UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Fiscal Year Ended: December 31, 2019

 

OR

 

[  ] TRANSITION REPORT UNDER 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)   (Zip Code)

 

Registrant’s telephone number, including area code: (954) 947-6133

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [  ] No [X]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

(Check one):

 

Large Accelerated Filer [  ] Accelerated Filer [  ]
   
Non-Accelerated Filer [  ] Smaller reporting company [X]
   
  Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the 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 [X]

 

As of June 30, 2019, there were 162,920,724 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding. Of these, 70,985,881 shares were held by non-affiliates of the registrant. The market value of securities held by non-affiliates was approximately $6,921,123 as of June 30, 2019, based on the closing price of $0.0975 per share of the common stock on June 30, 2019.

 

As of May 14, 2020, there were 186,335,476 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

FORWARD-LOOKING STATEMENTS 1
     
PART I   2
     
ITEM 1. BUSINESS 2
     
ITEM 1A. RISK FACTORS 7
     
ITEM 1B. UNRESOLVED STAFF COMMENTS 10
     
ITEM 2. PROPERTIES 10
     
ITEM 3. LEGAL PROCEEDINGS 11
     
ITEM 4. MINE SAFETY DISCLOSURES 11
     
PART II   11
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 11
     
ITEM 6. SELECTED FINANCIAL DATA 13
     
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
     
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
   
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
     
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 17
     
ITEM 9A. CONTROLS AND PROCEDURES 17
     
ITEM 9B. OTHER INFORMATION 19
     
PART III   20
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 20
     
ITEM 11. EXECUTIVE COMPENSATION 24
     
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 26
     
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 29
     
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 30
     
PART IV   31
     
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 31
     
SIGNATURES 35
     
INDEX TO CONSOLIDATED FINANCIALSTATEMENTS F-1

 

i

 

 

FORWARD-LOOKING STATEMENTS

 

Except for historical information, this Annual Report contains forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,”, “plans,” “may,” “could,” “should,” “anticipates,” “likely,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. You should carefully review the risks described in this Annual Report and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

 

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

 

Factors that might cause or contribute to such differences include, but are not limited to, those discussed below and in the sections “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 

  Our ability to successfully launch and grow our new business operations;
     
  The intensity of competition in the industry in which we operate;
     
  Our ability to raise additional capital if, as, and when needed on acceptable terms;
     
  General economic conditions that affect our industry or the global environment in which we operate; and
     
  Our ability to successfully attract and retain management and other key employees.

 

These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. The forward-looking statements contained in this Annual Report are largely based on our expectations, which reflect many estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Annual Report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Risk Factors” section and elsewhere in this Annual Report. All forward-looking statements are based upon information available to us on the date of this Annual Report. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as otherwise required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

 - 1 - 
 

 

PART I

 

ITEM 1. BUSINESS

 

Organizational History

 

Through our wholly owned subsidiary LifeApps, Inc., we are a licensed developer and publisher of apps for the Apple Apps Store for iPhone, iPod touch, iPad and iPad mini. We are also a licensed developer on both Google Play and Amazon Appstore for Android. We have distributed apps on all three platforms. We are currently not targeting our revenue strategy on further development of additional apps or updating or expanding on apps that we have developed but, will instead, make our primary focus the development and operation of various new business operations that we intend to establish.

 

On January 25, 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement (the “Securities Exchange Agreement”) with LGBT Loyalty LLC, a New York limited liability company (“LGBT Loyalty”), and Maxim Partners, LLC (“Maxim”), pursuant to which we acquired all of the membership interests of LGBT Loyalty, making LGBT Loyalty a wholly owned subsidiary of ours, in exchange for 120,959,996 shares of our restricted common stock and one share of our newly created Series A Convertible Preferred Stock (the “Series A Preferred Stock”). The common stock issued to Maxim represented, upon issuance, 49.99% of our then issued and outstanding shares of common stock. Effective March 26, 2019, the share of Series A Convertible Preferred Stock was converted into 8,598,578 shares of our common stock.

 

Effective April 25, 2019, we filed a Certificate of Amendment to our Certificate of Incorporation (the “Charter Amendment”) with the Delaware Secretary of State to change our name from LifeApps Brands Inc. to LGBTQ Loyalty Holdings, Inc. The form of and filing of the Certificate of Amendment was approved by our Board of Directors.

 

On June 3, 2019 we filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”) with the Delaware Secretary of State to create a new class of preferred stock, $0.001 par value per share, designated Series C Convertible Preferred Stock (“Series C Preferred Stock”) and authorized the issuance of up to 129,559 shares of Series C Preferred Stock. On the Closing Date, all of the 129,559 shares of Series C Preferred Stock were issued to Pride Partners, LLC (“Pride”), the assignee of Maxim. On June 4, 2019 we entered into a Securities Exchange Agreement with Maxim (the “Holder”) pursuant to which the Holder exchanged 129,558,574 shares of Common Stock for 129,559 shares (the “Exchange Shares”) of our Series C Preferred Stock (the “Share Exchange”).

 

On October 30, 2019, through our wholly-owned subsidiary Loyalty Preference Index, Inc. (“LPI”), we launched the LGBTQ100 ESG Index which references LGBTQ community survey data in the methodology for a benchmark listing of the nation’s highest financially performing companies that our respondents believe are most committed to advancing equality.

 

 - 2 - 
 

 

Our fiscal year end is December 31.

 

Unless the context indicates otherwise, all references in this Annual Report to “LifeApps®” “the Company,” “we,” “us” and “our” refer to LGBTQ Loyalty Holdings, Inc. and its subsidiaries, LifeApps Inc., Sports One Group Inc, LGBT Loyalty LLC and Loyalty Preference Index.

 

Executive Summary

 

Starting in the first half of 2019, we assembled a highly accomplished Board of Directors recognized for their advocacy and impact in the area of LGBTQ diversity and inclusion (D&I) to create the first-ever impact preference financial Index listed on the NYSE. Our team collaborated with one of the top Index Analysts to create a methodology to utilize financial big data and AI-driven analytics. The goal is to drive financial alpha returns by creating a financial tool that will help break barriers by capturing the voice of the LGBTQ community constituent as participants in the creation of a ground-breaking thematic financial Index listed as LGBTQ100.

 

We recognized a gap in Index solutions within the growing category of Environmental, Social and Governance (ESG) and how they measure a corporation’s compliance. We focused on LGBTQ diversity, inclusion and equality practices of leading corporations and specifically their commitment to advancing equality within the LGBTQ community. We found that these businesses were able to attract and retain the best talent and performed better in terms of earnings than their corporate peers. Our goal was to outperform other financial indices in terms of ROI and also outperform them in Return on Social Impact (ROSI); our endgame was to close the gap between companies and investors who measure their success purely around financial metrics along with companies that need to work harder to align with their equality driven constituents and improve their social equality policies and ESG compliance.

 

When we launched the LGBTQ100 on the New York Stock Exchange on October 30 of 2019, it became the first financial Index that embedded constituent preference data from the community including grading the top performing companies that have supported D&I, outwardly aligned their brand to support the LGBTQ community and screened well for ESG compliant practices.

 

The media reception and brand recognition achieved by the LGBTQ100 was extraordinary with expansive coverage by Bloomberg as well as other major financial outlets featuring how LGBTQ Loyalty Holdings had created and introduced the first impact preference index to achieve both financial performance and social impact. We are proud to report that our goal has been achieved with the LGBTQ100 outperforming the S&P 500 by over 2% since our listing on the NYSE and when back-tested over the past 11 years, our Index beats the S&P by over 20%.

 

As we move into 2020, our focus will be to build on this momentum and grow both revenues for our platform and Assets Under Management (AUM).

 

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 is intended to link the growing economic influence of the LGBTQ community and their allies with many of the top Fortune 500 companies that support and implement diversity, inclusion and equality policies within their organizations. The incorporation of diversity and inclusion in a company’s recruitment and human resource policies is becoming a key concern to investors as part of their growing focus on ESG allocations. Our data and analytics unequivocally reinforce that corporations that have embraced diversity and inclusion policies within their corporate culture perform at a higher level financially than their peers. This includes advancing a more invigorated workforce that attracts and retains the best talent. Innovation and agility have been identified as great benefits of diversity, and there is an increasing awareness of what has come to be known as ‘the power of difference’.

 

 - 3 - 
 

 

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 highly regarded licensed Fund Adviser ProcureAM, a wholly owned subsidiary of Procure Holdings, LLC., which is through our platform service agreement (“PSA”), 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 Q3- 2020 on the NASDAQ.

 

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 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 in 2019 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 2020 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 Loyalty Preference Inc., and through our strategic partnerships for new potential financial equality-driven Indices.

 

 - 4 - 
 

 

New initiatives in 2020 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. The LGBTQ Loyalty Sponsorship is designed to attract the significant marketing dollars Fortune 500 companies are allocating to D&I programs with an opportunity to purchase LGBTQ Loyalty Sponsorship packages, including participation and brand exposure at planned conferences and events. Companies will be offered the opportunity to purchase LGBTQ Loyalty Sponsorship packages starting in Q2-2020.

 

Our initial investments in creating a high performing product with a well-recognized brand have been established. As we begin to move into planning for the post-COVID-19 world, we will now shift our efforts to cultivate new revenue stream opportunities while building AUM as we construct a profitable business platform.

 

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.

 

 - 5 - 
 

 

Competition

 

We created the first-ever LGBTQ Loyalty Preference Index. We have identified Pride Performance & Holdings issuer UBS, an entity which gives individuals an opportunity to invest in companies that support equality in the workplace for their lesbian, gay, bisexual and transgender employees, as a competitor. However, Pride Performance appears to focus mainly on the hiring of LGBTQ individuals and we do not see this as direct competition as our Index will be created through surveying and preferencing the top companies in the S&P 500 that best support and align with the LGBTQ community. To date no other financial index provider has focused on including the feedback from direct constituents in constructing an Index methodology that empowers the voice of the LGBTQ community.

 

Government Regulation

 

We are subject to a number of domestic and foreign laws and regulations that affect our business. Not only are these laws constantly evolving, which could result in them being interpreted in ways that could harm our business, but legislation is also continually being introduced that may affect both the content of our products and their distribution.

 

Further, because our services are available worldwide, certain foreign jurisdictions and others may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees or infrastructure.

 

 - 6 - 
 

 

Employees

 

As of December 31, 2019, we had a total of three employees, all of whom were full time employees. None of our employees are represented by a collective bargaining agreement. We consider our relations with our employees to be good.

 

Available Information

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”). Reports filed with the SEC pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies of these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov).

 

ITEM 1A. RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should not invest in our securities if you cannot afford to lose your entire investment. In deciding whether you should invest in our securities, you should carefully consider the following information together with all of the other information contained in this Current Report. Any of the following risk factors can cause our business, prospects, financial condition or results of operations to suffer and you to lose all or part of your investment.

 

Risks Related to Our Business

 

We have a limited operating history and are subject to the risks encountered by early-stage companies.

 

Because we have a limited operating history, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. For us, these risks include:

 

  risks that we may not have sufficient capital to achieve our growth strategy;
     
  risks that we may not develop and operate our proposed LGBT related businesses in a manner that enables us to be profitable and meet our customers’ requirements;
     
  risks that our growth strategy may not be successful; and
     
  risks that fluctuations in our operating results will be significant relative to our revenues.

 

These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed.

 

 - 7 - 
 

 

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.

 

Our financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring net losses and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if adequate funds are not available to us when we need it, and we are unable to enter into some form of strategic relationship that will give us access to additional cash resources, we will be required to even further curtail our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.

 

Our LGBTQ related business operations may subject us to the prejudices of those opposed to the existence and expansion of LGBT rights.

 

As an LGBTQ focused company, we recognize that certain individuals or groups will not look favorably upon our LGBTQ related operations and strategies and may seek to impede the development and expansion of our businesses.

 

We have a history of net losses, may incur substantial net losses in the future and may not achieve profitability.

 

We have incurred significant losses since inception. As of December 31, 2019, we had an accumulated deficit of $9,077,614. We expect to incur increased costs in order to implement additional initiatives designed to increase revenues. If our revenues do not increase to offset these additional expenses or if we experience unexpected increases in operating expenses, we will continue to incur significant losses and will not become profitable. If we are not able to significantly increase our revenues, we will likely not be able to achieve profitability in the future.

 

We may not be able to secure additional financing as and when needed.

 

We will need to raise significant additional funds to develop and support our business operations, respond to competitive pressures, acquire or invest in complementary or competitive businesses or technologies, or take advantage of unanticipated opportunities. We cannot be sure that this financing will be available on acceptable terms or at all. Furthermore, any debt financing, if available, may involve restrictive covenants, which may limit our operating flexibility with respect to business matters. If additional funds are raised through the issuance of equity securities, the percentage ownership of our existing shareholders will be reduced, our shareholders may experience additional dilution in net book value, and such equity securities may have rights, preferences, or privileges senior to those of our existing shareholders. If adequate funds are not available on acceptable terms or at all, we may be unable to develop or enhance our services and products, take advantage of future opportunities, repay debt obligations as they become due, or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition, and results of operations.

 

An occurrence of an uncontrollable event such as the COVID-19 pandemic is likely to negatively affect our operations.

 

The occurrence of an uncontrollable event such as the COVID-19 pandemic is likely to negatively affect our operations. A pandemic typically results in social distancing, travel bans and quarantine, and this has limited access to our facilities, customers, management, support staff and professional advisors. These, in turn, will not only impact our operations, financial condition and demand for our services but our overall ability to react timely to mitigate the impact of this event. Also, it may substantially hamper our efforts to provide our investors with timely information and comply with our filing obligations with the Securities and Exchange Commission.

 

 - 8 - 
 

 

Risks Related to Our Common Stock

 

Because our 2012 merger was a reverse merger, we may not be able to attract the attention of major brokerage firms, which may limit the liquidity of our common stock and may make it more difficult for us to raise additional capital in the future.

 

Additional risks may exist because our 2012 merger was a “reverse merger.” Certain SEC rules are more restrictive when applied to reverse merger companies, such as the ability of stockholders to resell their shares of common stock pursuant to Rule 144. In addition, securities analysts of major brokerage firms may not provide coverage of our common stock following the Merger because there may be little incentive for brokerage firms to recommend the purchase of our common stock. As a result, our common stock may have limited liquidity and investors may have difficulty selling it. In addition, we cannot assure you that brokerage firms will want to conduct any secondary offerings on our behalf if we seek to raise additional capital in the future. Our inability to raise additional capital may have a material adverse effect on our business.

 

We do not expect to pay dividends on our common stock.

 

We have no plans to pay dividends on our common stock for the foreseeable future. Because we do not plan to pay dividends on our common stock, our stock may be less attractive to some investors, which could adversely affect our stock price.

 

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

 

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our Common Stock. In addition, if our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

 

Our common stock is considered a “penny stock,” which is likely to limit its liquidity and make it more difficult for us to raise additional capital in the future.

 

The market price of our common stock is, and will likely remain for the foreseeable future, less than $5.00 per share, and therefore will be a “penny stock” according to SEC rules, unless our common stock is listed on a national securities exchange. The OTC Bulletin Board is not a national securities exchange. Designation as a “penny stock” requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of current holders of our common stock to sell their shares. Such rules may also deter broker-dealers from recommending or selling the common stock, which may further limit its liquidity. This may also make it more difficult for us to raise additional capital in the future.

 

The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.

 

The future trading price of our common stock may become highly volatile and could fluctuate in response to factors such as:

 

  actual or anticipated variations in our operating results;
     
  announcements of developments by us or our competitors;

 

 - 9 - 
 

 

  announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
     
  adoption of new accounting standards affecting our industry;
     
  additions or departures of key personnel;
     
  sales of our common stock or other securities in the open market; and
     
  other events or factors, many beyond our control.

 

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock.

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 1,010,000,000 shares of capital stock consisting of 1,000,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors. As of May 14, 2020, there were 186,335,476 shares of our common stock and 50,000 shares of our Series B Preferred Stock outstanding. There are 2,753,312 shares of our common stock reserved for issuance under our 2012 Equity Incentive Plan (the “2012 Plan”). Under the Plan, options to purchase 5,800,000 shares of our common stock are presently outstanding.

 

Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As described above, we may need to raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants, as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our certificate of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded.

 

We may obtain additional capital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.

 

Without any stockholder vote or action, our Board of Directors may designate and approve for issuance shares of our preferred stock. The terms of any preferred stock may include priority claims to assets and dividends and special voting rights which could limit the rights of the holders of our common stock. The designation and issuance of preferred stock favorable to current management or stockholders could make any possible takeover of us or the removal of our management more difficult.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

We have no unresolved staff comments.

 

ITEM 2. PROPERTIES

 

Our principal executive office is located 4235 Dixie Highway, Wilton Manors, FL 33305 and our telephone number is (954) 947-6133. The property is currently being rented on a month to month basis at a rate of $250 per month.

 

 - 10 - 
 

 

We do not own any real estate.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on business, financial condition or operating results.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

On February 1, 2012, our common stock became listed for quotation on the OTC Bulletin Board, originally under the symbol “PTRV.” Our symbol changed to “LFAP” on September 12, 2012 in connection with our name change to “LifeApps Digital Media Inc.” and remained “LFAP” following our name change to “LifeApps Brands Inc.” and “LGBTQ Loyalty Holdings, Inc.”. Since December 7, 2012, our common stock has been quoted solely on the OTC Markets Group, Inc.’s marketplace.

 

The trading of our common stock began on March 26, 2012. The following table sets forth the high and low closing bid prices for our common stock for the fiscal quarters indicated as reported on OTC Markets. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Our common stock is thinly traded and, thus, pricing of our common stock on OTC Markets does not necessarily represent its fair market value.

 

    High     Low  
             
March 31, 2020   $ 0.0560     $ 0.0083  
                 
December 31, 2019   $ 0.0910     $ 0.0201  
                 
September 30, 2019   $ 0.100     $ 0.0426  
                 
June 30, 2019   $ 0.2650     $ 0.0701  
                 
March 31, 2019   $ 0.168     $ 0.0025  
                 
December 31, 2018   $ 0.0075     $ 0.0026  
                 
September 30, 2018   $ 0.008     $ 0.0064  
                 
June 30, 2018   $ 0.0101     $ 0.006 0
                 
March 31, 2018   $ 0.0151     $ 0.008 0

 

 - 11 - 
 

 

As of May 14, 2020 there were 185,335,475 shares of our common stock issued and outstanding, 8,885,000 shares issuable upon exercise of warrants and 5,800,000 shares issuable upon exercise of outstanding options. On that date, there were 37 holders of record of shares of our common stock.

 

Dividend Policy

 

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.

 

Recent Sales of Unregistered Securities

 

In October 2019, we issued an aggregate of 38,287 shares and 1,465,949 shares of common stock to two Series B Preferred Stock investors for accrued dividends and conversion of 50,000 shares of the Series B Preferred Stock.

 

In January 2020, we issued 220,817 shares of common stock to an individual pursuant to a consulting agreement.

 

In January 2020, we issued 6,441,593 shares of common stock to Beacon Media Holdings, LLC, in consideration of services under our management consulting agreement.

 

On February 12, 2020, we entered into a Securities Purchase Agreement (the “SPA”) with an unrelated entity (the “Purchaser”). Pursuant to the terms of the SPA, the Purchaser agreed to purchase from the Company, for a purchase price of $105,000, a 10% Convertible Note (the “Note”) in the principal amount of $115,500. The Note matures and becomes due and payable on November 11, 2020 and accrues interest at a rate of 10% per annum (increasing to 24% upon an event of default) while the Note remains outstanding. The Note, plus all accrued but unpaid interest and other amounts due on the Note, may be prepaid, at varying amounts, prior to the maturity date. The 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. The conversion price is subject to customary adjustments. The conversion price is not subject to a floor.

 

On March 10, 2020, we entered into a Securities Purchase Agreement (the “SPA”) with an unrelated entity. Pursuant to the terms of the SPA, the Purchaser agreed to purchase from the Company, for a purchase price of $75,000, a 10% Convertible Note (the “Note”) in the principal amount of $85,800. The Note matures and becomes due and payable on March 10, 2021 and accrues interest at a rate of 10% per annum (increasing to 22% upon an event of default) while the Note remains outstanding. The Note, plus all accrued but unpaid interest and other amounts due on the Note, may be prepaid, at varying amounts, at any time prior to the maturity date. The 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 (as defined herein) (subject to equitable adjustments by the Company relating to the Company’ securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the lowest Trading Price (as defined below) 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.

 

In March 2020, we issued 294,994 shares of common stock to two individuals in connection with a bridge loan provided to the Company.

 

In April 2020, we issued 90,216 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.

 

 - 12 - 
 

 

In April 2020, we issued an aggregate of 3,942,160 shares of common stock to seven individuals consisting of active and former Board of Directors members pursuant to monthly compensation as defined in the director compensation agreements. We issued an additional 1,000,000 shares to Orlando Reece in connection with his appointment to our Board of Directors.

 

Other than what has previously been disclosed in public filings, there are no new sales of unregistered securities.

 

All of the foregoing issuances of securities were made in reliance on Section 4(a)(2) of the Securities Act of 1933 as amended.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to 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. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this Annual Report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

 

Results of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

 

Revenues for 2019 and 2018 were $3,337 and $2,574, respectively. Revenues were primarily from the sale of sports apparel and health and fitness products. We continue to have a limited number of apps in the Apple App store.

 

 - 13 - 
 

 

The following is a breakdown of our operating expenses for 2019 and 2018:

 

    Year Ended              
    December 31,              
    2019     2018     Change $     Change %  
Personnel costs   $ 1,499,585     $ 347,713     $ 1,151,872       331 %
Consulting fees     734,403       218,532       515,871       236 %
Legal and professional fees     733,960       160,226       573,734       358 %
Merger costs     388,675       -       388,675       100 %
Sales and marketing     50,147       -       50,147       100 %
General and administrative     288,911       21,342       267,569       1254 %
Depreciation and amortization     4,499       150       4,349       2899 %
    $ 3,700,180     $ 747,963     $ 2,952,217       395 %

 

Personnel costs include officer salaries, directors’ compensation and deferred officer compensation. The increase in personnel costs is primarily due to compensation associated with the formation of our board of directors in 2019. During the year ended December 31, 2019, personnel costs included $858,620 in non-cash compensation costs for officers and directors.

 

Consulting fees increased by $515,871 in 2019, primarily due to our expanded operations and efforts to launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF. During the year ended December 31, 2019, consulting fees included $339,750 in non-cash compensation costs for several consultants we engaged.

 

Legal and professional fees increased by $573,734 in 2019 due to our increased operations, including legal services, investor relations, filing fees and accounting and auditing services.

 

Merger costs represents expenses incurred upon the acquisition of LGBT Loyalty LLC in March 2019.

 

Sales and marketing expenses were $50,147 in 2019, which included advertising and marketing efforts as we initiated our new business plans.

 

General and administrative expenses increased by $267,569 in 2019 due to the increased activity in our operations, including travel, insurance and rent.

 

Depreciation and amortization expense was $4,499 in 2019, which represents amortization on our index development costs.

 

The following is a breakdown of our other income (expenses) for 2019 and 2018:

 

    Year Ended              
    December 31,              
    2019     2018     Change $     Change %  
Interest expense   $ (1,024,179 )   $ (124,358 )     (899,821 )     724 %
Change in derivative liability     (430,458 )     35,051       (465,509 )     -1328 %
    $ (1,454,637 )   $ (89,307 )   $ (1,365,330 )     1529 %

 

Interest expense increased by $899,821 in 2019, primarily attributable to origination interest and amortization of debt discount in connection with our convertible debenture issuances in 2019.

 

Change in derivative liability includes the mark-to-market adjustment of the derivative liability in connection with our convertible debenture.

 

Net loss was $5,151,480 in 2019 as compared to $834,696 in 2018, primarily due to increased personnel costs, legal and professional fees, and other expenses in connection with our acquisition and financing activities.

 

 - 14 - 
 

 

Liquidity and Capital Resources

 

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.

 

The continuation of the Company as a going concern is dependent upon the continued financial support from its management, its ability to obtain the necessary debt or equity financing, and generate profitable operations from the Company’s planned future operations. We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned activities. There are no assurances that our plans will be successful. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Our audit firm included an explanatory paragraph in their report regarding substantial doubt about our Company’s ability to continue as a going concern.

 

Working Capital

 

At December 31, 2019, we had current assets of $122,408 and current liabilities of $3,069,929, resulting in a working capital deficit of $2,947,521. At December 31, 2018, we had current assets of $41,503 and current liabilities of $752,358, resulting in a working capital deficit of $710,855. The increase in our working capital deficit was primarily due to the increase in our derivative liability, accounts payable and accrued salaries and consulting fees in 2019.

 

Cash Flows

 

   Year Ended 
   December 31, 
   2019   2018 
Net cash used in operating activities  $(1,275,855)  $(63,775)
Net cash used in investing activities   (79,375)   - 
Net cash provided by financing activities   1,327,510    103,599 
Net increase (decrease) in cash   (27,720)   39,824 

 

Net cash used in operating activities for 2019 was $1,275,855. This was primarily attributable to our net loss of $5,151,480, partially offset by non-cash expenses and losses of $2,769,154 and net cash provided by changes in operating assets and liabilities of $1,106,471. Net cash used in operating activities for 2018 was $63,775, primarily due to our net loss of $834,846, partially offset by non-cash expenses of $306,160 and net cash provided by changes in operating assets and liabilities of $464,911.

 

Net cash used in investing activities was $79,375 in 2019, primarily attributable to capitalized costs pertaining to the development of the LGBTQ100 ESG Index website. There were no investing activities during the year ended December 31, 2018.

 

Net cash provided by financing activities was $1,327,510 in 2019. We received $1,00,000 from the issuances of our convertible debenture with Pride, as well as net proceeds of $64,986 from additional promissory notes. We also received $125,000 from the issuance of our Series B preferred stock and $137,524 in proceeds from the exercise of warrants. In 2018, net cash provided by financing activities was $103,599, primarily attributable to a convertible note of $32,000 and sales of our common stock of $55,000.

 

Off-Balance Sheet Arrangements

 

None.

 

 - 15 - 
 

 

Contractual Obligations

 

Not applicable.

 

Critical Accounting Policies and Estimates

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”), which contemplates our continuation as a going concern. As of December 31, 2019, we have incurred losses of $9,077,614. To date we have funded our operations through advances from a related party, issuance of convertible debt, and the sale of our common stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations.

 

Use of Estimates

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.

 

Fair Value Measurements:

 

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

 

Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.

 

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

 

Our financial instruments consist of cash and cash equivalents, other current assets, payables, accruals and notes payable. The carrying values of these amounts approximate fair value because of the short-term maturities of these instruments.

 

Intangibles

 

Intangibles, which include website development costs, databases acquired, internet domain name costs, and customer lists, are being amortized over the expected useful lives which we estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 350 Intangibles – Goodwill and Other (“ASC 350”), the costs to obtain and register internet domain names were capitalized.

 

 - 16 - 
 

 

Website and Software Development Costs

 

Website and software costs are eligible for capitalization under ASC 350-50 and ASC 985-20, Software-Costs of Software to be Sold, Leased or Marketed. These amounts are included in the consolidated balance sheets. Amortization of these costs will begin when the website becomes active.

 

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.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options.

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505, Equity. The fair value of the option or warrant issued or (committed to be issued) is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock or stock award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

 

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our consolidated financial statements are included beginning immediately following the signature page to this report. See Item 15 for a list of the consolidated financial statements included herein.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Haynie & Company has been our audit firm ever since January 2018.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

 - 17 - 
 

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and our Chief Financial Officer, we performed an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this annual report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2019, for the reasons set forth below under “Management’s Report on Internal Control over Financial Reporting”, our disclosure controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.

 

Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.

 

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of the Evaluation Date, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on its evaluation under this framework, for the reasons set forth below, management concluded that our internal control over financial reporting was not effective as of the Evaluation Date.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of the Evaluation Date and Management has identified the following deficiencies that, when aggregated, may possibly be viewed as a material weakness in our internal control over financial reporting as of that date:

 

  We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures.

 

  We have inadequate segregation of duties. We have an inadequate number of personnel to properly implement control procedures.

 

 - 18 - 
 

 

Management believes that the lack of a functioning audit committee may result in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Management, including our Chief Executive Officer and Chief Financial Officer, has discussed the possible material weakness noted above with our independent registered public accounting firm. Due to the nature of this possible material weakness, there is a more than remote likelihood that misstatements which could be material to the annual or interim financial statements could occur that would not be prevented or detected.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report.

 

Changes in Internal Controls

 

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, subject to receipt of necessary funding, we plan to initiate the following series of measures:

 

We expect to increase our personnel resources and technical accounting expertise within the Company’s accounting function. We also plan to appoint one or more additional outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee which will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.

 

We anticipate that these initiatives can be implemented in conjunction with the growth of our business.

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

ITEM 9B. OTHER INFORMATION

 

Not applicable.

 

 - 19 - 
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Executive Officers and Directors

 

Below are the names of and certain information regarding the Company’s executive officers and directors as of May 14, 2020.

 

Name   Age   Title   Date of Appointment as a Director
             

Robert A. Blair

Brian Neal

Eric Sherb

 

55

40

33

 

Chief Executive Officer

President

Chief Financial Officer

 

December 19, 2017

n/a

August 1, 2019

Lawrence Patrick Roan   60   Director   September 15, 2018
Barney Frank   79   Director   March 8, 2019
William (“Billy”) D. Bean   55   Director   March 8, 2019
Martina Navratilova   62   Director   March 25, 2019
Robert Tull   67   Director   April 18, 2019
Orlando Reece   52   Director   March 10, 2020

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Executive officers are appointed by the Board of Directors and serve at its pleasure.

 

The principal occupation and business experience during at least the past five years for our executive officers and directors is as follows:

 

Robert A. Blair

 

Robert A. Blair brings to us a rich history in professional tennis, sports management and directing digital media platforms. His vision and passion coupled with an impressive portfolio of business success is leading us in an exciting new direction for revenue and growth in the LGBTQ Digital Media Marketplace. His skill in developing and delivering cutting edge marketing techniques and his passion for serving the community in the highly desired LGBTQ marketspace is expected to enable us to become a global leader in this market. From January 2015 until May 2016 Mr. Blair served as Chief Executive Officer of Multimedia Platforms Inc., (“MPI”) a multimedia, technology and publishing company. He became the Chairman of MPI in May 2016 and became CEO again in September 2016. MPI filed for Chapter 11 bankruptcy protection on October 4, 2016. Mr. Blair resigned from MPI in December 2017. We believe that Robert A. Blair is qualified to serve on our board of directors based upon his industry and management experience.

 

Brian Neal

 

Brian Neal owned and operated personal training studios and gyms successfully in Atlanta, Georgia and Fort Lauderdale, Florida as a premier LGBTQ fitness leader and instructor. Mr. Neal founded a 501-c3 Fitness & Health Foundation to support LGBTQ community members suffering with HIV/AIDS by providing complimentary gym memberships, personal trainers, nutrition classes, yoga classes and life coaching to ensure these community members could fight HIV/AIDS with a healthy lifestyle and a support group that would encourage and support their efforts. In 2007, Mr. Neal co-founded Multimedia Platforms, Inc. which became one of the largest LGBTQ media companies in the United States. Mr. Neal brings nearly 15 years of working within the LGBTQ community and is recognized as a pioneer in the LGBTQ digital sector. Mr. Neal is 40 years old and resides in Las Vegas, Nevada with his life partner of 15 years.

 

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Eric Sherb

 

Mr. Sherb has been a Certified Public Accountant since May 2011. He founded EMS Consulting in 2018 which provides CFO services and accounting advisory services for both private and public entities. From March 2015 to October 2018, Mr. Sherb was a Senior Manager at CFGI, with roles including audit readiness, IPO readiness, technical accounting and M&A advisory. He has several years of experience within the OTC and NASDAQ capital markets. Eric has a Bachelor of Business Administration degree in accounting and Finance from Emory University.

 

Lawrence Patrick Roan, Director

 

Lawrence Patrick Roan has been a National Account Manager for Poly Print Packaging Company since February 2018. From April 2008 until September 2016, Mr. Roan served as a National Account Manager for Ultra Flex Packaging Company in their consumer packaging division. He has over twenty years of sales and marketing experience in the commercial printing and consumer packaging business. Mr. Roan was previously with Exopack, LLC, as a National Account Manager for their consumer plastics business. He managed high volume national accounts as well as key developmental market accounts, and was responsible for transitioning customers with multiple manufacturing sites throughout the U.S. He is a graduate of the University of Iowa and resides in Iowa. We believe that Lawrence Roan is qualified to serve on our board of directors based upon his management experience.

 

Barney Frank, Director

 

Barney Frank is a graduate of Harvard College and Harvard Law School. He was the Executive Assistant to the mayor of Boston from 1968-1970; he was the Administrative Assistant to former Congressman Michael Harrington from 1971-1972 and a Massachusetts State Representative from 1973-1980. Mr. Frank was a US Congressman, representing the 4th District of Massachusetts from 1981-2013. As Chair of the House Financial Services Committee, from 2007-2010, he was the co-author of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the regulatory overhaul signed into law in July 2010. In 1987 he became the first Member of Congress voluntarily to acknowledge that he is gay, and in 2012 became the first sitting Member of Congress to marry a same-sex partner, James Ready. He has written two books: Speaking Frankly, in 1992, a critique of some aspects of the Democrats approach to public policy; and a political memoir published in 2015 titled “Frank: From the Great Society to Same Sex Marriage.” The book was nominated for a Triangle Award and co-won the Randy Shilts Award for Gay Nonfiction. He has also written chapters in two other books, one on LGBT rights and more recently on the response to the financial crisis. He has taught at Harvard, Boston University, the University of Massachusetts Boston and the University of Massachusetts Dartmouth. Before joining government, he was a political activist, including his participation as a volunteer in the Mississippi Freedom Summer in 1964. Mr. Frank also serves on the Board of directors of Signature Bank Corp. We believe Mr. Frank is qualified to serve on our Board of Directors based upon his industry and professional background.

 

William (“Billy”) D. Bean, Director

 

Billy Bean is a former professional baseball player and is currently a major league baseball (“MLB”) front office executive serving as Vice President and Special Assistant to the Commissioner. As a senior advisor to Commissioner Rob Manfred, his role focuses on baseball’s social responsibility initiatives and LGBT inclusion. Among his responsibilities, Mr. Bean works with MLB’s 30 clubs to bring awareness to all players, coaches, managers, umpires, employees, and stakeholders throughout baseball to ensure an equitable, inclusive, and supportive workplace for everyone. On July 14, 2014, Mr. Bean was announced as MLB’s first-ever Ambassador for Inclusion. He played major league baseball from 1987-1995. He broke into the big leagues with the Detroit Tigers, and tied a major-league record with four hits in his first game. He went on to play for the Los Angeles Dodgers and the San Diego Padres. Mr. Bean was a two-time “All-America” outfielder at Loyola Marymount University before graduating with a degree in Business Administration. During the 1986 season, Bean led the Loyola Marymount Lions to a midseason #1 national ranking and a berth into the College World Series in Omaha, Nebraska. Mr. Bean is a member of the MLB Owner’s Diversity and Inclusion Committee, and was instrumental in the development of MLB’s ‘Shred Hate’ bullying prevention program, a ground breaking educational youth campaign and partnership with ESPN. He is also the author of the book, “Going the Other Way: Lessons from a Life in and out of Major League Baseball.” We believe Mr. Bean is qualified to serve on our Board of Directors based upon his industry and management experience.

 

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Martina Navratilova, Director

 

Martina Navratilova is a former professional tennis player deemed by many to be the most successful female tennis player of the U.S. Open era. Over a career spanning four decades, Ms. Navratilova won 59 Grand Slam titles, including a record 9 Wimbledon singles championships, 167 singles and 177 doubles championships. Over the course of her tennis career, Ms. Navratilova was distinguished as the Women’s Tennis Association’s (“WTA”) “Tour Player of the Year” seven times, named the Associated Press’s “Female Athlete of the Year” and declared one of the “Top Forty Athletes of All-Time” by Sports Illustrated. After being inducted into the International Tennis Hall of Fame, she continued to take part in WTA events as well as the 2004 Olympics Games. As she approached her 50th birthday in 2006, she decided to leave the tour circuit behind after her final Grand Slam, a mixed-doubles championship with Bob Bryan at the U.S. Open making her the oldest player to ever win a Grand Slam title. Ms. Navratilova provides commentary to the Tennis Channel’s audience during its coverage of the Grand Slams. She is an ambassador for the WTA and is a regular commentator for the British Broadcasting Corporation and Tennis Channel at Wimbledon. Ms. Navratilova also works for BT Sport and appears regularly on their tennis commentary. She spends as much time as she can with her family in Miami, and often finds herself traveling the world, speaking at events, playing in numerous exhibition matches, and tirelessly promoting all of the issues that are close to her heart. As one of the first openly gay sports figures, she has spent much of her career overcoming prejudices and stereotypes, giving up millions of dollars in endorsements and sponsorships as a result of her insistence on living a life of integrity and honesty. Since coming out in 1981, she has been an inspiring and vocal advocate for equal rights and a strong supporter of many charities benefiting the LGBT community. She has received numerous awards from many of the most influential organizations within the LGBT community. We believe Ms. Navratilova is qualified to serve on our Board of Directors based upon her industry and professional background.

 

Robert Tull, Director

 

A leading figure in the ETF market since 1996, Mr. Tull played a critical role in the launch of the first ETFs that provided access to international, country-specific indexes. Mr. Tull was a key member of the American Stock Exchange’s New Products division, overseeing product and index development and consulting to many companies within the domestic ETF marketplace, as well as several traditional mutual fund managers. He has engineered ETF development in 17 country-specific ETFs known as the World Equity Benchmark Shares (WEBS) and later rebranded iShares after the sale of WEBS to BGI in 1999. Mr. Tull served as a Vice President of the Amex from 2000 to 2005. Prior to joining the Company, during the period from October 1, 2005 until February 2018 he was an outsourced COO for five ETF issuers and employed as a COO by GlobalShares an ETF issuer with roots in South Africa. Mr. Tull is a named inventor on multiple financial products and currently has a pending patent at the USPTO for non-transparent ETFs. We believe Mr. Tull is qualified to serve on our Board of Directors based upon his industry and management experience.

 

Orlando Reece, Director

 

As Chief Executive Officer for Pride Media, Orlando Reece is the steward of the world’s largest media company dedicated to serving the LGBTQ+ community. He is responsible for expanding brands like The Advocate and Out beyond their print titles into digital, social and events while maximizing revenue growth across all of the company’s businesses units. His strategic vision for the company focuses on three pillars: great creative content, innovative use of technology and expanding the brands to a larger audience with a “queer” lens. Prior to taking on the CEO role, he served as the Chief Revenue and Marketing Officer growing revenue over 26%. Before joining Pride Media, Orlando was a co-founder and the Chief Operating Officer of Swoup, a fast-growing shopping and saving mobile app. He played a key role in growing the app’s user base and developing the state-of-the-art app, which allows consumers to save money on everyday purchases and repurpose the saved money for higher education expenses, charitable donations, savings and retirement. Throughout his career, Orlando has developed a reputation for transforming and disrupting business models at major media and entertainment companies, with a proven history of success in corporate growth, revenue maximization, strategic planning and cross-media sales and marketing. We believe Mr. Reece is qualified to serve on our Board of Directors based upon his industry and management experience.

 

Family Relationships

 

There are no family relationships among our Directors or Executive Officers.

 

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Involvement in Certain Legal Proceedings

 

Except as described above, none of our directors or executive officers has been involved in any of the following events during the past ten years:

 

  Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

  Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

 

  Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; or

 

  Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

Board Committees

 

The Company currently has not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.

 

Audit Committee Financial Expert

 

We have no separate audit committee at this time. The entire Board of Directors oversees our audits and auditing procedures. The Board of Directors has determined that no director is an “audit committee financial expert” within the meaning of Item 407(d)(5) for SEC regulation S-K.

 

Board of Directors and Corporate Governance

 

Our Board of Directors consists of seven members, Robert A. Blair, Lawrence P. Roan, Barney Frank, Billy Bean, Martina Navratilova, Robert Tull and Orlando Reece.

 

Board Independence

 

We are not currently listed on any national securities exchange or quoted on an inter-dealer quotation system that has a requirement that certain of the members of the Board of Directors be independent. However, the Board of Directors has made a determination as to which of its members are independent. In evaluating the independence of its members and the composition of the committees of the Board of Directors, the Board utilizes the definition of “independence” developed by the Nasdaq Stock Market and in SEC rules, including the rules relating to the independence standards in audit committee members and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.

 

The Board of Directors expects to continue to evaluate whether and to what extent the members of the Board are independent. The Company intends to appoint persons to the Board who will meet the corporate governance requirements imposed by a national securities exchange. Therefore, the Company expects that a majority of its directors will be independent directors of which at least one director will qualify as an “audit committee financial expert,” within the meaning of SEC rules.

 

 - 23 - 
 

 

Five of our current directors, Barney Frank, Billy Bean, Martina Navratilova, Robert Tull and Orlando Reece are “independent” directors as that term is defined by the listing standards of the Nasdaq Stock Market and SEC rules, including the rules relating to the independence standards for audit committee members and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.

 

Shareholder Communications

 

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.

 

Code of Ethics

 

We have adopted a written Code of Ethics. We believe that the Code of Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics, please make written request to our Chief Executive Officer, c/o LGBTQ Loyalty Holdings, Inc., 2435 Dixie Highway, Wilton Manors, FL 33305.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, officers and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of the copies of such forms that we received with respect to the fiscal year ended December 31, 2018, we believe that each person who at any time during the fiscal year was a director, officer or beneficial owner of more than 10% of our common stock, satisfied their Section 16(a) filing requirements although Robert Gayman filed a report on a late basis.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the total compensation paid or accrued by us during the fiscal years ended December 31, 2019 and 2018 to all individuals that served as our principal executive officers.

 

Summary Compensation Table

 

Name & Principal Position  Fiscal Year ended December 31   Salary ($)   Bonus ($)   Stock Awards ($)   Option Awards ($)   Non-Equity Incentive Plan Compensation   Non-Qualified Deferred Compensation Earnings ($)   All Other Compensation ($)   Total ($) 
Robert A. Blair, CEO, Director   2019    150,000    -     24,391     -    -    -    -     174,391  
    2018    150,000    -    6,600    -    -    -    -    156,600 
                                              
Brian Neal, President   2019    24,000    -    -    -    -    -    36,000    60,000 
    2018    24,000    -    167,113    -    -    -    -    191,113 
                                              
Eric Sherb, CFO   2019    20,000    -    28,000    -    -    -    -    48,000 

 

Outstanding Equity Awards at December 31, 2019

 

As of December 31, 2019, there were 1,000,000 warrants issued to our named executive officers.

 

Director Compensation

 

During the year ended December 31, 2019, we incurred a total of $826,134 in directors’ compensation, including $805,300 in issued stock awards. In 2019, we issued an aggregate of 5,000,000 shares of common stock to five board of director members. Additionally, we issued an aggregate of 7,000,000 warrants to purchase shares of common stock to seven board of director members, including our chief executive officer who serves on the board. We did not compensate our directors for serving as such during the year ended December 31, 2018.

 

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Employment Agreements

 

On December 19, 2017 we entered into an Employment Services Agreement which was amended effective January 1, 2018 and November 1, 2018 (as amended, the “Blair Agreement”) with Robert A. Blair pursuant to which Mr. Blair is serving as our Chief Executive Officer, Chief Financial Officer and a Director. The Blair Agreement runs through January 31, 2023 and is subject to automatic renewal for successive periods of one year unless either we or Mr. Blair gives the other written notice of intention to not renew at least 30 days prior to the end of the existing term. The Blair Agreement provides for a base annual salary of $150,000, a one-year severance period in the event the Blair Agreement is terminated by us without cause or by Mr. Blair for good reason, and the issuance of 2,000,000 shares of our common stock to Mr. Blair. Mr. Blair’s base salary payments are payable in bi-weekly installments. In the event any salary payments are not made within 30 days of the due date, they will accrue interest at the rate of 10% per annum. The Blair Agreement contains customary termination provisions including terminations with or without cause, for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all of the work produced by Mr. Blair, which is created, designed, conceived or developed by Mr. Blair in the course of his employment under the Blair Agreement belongs to us.

 

On December 19, 2017 we entered into an Employment Services Agreement which was amended effective January 1, 2018 and November 1, 2018 (as amended, the “Neal Agreement”) with Brian Neal, effective as of January 1, 2018, pursuant to which Mr. Neal serves as our President. The Neal Agreement runs through January 31, 2023 and is subject to automatic renewal for successive periods of one year unless either we or Mr. Neal gives the other written notice of intention to not renew at least 30 days prior to the end of the existing term. The Neal Agreement provides for a base annual salary of $24,000, a one-year severance period in the event the Neal Agreement is terminated by us without cause of by Mr. Neal for good reason, and the issuance of 50,500,000 shares of our common stock to Mr. Neal. Mr. Neal’s base salary payments are payable in bi-weekly installments. In the event any salary payments are not made within 30 days of the due date, they will accrue interest at the rate 10% per annum. The Neal Agreement contains customary termination provisions including terminations with or without cause, for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all of the work produced by Mr. Neal, which is created, designed, conceived or developed by Mr. Blair in the course of his employment under the Neal Agreement belongs to us.

 

On December 19, 2017 we entered into an Executive Management Consulting Agreement with Robert Gayman which was amended effective January 1, 2018 and November 1, 2018 (as amended, the “Gayman Agreement”) pursuant to which Mr. Gayman was to provide advice and assistance to our management in the areas of corporate development, financing, marketing and public company guidance. The Gayman Agreement was to run through January 31, 2023. The Gayman Agreement was subject to automatic renewal for successive periods of one year unless either we or Mr. Gayman gave the other written notice of intention to not renew at least 30 days prior to the end of the existing term. The Gayman Agreement provided for cash payments to Mr. Gayman at the rate of $150,000 per year, payable in bi-weekly installments, and the issuance of 4,946,688 stock options, subject to immediate vesting, with a term of five years and an exercise price of $0.01 per share. In the event any cash payments were not made within 30 days of their due date, they accrued interest at the rate of 10% per annum. The Gayman Agreement contained non-competition and non-solicitation provisions, and an invention and patents provision which provided that all of the work produced by Mr. Gayman, which was created, designed, conceived or developed by Mr. Gayman in the course of his engagement under the Gayman Agreement belongs to us. Effective February 15, 2019, we and Robert Gayman mutually agreed to terminate the Gayman Agreement.

 

In connection with the amendments to the Blair Agreement, Neal Agreement and Gayman Agreement, provisions which had required us to issue shares of preferred stock to Messrs. Neal and Gayman and to approve a new Equity Incentive Plan were terminated.

 

On November 1, 2018 we entered into an Employment Services Agreement (the “Roan Agreement”) with Lawrence Roan pursuant to which Mr. Roan is serving as our Executive Director. The Roan Agreement has a 63-month term and is subject to automatic renewal for successive periods of one year unless either we or Mr. Roan gives the other written notice of intention to not renew at least 30 days prior to the end of the existing term. The Roan Agreement provides for a base annual salary of $100,000 and a two-year severance period in the event the Roan Agreement is terminated by us without cause or by Mr. Roan for good reason. Mr. Roan’s base salary payments are payable in bi-weekly installments. The Roan Agreement contains customary termination provisions including terminations with or without cause, for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all of the work produced by Mr. Roan, which is created, designed, conceived or developed by Mr. Roan in the course of his employment under the Roan Agreement belongs to us.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information with respect to the beneficial ownership of our common stock, our only outstanding class of voting stock, known by us as of May 14, 2020, by:

 

  each person or entity known by us to be the beneficial owner of more than 5% of our common stock;

 

  each of our directors;

 

  each of our executive officers; and

 

  all of our directors and executive officers as a group.

 

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse.

 

Unless otherwise noted, the address of each person below is c/o LGBTQ Loyalty Holdings, Inc., 2435 Dixie Highway, Wilton Manors, FL 33305.

 

Title of Class: Common Stock

 

Name and Address of Beneficial Owner  

Amount and Nature

of Beneficial

Ownership (1)

   

Percentage

of Class (2)

 
Beneficial Owners                
Robert Gayman     9,792,108 (3)     5.3 %
3042 Soft Horizon Way                
Las Vegas, NV 89135                
                 
Directors and Executive Officers                
Robert A. Blair     3,661,374 (6)     2.0 %
Brian Neal     55,109,458 (4)     29.6 %
Lawrence P. Roan     14,315,899 (5), 6)     7.7 %
Barney Frank     2,000,000 (6)     1.1 %
Billy Bean     2,661,374 (6)     1.4 %
Martina Navratilova     2,661,374 (6)     1.4 %
Robert Tull     2,648,333 (6)     1.4 %
Orlando Reece     1,148,174       0.6 %
                 
All directors and executive officers as a group (7 persons)     84,205,985       45.2 %

 

(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”). For this purpose, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares (a) the power to vote, or to direct the voting of, such security and/or (b) the power to dispose, or to direct the disposition of, such security. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of May 14, 2020, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

 

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(2) Percentages based upon 186,335,576 shares of common stock outstanding as of May 14, 2020.

 

(3) Includes 3,990,840 shares of common stock issued effective March 26, 2019 upon the exercise of Management Warrants owned by Mr. Gayman. The Management Warrants owned by Mr. Gayman were issued in connection with the cancellation of an aggregate of $161,629.

 

(4) Includes 4,609,458 shares of common stock issued effective March 26, 2019 upon the exercise of Management Warrants owned by Mr. Neal. The Management Warrants owned by Mr. Neal were issued in connection with the cancellation of an aggregate of $186,683 in compensation and interest due by us to Mr. Neal and Robert A. Blair through and including December 31, 2018.

 

(5) Includes 3,000,000 shares underlying 3,000,000 presently exercisable stock options.
   
(6) Includes 7,000,000 shares underlying 7,000,000 presently exercisable stock warrants.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

On September 10, 2012, our Board of Directors and stockholders owning a majority of our outstanding shares adopted our 2012 Equity Incentive Plan. A total of 666,667 shares of our common stock were originally reserved for issuance under the 2012 Plan but effective December 31, 2015, this amount was increased to 20,000,000 (post-split basis). If an incentive award granted under the 2012 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2012 Plan.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table provides information as of December 31, 2019, with respect to the shares of common stock that may be issued under our existing equity compensation plans:

 

Plan Category  Number of
shares
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
   Weighted-
Average
exercise
price
of
outstanding
options,
warrants
and rights
   Number of
shares
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
shares
reflected in
the first
column)
 
Equity compensation plans approved by security holders   5,800,000    0.0045    2,753,312 
Equity compensation plans not approved by securities holders            
                
TOTAL    5,800,000      0.0045     2,753,312 

 

As of December 31, 2018, we have 5,800,000 outstanding stock options under the 2012 Plan issued to employees and consultants to purchase an aggregate of 5,800,000 shares of our common stock. During the year ended December 31, 2019, 500,000 options were exercised and no options were canceled. During the year ended December 31, 2018 an aggregate of 10,946,688 options were exercised and no options were canceled.

 

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See “Executive Compensation” for information regarding individual equity compensation arrangements received by our executive officers pursuant to their employment agreements with us.

 

2012 Equity Incentive Plan

 

The Board of Directors and stockholders owning a majority of our outstanding shares adopted the 2012 Equity Incentive Plan (the “2012 Plan”) on September 10, 2012. A total of 20,000,000 shares of our common stock were reserved for issuance under the 2012 Plan, 5,800,000 of which were issued and outstanding at December 31, 2019 and 11,446,688 of which have been exercised. If an incentive award granted under the 2012 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2012 Plan.

 

Shares issued under the 2012 Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of acquiring another entity are not expected to reduce the maximum number of shares available under the 2012 Plan. In addition, the number of shares of common stock subject to the 2012 Plan and the number of shares and terms of any incentive award are expected to be adjusted in the event of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

 

Administration

 

It is expected that the compensation committee of the Board, or the Board in the absence of such a committee, will administer the 2012 Plan. Subject to the terms of the 2012 Plan, the compensation committee would have complete authority and discretion to determine the terms of awards under the 2012 Plan.

 

Eligible Recipients

 

Any officer or other employee of the Company or its affiliates, or an individual that the Company or an affiliate has engaged to become an officer or employee, or a consultant or advisor who provides services to the Company or its affiliates, including a non-employee director of the Board, is eligible to receive awards under the 2012 Plan.

 

Grants

 

The 2012 Plan authorizes the grant to eligible recipients of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and stock appreciation rights, as described below:

 

Options granted under the 2012 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of common stock covered by an option cannot be less than the fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant. Such awards may include vesting requirements.

 

Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units.

 

The compensation committee may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable, and other terms and conditions.

 

Stock awards are permissible. The compensation committee will establish the number of shares of common stock to be awarded and the terms applicable to each award, including performance restrictions.

 

Stock appreciation rights or SARs, entitle the participant to receive a distribution in an amount not to exceed the number of shares of common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR.

 

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Duration, Amendment, and Termination

 

The Board may amend, suspend or terminate the 2012 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of common stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year. Unless sooner terminated, the 2012 Plan terminates ten years after it is adopted.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions Involving LFAP and/or LFAP Stockholders

 

On January 25, 2019, in connection with the closing of the January 25, 2019 Securities Exchange Agreement we issued 120,959,996 shares of our common stock and one share of our Series A Convertible Preferred Stock to Maxim in exchange for all of the membership interests of LGBT Loyalty LLC. Effective March 26, 2019, the share of Series A Convertible Preferred Stock was automatically converted into 8,598,578 shares of our common stock.

 

On November 1, 2018, we entered into an Employment Services Agreement with Lawrence Roan (see Item 11. Executive Compensation – Employment Agreements).

 

On December 5, 2018 we issued 10,946,688 shares of our restricted common stock to Robert Gayman pursuant to the exercise of (i) 6,000,000 stock options at an exercise price of $0.0026 per share or an aggregate of $15,600, and (ii) 4,946,688 stock options at an exercise price of $0.01 per share or an aggregate of $49,467, the payment for which was made by making a corresponding deduction to amounts owed by us to Mr. Gayman.

 

On January 25, 2019 we issued common stock purchase warrants to Brian Neal (the “Neal Warrants”) and Robert Gayman (the “Gayman Warrants”) in consideration of amounts due to Brian Neal, Robert Gayman and Robert Blair at the close of business on December 31, 2018. Effective March 26, 2019, the Neal Warrants were automatically converted into 4,609,458 shares of our common stock and the Gayman Warrants were automatically converted into 3,990,840 shares of our common stock (see Item 1. – Business).

 

In March 2019, Bobby Blair was granted the right to participate in the commission program relating to our LGBTQ Loyalty Sponsorship Program with a 20% commission for a direct sale and 5% commission for assisting the sale of a Sponsorship.

 

In connection with the March and April 2019 appointments of Barney Frank, Billy Bean, Martina Navratilova, Robert Tull and LZ Granderson (former member) to our Board of Directors, we issued 1,000,000 shares of our restricted common stock to each of them. We also agreed to pay each of them an annual fee of $25,000 for serving as a Director, payable in monthly installments. As of December 31, 2019, an aggregate of 1,358,382 shares of common stock are issuable pursuant to the monthly fees under the director compensation agreements. We also granted each of them the right to participate in the commission program we intend to establish with respect to direct (20% commission) and indirect (10% commission) sales related to our LGBT Loyalty Sponsorship Programs.

 

In December 2019, the Company issued an aggregate of 7,000,000 warrants to purchase common stock to the board of directors, and recognized $170,734 in compensation expense.

 

In March 2020, Orlando Reece joined the board in replace of LZ Granderson. We issued 1,000,000 shares of restricted stock to Mr. Reece in connection to joining.

 

 - 29 - 
 

 

Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors.”

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

Fee Category  Fiscal year ended
December 31,
2019
   Fiscal Year Ended
December 31, 2018
 
         
Audit fees (1)  $82,500   $42,900 
Audit-related fees (2)          
Tax fees (3)          
All other fees (4)          
Total fees  $82,500   $42,900 

 

(1) Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.

 

(2) Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit fees.”

 

(3) Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.

 

(4) All other fees consist of fees billed for all other services.

 

Audit Committee’s Pre-Approval Practice

 

Prior to our engagement of our independent auditor, such engagement was approved by our board of directors. The services provided under this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Pursuant our requirements, the independent auditors and management are required to report to our board of directors at least quarterly regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us for the years ended December 31, 2019 and 2018, were approved by our board of directors.

 

 - 30 - 
 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Financial Statements

 

See Index to Financial Statements below.

 

Financial Statement Schedules

 

All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

 

Exhibits

 

In reviewing the agreements included as exhibits to this Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

The following exhibits are included as part of this report:

 

Exhibit No.  

SEC

Report

Reference

No.

  Description
         
2.1   2.1   Agreement and Plan of Merger and Reorganization dated as of September 20, 2012 by and among Registrant, LifeApps Acquisition Corp., and LifeApps Inc. (1)
2.2   2.2   Articles of Merger dated as of September 20, 2012 for the merger of LifeApps Acquisition Corp. into LifeApps Inc. (1)
2.3   2.1   Asset Acquisition Agreement Among the Registrant, LifeApps Inc. and Edward D. Laffey dated March 29, 2013 (3)
3.1   3.1   Amended and Restated Certificate of Incorporation of Registrant dated August 23, 2012 (1)
3.2   3.1   Certificate of Amendment to Amended and Restated Certificate of Incorporation of Registrant dated December 31, 2015 (5)
3.3   3.2   Amended and Restated By-Laws of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2012 (2)
3.4   3.1   Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Registrant as filed with the Delaware Secretary of State on January 24, 2019 (13)
3.5   3.1   Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of Registrant as filed with the Delaware Secretary of State on April 2, 2019 (14)
4.1   4.1   Form of Investor Warrant issued the investors in the September 2012 Private Placement Offering (1)

 

 - 31 - 
 

 

4.2   4.1   Form of Non-Qualified Stock Option Agreement under 2012 Equity Incentive Plan (6)
10.3   10.3   Form of Subscription Agreement between Registrant and the investors in the Private Placement Offering (1)
10.4   10.4   Subscription Escrow Agreement dated August 27, 2012, by and among the Registrant and Gottbetter & Partners, LLP (1)
10.5   10.5#   Employment Agreement dated September 20, 2012 between Registrant and Robert R. Gayman (1)
10.6   10.6#   Registrant’s 2012 Equity Incentive Plan (1)
10.7   10.7   Form of Lock-Up Agreement (1)
10.8   10.8   Mobile App Agreement between LifeApps and Rachel Buehler dated May 7, 2012 (1)
10.9   10.9   Debt Conversion Agreement by and between the Registrant and Robert Gayman dated March 25, 2015 (4)
10.10   10.1   Debt Conversion Agreement dated as of October 27, 2016 between Registrant and Lesly A. Thompson (7)
10.11   10.1#   Employment Services Agreement dated December 19, 2017 with Robert A. Blair (8)
10.12   10.2#   Employment Services Agreement dated December 19, 2017 with Brian Neal (8)
10.13   10.3#   Executive Management Consulting Agreement dated December 19, 2017 with Robert Gayman (8)
10.14   10.1   Consulting Agreement with Wellfleet Partners, Inc. dated as of January 8, 2018
10.15   10.15   Convertible Promissory Note between Registrant and Power Up Lending Group Limited dated March 6, 2018 (15)
10.16   10.16   Securities Purchase Agreement dated March 6, 2016 between Registrant and Power Up Lending Group Limited (15)
10.17   10.1#   Amendment No. 1 dated as of January 1, 2018, to Employment Services Agreement with Robert A. Blair (11)
10.18   10.2#   Amendment No. 1 dated as of January 1, 2018, to Employment Services Agreement with Brian Neal (11)
10.19   10.3#   Amendment No. 1 dated as of January 1, 2018, to Employment Services Agreement with Robert Gayman (11)
 10.20   10.1#   Employment Services Agreement with Lawrence P. Roan entered into as of November 1, 2018. (12)
10.21   10.1   Securities Exchange Agreement, dated January 25, 2019, between Registrant, LGBT Loyalty LLC and Maxim Partners, LLC (13)
10.22   10.2   Management Warrant, dated January 25, 2019 issued to Brian Neal (for cancelled debt of $161,629) (13)
10.23   10.3   Management Warrant, dated January 25, 2019 issued to Brian Neal (for cancelled debt of $25,054) (13)
10.24   10.4   Management Warrant, dated January 25, 2019 issued to Robert Gayman (for cancelled debt of $161,629) (13)
14.1   14.1   Code of Ethics (1)
16.1   16.1   Letter, from Pritchett, Siler & Hardy P.C. dated January 23, 2018
21.1   *   List of Subsidiaries
31.1   *   Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   *   Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   **   Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2   **   Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

 

 - 32 - 
 

 

101.INS   *   XBRL Instance Document***
101.SCH   *   XBRL Schema Document***
101.CAL   *   XBRL Calculation Linkbase Document***
101.DEF   *   XBRL Definition Linkbase Document***
101.LAB   *   XBRL Label Linkbase Document***
101.PRE   *   XBRL Presentation Linkbase Document***

 

* 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 if and to the extent that the Registrant specifically incorporates it by reference.

 

# Indicates a management contract or compensatory plan.

 

(1) Filed with the Securities and Exchange Commission on September 25, 2012 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated September 20, 2012, which exhibit is incorporated herein by reference.

 

(2) Filed with the Securities and Exchange Commission on March 29, 2012 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated March 29, 2012, which exhibit is incorporated herein by reference.

 

(3) Filed with the Securities and Exchange Commission on April 4, 2013 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated March 29, 2013, which exhibit is incorporated herein by reference.

 

(4) Filed with the Securities and Exchange Commission on April 3, 2015 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated March 25, 2015, which exhibit is incorporated herein by reference

 

(5) Filed with the Securities and Exchange Commission on January 7, 2016 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated December 31, 2015, which exhibit is incorporated herein by reference.

 

(6) Filed with the Securities and Exchange Commission on May 27, 2016 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated May 24, 2016, which exhibit is incorporated herein by reference.

 

(7) Filed with the Securities and Exchange Commission on November 2, 2016 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated October 27, 2016, which exhibit is incorporated herein by reference.

 

(8) Filed with the Securities and Exchange Commission on December 21, 2017 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated December 19, 2017, which exhibit is incorporated herein by reference

 

(9) Filed with the Securities and Exchange Commission on January 12, 2018 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated January 8, 2018, which exhibit is incorporated herein by reference.

 

(10) Filed with the Securities and Exchange Commission on January 25, 2018 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated January 23, 2018, which exhibit is incorporated herein by reference.

 

 - 33 - 
 

 

(11) Filed with the Securities and Exchange Commission on May 15, 2018 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which exhibit is incorporated herein by reference.

 

(12) Filed with the Securities and Exchange Commission on December 31, 2018 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which exhibit is incorporated herein by reference.

 

(13) Filed with the Securities and Exchange Commission on January 31, 2019 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated January 25, 2019, which exhibit is incorporated herein by reference.

 

(14) Filed with the Securities and Exchange Commission on April 2, 2019 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated April 2, 2019, which exhibit is incorporated herein by reference.

 

(15) Filed with the Securities and Exchange Commission on April 20, 2018 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, which exhibit is incorporated herein by reference.

 

 - 34 - 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  LGBTQ LOYALTY HOLDINGS, INC.
     
Dated: May 14, 2020 By: /s/ Robert A. Blair
  Name: Robert A. Blair
  Title: Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 - 35 - 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  LGBTQ LOYALTY HOLDINGS, INC.
     
Dated: May 14, 2020 By: /s/ Eric Sherb
  Name:  Eric Sherb
  Title: Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 - 36 - 
 

 

LGBT LOYALTY HOLDINGS, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-3
   
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018 F-4
   
Consolidated Statements of Stockholders’ (Deficit) for the Years Ended December 31, 2019 and 2018 F-5
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018 F-6
   
Notes to Consolidated Financial Statements F-7

 

 F-1 
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of LGBTQ Loyalty Holdings, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of LGBTQ Loyalty Holdings, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Consideration of the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses since inception, has negative cash flows from operations, and has negative working capital. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

A close up of a mans face

Description automatically generated

 

Haynie & Company

Salt Lake City, Utah

May 14, 2020

 

We have served as the Company’s auditor since 2018.

 

 

 F-2 
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

    December 31,  
    2019     2018  
ASSETS                
Current assets:                
Cash   $ 13,188     $ 40,908  
Other receivables– related party     100,000       -  
Other current assets     9,220       595  
Total current assets     122,408       41,503  
Property and equipment, net     1,800       -  
Intangible assets, net     73,076       -  
Total assets   $ 197,284     $ 41,503  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable   $ 772,065     $ 245,133  
Accrued salaries and consulting fees     650,133       348,800  
Accrued interest and dividends     71,212       20,397  
Notes payable     82,986       33,000  
Notes payable to related party     17,885       17,885  
Advances due to related party     -       10,974  
Convertible notes payable, net of debt discount     363,769       34,065  
Derivative liability on convertible notes payable     1,111,879       42,104  
Total liabilities     3,069,929       752,358  
                 
Commitments and contingencies (Note 11)                
                 
Stockholders’ deficit:                
Preferred stock, $0.001 par value, 10,000,000 shares authorized                
Series A, 1 share designated, no shares issued or outstanding as of December 31, 2019 and 2018     -       -  
Series B, 500,000 shares designated, 75,000 and no shares issued and outstanding as of December 31, 2019 and 2018, respectively     75       -  
Series C, 129,559 shares designated, 129,559 and no shares issued and outstanding as of December 31, 2019 and 2018, respectively     130       -  
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 169,217,460 and 121,984,192 shares issued and outstanding as of December 31, 2019 and 2018, respectively     169,217       121,984  
Additional paid-in capital     6,035,547       3,242,449  
Deferred officer compensation     -       (195,054 )
Accumulated deficit     (9,077,614 )     (3,880,234 )
Total stockholders’ deficit     (2,872,645 )     (710,855 )
Total liabilities and stockholders’ deficit   $ 197,284     $ 41,503  

 

See the accompanying notes to the consolidated financial statements

 

 F-3 
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Years Ended  
    December 31,  
    2019     2018  
Revenue   $ 3,337     $ 2,574  
Cost of net revenue     -       -  
Gross profit     3,337       2,574  
                 
Operating expenses:                
Personnel costs     1,499,585       347,713  
Consulting fees     734,403       218,532  
Legal and professional fees     733,960       160,226  
Merger costs     388,675       -  
Sales and marketing     50,147       -  
General and administrative     288,911       21,342  
Depreciation and amortization     4,499       150  
Total operating expenses     3,700,180       747,963  
                 
Loss from operations     (3,696,843 )     (745,389 )
                 
Other income (expense):                
Interest expense     (1,024,179 )     (124,358 )
Change in derivative liability     (430,458 )     35,051  
Total other income (expense), net     (1,454,637 )     (89,307 )
                 
Provision for income taxes     -       -  
Net loss   $ (5,151,480 )   $ (834,696 )
                 
Weighted average common shares outstanding -                
basic and diluted     210,883,281       93,166,625  
Net loss per common share - basic and diluted   $ (0.02 )   $ (0.01 )

 

See the accompanying notes to the consolidated financial statements

 

 F-4 
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

    Preferred Stock           Additional                 Total  
    Series A     Series B     Series C     Common Stock     Paid-in     Deferred     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Compensation     Deficit     Deficit  
                                                                         
Balances at December 31, 2017     -     $ -       -     $ -       -     $ -       87,704,686     $ 87,704     $ 2,579,489     $ (391,010 )   $ (3,045,388 )   $ (769,205 )
Forgiveness of shareholder debt     -       -       -       -       -       -       -       -       526,888       -       -       526,888  
Common shares issued for cash     -       -       -       -       -       -       11,000,000       11,000       44,000       -       -       55,000  
Common shares issued for services performed     -       -       -       -       -       -       5,250,000       5,250       42,677       -       -       47,927  
Common shares issued pursuant to note conversions     -       -       -       -       -       -       7,082,818       7,083       10,875       -       -       17,958  
Exercise of stock options     -       -       -       -       -       -       10,946,688       10,947       38,520       -       -       49,467  
Amortization of deferred compensation     -       -       -       -       -       -       -       -       -       195,956       -       195,956  
Net loss     -       -       -       -       -       -       -       -       -       -       (834,696 )     (834,696 )
Balances at December 31, 2018     -     $ -       -       -       -       -       121,984,192       121,984       3,242,449       (195,054 )     (3,880,234 )     (710,855 )
Merger with Maxim Partners     1       -       -       -       -       -       129,558,574       129,559       259,116       -       -       388,675  
Maxim exchange agreement     (1 )     -       -       -       129,559       130       (129,558,574 )     (129,559 )     129,429       -       -       -  
Issuance of Series B preferred stock, net of discount     -       -       125,000       125       -       -       -       -       124,875       -       -       125,000  
Conversion of Series B preferred stock for common shares     -       -       (50,000 )     (50 )     -       -       1,465,949       1,466       (1,416 )     -       -       -  
Issuance of Series B dividend common shares     -       -       -       -       -       -       38,287       38       3,125       -       -       3,163  
Common shares issued to board of directors     -       -       -       -       -       -       5,000,000       5,000       550,400       -       -       555,400  
Common shares issued for related party debt conversions     -       -       -       -       -       -       8,600,298       8,600       393,034       -       -       401,634  
Common shares issued pursuant to note conversions     -       -       -       -       -       -       26,586,234       26,586       768,089       -       -       794,675  
Common shares issued pursuant to debenture conversion     -       -       -       -       -       -       427,500       428       45,620       -       -       46,048  
Common shares issued for services performed     -       -       -       -       -       -       250,000       250       7,250       -       -       7,500  
Exercise of stock options     -       -       -       -       -       -       500,000       500       4,500       -       -       5,000  
Exercise of common stock warrants     -       -       -       -       -       -       4,365,000       4,365       301,930       -       -       306,295  
Warrants issued to board of directors     -       -       -       -       -       -       -       -       170,734       -       -       170,734  
Amortization of deferred compensation     -       -       -       -       -       -       -       -       -       195,054       -       195,054  
Amortization of preferred stock discount     -       -       -       -       -       -       -       -       36,412       -       (36,412 )        
Dividends on preferred stock     -       -       -       -       -       -       -       -       -       -       (9,488 )     (9,488 )
Net loss     -       -       -       -       -       -       -       -       -       -       (5,151,480 )     (5,151,480 )
Balances at December 31, 2019     -     $ -       75,000     $ 75       129,559     $ 130       169,217,460     $ 169,217      $ 6,035,547     $ -     $ (9,077,614 )   $ (2,872,645 )

 

See the accompanying notes to the consolidated financial statements.

 

 F-5 
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Years Ended  
    December 31,  
    2019     2018  
Cash flows from operating activities:                
Net loss   $ (5,151,480 )   $ (834,846 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization of debt discount and original issue discount     368,257       -  
Change in fair value of derivative liability     430,458       (35,051 )
Non-cash financing related costs - convertible debt     595,257       97,178  
Merger expenses     388,675       -  
Stock-based compensation expense     786,954       47,927  
Officer deferred compensation     195,054       195,956  
Depreciation and amortization     4,499       150  
Changes in operating assets and liabilities:                
Other receivables     (100,000 )     -  
Other current assets     (8,625 )     -  
Accounts payable     520,959       140,911  
Accrued salaries and consulting fees     649,647       324,000  
Accrued interest and dividends     44,490       -  
Net cash used in operating activities     (1,275,855 )     (63,775 )
Cash flows from investing activities:                
Purchases of property and equipment     (2,000 )     -  
Investment in intangible assets     (77,375 )     -  
Net cash used in investing activities     (79,375 )     -  
Cash flows from financing activities:                
Proceeds from issuance of convertible debenture and note agreements     1,000,000       32,000  
Proceeds from promissory note agreements     162,500       15,000  
Repayments of notes payable     (97,514 )     (2,000 )
Proceeds from related party notes and advances     -       3,599  
Proceeds from sale of common stock     -       55,000  
Proceeds from issuance of convertible preferred stock     125,000       -  
Proceeds from exercise of warrants     137,524       -  
Net cash provided by financing activities     1,327,510       103,599  
Net increase (decrease) in cash     (27,720 )     39,824  
Cash at beginning of year     40,908       1,084  
Cash at end of year   $ 13,188     $ 40,908  
                 
Supplemental disclosure of cash flow information:                
Cash paid for income taxes   $ -     $ -  
Cash paid for interest   $ 2,500     $ -  
                 
Supplemental disclosure of non-cash financing activities:                
Conversion of convertible debenture and notes   $ 53,553     $ 17,958  
Conversion of related party debt   $ 393,034     $ -  
Exercise of common stock warrants - derivative liability   $ 168,771     $ 6,692  
Non-cash exercise of stock options   $ 5,000     $ 49,467  
Amortization of preferred stock discount   $ 36,412     $ -  
Conversion of Series B preferred stock for common shares   $ 1,416     $ -  
Issuance of Series B dividend common shares   $ 3,125     $ -  
Dividends on preferred stock   $ 9,488     $ -  
Forgiveness of shareholder loans   $ -     $ 526,888  

 

See the accompanying notes to the consolidated financial statements

 

 F-6 
 

 

LGBTQ LOYALTY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Nature of Business

 

Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to LGBTQ Loyalty Holdings, Inc. (formerly LifeApps Brands Inc.), including its subsidiaries.

 

On January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating the first LGBTQ Loyalty Preference Index ETF (the “Index ETF”) to provide the LGBTQ community with the power to influence the allocation of capital within a financial Index ETF based upon LGBTQ consumer preferences. The Index ETF is intended to link the growing economic influence of the LGBTQ community and their allies with many of the top Fortune 500 companies that support and implement diversity, inclusion and equality policies within their organizations. The incorporation of diversity and inclusion in a company’s recruitment and human resource policies is becoming a key concern to investors as part of their growing focus on ESG allocations. Our data and analytics unequivocally reinforce that corporations that have embraced diversity and inclusion policies within their corporate culture perform at a higher level financially than their peers. This includes advancing a more invigorated workforce that attracts and retains the best talent. Innovation and agility have been identified as great benefits of diversity, and there is an increasing awareness of what has come to be known as ‘the power of difference’.

 

On October 30, 2019, through our wholly-owned subsidiary Loyalty Preference Index, Inc. (“LPI”) and our strategically aligned partnerships with crowd sourced data and analytic providers, we launched the LGBTQ100 ESG Index which integrates LGBTQ community survey data into the methodology for a benchmark listing of the nation’s highest financially performing large-cap publicly listed corporations that our respondents believe are most committed to advancing equality. LPI is the index provider for the LGBTQ + ESG100 ETF; LGBTQ Loyalty was the Sponsor for the prospectus that was filed by the licensed Fund Adviser ProcureAM, and was approved by the Securities and Exchange Commission (“SEC”) in early January 2020. The LGBTQ + ESG100 ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index. The Fund earns management fees based on assets under management (“AUM”) and is expected to launch in the third quarter of 2020 on the NASDAQ.

 

Through our wholly owned subsidiary LifeApps, Inc., we are a licensed developer and publisher of apps for the Apple Apps Store for iPhone, iPod touch, iPad and iPad mini. We are also a licensed developer on both Google Play and Amazon Appstore for Android. We have distributed apps on all three platforms.

 

Note 2. Summary of Significant Accounting Policies

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”), which contemplates our continuation as a going concern. We have incurred losses to date of $9,077,614 and have negative working capital. To date we have funded our operations through advances from a related party, issuance of convertible debt, and the sale of our common stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, LGBTQ Loyalty, LLC, LifeApps Inc., Sports One Group Inc. and Loyalty Preference Index, Inc., which was formed on July 24, 2019. All material inter-company transactions and balances have been eliminated in consolidation.

 

 F-7 
 

 

Use of Estimates

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.

 

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.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. At December 31, 2019 and 2018, all of the Company’s cash and cash equivalents were held at one accredited financial institution.

 

Financial Instruments

 

The estimated fair values for financial instruments were determined at discrete points in time based on relevant market information. These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts payable and accrued liabilities approximated fair value because of the short-term maturities of these instruments. The fair value of notes payable approximated to their carrying value as generally their interest rates reflected our effective annual borrowing rate.

 

Fair Value Measurements

 

ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

 

Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs.

 

Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights and derivative liabilities.

 

Our financial instruments consist of cash, 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 Company’s restricted cash is based on Level 1 inputs. 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 a measured as 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 December 31, 2019 Using:  
    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  

 

    Fair Value Measurements  
    as of December 31, 2018 Using:  
    Level 1     Level 2     Level 3     Total  
Liabilities:                                
Derivative liability on convertible notes payable   $ -     $ -     $ 42,104     $ 42,104  
    $ -     $ -     $ 42,104     $ 42,104  

 

 F-8 
 

 

Other Receivables – Related Party

 

Other receivables represent amounts held in escrow at the Fund’s custodian. The Company expects to retrieve the funds upon commencement of the Fund’s operations.

 

Intangibles

 

Intangibles, which include website development costs, databases acquired, internet domain name costs, and customer lists, are being amortized over the expected useful lives which we estimate to be three to five years. In accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 350 Intangibles – Goodwill and Other (“ASC 350”), the costs to obtain and register internet domain names were capitalized.

 

Website and Software Development Costs

 

Website and software costs are eligible for capitalization under ASC 350-50 and ASC 985-20, Software-Costs of Software to be Sold, Leased or Marketed. These amounts are included in the consolidated balance sheets. Amortization of these costs will begin when the website becomes active.

 

Fixed Assets

 

Fixed assets consist of furniture and equipment and are stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives used for financial statement purposes 3 years.

 

Derivative Financial Instruments

 

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with a fixed conversion price or floor would be settled first, and interest payable in shares settle next. Thereafter, share settlement order is based on instrument issuance date – earlier dated instruments settling before later dated. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. The policy includes all shares issuable pursuant to debenture and preferred stock instruments as well as shares issuable under service and employment contracts and interest on short term loans.

 

Revenue Recognition

 

ASC Topic 606, “Revenue from Contracts with Customers” establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.

 

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

identify the contract with a customer;
   
identify the performance obligations in the contract;
   
determine the transaction price;

 

 F-9 
 

 

allocate the transaction price to performance obligations in the contract; and
   
recognize revenue as the performance obligation is satisfied.

 

Revenue was derived primarily from the sale of sports and fitness apparel and equipment.

 

Rent Expense

 

We recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 842, Leases (“ASC 842”). Our membership agreement for shared office space expires on May 31, 2020. Rent expense was $31,572 and $255 for the years ended December 31, 2019 and 2018, respectively. We adopted ASC 842 on its effective date of January 1, 2019. The adoption did not have any effect on our consolidated financial statements.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options.

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505, Equity. The fair value of the option or warrant issued or (committed to be issued) is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock or stock award on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital.

 

Income Taxes

 

The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

For the years ended December 31, 2019 and 2018 we did not have any interest, penalties or any significant unrecognized uncertain tax positions.

 

Earnings per Share

 

We calculate earnings per share in accordance with ASC Topic 260 Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options and warrants. The diluted earnings per share were not calculated because we recorded net losses for the years ended December 31, 2019 and 2018, and the outstanding stock options and warrants are anti-dilutive. For the years ended December 31, 2019 and 2018, the following number of potentially dilutive shares have been excluded from diluted net loss since such inclusion would be anti-dilutive:

 

 F-10 
 

 

   Year Ended 
   December 31, 
   2019   2018 
Stock options outstanding   5,800,000    6,300,000 
Warrants    8,885,000     - 
Shares to be issued upon conversion of notes   47,170,778    26,586,234 
     61,855,778     32,886,234 

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740)(“ASU 2019-12”). The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740 Income Taxes and clarifying existing guidance to facilitate consistent application. The standard will become effective for the Company beginning on January 1, 2021. The Company is currently evaluating the new standard to determine the potential impact of ASU 2019-12 on its consolidated financial statements and related disclosures.

 

In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivative and Hedging (Topic 815, and Leases (Topic 841).  This new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods. While the Company is continuing to assess the potential impacts of ASU 2019-10, it does not expect ASU 2019-10 to have a material effect on its consolidated financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 eliminates the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions with employees. The accounting remains different for attribution, which represents how the equity-based payment cost is recognized over the vesting period, and a contractual term election for valuing nonemployee equity share options. ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. The Company has adopted this standard effective January 1, 2019.

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company adopted ASC 842 on its effective date of January 1, 2019. The adoption did not have any effect on our consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

 

 F-11 
 

 

Note 3. Intangible Assets

 

At December 31, 2019 and 2018, intangible assets consist of the following:

 

   December 31, 
   2019   2018 
Index development and website costs   77,375    - 
Internet domain names   -    58,641 
Website and databases   -    56,050 
Customer lists   -    4,500 
    77,375    119,191 
Less: accumulated amortization   (4,299)   (119,191)
   $73,076   $- 

 

 

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.

 

The Company wrote off all intangible assets which were fully amortized as of December 31, 2018.

 

Note 4. Notes Payable

 

As of December 31, 2019 and 2018, the Company has a note payable outstanding in the amount of $7,986 and $18,000, respectively. The note is past due at December 31, 2019 and is therefore in default. The note accrues interest at a rate of 2% per annum. During the year ended December 31, 2019, the Company repaid $10,014 pertaining to this note.

 

During the year ended December 31, 2018, the Company issued notes to an investor aggregating $15,000. On March 7, 2019, the lender agreed to convert the $15,000 in loan principal into shares of our common stock at a conversion price of $0.08 per share, resulting in an issuance of 187,500 shares, The lender also agreed to waive all interest due on the loans.

 

During the year ended December 31, 2019, the Company received $87,500 in bridge loans from a lender. As of December 31, 2019, the Company fully repaid these loans. The Company incurred $18,300 in interest expense pertaining to these notes, including $2,500 in interest paid and $15,800 in shares of our common stock to be issued. The shares were issued in 2020 and the value was included as accrued interest as of December 31, 2019.

 

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 December 31, 2019, the full principal amount was outstanding.

 

Note 5. Convertible Notes Payable

 

Convertible Note

 

On March 6, 2018, we executed a Promissory Note (the “2018 Note”) to an unrelated entity and received an aggregate of $32,000. The 2018 Note has an initial term of one year and provides for an original issue discount of $3,000, which is being amortized over the initial term. The 2018 Note carries a face interest rate of 12% per annum. The lender had the right, at any time and/or after 180 days at their election to convert all or part of the outstanding and unpaid principal and accrued interest into shares of our common stock. The conversion price was 58% of a two-day average of the lowest trading price in the range of 15 trading days prior to the conversion. The 2018 Note provided for additional penalties if we could not deliver the underlying common stock on a timely basis.

 

On September 20, 2018, the lender exercised conversion rights pursuant to the loan agreement and converted $8,000 of the loan principal into 1,777,778 shares of common stock. The Company recognized an aggregate of $10,375 of shareholder equity as a result of the conversion based on a fair value calculation at the conversion date and related adjustments to remaining loan discounts applicable to the converted loan amount. On December 31, 2018, the lender exercised conversion rights pursuant to the loan agreement and converted $8,000 of the loan principal into 5,305,040 shares of common stock. The Company recognized an aggregate of $7,583 of shareholder equity as a result of the conversion based on a fair value calculation at the conversion date and related adjustments to remaining loan discounts applicable to the converted loan amount.

 

 F-12 
 

 

In February 2019, the holder of the 2018 Note in the original principal amount of $35,000 converted the remaining $19,000 in principal and $4,255 in interest into an aggregate of 26,398,734 shares of our common stock at a conversion price of $0.0015 per share. As the result of such conversions, the 2018 Note has been repaid in full and terminated.

 

Convertible Debenture

 

On June 4, 2019 (the “Closing Date”), we entered into and closed a Securities Purchase Agreement (the “SPA”) with Pride (or the “Purchaser” or “Pride”) pursuant to which for a purchase price of $500,000, the Purchaser purchased $550,000 in principal amount of a 10% Original Issue Discount Senior Convertible Debenture (the “Debenture”) due 15 months following the date of issuance and an 18 month common stock purchase warrant (the “Warrant”) exercisable for up to 6,250,000 shares (subject to adjustment thereunder) of our common stock.

 

Subject to earlier conversion or redemption, the Debenture is due on June 4, 2020 (the “Maturity Date”). At any time after June 4, 2019, the Debenture is convertible, in whole or in part, into shares of common stock (the “Conversion Shares”) at the option of the holder, at any time and from time to time (subject to a 4.99% beneficial ownership limitation). If, on the Maturity Date, the outstanding principal balance of the Debenture is $50,000 or less, the Debenture, including all accrued and unpaid interest then due thereon, is automatically convertible into common stock. Subject to adjustment, the per share conversion price for the Debenture on any conversion date is the lesser of (i) $0.1069 or (ii) 85% of the lowest single trading date volume weighted average price for our Common stock during the 5 trading days prior to the conversion date. No later than the earlier of (i) 2 trading days after our receipt of a not