NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September
30, 2020
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LGBTQ Loyalty
Holdings, Inc. (formerly LifeApps Brands Inc.), including its subsidiaries.
On
January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating the first LGBTQ
Loyalty Preference Index ETF (the “Index ETF”) to provide the LGBTQ community with the power to influence the allocation
of capital within a financial Index ETF based upon LGBTQ consumer preferences. The Index ETF is intended to link the growing economic
influence of the LGBTQ community and their allies with many of the top Fortune 500 companies that support and implement diversity,
inclusion and equality policies within their organizations. The incorporation of diversity and inclusion in a company’s
recruitment and human resource policies is becoming a key concern to investors as part of their growing focus on Environment,
Social and Corporate Governance (“ESG”) allocations. Our data and analytics unequivocally reinforce that corporations
that have embraced diversity and inclusion policies within their corporate culture perform at a higher level financially than
their peers. This includes advancing a more invigorated workforce that attracts and retains the best talent. Innovation and agility
have been identified as great benefits of diversity, and there is an increasing awareness of what has come to be known as ‘the
power of difference’.
On
October 30, 2019, through our wholly-owned subsidiary Loyalty Preference Index, Inc. (“LPI”) and our strategically
aligned partnerships with crowd sourced data and analytic providers, we launched the LGBTQ100 ESG Index which integrates LGBTQ
community survey data into the methodology for a benchmark listing of the nation’s highest financially performing large-cap
publicly listed corporations that our respondents believe are most committed to advancing equality. LPI is the index provider
for the LGBTQ + ESG100 ETF; LGBTQ Loyalty was the Sponsor for the prospectus that was filed by the licensed Fund Adviser ProcureAM,
and was approved by the Securities and Exchange Commission (“SEC”) in early January 2020. The LGBTQ + ESG100 ETF (the
“Fund”) seeks to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index. The Fund earns
management fees based on assets under management (“AUM”) and is expected to launch in the first quarter of
2021 on the NASDAQ.
On
June 24, 2020, we formed two wholly-owned subsidiaries, Crowdex Equity Inc. and Advancing Equality Financial Network, Inc.
Note
2. Summary of Significant Accounting Policies
Going
Concern
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States (“US GAAP”), which contemplates our continuation as a going concern. We have
incurred losses to date of $10,891,347 and have negative working capital of $3,669,204 as of September 30, 2020.
To date we have funded our operations through advances from a related party, issuance of convertible debt, and the sale of our
common stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding
will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern.
Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities
in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing
losses, and ultimately generate profitable operations. The accompanying financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Basis
of Presentation
We
have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated financial statements
are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary
for a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results
for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2020. Certain information
and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with US GAAP
have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should
be read in conjunction with the audited financial statements and accompanying notes.
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements include the accounts of LGBTQ Loyalty Holdings, Inc. and our
wholly owned subsidiaries, LGBTQ Loyalty, LLC, LifeApps Inc., Sports One Group Inc., Loyalty Preference Index, Inc, Crowdex Equity
Inc. and Advancing Equality Financial Network, Inc. All material inter-company transactions and balances have been eliminated
in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual
results may differ from these estimates.
Reclassifications
The
Company has reclassified certain previously reported amounts in its consolidated financial statements. Accordingly, prior year
amounts were reclassified to conform to the current year presentation. The reclassifications did not change the previously reported
results of operations.
Fair
Value Measurements
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition
of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted
prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines
the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
Level
2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of
the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities
or contracts, or priced with models using highly observable inputs.
Level
3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models
and forecasts used to determine the fair value of financial transmission rights and derivative liabilities.
Our
financial instruments consist of cash, other current assets, accounts payables, accruals, and notes payable. The carrying values
of these instruments approximate fair value because of the short-term maturities. The fair value of the Company’s convertible
debentures and promissory notes approximates their carrying values as the underlying imputed interest rates approximates the estimated
current market rate for similar instruments. The derivative is measured as a Level 3 instrument due to the various inputs which
requires significant management judgment. Refer to Note 6 for detail.
The
following table is a summary of our financial instruments measured at fair value:
|
|
Fair
Value Measurements
|
|
|
|
as
of September 30, 2020:
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,291,732
|
|
|
$
|
1,291,732
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,291,732
|
|
|
$
|
1,291,732
|
|
|
|
Fair
Value Measurements
|
|
|
|
as
of December 31, 2019:
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,111,879
|
|
|
$
|
1,111,879
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,111,879
|
|
|
$
|
1,111,879
|
|
Other
Receivables – Related Party
Other
receivables represent amounts held in escrow at the Fund’s custodian. The Company expects to retrieve the funds upon commencement
of the Fund’s operations.
Earnings
per Share
We
calculate earnings per share in accordance with ASC Topic 260 Earnings Per Share, which requires a dual presentation of
basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding
during the fiscal year. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive
effect of outstanding stock options and warrants. The diluted earnings per share were not calculated because we recorded net losses
for the three and nine months ended September 30, 2020 and 2019, and the outstanding stock options and warrants are anti-dilutive.
For the three and nine months ended September 30, 2020 and 2019, the following number of potentially dilutive shares have been
excluded from diluted net loss since such inclusion would be anti-dilutive:
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
Stock options outstanding
|
|
|
1,800,000
|
|
|
|
5,800,000
|
|
Warrants
|
|
|
7,500,000
|
|
|
|
-
|
|
Shares to be issued
upon conversion of notes
|
|
|
260,440,810
|
|
|
|
17,961,345
|
|
|
|
|
269,740,810
|
|
|
|
23,761,345
|
|
Recent
Pronouncements
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Note
3. Intangible Assets
During
the year ended December 31, 2019, the Company capitalized costs pertaining to the development of the LGBTQ100 ESG Index website.
The Company began amortizing upon the launch of the index, and will amortize the costs over a three-year useful life.
At
September 30, 2020 and December 31, 2019, intangible assets, net was $84,733 and $73,076, respectively. Amortization expense was
$6,448 and $19,344, respectively, for the three and nine months ended September 30, 2020.
Note
4. Notes Payable
As
of September 30, 2020 and December 31, 2019, the Company has a note payable outstanding in the amount of $3,986 and $7,986, respectively.
The note is past due at September 30, 2020 and is therefore in default. The note accrues interest at a rate of 2% per annum.
In
January 2020, the Company issued a note payable to a lender for a principal amount of $50,000. The Company received proceeds of
$47,500 and the note matured on February 5, 2020. As of September 30, 2020, the note is past due and in default. As of September
30, 2020 and December 31, 2019, the outstanding balance was $50,000.
In
December 2019, the Company issued a promissory note to Pride Partners LLC (“Pride”) for $75,000. The note is secured,
accrues interest at a rate of 10% per annum, and matures on June 20, 2020. As of September 30, 2020, the note is past due and
in default. As of September 30, 2020 and December 31, 2019, the outstanding balance was $75,000.
Note
5. Convertible Notes Payable
Convertible
Note
In
February 2019, the holder of a March 2018 convertible promissory note in the original principal amount of $35,000 converted $26,920
in principal and $4,255 in interest into an aggregate of 26,398,704 shares of our common stock at a conversion price of $0.0015
per share. As the result of such conversions, this note has been repaid in full and terminated.
Convertible
Debenture
On
February 12, 2020, the Company entered into a Securities Purchase Agreement with Cavalry Fund I LP (the “Calvary Note”).
Pursuant to the terms of the Calvary Note, the lender agreed to purchase from the Company, for a purchase price of $100,000, a
10% convertible note in the principal amount of $115,500. The Cavalry Note matures and becomes due and payable on November 11,
2020 and accrues interest at a rate of 10% per annum. The Calvary Note, plus all accrued but unpaid interest, may be prepaid at
any time prior to the maturity date.
The
Calvary Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”) equal to the lower of: (i) the lowest closing price of the common stock during the preceding twenty (20) trading
day period ending on the latest complete trading day prior to the issuance date of the Note (the “Closing Price”),
(ii) $0.04, or (iii) 60% of the lowest traded price for the Common Stock on the principal market on which the Common Stock is
then trading during the twenty (20) consecutive trading days on which at least 100 shares of Common Stock were traded including
and immediately preceding the date of conversion. Upon an event of default, the holder may elect to convert at an alternate conversion
price which is the lower of: (i) the closing price of the Common Stock on the Principal Market on the Trading Day immediately
preceding the issue date of the Calvary Note or (ii) 60% of either the lowest traded price or the closing bid price, whichever
is lower for the common stock on the principal market during any trading day in which the event of default has not been cured.
The conversion price of the Note will be further adjusted by another 15% reduction, regardless of whether there is an event of
default, if (A) the Common stock is no longer a reporting company pursuant to the Securities Exchange Act of 1934, as amended,
(B) the Note cannot be converted into free trading shares after 181 days from the issuance date of the Note, (C) the Common Stock
is chilled for deposit at DTC or becomes chilled at any point while the Note remains outstanding, (D) deposit or other additional
fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or (E) if the closing price at any time falls below
$0.015. The conversion price is subject to customary adjustments. The conversion price is not subject to a floor.
Effective
July 14, 2020, the Company and Calvary Fund I LP entered into an amendment to the Calvary Note to extend the maturity date of
the note from November 11, 2020 to December 31, 2020, prohibit any conversions of the note prior to October 31, 2020, and extend
the prepayment option from August 9, 2020 to December 31, 2020.
On
March 10, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up Note”).
Pursuant to the terms of the Power Up Note, the lender agreed to purchase from the Company, for a purchase price of $75,000, a
10% convertible note in the principal amount of $85,800. The Power Up Note matures and becomes due and payable on March 10, 2021
and accrues interest at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid at any
time prior to the maturity date.
The
Power Up Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on
the latest complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion
price is not subject to a floor. As of September 30, 2020, the noteholder had converted $15,000 in principal for 2,083,333
shares of common stock.
On
May 26, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up May Note”).
Pursuant to the terms of the Power Up May Note, the lender agreed to purchase from the Company, for a purchase price of $75,000,
a 10% convertible note in the principal amount of $85,800. The Power Up May Note matures and becomes due and payable on May 26,
2021 and accrues interest at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid
at any time prior to the maturity date.
The
Power Up May Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on
the latest complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion
price is not subject to a floor.
On
August 11, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Auctus Fund, LLC (“Auctus”).
Pursuant to the terms of the SPA, the Purchaser agreed to purchase from the Company, for a purchase price of $132,000, a 12% Convertible
Note in the principal amount of $150,000. The Note matures and becomes due and payable on August 11, 2021 and accrues interest
at a rate of 12% per annum while the Note remains outstanding. The Note may be prepaid on a monthly basis commencing six months
after closing. The Note is convertible into shares of the Company’s common stock at any time at a conversion price (“Conversion
Price”) equal to the lesser of (i) Current Market Price and (ii) the Variable Conversion Price. The Variable Conversion
Price shall mean 100% multiplied by the Market Price (representing a discount rate of 0%). Market Price means the average of the
previous 5 days volume weighted average price. In connection with the Note, the Company issued two common stock purchase warrants
to purchase up to an aggregate of 15,000,000 shares of common stock (separately, “Warrant A” and “Warrant B”,
and together, the “Warrants” and each a “Warrant”), upon the terms and subject to the limitations and
conditions set forth in the Note. As of September 30, 2020, one warrant to purchase 7,500,000 shares was issued and outstanding
to Auctus. The fair value of the warrants was determined to be $45,068 and was recorded as a debt discount to the note.
On
September 28, 2020, the Company entered into a convertible promissory note (“JSJ Note”) with JSJ Investments, Inc.,
pursuant to which JSJ purchased from the Company, at a purchase price of $100,000, a 10% Convertible Note in the principal amount
of $108,000.
The
JSJ Note accrues interest at a rate of 10% per annum and matures on September 28, 2021. The JSJ Note, plus all accrued but unpaid
interest and other amounts due on the JSJ Note, may be prepaid at any time prior to the maturity date. Upon an event of default,
the interest rate shall increase to 18% for as long as the event of default is continuing (“Default Interest”). At
any time on or after the Maturity Date, the Company may repay the then outstanding principal plus accrued interest and Default
Interest, if any, to JSJ.
The
JSJ Note is convertible into shares of the Company’s common stock at any time after 180 days from the issuance date. The
conversion price is 60% multiplied by the lowest trading price for the common stock during the 20 trading day period ending on
the latest complete trading day prior to the date of a conversion notice.
On
September 29, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up
September Note”). Pursuant to the terms of the Power Up September Note, the lender agreed to purchase from the Company,
for a purchase price of $80,000, a 10% convertible note in the principal amount of $91,300. The Power Up September Note matures
and becomes due and payable on September 29, 2021 and accrues interest at a rate of 10% per annum. The Power Up September Note,
plus all accrued but unpaid interest, may be prepaid at any time prior to the maturity date.
The
Power Up September Note is convertible into shares of the Company’s common stock at any time at a conversion price (the
“Conversion Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price”
shall mean 60% multiplied by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading
day period ending on the latest complete trading day prior to the conversion date. The conversion price is subject to customary
adjustments. The conversion price is not subject to a floor.
On
March 11, 2020, the Company entered into a Securities Purchase Agreement (the “EMA Note”) with EMA Financial, LLC.
Pursuant to the terms of the EMA Note, EMA agreed to purchase from the Company, for a purchase price of $75,000, a 10% Convertible
Note in the principal amount of $85,000.
The
EMA Note accrues interest at a rate of 10% per annum and matures on November 5, 2020. The EMA Note, plus all accrued but unpaid
interest and other amounts due on the EMA Note, may be prepaid at any time prior to the maturity date.
The
EMA Note is convertible into shares of the Company’s common stock. The conversion price shall be the lower of: (i)
the lowest closing price of the common stock during the preceding 20 trading day period ending on the latest complete trading
day prior to March 11, 2020, (ii) $0.04, or (iii) 60% of the lowest traded price for the common stock on the principal market
during the 20 consecutive trading days on which at least 100 shares of common stock were traded including and immediately preceding
the conversion date. Additional discounts to the conversion price and penalties will apply if certain events occur, including
if the closing price drops below $0.015, if the Company’s stock is subject to a DTC chill, or if the EMA Note cannot be
converted in free trading shares after 181 days from the issuance date.
Effective
as of September 29, 2020, the Company and EMA entered into an Amendment to the Note (the “EMA Amendment”), pursuant
to which EMA and the Company agreed to amend the issuance date of the EMA Note from March 11, 2020 to September 29, 2020 and to
extend the maturity date of the EMA Note from November 5, 2020 to September 29, 2021.
During
the three and nine months ended September 30, 2020, the Company recorded amortization of debt discount and original discount of
$181,681 and $584,445, respectively, for all convertible debentures. This amount is included in interest expense in our
consolidated statements of operations.
The
following is a summary of the activity of the convertible notes payable and convertible debenture for the nine months ended September
30, 2020:
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$
|
363,769
|
|
Issuance of convertible debenture
- principal amount
|
|
|
721,400
|
|
Issuance of convertible debenture
- debt discount and original issue discount
|
|
|
(725,235
|
)
|
Amortization
of debt discount and original issue discount
|
|
|
584,445
|
|
Balance as of September 30,
2020
|
|
$
|
944,379
|
|
The
following comprises the balance of the convertible debenture outstanding at September 30, 2020 and December 31, 2019:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Principal
amount outstanding
|
|
$
|
1,784,490
|
|
|
$
|
1,078,090
|
|
Less:
Unamortized original issue discount
|
|
|
(53,118
|
)
|
|
|
(62,779
|
)
|
Less:
Unamortized debt discount
|
|
|
(786,993
|
)
|
|
|
(651,542
|
)
|
|
|
$
|
944,379
|
|
|
$
|
363,769
|
|
Note
6. Derivative Liability
We
evaluated the terms of the conversion features of the debentures in accordance with ASC Topic No. 815 - 40, Derivatives and
Hedging - Contracts in Entity’s Own Stock, and determined they are indexed to the Company’s common stock and that
the conversion features meet the definition of a liability. Therefore, we bifurcated the conversion feature and accounted for
it as a separate derivative liability.
To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future
events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free
interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability
may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial
statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss
recorded.
We
value the conversion feature at origination of the notes using the Black-Scholes valuation model. We
value the derivative liability at the end of each accounting period, and upon conversion of the underlying note or warrant, with
the difference in value recognized as gain or loss included in other income (expense) in our consolidated statements of operations.
The
original debentures had conversion features that resulted in derivative liabilities. We valued the conversion features at each
origination date with the following assumptions, on a weighted-average basis:
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
|
September
30, 2020
|
|
Risk-free interest rate
|
|
|
0.39
|
%
|
Expected term (in years)
|
|
|
0.96
|
|
Expected volatility
|
|
|
191.1
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Exercise price of underlying common shares
|
|
$
|
0.01
|
|
|
|
Year
Ended December 31, 2019
|
|
|
|
Tranche
1
|
|
|
Tranche
2
|
|
|
Tranche
3
|
|
|
Warrants
|
|
Risk-free interest rate
|
|
|
2.11
|
%
|
|
|
1.75
|
%
|
|
|
1.67
|
%
|
|
|
2.11
|
%
|
Expected term (in years)
|
|
|
1.25
|
|
|
|
1.03
|
|
|
|
0.89
|
|
|
|
1.25
|
|
Expected volatility
|
|
|
312.4
|
%
|
|
|
303.70
|
%
|
|
|
326.88
|
%
|
|
|
312.4
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Exercise price of underlying common shares
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
During
the nine months ended September 30, 2020, the entire value of the principal of the debentures were assigned to the derivative
liability and recognized as a debt discount on the convertible debentures. The debt discount is recorded as reduction (contra-liability)
to the debentures and are being amortized over the initial term. The balance of $440,182 was recognized as origination
interest on the derivative liability and expensed on origination. In accordance with the Company’s sequencing policy,
shares issuable pursuant to the convertible debentures would be settled subsequent to the Company’s Series B preferred stock.
The
following is a summary of the activity of the derivative liability for the nine months ended September 30, 2020:
|
|
Debenture
|
|
|
Warrants
|
|
|
Total
|
|
Balance as of December 31, 2019
|
|
$
|
1,047,977
|
|
|
$
|
63,902
|
|
|
$
|
1,111,879
|
|
Initial fair
value on issuance of convertible debenture
|
|
|
1,039,620
|
|
|
|
-
|
|
|
|
1,039,620
|
|
Debenture conversions
|
|
|
(21,296
|
)
|
|
|
-
|
|
|
|
(21,296
|
)
|
New warrant issuances
|
|
|
-
|
|
|
|
39,690
|
|
|
|
39,690
|
|
Common stock
warrant exercises
|
|
|
-
|
|
|
|
(72,244
|
)
|
|
|
(72,244
|
)
|
Change
in fair value of derivative liability
|
|
|
(774,569
|
)
|
|
|
(31,348
|
)
|
|
|
(805,917
|
)
|
Balance as of September 30,
2020
|
|
$
|
1,291,732
|
|
|
$
|
-
|
|
|
$
|
1,291,732
|
|
Note
7. Stockholders’ Equity (Deficit)
Common
Stock
2020
Transactions
In
January 2020, we issued 294,994 shares of common stock to a bridge noteholder in connection with promissory notes received.
During
the nine months ended September 30, 2020, we issued an aggregate of 10,052,318 shares of common stock to consultants for 2019
services which were accrued at a fair value of $459,417.
In
March 2020, we issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the Board of Directors.
In
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation.
In
April 2020, we issued 90,216 shares and 958,333 shares of common stock to a Series B Preferred Stock investor for accrued dividends
and conversion of 25,000 shares of the Series B Preferred Stock.
In
May 2020, we issued an aggregate of 12,889,267 shares of common stock to executives, officers and consultants for services rendered
for a total fair value of $139,215.
In
June 2020, two option holders exercised their outstanding options for a total of 4,000,000 shares of common stock at an exercise
price of $0.0026. The value of $10,400 was converted from outstanding accounts payable.
During
the nine months ended September 30, 2020, we issued an aggregate of 4,170,000 shares of common stock to Pride Partners pursuant
to warrant exercises. Refer to Note 8.
In
September 2020, the Company issued 2,083,333 shares of common stock pursuant to conversion of a debenture in the principal amount
of $15,000.
2019
Transactions
In
January 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement (the “Securities Exchange
Agreement”) with LGBT Loyalty LLC (“LGBT Loyalty”) and Maxim Partners, LLC (“Maxim”), pursuant to
which we acquired all of the membership interests of LGBT Loyalty, making LGBT Loyalty a wholly owned subsidiary of ours, in exchange
for 120,959,996 shares (the “Shares”) of our restricted common stock and one share of our newly created Series A Convertible
Preferred Stock (the “Series A Preferred Stock”). The Shares issued to Maxim represented, upon issuance, 49.99% of
our then issued and outstanding shares of common stock. On March 29, 2019 an additional 8,598,578 shares were issued to Maxim
for the conversion of the Series A Convertible Preferred Stock. LGBT Loyalty has no assets, liabilities nor operations at the
exchange date, therefore, the value ascribed to the issued stock ($388,675) has been charged to operations as expenses of the
merger. On June 4, 2019 we entered into a Securities Exchange Agreement with Maxim pursuant to which the Maxim exchanged 129,558,574
shares of common stock for 129,559 shares of our Series C Preferred Stock.
In
February 2019, we issued an aggregate of 750,000 shares of common stock to a consultant in accordance with a service contract
that provided for a 250,000 share stock grant for services performed of $7,500, as well as the exercise of 500,000 stock options
in exchange for the cancellation of $5,000 then outstanding accounts payable due to the consultant for prior services.
In
March 2019, we issued an aggregate of 8,600,298 shares of our common stock pursuant to the automatic exercise of warrants issued
to two current and prior company officers.
In
March and April 2019, we issued an aggregate of 5,000,000 shares of common stock to five unrelated individuals in accordance with
their appointment as directors of the Company.
During
the nine months ended September 30, 2019, we issued 26,586,204 shares of our common stock to a lender pursuant to note conversions.
During
the nine months ended September 30, 2019, we issued 427,500 shares and 1,405,000 shares to Pride pursuant to debenture conversions
and exercise of common stock warrants.
Series
B Convertible Preferred Stock
As
of September 30, 2020, we had $10,350 in remaining accrued Series B dividends.
Note
8. Options and Warrants
Options
As
of September 30, 2020 and December 31, 2019, we had 1,800,000 and 5,800,000 options, respectively, remaining outstanding pursuant
to the 2012 Equity Incentive Plan.
There
was no stock based compensation expense for options for the nine months ended September 30, 2020 and 2019. There will be no additional
compensation expense recognized in future periods.
Warrants
During
the nine months ended September 30, 2020, Pride exercised an aggregate of 4,170,000 shares of common stock pursuant to the exercise
provisions of the warrant, including a simultaneous grant and exercise of 2,285,000 warrants. As of September 30, 2020, Pride
had no outstanding warrants remaining. The Company received total proceeds of $93,342 a result of the warrant exercises.
In
May 2020, we cancelled warrants that were issued in 2019 to board members to purchase an aggregate of 7,000,000 shares of our
common stock. See Note 9.
In
August 2020, we issued 7,500,000 shares to Auctus in connection with the Auctus Note. The exercise price of the Auctus Warrants
is $0.15 per share.
On
January 25, 2019 we issued warrants to two Company executives in exchange for the cancellation of an aggregate of $348,312 of
salary and interest accruals through December 31, 2018. The warrants were fully exercised as described in Note 7 above.
The
following is a summary of the warrant activity for the nine months ended September 30, 2020:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding as of December 31, 2019
|
|
|
8,885,000
|
|
|
$
|
0.04
|
|
Granted
|
|
|
9,785,000
|
|
|
|
0.03
|
|
Exercised
|
|
|
(4,170,000
|
)
|
|
|
0.08
|
|
Forfeited
|
|
|
(7,000,000
|
)
|
|
|
0.03
|
|
Outstanding as of September 30,
2020
|
|
|
7,500,000
|
|
|
$
|
0.02
|
|
Note
9. Related Party Transactions
Parties,
which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common control or common significant influence.
Notes
Payable to Related Party
During
the quarter ended September 30, 2020, the Company received proceeds of $48,675 pursuant to short-term promissory notes with related
parties. Currently the Company has defaulted on all of their related party loan obligations. Forbearance has been granted by the
related parties on all loans.
Accrued
Salaries
In
March 2019, we issued an aggregate of 8,600,298 shares of our common stock pursuant to the automatic exercise of warrants issued
to two current and prior company officers. The warrants were issued in exchange for the cancellation of an aggregate of $348,312
of salary and interest accruals through December 31, 2018.
As
of September 30, 2020 and December 31, 2019, accrued salaries to our company officers and executive director totaled $193,552
and $91,352, respectively, and is included in accrued salaries and consulting fees in our consolidated balance sheets.
Board
of Directors
In
March 2020, the Company issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the board, and recognized $17,800
in compensation expense.
In
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation, including 3,942,161 shares pursuant to accrued
monthly fees and 8,000,000 shares pursuant to 2020 annual compensation. In conjunction with this transaction, we cancelled 7,000,000
warrants that were issued to the board in December 2019. We accounted for the modification in accordance with ASC 718-20-35. Total
fair value of the shares issued and warrant modification was $214,595.
In
March and April 2019, we issued an aggregate of 5,000,000 shares of common stock to five unrelated individuals in accordance with
their appointment as directors of the Company, and recognized $555,401 in compensation expense.
Total
accrued directors’ compensation of $50,834 and $80,000 at September 30, 2020 and December 31, 2019, respectively, is included
in accrued salaries and consulting fees on our consolidated balance sheets.
A
board member is the co-founder and president of ProcureAM, LLC, the fund advisor for the Fund. As of September 30, 2020 and December
31, 2019, we have $100,000 included as other receivables on our consolidated balance sheet, which represents amounts held in escrow
at the Fund’s custodian.
Note
10. Subsequent Events
Management
has evaluated all activity up to November 16, 2020 and concluded that no subsequent events have occurred that would require
recognition in these financial statements or disclosure in the notes to these financial statements other than the following:
In
October 2020, the Company issued 16,718,951 shares of common stock pursuant to conversion of a debenture in the principal amount
of $74,700.
On
October 8, 2020, the Company entered into a Securities Purchase Agreement (the “Auctus October Note”) with Auctus
Fund, Pursuant to the terms of the Auctus October Note, Auctus agreed to purchase from the Company, for a purchase price of $300,000:
(i) a Convertible Promissory Note in the principal amount of $300,000 (the “Auctus Note”); (ii) a common stock purchase
warrant permitting Auctus to purchase up to 100,000,000 shares of the Company’s common stock, par value $0.001 per share
(the “Common Stock”), at an exercise price of $0.015 per share (the “Warrant A”); and (iii) a common stock
purchase warrant permitting Auctus to purchase up to 100,000,000 shares of the Company’s Common Stock at an exercise price
of $0.015 per share (the “Warrant B”) and together with the Warrant A, the “Warrants”).
The
Auctus October Note accrues interest at a rate of 12% per annum and matures on October 8, 2021. The Auctus October Note is convertible
into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price shall be the
“Market Price” which is defined as the volume weighted average price for the Common Stock during the 5 trading day
period ending on the latest complete trading day prior to the conversion date.