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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
|
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended
September 30,
2022
|
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the transition period from ____________ to ____________
Commission
file number:
000-54867
LGBTQ LOYALTY HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware |
|
80-0671280 |
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
2435 Dixie Highway,
Wilton Manors,
FL
33305
(Address
of principal executive offices, including zip code)
Tel:
(858)-577-1746
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
None |
|
N/A |
|
N/A |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definition of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company,” and emerging growth company in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
|
Non-accelerated filer |
☒ |
Smaller
reporting company |
☒ |
| |
|
Emerging
growth company |
☐ |
If an
emerging growth company, indicate by check mark if this registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of
December 9, 2022 the Company had
1,179,890,617 shares of common stock, $0.001 par value,
issued and outstanding.
Our independent audit firm has not finished their review and have
not provided approval to this filing.
LGBTQ
Loyalty Holdings, Inc.
FORM
10-Q
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
TABLE
OF CONTENTS
LGBTQ
Loyalty Holdings, Inc.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
See
the accompanying notes to the unaudited condensed consolidated
financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
See
the accompanying notes to the unaudited condensed consolidated
financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
See
the accompanying notes to the unaudited condensed consolidated
financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT)
(Unaudited)
See
the accompanying notes to the unaudited condensed consolidated
financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
September
30, 2022
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 was 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 has become a key concern to investors
as part of their growing focus on ESG allocations. Our data and
analytics unequivocally reinforce that corporations that have
embraced diversity and inclusion policies within their corporate
culture perform at a higher level financially than their peers.
This includes advancing a more invigorated workforce that attracts
and retains the best talent. Innovation and agility have been
identified as great benefits of diversity, and there is an
increasing awareness of what has become 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. This Index 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”) sought to track the
investment results (before fees and expenses) of the LGBTQ100 ESG
Index. In late 2020, LPI was renamed to Advancing Equality
Preference, Inc.
On
March 25, 2022, ProcureAM, LLC (“Adviser”), the adviser to the
Fund, after consultation with the Company, the sponsor of the ETF,
determined that the Fund should be closed. Based upon a
recommendation by the Adviser, the Board of Trustees of Procure ETF
Trust I (the “Trust”) approved a Plan of Liquidation for the Fund
under which the Fund would be liquidated on or about April 28, 2022
(the “Liquidation Date”). The Liquidation Date may be changed
without notice at the discretion of the officers of the Trust.
Beginning when the Fund commences the liquidation of its portfolio,
the Fund will not pursue its investment objectives or, with certain
exceptions, engage in normal business activities, and the Fund may
hold cash and securities that may not be consistent with the Fund’s
investment objective and strategy, which may adversely affect Fund
performance. On April 28, 2022, the Company effectuated the
termination and liquidation of the Fund pursuant to the terms of a
Plan of Liquidation. As of this date, the Fund has ceased
operations.
Note
2. Correction of
Previously Issued Financial Statements
Subsequent
to the issuance of its Quarterly Report on SEC Form 10-Q for the
three and six months ended September 30, 2022, the Company
discovered several errors in its accounts on its condensed
consolidated balance sheets and statements of
operations.
The
tables below reflect the effect of restatement on the Company’s
financial statements for the three and six month periods ending
June 30, 2022:
Schedule of Restatement of Company’s Financial
Statements
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| |
|
June 30, 2022 |
|
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| Cash |
|
$ |
11,269 |
|
|
$ |
1,665 |
|
|
$ |
12,934 |
|
| Total assets |
|
$ |
59,886 |
|
|
$ |
1,665 |
|
|
$ |
61,551 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
1,386,797 |
|
|
$ |
21,979 |
|
|
$ |
1,408,776 |
|
| Accrued salaries and consulting
fees |
|
|
743,321 |
|
|
|
(20,314 |
) |
|
|
723,007 |
|
| Derivative liability on convertible
notes payable |
|
|
2,769,066 |
|
|
|
12,369 |
|
|
|
2,781,435 |
|
| Total liabilities |
|
|
10,262,606 |
|
|
|
14,034 |
|
|
|
10,276,640 |
|
| Common stock |
|
|
1,132,007 |
|
|
|
3 |
|
|
|
1,132,010 |
|
| Additional paid-in capital |
|
|
12,549,666 |
|
|
|
1 |
|
|
|
12,549,667 |
|
| Accumulated deficit |
|
|
(23,884,446 |
) |
|
|
(12,373 |
) |
|
|
(23,896,819 |
) |
| Total stockholders’ equity
(deficit) |
|
|
(10,202,720 |
) |
|
|
(12,369 |
) |
|
|
(10,215,089 |
) |
| Total liabilities and stockholders’
equity (deficit) |
|
$ |
59,886 |
|
|
$ |
1,665 |
|
|
$ |
61,551 |
|
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| |
|
Six months Ended June 30, 2022 |
|
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| General and
administrative |
|
$ |
39,453 |
|
|
$ |
11,892 |
|
|
$ |
51,345 |
|
| Total operating expenses |
|
|
719,974 |
|
|
|
11,892 |
|
|
|
731,866 |
|
| Interest expense |
|
|
(1,525,116 |
) |
|
|
(634 |
) |
|
|
(1,525,750 |
) |
| Change in derivative liability |
|
|
(1,105,465 |
) |
|
|
(47,759 |
) |
|
|
(1,153,224 |
) |
| Net loss |
|
$ |
(3,350,555 |
) |
|
$ |
(60,285 |
) |
|
$ |
(3,410,840 |
) |
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| |
|
Six months Ended June 30, 2022 |
|
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| Net cash used in operating
activities |
|
$ |
(237,079 |
) |
|
$ |
1,665 |
|
|
$ |
(235,414 |
) |
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| |
|
Three Months Ended Sep June 30, 2022 |
|
| |
|
Original |
|
|
Adjustment |
|
|
As Restated |
|
| Debenture conversions |
|
$ |
114,040 |
|
|
$ |
12,522 |
|
|
$ |
126,562 |
|
Note
3. 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 $24,522,546 and
have negative working capital of $10,762,513 as of September 30, 2022.
To date we have funded our operations through advances from a
related party, issuances of convertible debt, and the sale of
common stock, preferred stock and warrants. 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 unaudited 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
2022. Certain information and footnote disclosures normally
included in unaudited condensed consolidated financial statements
prepared in accordance with US GAAP have been omitted in accordance
with the rules and regulations of the SEC. These unaudited
condensed consolidated financial statements should be read in
conjunction with the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2021 filed with the SEC. The
unaudited condensed consolidated balance sheet as of December 31,
2021 included herein was derived from the audited consolidated
financial statements as of that date, but does not include all
disclosures, including notes, required by GAAP.
Prior Period Adjustments
In
the first quarter of 2022, we determined that the Series D
preferred stock included a substantive conversion option, and
therefore should be equity classified. Previously, the amount was
included as a current liability. We have reclassified the amount to
Series D preferred stock equity and additional paid-in capital on
the consolidated balance sheet and consolidated statement of
stockholders’ equity as of December 31, 2021. We do not believe the
change to be qualitatively material to the consolidated financial
statements as of December 31, 2021.
Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and our wholly owned
subsidiaries, LGBTQ Loyalty, LLC, and Advancing Equality
Preference, 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.
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:
Schedule of Financial Instruments at Fair
Value
| |
|
Fair
Value Measurements |
|
| |
|
as of September 30, 2022: |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on convertible notes payable and preferred
stock |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,036,614 |
|
|
$ |
3,036,614 |
|
| |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,036,614 |
|
|
$ |
3,036,614 |
|
| |
|
Fair
Value Measurements |
|
| |
|
as of December 31, 2021: |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability on convertible notes payable |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,398,127 |
|
|
$ |
1,398,127 |
|
| |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,398,127 |
|
|
$ |
1,398,127 |
|
Refer
to Note 7 for detail on the unobservable inputs used in the fair
value of the derivative liability.
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, 2022 and
2021, and the outstanding stock options and warrants are
anti-dilutive. For the three and nine months ended September 30,
2022 and 2021, the following number of potentially dilutive shares
have been excluded from diluted net loss since such inclusion would
be anti-dilutive:
Schedule of Anti-dilutive Securities Excluded
from Diluted Net Loss
| |
|
2022 |
|
|
2021 |
|
| |
|
Nine
Months Ended |
|
| |
|
September 30, |
|
| |
|
2022 |
|
|
2021 |
|
| Stock options
outstanding |
|
|
- |
|
|
|
1,800,000 |
|
| Warrants |
|
|
28,333,333 |
|
|
|
204,946,057 |
|
| Shares to be issued upon conversion of
notes |
|
|
9,726,808,810 |
|
|
|
203,651,096 |
|
| Series D
preferred stock |
|
|
2,010,000,000 |
|
|
|
67,826 |
|
|
Anti-dilutive securities |
|
|
11,765,142,143 |
|
|
|
410,464,979 |
|
Recent Pronouncements
In
August 2020, the FASB issued Accounting Standards Update (“ASU”)
2020-06, which simplifies the guidance on the issuer’s accounting
for convertible debt instruments by removing the separation models
for convertible debt with a cash conversion feature and convertible
instruments with a beneficial conversion feature. As a result,
entities will not separately present in equity an embedded
conversion feature in such debt and will account for a convertible
debt instrument wholly as debt, unless certain other conditions are
met. The elimination of these models will reduce reported interest
expense and increase reported net income for entities that have
issued a convertible instrument that is within the scope of ASU
2020-06. ASU 2020-06 is applicable for fiscal years beginning after
December 15, 2021, with early adoption permitted no earlier than
fiscal years beginning after December 15, 2020. The Company has
elected to early adopt this ASU in the first quarter of 2022 and
the adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements and related
disclosures.
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
4. Intangible
Assets
The
Company capitalizes costs pertaining to the development of the
LGBTQ100 ESG Index website. The Company began amortizing these
costs upon the launch of the index, and will amortize the costs
over a three-year useful life.
At
September 30, 2022 and December 31, 2021, net intangible assets
were $33,899 and
$53,243,
respectively. Amortization expense was $19,344 for
both the nine months ended September 30, 2022 and 2021,
respectively.
Note
5. Notes
Payable
As of
September 30, 2022 and December 31, 2021, the Company has a note
payable outstanding in the amount of $1,986. The note is
past due at September 30, 2022 and is, therefore, in default. The
note accrues interest at a rate of 2% per
annum.
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
matured on June 20, 2020. As of September 30, 2022, the full
principal amount was outstanding and in default.
In
2019, the Company issued a promissory note for $50,000. The note
includes $2,500 in original
issue discount. The noted is unsecured and matured in December
2019. As of September 30, 2022, the full principal amount was
outstanding an in default.
In
April 2022, Advancing Equality Preference entered into a loan
payable for $130,000 for proceeds of $100,000. The loan matured
on September 30, 2022 and is currently in default.
Note
6. Convertible Notes
Payable
During
the nine months ended September 30, 2022 and 2021, the Company
recorded amortization of debt discount and original issue discount
of $158,690
and $1,077,708,
respectively, for all convertible debentures. This amount is
included in interest expense in our consolidated statements of
operations.
The
Company did not file its Form 10-Q for the quarter ended March 31,
2022 on a timely basis. As a result, several default provisions
were triggered with the Company’s outstanding debentures. The
Company recorded an additional $374,125 in additional
principal owed upon this default provision. Accordingly, the
Company recorded $374,125 in interest expense in the
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, 2022:
Schedule of Convertible Notes Payable and
Convertible Debentures Activity
| |
|
Convertible |
|
| |
|
Debenture |
|
| Balance as of December 31, 2021 |
|
$ |
2,195,145 |
|
| Convertible
debenture - debt discount |
|
|
(213,932 |
) |
| Additional
principal per default provisions |
|
|
374,125 |
|
| Amortization of
debt discount and original issue discount |
|
|
158,690 |
|
|
Conversion to common stock, net of discount |
|
|
(99,000 |
) |
| Balance as of September 30,
2022 |
|
$ |
2,415,028 |
|
The
following comprises the balance of the convertible debenture
outstanding at September 30, 2022 and December 31, 2021:
Schedule of Convertible Debenture
Outstanding
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2022 |
|
|
2021 |
|
| Principal amount
outstanding |
|
$ |
2,496,152 |
|
|
$ |
2,221,027 |
|
| Less: Unamortized original issue
discount |
|
|
(79,962 |
) |
|
|
- |
|
| Less:
Unamortized original issue discount |
|
|
(1,162 |
) |
|
|
(25,882 |
) |
|
Total |
|
$ |
2,415,028 |
|
|
$ |
2,195,145 |
|
As of
September 30, 2022 and December 31, 2021, the EMA Note was in
default and the parity value of the EMA Note was determined to be
$434,687. In 2021, the
Company issued 60,714,000
shares of common stock pursuant to conversions of outstanding
principal.
Note
7. Derivative
Liability
We evaluated the terms of the conversion features of the debentures
and related debenture warrants as noted above and below, 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 with the below assumptions.
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.
Schedule of Conversion Feature of Derivative Liability
| |
|
Nine
months Ended |
|
| |
|
September 30, |
|
| |
|
2022 |
|
|
2021 |
|
| Risk-free interest
rate |
|
|
2.01 |
% |
|
|
0.09 |
% |
| Expected term (in years) |
|
|
0.48 |
|
|
|
1.00 |
|
| Expected volatility |
|
|
154.5 |
% |
|
|
237.4 |
% |
| Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
| Exercise price of underlying common shares |
|
$ |
0.001 |
|
|
$ |
0.004 |
|
During
the nine months ended September 30, 2022, the entire value of the
principal of the debentures was assigned to the derivative liability and recognized as a
debt discount. The debt discount is recorded as reduction
(contra-liability) to the debentures and is being amortized over
the initial term. Any excess balance 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, 2022:
Schedule of Derivative Liability
Activity
| |
|
Debenture |
|
| Balance as of December 31, 2021 |
|
$ |
1,398,127 |
|
| Initial fair value
per derivative recognition |
|
|
294,124 |
|
| Conversion of
debenture to common stock |
|
|
(127,397 |
) |
|
Change in fair value of derivative liability |
|
|
1,471,760 |
|
| Balance as of September 30,
2022 |
|
$ |
3,036,614 |
|
Note
8. Preferred
Stock
Series D Convertible Preferred Stock
On April 8, 2021, the Company issued 400 shares of Series D
Convertible Preferred Stock (the Series D Preferred Stock”)
to GHS
Investments, LLC (“GHS”)
pursuant to a Securities Purchase Agreement (“GHS April Agreement”)
for net proceeds of $427,600.
In conjunction with the GHS Agreement, the Company issued warrants
to purchase 40,000,000 shares of common stock at
an exercise price of $0.001.
On
May 12, 2021, the Company issued 150 shares of Series D
Preferred Stock to GHS Investments, LLC pursuant to a Securities
Purchase Agreement (“GHS May Agreement”) for net proceeds of
$146,500.
In conjunction with the GHS Agreement, the Company issued warrants
to purchase 1,500,000 shares of common stock at
an exercise price of $0.001.
Notwithstanding, on June 23, 2021, GHS and the Company entered into
a Rescission Agreement (the “Rescission Agreement”) pursuant to
which the Company and GHS agreed to rescind, ab initio, the
issuances of Warrants to GHS. Pursuant to the Rescission Agreement,
GHS and the Company agreed that the issuance of the Warrants are
unconditionally and irrevocably rescinded ab initio by GHS and the
Company, and the Warrants are neither valid nor effective in any
manner whatsoever. Further, GHS and the Company acknowledged that
each has been restored to the position in which such party found
itself on the date that the respective GHS Agreement was executed
but without any references, rights or obligations relative to the
Warrants contained in, or otherwise granted in, either the GHS
Agreements or the Warrants. As a result, GHS has no rights
whatsoever to the Warrants and the Company has no rights whatsoever
to the any exercise price that it may have received pursuant to the
Warrants. In connection with the execution and delivery of the
Rescission Agreement, the Company and GHS entered into two (2)
Amended and Restated Purchase Agreements which each seek to amend
and restate the terms and conditions contained in the April
Agreement and the May Agreement.
On
July 14, 2021, the Company issued 250 shares of Series D
Preferred Stock to GHS pursuant to a Securities Purchase Agreement
(“GHS July Agreement”) for net proceeds of $237,500.
On August 20, 2021, the Company issued 250 shares of Series D
Preferred Stock to GHS pursuant to a Securities Purchase Agreement
(“GHS August Agreement”) for net proceeds of $250,000.
On the one-year anniversary of the date of issuance of the
Preferred Stock, the Company must redeem the Preferred Stock then
outstanding at a price equal to the outstanding Stated Value
together with any accrued but unpaid dividends.
In
January 2022, GHS converted 45 shares of Series D preferred
stock with a stated value of $54,000 for 36,000,000 shares
of common stock at a conversion price of $0.0015 per share. As a
result of the conversion, the Company recorded a deemed dividend of
$237,924, which is calculated as the number
of shares of common stock issued multiplied by the difference
between the conversion price ($0.0015) and original fixed
conversion price of $0.008109.
In
June 2022, GHS converted 19 shares of Series D preferred
stock with a stated value of $22,800 for 38,000,000 shares
of common stock at a conversion price of $0.0006 per share. As a
result of the conversion, the Company recorded a deemed dividend of
$285,342, which is calculated as the number
of shares of common stock issued multiplied by the difference
between the conversion price ($0.0006) and original fixed
conversion price of $0.008109.
As of
September 30, 2022, there were 986 shares of
Series D preferred stock outstanding, and $97,814 in accrued Series D
dividends. As of December 31, 2021, there were 1,050 shares of
Series D preferred stock outstanding, and $52,944 in accrued Series D
dividends.
Due
to the Company’s late filing on its Form 10-Q for the quarter ended
March 31, 2022 (see Note 7), default provisions were triggered with
the GHS agreement. As a result, it was determined all preferred
stock were due for redemption immediately. The Company determined
that $1,758,224, inclusive of the
stated value of the Series D preferred stock, and inclusive of
accrued dividends, default penalties and interest, was due. As
such, the Company reclassified $1,015,999 of
Series D preferred stock from additional paid-in capital to a
current liability. The remaining amount of $644,411 was included in interest
expense in the consolidated statements of operations.
Note
9. Stockholders’
Equity (Deficit)
Common Stock
In
January 2022, GHS converted 45
shares of Series D preferred stock with a stated value of
$54,000 for 36,000,000 shares of
common stock at a conversion price of $0.0015 per
share.
In
June 2022, GHS converted 19
shares of Series D preferred stock with a stated value of
$57,000 for 38,000,000 shares of
common stock at a conversion price of $0.0006 per
share.
In
the nine months ended September 30, 2022, Auctus exercised warrants
for 140,966,300 shares of common
stock.
In
March 2021, an aggregate of 140,000,000 shares of
common stock were issued to the board members for accrued dividends
as well as current compensation the year ended December 31, 2021.
Of these shares issuances, $961,666 is included in personnel
costs in the consolidated statements of operations.
In
March 2021, an aggregate of 31,834,386 shares of
common stock were issued to employees and consultants for accrued
and current consulting services for a total fair value of
$236,448.
In
June 2021, an aggregate of 11,956,004 shares of
common stock were issued pursuant to conversion of balances owed to
a related party and accrued consulting services totaling $204,364.
In
June 2021, Auctus exercised 32,142,857
warrants into shares of common stock.
During
the nine months ended September 30, 2021, Pride converted 53,000 shares of Series C
preferred stock for 53,000,000 shares
of common stock.
During
the nine months ended September 30, 2022 and 2021, the Company
issued 196,527,778 and
137,987,777 shares of
common stock pursuant to conversion of debentures in the principal
amount of $99,000 and
$495,247, all
respectively.
Note
10. Options and
Warrants
Options
As of
September 30, 2022 and December 31, 2021, we had 0 options remaining
outstanding pursuant to the 2012 Equity Incentive Plan.
Warrants
As of
September 30, 2022 and December 31, 2021, we had 28,333,333 and 174,058,782 warrants
outstanding, respectively, with a weighted average exercise price
of $0.01 and $0.02 per share. In the nine
months ended September 30, 2022, Auctus exercised warrants for
140,966,300 shares of
common stock.
Note
11. Related Party
Transactions
Parties,
which can be a corporation or an individual, are considered to be
related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other
party in making financial and operating decisions. Companies are
also considered to be related if they are subject to common control
or common significant influence.
Notes
Payable to Related Party
Notes
payable to related parties at September 30, 2022 and December 31,
2021 included a note of $1,800 with a
2% annual interest rate.
Currently the Company has defaulted on this obligation. Forbearance
has been granted by the related party.
In
February 2022, the Company issued a promissory note to a related
party for $70,000. The note is
unsecured and matured in April 2022. The note does not bear
interest. The note includes a promise to issue shares of the
Company’s preferred stock, which was undetermined as of September
30, 2022. As of September 30, 2022, the note was in
default.
Accrued
Salaries and Compensation
As of
September 30, 2022 and December 31, 2021, accrued salaries to our
company officers and executive director totaled $522,804 and $472,804, respectively, and is
included in accrued salaries and consulting fees in our
consolidated balance sheets.
In
March 2021, we issued 200,000,000
shares of common stock to the Chief Operating Officer for a total
fair value of $160,000.
Board
of Directors
In
March 2021, we issued 20,000,000
shares of common stock to each of the seven board members,
including the Chief Executive Officer, for an aggregate of
140,000,000
shares. Of these share issuances, $961,666 is included in personnel
costs in the consolidated statements of operations and the
remaining $138,334
was converted from accrued salaries and consulting fees.
A
former board member is the co-founder and president of ProcureAM,
LLC, the fund advisor for the Fund. During 2021, we initially
received $100,000 from ProcureAM and
provided an additional $305,000 to the custodian.
As of December 31, 2021, we have recorded $305,000 in fund expenses and do not
expect to receive any amounts back from ProcureAM. In the nine
months ended September 30, 2022, we recorded an additional
$100,000 in fund expenses which we do
not expect to receive any amounts back from ProcureAM. As such,
other receivable was $0 on the consolidated balance
sheets.
On April 15, 2022, Deborah Fuhr submitted her resignation as a
member of the Board, effective immediately. Ms. Fuhr submitted her
resignation to pursue other interests. The Company’s Board accepted
Ms. Fuhr’s resignation and expressed its appreciation for the
services she provided to the Company.
On August 25, 2022, Barney Frank and Martina Navratilova submitted
their resignations as Directors of LGBTQ Loyalty Holdings, Inc.
(the “Company”) with immediate effect. Additionally, on August 27,
2022, William Bean submitted his resignation as a Director of the
Company with immediate effect. Mr. Frank and Mr. Bean submitted
their resignations due to differences of opinion in the direction
of the Company. Each of Messrs. Frank and Bean and Ms. Navratilova
have offered to tender their respective shares of Common Stock back
to the Company.
Accounts
Payable
As of
September 30, 2022 and December 31, 2021, the Company had
$168,308 and
$102,808,
respectively, included in accounts payable to related parties
including officers and board members.
Note
12. Subsequent
Events
Management
has evaluated all activity up to December 9, 2022 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:
On
October 5, 2022, former members of the Board tendered 64,322,748 shares of common
stock back to the Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the
financial information included elsewhere in this Quarterly Report
on Form 10-Q (this “Quarterly Report”), including our unaudited
condensed consolidated financial statements as of September 30,
2022 and for the three and nine months ended September 30, 2022 and
2021 and the related notes. References in this Management’s
Discussion and Analysis of Financial Condition and Results of
Operations section to “us,” “we,” “our,” and similar terms refer to
LGBTQ Loyalty Holdings, 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. Factors that may
affect our results include, but are not limited to, the risk
factors in Item 2.01 in our Annual Report on Form 10-K for the year
ended December 31, 2021 filed with the Securities and Exchange
Commission (the “SEC”) on April 15, 2022. 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. Moreover, we operate in
a very competitive changing environment. New risks and
uncertainties emerge from time to time, and it is not possible for
us to predict all risks and certainties that could have an impact
on the forward-looking statements contained in this Quarterly
Report on Form 10-Q. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking
statements and you should not place undue reliance on our
forward-looking statements. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may
make.
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.
Business Overview
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 was 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 has become a key concern to investors
as part of their growing focus on ESG allocations. Our data and
analytics unequivocally reinforce that corporations that have
embraced diversity and inclusion policies within their corporate
culture perform at a higher level financially than their peers.
This includes advancing a more invigorated workforce that attracts
and retains the best talent. Innovation and agility have been
identified as great benefits of diversity, and there is an
increasing awareness of what has become 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. This Index 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”) sought to track the
investment results (before fees and expenses) of the LGBTQ100 ESG
Index. In late 2020, LPI was renamed to Advancing Equality
Preference, Inc.
Fund Closure
On
March 25, 2022, ProcureAM, LLC (“Adviser”), the adviser to the
Fund, after consultation with the Company, the sponsor of the ETF,
determined that the Fund should be closed. Based upon a
recommendation by the Adviser, the Board of Trustees of Procure ETF
Trust I (the “Trust”) has approved a Plan of Liquidation for the
Fund under which the Fund will be liquidated on or about April 28,
2022 (the “Liquidation Date”). The Liquidation Date may be changed
without notice at the discretion of the officers of the Trust.
Beginning when the Fund commences the liquidation of its portfolio,
the Fund will not pursue its investment objectives or, with certain
exceptions, engage in normal business activities, and the Fund may
hold cash and securities that may not be consistent with the Fund’s
investment objective and strategy, which may adversely affect Fund
performance.
LGBTQ
Loyalty has generated an abundance of media coverage for our
premier LGBTQ Index product with the launch and listing on NYSE of
the LGBTQ100 ESG Index. The exclusive media launch with Bloomberg
Media was instrumental in propelling the LGBTQ100 brand to center
stage overnight in the financial sector. In addition, LGBTQ Loyalty
was featured at the Inside ETFs Summit in early 2020 with Board
Members, Barney Frank and Billy Bean speaking on the “The Power of
Inclusion & Equality” for investors. Our media strategy
objective is to lay the groundwork for additional high-profile
positioning of the brand as we work to achieve the desired
increased financial media coverage and growth in AUM valuation for
our company and shareholders.
Our Products
Our
mission is to build a sustainable and well recognized brand focused
on unlocking the growing purchasing power of the LGTBQ community
globally by offering a robust LGBTQ Index and core ETF portfolio
that attracts key institutional investors and
corporations.
At
the nucleus of our LGBTQ Loyalty Preference Index is our
partner-driven Crowd Preference Index Methodology (CPIM) which we
believe disrupts ESG investing. This is achieved through an
elevated screening process of financial performance data and ESG
standards and practices, whereby LGBTQ community data on diversity
and inclusion compliance directly impacts corporate financial
results and transparently identifies and recognizes high
performance companies who have consistently outperformed the
S&P 500 index or equivalent sector standards and
norms.
We
intend to extend the LGBTQ Loyalty Index brand with future plans to
develop indices with a focus on the ‘Social’ component of ESG
utilizing our proprietary financial slogan of “Advancing Equality”
within other gender, minority interest groups.
Revenue
The
Company focus over the past few years was to create and launch our
first of many financial Index products through an equality driven
thematic ESG screened and alpha performance benchmark. The Company
achieved this through its LGBTQ100 ESG Index listing and
performance on the NYSE starting on October 30, 2019. In 2022 our
collective efforts and focus is to monetize and scale our model by
capturing recurring revenue streams through our current financial
Index product. Our goal is to accelerate our revenue pursuits
through our partnership and licensed relationships to achieve a
break-even point when we have secured AUM benchmarked against the
LGBTQ100 Index in excess of $50,000,000.
We
intend to introduce a new key partnered revenue source derived from
Direct Index Licensing Fees generated by financial institutions and
asset management companies for creating a product (e.g., Index
Funds, Structured Financial Products, Turnkey Asset Management
Providers) based on or linked to the LGBTQ100 index. This includes
fees to use the LGBTQ100 index to track the performance of funds or
as benchmarks for actively managed portfolios. We plan to capture
Data Subscriptions which could provide recurring subscription
revenue from our LGBTQ Index. This includes ongoing and historical
data and information generated by our wholly owned division
Advancing Equality Preference Inc., and through our strategic
partnerships for new potential financial equality-driven
Indices.
New initiatives in 2022 include a plan to create ancillary revenue
streams to complement and support this unique platform for the top
100 Equality driven Corporations in America represented in the
LGBTQ100 Index. We believe our index will reward and elevate the
status of those corporations that have adopted diversity and
inclusion best practices, cared for their employees and positively
impacted LGBTQ communities. Expert LGBTQ economists have repeatedly
stressed the value of the LGBTQ brand loyalty to corporations. We
consider the companies that best capture the spending trends and
loyalty of the LGBTQ consumer will be better positioned for
financial growth and success. Given the opportunity to link to the
power and status generated between the LGBTQ community, these
companies and their own workforce, we will launch a Partner Loyalty
Program which includes benefits afforded to defined sponsorship
tiers.
We
have achieved no revenues to date from our LGBTQ related operations
and have been focused on building our product and achieving
performance results and media branding over the course of the past
twelve months. There are no assurances that can be given that we
will achieve revenues or profitability in the future.
Business Strategy
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 four-hundred-fifty million globally while
the LGBTQ community is composed of some of the most loyalty-driven
consumers in the world.
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 because of their higher median
income and brand loyalty. 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. Connecting the world’s most
supportive LGBTQ companies to the dynamic, loyal and
ever-increasing spending power of the LGBTQ community is a
consequential step forward for the LGBTQ movement and investment
community.
Many
Fortune 500 companies are directing more of their consumer
advertising and promotional spend towards celebrating diversity and
equality. Our long-term goal is to reinforce the financial
performance of those Corporations as they foster and integrate
LGBTQ equality practices through their Diversity and Inclusion
policies as a cornerstone of their corporate culture. Our LGBTQ100
Index of the top 100 corporate constituents have already embraced
and enacted this standard of Equality excellence. See our top
LGBTQ100 Index constituents on our website.
Critical
Accounting Policies and Estimates
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
$24,522,546 and have negative working capital of $10,762,513 as of
September 30, 2022. To date we have funded our operations through
advances from a related party, issuances of convertible debt, and
the sale of common stock, preferred stock and warrants. 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.
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.
Derivative
Financial Instruments:
The
Company has financial instruments that are considered derivatives
or contain embedded features subject to derivative accounting.
Embedded derivatives are valued separately from the host instrument
and are recognized as derivative liabilities in the Company’s
balance sheet. The Company measures these instruments at their
estimated fair value and recognizes changes in their estimated fair
value in results of operations during the period of change. The
Company has a sequencing policy regarding share settlement wherein
instruments with a fixed conversion price or floor would be settled
first, and interest payable in shares settle next. Thereafter,
share settlement order is based on instrument issuance date –
earlier dated instruments settling before later dated. The
sequencing policy also considers contingently issuable additional
shares, such as those issuable upon a stock split, to have an
issuance date to coincide with the event giving rise to the
additional shares. The policy includes all shares issuable pursuant
to debenture and preferred stock instruments as well as shares
issuable under service and employment contracts and interest on
short term loans.
Results
of Operations
Three months ended September 30, 2022 compared with the three
months ended September 30, 2021
There
were no revenues during the three months ended September 30, 2022
or 2021.
The
following is a breakdown of our operating expenses for the three
months ended September 30, 2022 and 2021:
| |
|
Three
Months Ended |
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change $ |
|
|
Change % |
|
| Personnel costs |
|
$ |
27,852 |
|
|
$ |
132,097 |
|
|
$ |
(104,245 |
) |
|
|
-79 |
% |
| Consulting fees |
|
|
11,250 |
|
|
|
2,220 |
|
|
|
9,030 |
|
|
|
407 |
% |
| Legal and professional fees |
|
|
78,245 |
|
|
|
308,382 |
|
|
|
(230,137 |
) |
|
|
-75 |
% |
| Sales and marketing |
|
|
21,036 |
|
|
|
117,012 |
|
|
|
(95,976 |
) |
|
|
-82 |
% |
| General and administrative |
|
|
12,921 |
|
|
|
30,727 |
|
|
|
(17,806 |
) |
|
|
-58 |
% |
| Depreciation
and amortization |
|
|
6,448 |
|
|
|
6,448 |
|
|
|
- |
|
|
|
0 |
% |
| |
|
$ |
157,752 |
|
|
$ |
596,886 |
|
|
$ |
(439,134 |
) |
|
|
-74 |
% |
Personnel
costs include officer salaries and directors’ compensation. The
decrease in personnel costs is primarily due 2021 board
compensation.
Consulting
fees increased by $9,030 during the three months ended September
30, 2022. Consulting fees represent our efforts to launch the
LGBTQ100 ESG Index and LGBTQ + ESG100 ETF.
Legal
and professional fees decreased by $230,137 primarily due to less
financing matters in 2022.
Sales
and marketing costs decreased by $95,976 in the three months ended
September 30, 2022 due to no limited efforts in the third quarter
of 2022.
General
and administrative expenses decreased by $17,806 in 2022 due to
less operations overall.
Depreciation
and amortization expense was $6,448 in the three months ended
September 30, 2022 and 2021, which represents amortization on our
index development costs.
The
following is a breakdown of our other income (expenses) for the
three months ended September 30, 2022 and 2021:
| |
|
Three
Months Ended |
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change $ |
|
|
Change % |
|
| Interest expense |
|
$ |
(149,439 |
) |
|
$ |
(437,528 |
) |
|
|
288,089 |
|
|
|
-66 |
% |
| Change in
derivative liability |
|
|
(318,536 |
) |
|
|
1,422,551 |
|
|
|
(1,741,087 |
) |
|
|
-122 |
% |
| |
|
$ |
(467,975 |
) |
|
$ |
985,023 |
|
|
$ |
(1,452,998 |
) |
|
|
-148 |
% |
Interest
expense is primarily attributable to origination interest and
amortization of debt discount. Interest expense includes the
default penalties to record additional amounts owed on the
convertible debentures and Series D preferred stock.
Change
in derivative liability includes the mark-to-market adjustment of
the derivative liability in connection with our convertible
debenture.
Net
(loss) income was ($625,727) and $381,062 for the three months
ended September 30, 2022 and 2021, respectively.
Nine months ended September 30, 2022 compared with the nine months
ended September 30, 2021
There
were no revenues during the nine months ended September 30, 2022 or
2021.
The
following is a breakdown of our operating expenses for the nine
months ended September 30, 2022 and 2021:
| |
|
Nine
Months Ended |
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change $ |
|
|
Change % |
|
| Personnel costs |
|
$ |
175,331 |
|
|
$ |
1,521,218 |
|
|
$ |
(1,345,887 |
) |
|
|
-88 |
% |
| Consulting fees |
|
|
37,750 |
|
|
|
73,720 |
|
|
|
(35,970 |
) |
|
|
-49 |
% |
| Legal and professional fees |
|
|
360,030 |
|
|
|
567,032 |
|
|
|
(207,002 |
) |
|
|
-37 |
% |
| Sales and marketing |
|
|
119,975 |
|
|
|
157,512 |
|
|
|
(37,537 |
) |
|
|
100 |
% |
| General and administrative |
|
|
64,266 |
|
|
|
87,241 |
|
|
|
(22,975 |
) |
|
|
-26 |
% |
| Depreciation
and amortization |
|
|
19,344 |
|
|
|
19,344 |
|
|
|
- |
|
|
|
0 |
% |
| |
|
$ |
889,618 |
|
|
$ |
2,426,067 |
|
|
$ |
(1,536,449 |
) |
|
|
-63 |
% |
Personnel
costs include officer salaries and directors’ compensation. The
decrease in personnel costs is primarily due 2021 board
compensation.
Consulting
fees decreased by $35,970 during the nine months ended September
30, 2022, primarily due to limited operations in developing the
Index. Consulting fees represent our efforts to launch the LGBTQ100
ESG Index and LGBTQ + ESG100 ETF.
Legal
and professional fees decreased by $207,002 due to less financings
in 2022.
Fund
expenses represented the $100,000 incurred to Procure.
Sales
and marketing costs decreased by $37,537 in the nine months ended
September 30, 2022 due to less sales efforts towards the third
quarter of 2022.
General
and administrative expenses decreased by $22,975 in 2022 due to
less operations overall.
Depreciation
and amortization expense was $19,344 in the nine months ended
September 30, 2022 and 2021, which represents amortization on our
index development costs.
The
following is a breakdown of our other income (expenses) for the
nine months ended September 30, 2022 and 2021:
| |
|
Nine
Months Ended |
|
|
|
|
|
|
|
| |
|
September 30, |
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change $ |
|
|
Change % |
|
| Interest expense |
|
$ |
(1,525,750 |
) |
|
$ |
(1,726,856 |
) |
|
|
201,106 |
|
|
|
-12 |
% |
| Change in
derivative liability |
|
|
(1,153,224 |
) |
|
|
(823,425 |
) |
|
|
(329,799 |
) |
|
|
40 |
% |
| |
|
$ |
(2,678,974 |
) |
|
$ |
(2,550,281 |
) |
|
$ |
(128,693 |
) |
|
|
5 |
% |
Interest
expense is primarily attributable to origination interest and
amortization of debt discount. Interest expense includes the
default penalties to record additional amounts owed on the
convertible debentures and Series D preferred stock.
Change
in derivative liability includes the mark-to-market adjustment of
the derivative liability in connection with our convertible
debenture.
Net
loss was $4,036,567 and $4,983,424 for the nine months ended
September 30, 2022 and 2021, respectively.
Liquidity
and Capital Resources
Historically,
we have been financed through advances from related parties,
issuances of convertible debt, and the sale of our common and
preferred stock. Our existing sources of liquidity will not be
sufficient for us to implement our business plans. There are no
assurances that we will be able to raise additional capital as and
when needed. As of September 30, 2022, we had $9,387 of cash on
hand. Based on our current planned expenditures, we will require
approximately $2.5 million over the next 12 months. 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
September 30, 2022, we had a working capital deficit of $10,762,513
as compared to a working capital deficit of $7,001,879 at December
31, 2021.
During
the nine months ended September 30, 2022 and 2021, operations used
cash of $268,961 and $1,086,128, respectively, primarily related to
our net loss partially offset by non-cash charges and cash provided
by changes in operating assets and liabilities.
In
2022, we received $100,000 in proceeds from a related party note.
Advanced Equity also entered into a loan for $100,000.
In
2021, we received $300,000 in proceeds from the issuance of
convertible debentures and repaid notes payable of $1,000. We also
received $1,061,600 from the issuance of Series D preferred stock
and $78,620 from an equity lineof credit.
We
will continue to seek out additional capital in the form of debt or
equity under the most favorable terms we can find.
The
Company is currently, and has for some time, been in financial
distress. It has no cash resources or current assets, and has no
ongoing source of revenue. Management is continuing to address
numerous aspects of the Company’s operations and obligations,
including, without limitation, debt obligations, financing
requirements, and regulatory compliance, and has taken steps to
continue to raise new debt and equity capital to fund the Company’s
business activities.
The
Company is continuing its efforts to raise additional capital in
order to be able to pay its liabilities and fund its business
activities on a going forward basis and regularly evaluates various
measures to satisfy the Company’s liquidity needs. Though the
Company actively pursues opportunities to finance its operations
through external sources of debt and equity financing, there can be
no assurance that such financing will be available on terms
acceptable to the Company, or at all.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We
are a smaller reporting company as defined by Rule 12b-2 of the
Securities and Exchange Act of 1934, as amended (the “Exchange
Act”) and are not required to provide the information required
under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Pursuant
to Rule 13a-15(b) under the Exchange Act, the Company carried out
an evaluation, with the participation of the Company’s management,
including the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) (the Company’s principal financial and
accounting officer), of the effectiveness of the Company’s
disclosure controls and procedures (as defined under Rule 13a-15(e)
and Rule 15d-15(e) under the Exchange Act) as of the end of the
period covered by this report. Based upon that evaluation, the
Company’s CEO and CFO concluded that the Company’s disclosure
controls and procedures are not effective due to a lack of audit
committee and segregation of duties caused by limited personnel to
ensure that information required to be disclosed by the Company in
the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to the Company’s
management, including the Company’s CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial
Officer), does not expect that our disclosure controls and
procedures 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. 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 the 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.
Management
believes that the material weakness set forth above did not have an
effect on our financial results.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the Company’s internal control over
financial reporting during the three and nine months ended
September 30, 2022 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There
are no pending, nor to our knowledge threatened, legal proceedings
against us.
ITEM 1A. RISK FACTORS
As of
the date of this filing, there have been no material changes to the
Risk Factors included in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2021 filed with the SEC on April
15, 2022, which may be accessed via EDGAR through the Internet at
www.sec.gov (the “2021 Form 10-K”). The Risk Factors set forth in
the 2021 Form 10-K should be read carefully in connection with
evaluating the Company’s business and in connection with the
forward-looking statements contained in this Quarterly Report on
Form 10-Q. Any of the risks described in the 2021 Form 10-K could
materially adversely affect the Company’s business, financial
condition or future results and the actual outcome of matters as to
which forward-looking statements are made. These are not the only
risks that the Company faces. Additional risks and uncertainties
not currently known to the Company or that the Company currently
deems to be immaterial also may materially adversely affect the
Company’s business, financial condition and/or operating
results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Recent
Sales of Unregistered Securities
Refer
to the footnotes of the accompanying consolidated financial
statements for convertible debentures entered into and issuances of
common and preferred stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We
are in default under a $20,000 Promissory Note dated May 20, 2017
that became due on August 31, 2017. We have entered into a payment
plan with the payee thereunder wherein we are making monthly cash
payments to reduce the outstanding balance due. At September 30,
2022 the outstanding balance was approximately $1,986.
All
other of the Company’s outstanding convertible debentures and notes
payables are currently in default.
ITEM 4. MINE SAFETY DISCLOSURE
Not
Applicable.
ITEM 5. OTHER INFORMATION
On April 15, 2022, Deborah Fuhr submitted her resignation as a
member of the Board, effective immediately. Ms. Fuhr submitted her
resignation to pursue other interests. The Company’s Board accepted
Ms. Fuhr’s resignation and expressed its appreciation for the
services she provided to the Company.
On August 25, 2022, Barney Frank and Martina Navratilova submitted
their resignations as Directors of LGBTQ Loyalty Holdings, Inc.
(the “Company”) with immediate effect. Additionally, on August 27,
2022, William Bean submitted his resignation as a Director of the
Company with immediate effect. Mr. Frank and Mr. Bean submitted
their resignations due to differences of opinion in the direction
of the Company. Each of Messrs. Frank and Bean and Ms. Navratilova
have offered to tender their respective shares of Common Stock back
to the Company.
ITEM 6. EXHIBITS
|
* |
Filed
herewith |
| ** |
This
certification is being furnished and shall not be deemed “filed”
with the SEC for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, and shall not
be deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the
registrant specifically incorporates it by reference. |
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
| |
LGBTQ
LOYALTY HOLDINGS, INC. |
|
|
|
|
| December
9, 2022 |
By: |
/s/
Robert A. Blair |
| |
|
Robert
A. Blair, Chief Executive Officer |
|
December
9, 2022 |
By: |
/s/
Eric Sherb |
| |
|
Eric
Sherb, Chief Financial Officer |
LGBTQ Loyalty (PK) (USOTC:LFAP)
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