right to receive assets in the event of liquidation, dissolution or winding up on a pari passu basis with holders of our Common
Stock and the right to convert into common stock. The stated value of each share of Series C Convertible Preferred for purposes
of conversions is $1,000 (the “Stated Value”).
Each
share of Series C Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof, into
that number of shares of Common Stock (subject in each case to a 4.99% beneficial ownership limitation) determined by dividing
the Stated Value of such share of Series C Preferred Stock by the Series C Preferred Stock conversion price of $1.00 per share.
Consequently, each Share of Series C Preferred Stock is presently convertible into 1,000 shares of Common Stock.
Deferred
Officer Compensation
We
recorded $152,644 and $141,293 of amortization of deferred officer compensation during the periods ended September 30, 2019 and
2018, respectively. The 2019 amount includes the full amortization of the remaining balance due under the now terminated Executive
Management Consulting Agreement with our former Chief Executive Officer.
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
Note
8. Options and Warrants
The
following is a summary of stock options issued pursuant to the 2012 Equity Incentive Plan:
|
|
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(in years)
|
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2019
|
|
|
6,300,000
|
|
|
$
|
0.0049
|
|
|
|
2.4
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
500,000
|
|
|
$
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding September 30, 2019
|
|
|
5,800,000
|
|
|
$
|
0.0045
|
|
|
|
1.7
|
|
|
$
|
-
|
|
Exercisable September 30, 2019
|
|
|
5,800,000
|
|
|
$
|
0.0045
|
|
|
|
1.7
|
|
|
$
|
-
|
|
There
was no stock based compensation expense for options for the periods ended September 30, 2019 and 2018. There will be no additional
compensation expense recognized in future periods.
On
January 25, 2019 we issued warrants to two Company executives in exchange for the cancellation of an aggregate of $348,312 of
salary and interest accruals through December 31, 2018. The warrants were fully exercised as described in Note 7 above.
On
June 4, 2019 we issued a warrant to purchase an aggregate of 6,250,000 shares of our common stock. The warrant is exercisable
through December 4, 2020. The exercise price per share of Common Stock under this Warrant shall be the lesser of (i) $0.0855,
or (ii) 75% of the lowest single trading day closing price during the five trading days prior to the exercise date. During the
period from August 14, 2019 to September 30, 2019 the Purchaser exercised an aggregate of 1,405,000 shares of common stock pursuant
to the exercise provisions of the Warrant. The company received an aggregate of $51,569 as a result of the Warrant exercises.
Note
9. Subsequent Events
Management
has evaluated all activity up to November 14, 2019 and concluded that no subsequent events have occurred that would require
recognition in these financial statements or disclosure in the notes to these financial statements other than the following:
LGBTQ Loyalty Holdings, Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2019 and 2018
(Unaudited)
On
October 14, 2019 the Company entered into that certain Amendment No. 2 to Securities Purchase Agreement, Debentures and Registration
Rights Agreement (the “Second Amendment”) with Pride. Pursuant to the terms of Amendment. Pride agreed to purchase
an additional $330,000 in principal amount of 10% Original Issue Discount Senior Convertible Debenture for $300,000 in
cash, $100,000 of which was paid at signing of the Second Amendment, $100,000 will be paid on or prior to November 14,
2019, and the remaining $100,000 will be paid on or prior to December 14, 2019. As a result of this additional investment, the
Company amended the currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued to Pride on
June 4, 2019 and amended on August 27, 2019 to increase the face value of the debenture from $770,000 to $1,100,000 (provided
that if Pride fails to make the second $100,000 or third $100,000 payment, the face value of the debenture will be reduced by
$110,000 for each missed payment). As of November 14, 2019, the Company has received $200,000 pursuant to the Amendment.
Pursuant
to the terms of the Second Amendment, the shares of common stock underlying the additional $330,000 in principal amount
of 10% Original Issue Discount Senior Convertible Debenture (the “Additional Underlying Shares”) are not subject to
the registration rights agreement entered into between the parties on June 4, 2019, but the Company has granted certain demand
registration rights to Pride in connection with the Additional Underlying Shares.
Effective
October 21, 2019 a Series B Preferred Stock investor notified the Company of intent to convert 25,000 shares of the Series B Preferred
Stock into common stock. The Company has authorized the issuance of 731,031 shares of common to the investor stock pursuant to
the conversion request.