220,000,000 Shares of Common Stock being sold at
a fixed price of $0.01 per share pursuant to the Primary Offering
16,906,002 Shares of Common Stock being offered
at a fixed price $0.01 per share by the Selling Security Holders
This prospectus relates
to the offering of 220,000,000 common stock shares of the Company on a “best efforts” basis through its management to be
sold at a fixed price of $0.01 per share (the “Primary Offering” or “Offering”). We are also registering
16,906,002 shares of common stock on behalf of certain selling security holders named in this prospectus (the “Resale Shares).
The Selling Security Holders will sell the shares of common stock at a fixed price of $0.01 per share until such time, if ever, that
the common stock is quoted on the OTC Bulletin Board, the OTCQX, the OCTQB or listed on a securities exchange. See “Plan of Distribution”
beginning on page 13 of this prospectus for more information.
The aggregate 220,000,000
amount of shares of common stock which may be sold pursuant to the Offering would constitute approximately 26.2% of the Company’s
issued and outstanding shares as of August 13, 2021, assuming that we sell all 220,000,000 shares.
Our common stock is subject to quotation on OTC Pink,
operated by OTC Markets Group, Inc., under the symbol “LFAP”. On August 13, 2021, the last reported sales price
for our common stock was $0.01 per share. There is no minimum number of shares that must be sold by us for the Offering to
proceed. The Company will retain any proceeds from the Offering, while the Selling Shareholders will retain the proceeds from any resale
of their common stock. The selling stockholders are deemed to be statutory underwriters under Section 2(a)(11) of the Securities Act
of 1933 (“Securities Act”).
The selling stockholders will sell the shares
of common stock at the fixed price of $0.01 per share until such time, if ever, that the common stock is quoted on the OTC Bulletin
Board, the OTCQX or listed on a securities exchange. Discounts, concessions, commissions and similar selling expenses attributable
to the sale of common stock covered by this prospectus will be borne by the selling stockholders. We will pay for all expenses of
the Offering, except that the selling stockholders will pay any broker discounts or commissions or equivalent expenses and expenses
of legal counsel applicable to the sale of the shares.
We have applied for admission to the OTCQB on
July 19, 2021. While we believe that we will qualify for quotation on the OTCQB we cannot assure you that our common stock will, in fact,
be quoted on the OTCQB and, further, when we will receive such qualification.
PROSPECTUS
SUMMARY
The
following summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all
of the information that should be considered before investing in our common stock. Potential investors should read the entire prospectus
carefully, including the more detailed information regarding our business provided below in the “Description of Business”
section, the risks of purchasing our common stock discussed under the “Risk Factors” section, and our financial statements
and the accompanying notes to the financial statements.
Unless the context indicates otherwise, all references
in this prospectus to “LGBTQ Loyalty,” “LFAP,” the “Company,” “we,” “us”
and “our” refer to LGBTQ Loyalty Holdings, Inc. and its wholly owned consolidated subsidiary, Advancing Equality Preference,
Inc.
Organizational
History
Through
our formerly wholly owned subsidiary LifeApps, Inc., we were a licensed developer and publisher of apps for the Apple Apps Store
for iPhone, iPod touch, iPad and iPad mini. We were also a licensed developer on both Google Play and Amazon Appstore for Android.
We have distributed apps on all three platforms.
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 shares 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 (or “LGBTQ100”) 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. In 2020, LPI was renamed
to Advancing Equality Preference, Inc. (“AEP”)
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’.
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 - 2021 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 Brand
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 licensing ETF portfolios that attract key institutional investors and corporations.
At the nucleus of our LGBTQ
Loyalty Preference Index is our partner-driven Crowd Preference Index Methodology (CPIM) which we believe disrupts ESG investing.
This is achieved through an elevated screening process of financial performance data and ESG standards and practices, whereby LGBTQ community
data on diversity and inclusion compliance directly impacts corporate financial results and transparently identifies and recognizes high
performance companies who have consistently outperformed the S&P 500 index or equivalent sector standards and norms.
We
intend to extend the LGBTQ Loyalty Index brand with future plans to develop indices with a focus on the ‘Social’ component
of ESG utilizing our proprietary financial slogan of “Advancing Equality” within other gender, minority interest groups.
Revenue
The
Company focus in 2019 and 2020 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 2021, our collective efforts and focus is to monetize and scale our model by
capturing recurring revenue streams through our current financial Index product. Our goal is to accelerate our revenue pursuits
through our partnership and licensed relationships to achieve a break-even point when we have secured AUM benchmarked against the LGBTQ100
Index in excess of $50,000,000.
We
intend to introduce a new key partnered revenue source derived from Direct Index Licensing
Fees generated by financial institutions and asset management companies for creating a product
(e.g. , Index Funds, Structured Financial Products, Turnkey Asset Management Providers) based
on or linked to the LGBTQ100 index. This includes fees to use the LGBTQ100 index to track
the performance of funds or as benchmarks for actively managed portfolios. We plan
to capture Data Subscriptions which could provide recurring subscription revenue from
our LGBTQ Index. This includes ongoing and historical data and information generated by our
wholly owned division Advancing Equality Preference Inc., and through our strategic partnerships
for new potential financial equality-driven Indices.
New
initiatives in 2021 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.
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.
Selected
Risks Associated with an Investment in Shares of Our Common Stock
An
investment in shares of our common stock is highly speculative and is subject to numerous risks described in the section entitled “Risk
Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these
risks include:
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We
have a limited operating history with respect to our LGBTQ business upon which investors can evaluate our business and future prospects.
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We
have a history of losses, will need substantial additional funding to continue and expand our operations and may not achieve or sustain
revenues and profitability in the future.
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If
we are unable to obtain additional financing on acceptable terms, we may have to curtail our growth or cease our development plans
and operations.
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You
could lose all of your investment.
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You
may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred
stock or other securities that are convertible into or exercisable for our common or preferred stock.
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Our
LGBTQ-related business operations may subject us to the prejudices of those opposed to the existence and expansion of LGBTQ rights.
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Corporate
Information
Our
principal executive office and mailing address and phone number are: 2435 Dixie Highway, Wilton Manors, FL 33305; telephone number (858)-577-1746.
Our Internet address is https://lgbtqloyalty.com/. The information on, or that may be, accessed from our website is not part of this
prospectus.
Our
Filing Status as a “Smaller Reporting Company”
We
are a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned
subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues
of less than $50 million during the most recently completed fiscal year. As a “smaller reporting company,” the disclosure
we will be required to provide in our SEC filings are less than it would be if we were not considered a “smaller reporting company.”
Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings;
are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting
firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay
and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations
in their SEC filings, including, among other things, being permitted to provide two years of audited financial statements in annual reports
rather than three years. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may
make it harder for investors to analyze our results of operations and financial prospects.
The
Offering
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Issuer
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LGBTQ Loyalty
Holdings, Inc.
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Common stock shares outstanding before the
Offering:
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682,553,402(1)
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Common stock shares outstanding after the Offering:
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919,459,404
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Common stock in public float before the Offering:
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413,254,678(1)
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Securities being offered
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220,000,000 shares of common
stock at $0.01 per share.
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Shares being offered by the selling stockholders:
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16,906,002(2)
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Offering Price per share:
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The selling stockholders
may sell all or a portion of the shares being offered pursuant to this prospectus at a fixed price of $0.01 per share until such
time, if ever, that the common stock is quoted on the OTC Bulletin Board, the OTCQX, the OCTQB or listed on a securities exchange.
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Use of Proceeds:
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We will not receive any proceeds
from the sale of the shares of our common stock by the selling stockholders. However, we will receive proceeds pursuant to the Offering.
We estimate that we will receive net proceeds of approximately $2,000,000 from our sale of Shares in this Offering,
after deducting discounts and estimated offering expenses payable by us. The proceeds from the Offering will be used for the purpose
of working capital and for potential acquisitions. See “Use of Proceeds.”
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Offering Period
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The Offering will conclude
upon such time as all the common stock has been sold pursuant to the registration statement, or 24 months after the effective date.
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OTC Markets (OTC Pink) Symbol:
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LFAP
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Risk Factors:
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See “Risk Factors”
beginning on page 5 and the other information in this prospectus for a discussion of the factors you should consider before deciding
to invest in shares of our common stock.
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Transfer Agent:
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Action Stock Transfer
Corporation
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(1) As of August
13, 2021.
(2) See
“Selling Security Holders” for additional information.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and
the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial
condition could be harmed, and the value of our stock could go down. This means you could lose all or a part of your investment.
Special
Information Regarding Forward-Looking Statements
The
information contained in this Prospectus, including in the documents incorporated by reference into this Prospectus, includes some statements
that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are
not limited to, statements regarding our management’s expectations, hopes, beliefs, intentions and/or strategies regarding the
future, including our financial condition and results of operations. In addition, any statements that refer to projections, forecasts
or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The
words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,”
“intends,” “may,” “might,” “plans,” “possible,” “potential,”
“predicts,” “projects,” “seeks,” “should,” “would” and similar expressions,
or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement
is not forward-looking.
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:
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risks
that we may not have sufficient capital to achieve our growth strategy;
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risks
that we may not develop and operate our proposed LGBTQ related businesses in a manner that enables us to be profitable and meet our
customers’ requirements;
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risks
that our growth strategy may not be successful; and
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risks
that fluctuations in our operating results will be significant relative to our revenues.
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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 Securities Purchase 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 LGBTQ 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 June 30, 2021, we had an accumulated deficit of $18,614,915. 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.
Any
failure to maintain effective internal control over our financial reporting could materially adversely affect us.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness
of our internal control over financial reporting. In addition, at such time, if any, as we are no longer a “smaller reporting company,”
our independent registered public accounting firm will have to attest to and report on management’s assessment of the effectiveness
of such internal control over financial reporting. Based upon the last evaluation conducted as of June 30, 2021, our management
concluded that our internal control over financial reporting were not effective as of such date to ensure that information required
to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. If we fail to maintain effective internal control, we may be unable to prevent or
detect fraud or provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements.
This could result in a loss of investor confidence in the reliability of our financial statements, which in turn could negatively affect
the price of our common stock.
RISKS
ASSOCIATED WITH OUR COMMON STOCK
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.
Trading
on the OTC Markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our
stockholders to resell their shares.
Our
common stock is quoted on the OTC Pink operated by the OTC Market Group. Trading in stock quoted on OTC Markets is often thin and characterized
by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This
volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, OTC Markets is
not a stock exchange, and trading of securities on the OTC Markets is often more sporadic than the trading of securities listed on a
quotation system like NASDAQ or a stock exchange like the American Stock Exchange. Accordingly, our shareholders may have difficulty
reselling any of their shares. We have applied for admission to the OTCQB on July 19, 2021. While we believe that we will qualify for
quotation on the OTCQB we cannot assure you that our common stock will, in fact, be quoted on the OTCQB and, further, when we will receive
such qualification.
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.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules promulgated by the Securities and Exchange Commission (see above for a discussion of
penny stock rules), FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds
for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect
on the market for our shares.
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:
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or anticipated variations in our operating results;
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announcements
of developments by us or our competitors; announcements by us or our competitors of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
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adoption
of new accounting standards affecting our industry;
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additions
or departures of key personnel;
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sales
of our common stock or other securities in the open market; and
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other
events or factors, many beyond our control.
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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 2,010,000,000 shares of capital stock consisting of 2,000,000,000 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 August 13, 2021, there were 682,553,402
shares of our common stock, 50,000 shares of our Series B Preferred Stock, 76,959 shares of our Series C Preferred Stock and 800
shares of our Series D 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 1,800,000 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.
RISKS
RELATED TO THE OFFERING
Our existing stockholders will experience
significant dilution from the sale of our common stock pursuant to the Offering.
The sale of our common stock will have a dilutive
impact on our shareholders. As a result, the market price of our common stock could decline upon the effectiveness of this prospectus.
If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through
the offering.
The perceived risk of dilution may cause our stockholders
to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting
downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number
of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
We may fail to qualify our common stock for
the OCTQB.
The sale of our common stock in this offering
may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. As a result, our common
stock may not qualify for the OTCQB. While we believe that we will qualify for quotation on the OTCQB we cannot assure you that our common
stock will, in fact, be quoted on the OTCQB and, further, when we will receive such qualification.
There could be unidentified risks involved
with an investment in our securities.
The foregoing risk factors are not a complete
list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are
not presently foreseen by us. Prospective investors must not construe this the information provided herein as constituting investment,
legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire Prospectus
and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for
investors who can assume the financial risks of an investment in us for an indefinite period of time and who can afford to lose their
entire investment. We make no representations or warranties of any kind with respect to the likelihood of the success or the business
of our Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may
result from an investment in us.
Our management has broad discretion for the
funds.
Our management will have broad discretion over
the use of proceeds from this offering. We intend to use the net proceeds from this offering to provide funding for the following purposes:
research and development; engineering, operations, quality inspection, information technology and sales force expansion; marketing and
sales and working capital. Our management will have considerable discretion in the application of the net proceeds, and you will not
have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds
may be used for corporate purposes that do not improve our operating results or enhance the value of our securities.
Our expected use of net proceeds from this offering
represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict
with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amounts and timing
of our actual use of the net proceeds will vary depending on numerous factors, including amount of cash used in our operations, which
can be highly uncertain, subject to substantial risks and can often change. Our management will have broad discretion in the application
of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.
The failure by our management to apply these funds
effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade,
interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the
net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could
cause our stock price to decline.
***
The
risks above do not necessarily comprise all of those associated with an investment in the Company. This prospectus contains forward looking
statements that involve unknown risks, uncertainties and other factors that may cause the actual results, financial condition, performance
or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by
such forward looking statements. Factors that might cause such a difference include, but are not limited to, those set out above.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Form S-1 and any documents incorporated by reference herein or therein contain forward-looking statements and are subject to risks and
uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in
this Form S-1 and any documents incorporated by reference are forward-looking statements. Forward-looking statements give the Company’s
current reasonable expectations and projections relating to its financial condition, results of operations, plans, objectives, future
performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current
facts. These statements may include words such as ‘anticipate,’ ‘estimate,’ ‘expect,’ ‘project,’
‘plan,’ ‘intend,’ ‘believe,’ ‘may,’ ‘should,’ ‘can have,’ ‘likely’
and other words and terms of similar, meaning in connection with any discussion of the timing or nature of future operating or financial
performance or other events. The forward-looking statements contained in this Form S-1, and any documents incorporated by reference herein
or therein are based on reasonable assumptions the Company has made in light of its industry experience, perceptions of historical trends,
current conditions, expected future developments and other factors it believes are appropriate under the circumstances. As you read and
consider this Form S-1, and any documents incorporated by reference, you should understand that these statements are not guarantees of
performance or results. They involve risks, uncertainties (many of which are beyond the Company’s control) and assumptions. Although
the Company believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors
could affect its actual operating and financial performance and cause its performance to differ materially from the performance anticipated
in the forward-looking statements. Should one or more of these risks or uncertainties materialize or should any of these assumptions
prove incorrect or change, the Company’s actual operating and financial performance may vary in material respects from the performance
projected in these forward- looking statements. Any forward-looking statement made by the Company in this Form S-1 or any documents incorporated
by reference herein speaks only as of the date of this Form S-1 or any documents incorporated by reference herein. Factors or events
that could cause our actual operating and financial performance to differ may emerge from time to time, and it is not possible for the
Company to predict all of them. The Company undertakes no obligation to update any forward-looking statement, whether as a result of
new information, future developments or otherwise, except as may be required by law.
Although
the forward-looking statements in this Prospectus are based on our beliefs, assumptions and expectations, taking into account all information
currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can
be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations
from them will not be material and adverse. We undertake no obligation, other than as maybe be required by law, to re-issue this Form
S-1 or otherwise make public statements updating our forward-looking statements.
Because
the risk factors referred to above, as well as other risks not mentioned above, could cause actual results or outcomes to differ materially
from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is made. We undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for us to predict which ones will arise. In addition, we cannot
assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Cautionary
Note
We
have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent,
any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should
carefully consider all of such risk factors before making an investment decision with respect to our common stock.
SHOULD
ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT,
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
THE OFFERING
This Prospectus relates to the sale of 220,000,000
shares of common stock, par value $0.001, of the Company at a fixed price of $0.01. This Offering will terminate 24 months after
commencement. We are offering the shares on a self-underwritten “best efforts” basis directly through our management. There
is no minimum amount of shares required to be purchased, and the total proceeds received by us might not be enough to continue. No commissions
or other compensation related to the sale of the shares will be paid. For more information, see the section titled “Plan of Distribution”
and “Use of Proceeds” herein.
USE
OF PROCEEDS
We will not receive any proceeds from the disposition
and/or resale of the shares of common stock by the selling stockholders or their transferees.
We estimate the net proceeds to us from this Offering
will be approximately $2,000,000, based on an assumed initial offering price of $0.01 per share, after deducting estimated
offering expenses payable by us.
We
anticipate that the net proceeds of the Offering will be used primarily to execute our business plan as detailed below. Additionally,
proceeds will be used for paying other general and administrative expenses associated with this offering, and paying general and administrative
expenses associated with being a public company, such as accounting, auditing, transfer agent, EDGAR filing, and legal expenses. In the
event that we sell less than the maximum shares offered in the Offering, our first priority is to pay fees associated with registration
of our stock and general working capital. The following table summarizes how we anticipate using the gross proceeds of the Offering,
depending upon whether we sell 100%, 75%, 50%, or 25% of the shares being offered in the Offering:
|
|
|
If
25% of
Shares Sold
|
|
|
If
50% of
Shares Sold
|
|
|
If
75% of
Shares Sold
|
|
|
If
100% of
Shares Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Proceeds
|
|
$
|
500,000
|
|
|
$
|
1,000,000
|
|
|
$
|
1,500,000
|
|
|
$
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
offering expenses
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Proceeds
|
|
$
|
450,000
|
|
|
$
|
950,000
|
|
|
$
|
1,450,000
|
|
|
$
|
1,950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
& Sales
|
|
$
|
125,000
|
|
|
$
|
300,000
|
|
|
$
|
425,000
|
|
|
$
|
575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Repayment
|
|
$
|
225,000
|
|
|
$
|
425,000
|
|
|
$
|
725,000
|
|
|
$
|
975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
Capital
|
|
$
|
100,000
|
|
|
$
|
225,000
|
|
|
$
|
300,000
|
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
450,000
|
|
|
$
|
950,000
|
|
|
$
|
1,450,000
|
|
|
$
|
1,950,000
|
|
The Company anticipates that the estimated $2,200,000
gross proceeds from the offering would enable it for debt reduction, acquisitions and working capital, and fund its other capital
needs for the next fiscal year. In the event that the Offering is not completed, the Company will likely be required to seek additional
financing for the Company to implement its business plan and support its operations over the next twelve months. There can be
no assurance that additional financing will be available when needed, and, if available, that it will be on terms acceptable to the Company.
DETERMINATION
OF OFFERING PRICE
Our shares of Common Stock are currently listed
on the OTC Markets Pink under the symbol “LFAP”. The fixed offering price of the shares offering in the Offering is $0.01
and has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(c) of the Securities
Act of 1933, on the basis of the closing price of the shares of Common Stock of the Company as reported on the OTC Markets Group, Inc,
on August 13, 2021.
The selling security holders may sell all
or a portion of the shares being offered pursuant to this prospectus at a fixed price of $0.01 per share until such time, if ever,
that the common stock is quoted on the OTC Bulletin Board, the OTCQX, the OCTQB or listed on a securities exchange.
DILUTION
Just prior to the Offering there are 682,553,402
shares of common stock outstanding as of August 13, 2021. The 220,000,000 shares of common stock of the Company being offered
in the Offering represent a dilution event to common stockholders that will result in a new total for outstanding and issued common shares
of 919,459,404.
SELLING
SECURITY HOLDERS
In addition to registering 220,000,000 shares of
common stock pursuant to the Offering, we are also registering 16,906,002 shares of common stock that were issued to selling security
holders, or selling security holders, named in this prospectus. If 220,000,000 shares of common stock are issued presently, such
shares of common stock would represent 26.2% of our issued and outstanding shares of common stock as of August 13, 2021.
We
may require the selling security holders to suspend the sales of the shares of our common stock being offered pursuant to this
prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue
in any material respect or that requires the changing of statements in those documents in order to make statements in those documents
not misleading.
The
selling security holders identified in the table below may from time to time offer and sell under this prospectus any or all of
the shares of common stock described under the column “Shares of Common Stock Being Offered” in the table below.
The
selling security holders may be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by
such selling security holders may be deemed to be underwriting commissions.
Information
concerning the selling security holders may change from time to time and, if necessary, we will amend or supplement this prospectus
accordingly. We cannot give an estimate as to the number of shares of common stock that will actually be held by the selling security
holders upon termination of this offering, because the selling security holders may offer some or all of the common stock
under the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may
be sold, hereunder, will not exceed the number of shares offered, hereby. Please read the section entitled “Plan of Distribution”
in this prospectus.
The
manner in which the selling security holders acquired or will acquire shares of our common stock is discussed below under “The
Offering.”
The following table sets forth the name of each selling
security holder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number
of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class
to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned,
as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or
investment power and any shares of common stock which the person has the right to acquire within 60 days, through the exercise of any
option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation
of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing
the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing
the percentage of any other person. Beneficial ownership percentages are calculated based on 682,553,402 shares of our common
stock outstanding as of August 13, 2021.
Unless
otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to
the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no
selling stockholder had any position, office or other material relationship within the past three years, with us or with any of our predecessors
or affiliates. The number of shares of common stock shown as beneficially owned before the offering is based on information furnished
to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus
forms a part.
|
|
|
Shares
Owned by
the Selling
Security Holders
|
|
Shares of
Common
Stock
|
|
|
Number of Shares to
be Owned by Selling
Security Holder After the
Offering and Percent
of Total Issued and
Outstanding Shares
|
|
|
Name of Selling Stockholder
|
|
before the
Offering (1)
|
|
Being
Offered
|
|
|
# of
Shares(2)
|
|
|
% of
Class (2)
|
|
|
Robert Gayman (3)
|
|
8,080,582
|
|
|
8,080,582
|
|
|
|
0
|
|
|
|
*
|
%
|
|
Debra Lynn Slater (3)
|
|
2,247,710
|
|
|
2,247,710
|
|
|
|
0
|
|
|
|
*
|
|
|
Thomas Chester Gayman (3)
|
|
2,247,710
|
|
|
2,247,710
|
|
|
|
0
|
|
|
|
*
|
|
|
Sterling Financial Consultants LLC (4)
|
|
24,330,000
|
|
|
3,330,000
|
|
|
|
21,030,000
|
|
|
|
3.1
|
|
|
Dan Roemer(5)
|
|
5,437,500
|
|
|
1,000,000
|
|
|
|
4,437,500
|
|
|
|
*
|
|
|
*
|
Percentage not listed if less than 1%.
|
Notes:
|
(1)
|
Beneficial ownership is determined in accordance with Securities
and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of
common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible
within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible
debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be
materially less or more than the number estimated in the table.
|
|
(2)
|
Because the selling security holders may offer and sell all
or only some portion of the shares of our common stock being offered pursuant to this prospectus and may acquire additional shares
of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that any of the selling
security holders will hold upon termination of the offering.
|
|
(3)
|
Represents shares originally issued to Robert Gayman in connection
with loans made to the Company and the exercise of options awarded as compensation for prior service to the Company. Mr. Gayman subsequently
transferred 2,247,710 shares of common stock to each of Debra Lynn Slater and Thomas Chester Gayman, respectively. Mr. Robert Gayman
has an address of: 3042 Soft Horizon Way, Las Vegas, NV 89135. Debra Lynn Slater has an address of: 1718 Applewood Place, NE, Cedar
Rapids, IA 52402. Thomas Chester Gayman has an address of: 4424 70th Place, Urbandale, IA 50322. Each security holder
has sole voting and dispositive over its shares.
|
|
(4)
|
Represents shares issued in connection with loans made to the Company
and as compensation for prior consulting services to the Company. Jeffrey Sterling, the Company’s Chief Operating Officer,
exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by Sterling Financial
Consultants LLC. Sterling Financial Consultants LLC has an address of: 2435 N Dixie Highway, Wilton Manors, FL 33305.
|
|
(5)
|
Represents shares issued in connection with loans made to the Company
and as compensation for prior consulting services to the Company. Mr. Roemer has an address of: 4738 West Blvd, Naples, FL 34103.
|
PLAN
OF DISTRIBUTION
Offering
Our Shares of common stock subject to the Offering
are referred to herein collectively as the “Shares.” The Shares will be sold through our management, who may be considered
an underwriter as that term is defined in Section 2(a)(11) of the Securities Act. Our management will not receive any commission in connection
with the sale of Shares, although we may reimburse them for direct expenses incurred by them in connection with the offer and sale of
the Shares. We estimate our total offering registration costs to be approximately $10,000 and our legal, auditor, miscellaneous
and related fees will be $190,000 equaling a total expense to the Company of $200,000 relating to the registration. There
is no minimum number of Shares that must be sold by us for the offering to proceed. We will retain any proceeds from the Offering.
Our
management will be relying on, and complying with, Rule 3a4-1(a)(4)(ii) of the Exchange Act as a “safe harbor” from registration
as a broker-dealer in connection with the offer and sale of the Shares. In order to rely on such “safe harbor” provisions
provided by Rule 3a4-1(a) (4) (ii), each must be in compliance with all of the following:
|
|
●
|
an
individual must not be subject to a statutory disqualification;
|
|
|
●
|
an
individual must not be compensated in connection with such selling participation by payment
of commissions or other payments based either directly or indirectly on such transactions;
|
|
|
●
|
an
individual must not be an associated person of a broker-dealer;
|
|
|
●
|
an
individual must primarily perform, or is intended primarily to perform at the end of the
Offering, substantial duties for or on behalf of the Company otherwise than in connection
with transactions in securities; and
|
|
|
●
|
an
individual must perform substantial duties for the Company after the close of the Offering
not connected with transactions in securities, and not have been an associated person of
a broker or dealer for the preceding 12 months, and not participate in selling an offering
of securities for any issuer more than once every 12 months.
|
Each
member of our management will comply with the guidelines enumerated in Rule 3a4-1(a) (4) (ii). Neither our management nor any of their
affiliates will be purchasing Shares in the Offering.
You
may purchase Shares by completing and manually executing a simple subscription agreement and delivering it with your payment in full
for all Shares you wish to purchase to our offices. A copy of the form of that subscription agreement is attached as an exhibit to our
registration statement of which this Prospectus is a part. Your subscription shall not become effective until accepted by us and approved
by our counsel. Our subscription process is as follows:
|
|
●
|
this
Prospectus, with subscription agreement, is delivered by the Company to each offeree;
|
|
|
●
|
the
subscription is completed by the offeree, and submitted with check back to the Company where
the subscription and a copy of the check is emailed to counsel for review;
|
|
|
●
|
each
subscription is reviewed by counsel for the Company to confirm the subscribing party completed
the form, and to confirm the state of acceptance;
|
|
|
●
|
once
approved by counsel, the subscription is accepted by management and the funds shall be deposited
within four days of acceptance;
|
|
|
●
|
subscriptions
not accepted are returned with all funds sent with the subscription within three business
days of the Company’s receipt of the subscription, without interest or deduction of
any kind.
|
Selling
Security Holders
The
selling security holders may, from time to time, sell any or all of their shares of our common stock on otcmarkets.com or any
other stock exchange, market or trading facility on which the shares of our common stock are traded, or in private transactions. The
selling security holders may sell their shares at a fixed price of $0.01 per share until such time, if ever, that the common stock is quoted
on the OTC Bulletin Board, the OTCQX, the OCTQB or listed on a securities exchange. The selling stockholder may use any one or more
of the following methods when selling shares:
|
|
●
|
Ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchases;
|
|
|
●
|
Block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
|
|
|
●
|
Purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
●
|
Privately
negotiated transactions;
|
|
|
●
|
Broker-dealers
may agree with the Selling Stockholder to see a specified number of such shares at a stipulated price per share; or
|
|
|
●
|
A
combination of any such methods of sale.
|
Additionally,
broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers
may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser
of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case
of an agency transaction not in excess of a customary brokerage commissions in compliance with FINRA Rule 2440; and in the case of a
principal transaction, a markup or markdown in compliance with FINRA IM-2440. Broker-dealers may agree with the selling security holders
to sell a specified number of shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the selling security holders, to purchase as principal any unsold shares at the price required to fulfill
the broker-dealer commitment to the selling security holders. Broker-dealers who acquire shares as principal may thereafter resell
such shares from time to time in one or more transactions (which may involve crosses and block transactions and which may involve sales
to and through other broker-dealers, including transactions of the nature described above and pursuant to the one or more of the methods
described above) at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale,
or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such shares commissions computed
as described above. To the extent required under the Securities Act, an amendment to this prospectus or a supplemental prospectus will
be filed, disclosing:
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the
name of any such broker-dealers;
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the
number of shares involved;
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the
price at which such shares are to be sold;
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the
commission paid or discounts or concessions allowed to such broker-dealers, where applicable;
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that
such broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus,
as supplemented; and
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other
facts material to the transaction.
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There
can be no assurance that the selling security holders will sell any or all of the shares of common stock registered pursuant to
the registration statement, of which this prospectus forms a part.
The
selling security holders may be deemed an underwriter within the meaning of the Securities Act of 1933, as amended (“Securities
Act”) and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within
the meaning of the Securities Act of 1933 in connection with such sales. Any commissions received by such broker-dealers or agents, and
any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities
Act of 1933. The selling security holders have informed us that they do not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute our common stock. Pursuant to a requirement by FINRA, the maximum commission or
discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by
us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act.
Discounts, concessions,
commissions, and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling security holders.
The selling security holders may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions
involving sales of the shares if liabilities are imposed on that person under the Securities Act.
We are required to pay certain fees and expenses
incurred by us incident to the registration of the shares covered by this prospectus. We will not receive any proceeds from the resale
of any of the shares of our common stock by the selling security holders.
DESCRIPTION
OF SECURITIES
General
We
have authorized capital stock consisting of 2,000,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of August
13, 2021, we have 682,553,402 shares of common stock issued and outstanding, 50,000 shares of Series B convertible preferred
stock issued and outstanding, 76,959 shares of Series C convertible preferred stock issued and outstanding, 800 shares of Series D convertible
preferred stock issued and outstanding, and 1,800,000 stock options issued and outstanding. As described below, we also have common stock
purchase warrants and convertible debentures outstanding which are exercisable for or convertible into shares of our common stock.
Common
Stock
The
holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment
of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to
one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors
then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable
ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims
of creditors. Each outstanding share of common stock is duly and validly issued, fully paid and non-assessable.
Preferred
Stock
Shares
of preferred stock may be issued from time to time in one or more series, each of which will have such distinctive designation or title
as shall be determined by our Board of Directors prior to the issuance of any shares thereof. Preferred stock will have such voting powers,
full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series
of preferred stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number
of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of our capital stock entitled
to vote generally in the election of the directors, voting together as a single class, without a separate vote of the holders of the
preferred stock, or any series thereof, unless a vote of any such holders is required pursuant to any preferred stock designation.
The
issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of
the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders
of the common stock until the Board of Directors determines the specific rights of the holders of the preferred stock; however, these
effects may include:
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Restricting
dividends on the common stock;
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Diluting
the voting power of the common stock;
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Impairing
the liquidation rights of the common stock; or
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Delaying
or preventing a change in control of the Company without further action by the stockholders.
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Other
than in connection with shares of preferred stock (as explained above), which preferred stock is not currently designated nor contemplated
by us, we do not believe that any provision of our charter or By-Laws would delay, defer or prevent a change in control.
Series
B Convertible Preferred Stock
On
April 3, 2019 we filed a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock with the Delaware
Secretary of State to create a class of preferred stock, $0.001 par value per share, designated Series B Convertible Preferred Stock
and authorized the issuance of up to 1,500,000 shares of Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock
has no voting, liquidation or other rights other than the right to receive dividends and to convert into shares of our common stock.
The stated value of each share of Series B Convertible Preferred Stock for purposes of conversions and dividends is $1.15 (the “Conversion/Dividend
Stated Value”). The stated value of each share of Series B Convertible Preferred Stock for purposes of redemptions is $1.35 (the
“Redemption Stated Value”). Subject to earlier conversion or redemption, the Series B Convertible Preferred Stock will automatically
convert into fully paid and non-assessable shares of our common stock 24 months following the date of issuance of such Series B Convertible
Preferred Stock without any action or payment required on the part of the holder of the Series B Convertible Preferred Stock. Subject
to a floor price limitation of $0.03 per share, the automatic conversion price to which the Conversion/Dividend Stated Value will be
applied will be the lower of (i) $0.10 per share of common stock; or (ii) a 20% discount to the lowest volume weighted average price
for our common stock on our principal trading market during the five trading days immediately prior to the automatic conversion date.
Subject
to earlier conversion or redemption, the Series B Convertible Preferred Stock will also automatically convert into fully paid and non-assessable
shares of common stock upon the conversion terms provided above if (i) the closing sale price for our common stock on our principal trading
market closes at or above $0.20 for 10 consecutive trading days;(ii) our common stock is uplisted to NASDAQ or a national securities
exchange; or (iii) we complete an offering of securities resulting in aggregate gross proceeds of not less than $3,000,000. Notwithstanding
the foregoing, the automatic conversion events set forth in (i), (ii) and (iii) above are not applicable during the 180 day period following
the issuance date or if the common stock issuable upon conversion is not registered or subject to sale pursuant to Rule 144 or another
exemption from the registration requirements of the Securities Act of 1933, as amended.
Commencing
180 days after the issuance date, the holders of Series B Convertible Preferred Stock have the right to convert their Series B Convertible
Preferred Stock at any time into shares of our common stock on the same conversion terms applicable to automatic conversions.
Absent
our prior written approval, all automatic and optional conversions of Series B Convertible Preferred Stock must be for a minimum of 5,000
shares of Series B Convertible Preferred Stock except in cases where the holder owns less than 5,000 shares and is converting all Series
B Convertible Preferred Stock then owned by the holder. No fractional shares of common stock will be issued upon conversions of the Series
B Convertible Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, we will round up to the
next full share.
Dividends
at the rate of 12% per annum (1% per month) are payable on the Conversion/Dividend Stated Value of the Series B Convertible Preferred
Stock in cash or stock at our discretion. Dividends are payable at the end of each month following the applicable issuance date. Dividends
payable in stock will be calculated based on the 5-day volume weighted average price during each of the last 5 trading days of the month
for which payment is being made. To the extent that a month for which dividends are payable does not involve a full month because shares
of Series B Convertible Preferred Stock were issued, redeemed, or converted during such month, the dividend payable shall be pro-rated
to reflect the number of days of such month that the dividend applies to. In all events, dividends shall not be payable for periods following
redemption, conversion or the 24 month anniversary of the applicable issuance date.
The
Series B Convertible Preferred Stock is redeemable in cash by us at any time prior to conversion upon five business days prior written
notice to the holder at the Redemption Stated Value for each share being redeemed.
The
automatic and optional conversion price will be appropriately adjusted to reflect stock splits, stock dividends (exclusive of the dividends
payable on the Series B Convertible Preferred Stock) business combinations and similar recapitalization.
Series
C Convertible Preferred Stock
On
June 3, 2019 we filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the
“Series C COD”) with the Delaware Secretary of State to create a class of preferred stock, $0.001 par value per share, designated
Series C Convertible Preferred Stock and authorized the issuance of up to 129,559 shares of Series C Preferred Stock. On June 4, 2019,
all of the 129,559 authorized shares of Series C Convertible Preferred Stock were issued to Pride Partners LLC, the assignee of Maxim
Partners LLC. The Series C Convertible Preferred Stock has no voting or other rights other than the right to receive dividends on a pari
passu basis with holders of our common stock, the right to receive assets in the event of liquidation, dissolution or winding up on a
pari passu basis with holders of our common stock and the right to convert into our common stock. The stated value of each share of Series
C Convertible Preferred for purposes of conversions is $1,000 (the “Stated Value”).
Each
share of Series C Convertible Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof,
into that number of shares of our common stock (subject in each case to a 4.99% beneficial ownership limitation) determined by dividing
the Stated Value of such share of Series C Convertible Preferred Stock by the Series C Convertible Preferred Stock conversion price of
$1.00 per share. Consequently, each Share of Series C Convertible Preferred Stock is presently convertible into 1,000 shares of our common
stock.
Not
later than two trading days after each conversion date we are required to deliver to the converting holder the number of conversion shares
being acquired upon the conversion of the Series C Convertible Preferred Stock, which conversion shares will, subject to applicable securities
laws, be issued free of restrictive legends and trading restrictions. In the event we fail to deliver Series C Convertible Preferred
Stock conversion shares by the applicable share delivery date, the holder may rescind any requested conversion and we will be subject
to penalties in the form of partial liquidated damages. We will, under certain circumstances, also be subject to buy-in liability should
the holder have to purchase shares of our common stock in the open market in satisfaction of a sale by holder of convertible shares that
the holder was entitled to receive by the share delivery date.
Pursuant
to the Series C COD, we are required to reserve and keep available out of our authorized and unissued shares of common stock sufficient
shares for the sole purpose of issuance upon conversion of the Series C Convertible Preferred Stock.
The
Series C COD provides for conversion price adjustments in the event of stock dividends, stock splits and similar transactions. It also
provides for certain adjustments in connection with subsequent rights offerings, pro rata distributions to holders of our common stock
and fundamental transactions.
Series
D Convertible Preferred Stock
On
April 8, 2021, the Company issued 400 shares of Series D Convertible Preferred Stock (the Series D Preferred Stock”) to GHS pursuant
to a Securities Purchase Agreement (“GHS Agreement”) for net proceeds of $800,000. In conjunction with the GHS Agreement,
the Company issued warrants to purchase 40,000,000 shares of common stock at an exercise price of $0.001. In conjunction with
the GHS Agreements, the Company issued two (2) five-year warrants, one to purchase up to 40,000,000 shares of common stock and the other
to purchase up to 1,500,000 shares of common stock (the “Warrant”). The exercise price for both warrant is $0.001 per share.
Notwithstanding,
on June 23, 2021, GHS and the Company entered into a Rescission Agreement (the “Rescission Agreement”) pursuant to which
the Company and GHS agreed to rescind, ab initio, the issuances of Warrants to GHS. Pursuant to the Rescission Agreement, GHS and the
Company agreed that the issuance of the Warrants are unconditionally and irrevocably rescinded ab initio by GHS and the Company, and
the Warrants are neither valid nor effective in any manner whatsoever. Further, GHS and the Company acknowledged that each has been restored
to the position in which such party found itself on the date that the respective GHS Agreement was executed but without any references,
rights or obligations relative to the Warrants contained in, or otherwise granted in, either the GHS Agreements or the Warrants. As a
result, GHS has no rights whatsoever to the Warrants and the Company has no rights whatsoever to the any exercise price that it may have
received pursuant to the Warrants.
In
connection with the execution and delivery of the Rescission Agreement, the Company and GHS entered into two (2) Amended and Restated
Purchase Agreements, as more fully detailed in the respective agreements, which each seek to amend and restate the terms and conditions
contained in the April Agreement and the May Agreement.
In
connection with the issuance of the Series D Preferred Stock, on April 7, 2021 and May 12, 2021, we filed a Certificates of Designation
of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”) with the Delaware Secretary
of State to create a new class of preferred stock, $0.001 par value per share, designated Series D Convertible Preferred Stock and authorized
the issuance of up to one thousand (1,000) shares of Series D Preferred Stock. On the April 9, 2021, four hundred (400) shares of Series
D Preferred Stock were issued to GHS; on May 12, 2021, one hundred and fifty (150) shares of Series D Preferred Stock were issued
to the GHS; on July 13, 2021, two hundred and fifty (250) shares of Series D Preferred Stock were issued to GHS;
and pursuant to the securities purchase agreement, dated as of July 13, 2021, the Company may sell an additional 250 shares of Series
D Preferred Stock to GHS . The Series D Preferred Stock has a stated value of $1,200 per share (“Stated Value”) and the
holder of the Series D Preferred Stock has the right to receive a dividend equal to eight percent (8%) per annum, payable quarterly,
beginning on the issuance date of the Series D Preferred Stock and ending on the date that Series D Preferred Share has been converted
or redeemed. Dividends may be paid in cash or in shares of Series D Preferred Stock at the discretion of the Company. Further, the holders
of the Series D Preferred Stock has the right to receive assets in the event of liquidation, dissolution or winding up before any distribution
or payment shall be made to the holders of any securities junior to the Series D Preferred Stock.
The
conversion price (the “Conversion Price”) for the Series D Preferred Stock shall be $0.008109, equal to 90% of the average
VWAP for the ten (10) Trading Days immediately preceding the date of the SPA. The Conversion Price will be appropriately adjusted for
any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases
the Common Stock. Following an “Event of Default,” as defined in the SPA, the Conversion price shall equal the lower of:
(a) the then applicable Conversion Price; or (b) a price per share equaling eighty percent (80%) of the lowest traded price for the Company’s
common stock during the fifteen (15) Trading Days immediately preceding, but not including, the Conversion Date.
Each
share of Series D Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof, into that number
of shares of Common Stock (subject in each case to a 4.99% beneficial ownership limitation) determined by dividing the Stated Value of
such share of Series D Preferred Stock by the Series D Preferred Stock Conversion Price.
Additionally,
the Company shall have the right to redeem (a “Corporation Redemption”), all (but not less than all), shares of the Series
D Preferred Stock issued and outstanding at any time after the issuance date, upon five (5) business days’ notice, at a redemption
price per Series D Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the product
of (i) the Premium Rate multiplied by (ii) the sum of (x) the Stated Value, (y) all accrued but unpaid dividends, and (z) all other amount
due to the holder pursuant to the Series D COD and the SPA including, but not limited to late fees, liquidated damages and the legal
fees and expenses of the holder’s counsel relating to the Series D COD and/or the SPA. “Premium Rate” means (a) 1.15
if all of the Series D Preferred Stock is redeemed within ninety (90) calendar days from the issuance date thereof; (b) 1.2 if all of
the Series D Preferred Stock is redeemed after ninety (90) calendar days and within one hundred twenty (120) calendar days from the issuance
date thereof; (c) 1.25 if all of the Series D Preferred Stock is redeemed after one hundred twenty (120) calendar days and within one
hundred eighty (180) calendar days from the issuance date thereof; and (iv) each share of Series D Preferred Stock shall be redeemed
on the date that is one (1) calendar year from the date of its issuance.
On the one-year anniversary
of the date of issuance of the Preferred Stock, the Company must redeem the Preferred Stock then outstanding at a price equal to the
outstanding Stated Value together with any accrued but unpaid dividends.
Pursuant
to the Series D COD, we are required to reserve and keep available out of our authorized and unissued shares of Common Stock two times
the number of Common Stock needed to convert or exercise all Series D Preferred Stock and Warrants. Further, the holders of the Series
D Preferred Stock and Warrants are entitled to vote with all holders of the Common Stock on an as converted or as exercised basis.
The
Series D COD provides for conversion price adjustments in the event of stock dividends, stock splits and similar transactions. It also
provides for certain adjustments in connection with subsequent rights offerings, pro rata distributions to holders of our Common Stock
and fundamental transactions. Additionally, from the date of the SPA until the date when the holder no longer holds any Series D Preferred
Stock, upon any issuance by the Company or any of its subsidiaries of Common Stock or common stock equivalents (as defined in the Series
D COD) for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the holder may
elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of Series D Preferred Stock
then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis.
Following
an “Event of Default” (as defined in the Series D COD), all outstanding shares of Series D Preferred Stock shall come immediately
due for redemption and the redemption amount shall accrue interest at the lesser of: (a) eighteen percent (18%) per annum; or (b) the
maximum legal rate. Redemption following an Event of Default shall occur at an amount equaling: 1.35 multiplied by the sum of the Stated
Value, all accrued but unpaid dividends and all other amounts due pursuant to the Series D COD for all Series D Preferred Stock outstanding.
Additionally, following an Event of Default, the Conversion Price shall equal the lower of: (a) the then applicable conversion price;
or (b) a price per share equaling eighty percent (80%) of the lowest traded price for the Company’s Common Stock during the fifteen
(15) trading days preceding the relevant conversion.
The Series D Preferred Stock will vote together
with the common stock on an as-converted basis subject to the Beneficial Ownership Limitation (as defined in the Series D COD). However,
as long as any shares of Series D Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders
of a majority of the then outstanding shares of the Series D Preferred Stock directly and/or indirectly (a) alter or change adversely
the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the Series D COD, (b) authorize or create any
class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in the Series D COD) senior to, or otherwise
pari passu with, the Series D Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise
pari passu with, the Series D Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that
adversely affects any rights of the Holders (as defined in the Series D COD), (d) increase the number of authorized shares of Series
D Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Debentures
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. As of the date of the prospectus, the Warrant was fully exercised.
Subject
to earlier conversion or redemption, the Debenture is due on June 4, 2020 (the “Maturity Date”). At any time after June 4,
2019, the Debenture is convertible, in whole or in part, into shares of common stock (the “Conversion Shares”) at the option
of the holder, at any time and from time to time (subject to a 4.99% beneficial ownership limitation). If, on the Maturity Date, the
outstanding principal balance of the Debenture is $50,000 or less, the Debenture, including all accrued and unpaid interest then due
thereon, is automatically convertible into common stock. Subject to adjustment, the per share conversion price for the Debenture on any
conversion date is the lesser of (i) $0.1069 or (ii) 85% of the lowest single trading date volume weighted average price for our Common
stock during the 5 trading days prior to the conversion date. No later than the earlier of (i) 2 trading days after our receipt of a
notice of conversion and (ii) the number of trading days comprising the standard settlement period after our receipt of a notice of conversion,
we are required to deliver Conversion Shares which, when permitted under applicable securities laws, will be delivered free of restrictive
legends and trading restrictions. In the event that we fail to deliver Conversion Shares by the applicable delivery date, the holder
may rescind such conversion until such time that the Conversion Shares are received by the holder. Our failure to timely deliver Conversion
Shares subjects us to the payment of liquidated damages to the holder as well as buy-in liability under circumstances where the holder
is required to purchase Common Stock in the open market in satisfaction of a sale by the holder of Conversion Shares which the holder
was entitled to receive. We are required to reserve and keep available from our authorized and unissued shares of Common Stock a sufficient
number of shares to cover conversions of the Debenture. The number and amount of Conversion Shares issuable upon conversion is subject
to adjustment in the event of stock splits and stock dividends. The Debenture also provides for full ratchet anti-dilution price adjustments
under circumstances where, during the term of the Debenture, we issue Common Stock or common stock equivalents, exclusive of certain
exempt issuances, at prices below the then applicable Debenture conversion price. The Debenture further provides for adjustments in the
event of certain rights offerings, pro rata distributions to shareholders and fundamental transactions. The Debenture is subject to optional
redemption by us, for cash, in whole or in part, upon 20 trading days prior written notice by us but only in the event, unless waived
by the holder, we satisfy certain equity conditions (as such term is defined in the Debenture) during such 20 trading day period. Penalty
interest is payable by us if we fail to effect an optional redemption by the applicable optional redemption date. The Debenture subjects
us to negative covenants while the Debenture is outstanding.
On
August 27, 2019, the Company entered into Amendment No. 1 to the Securities Purchase Agreement (the “First Amendment”) with
Pride. Pursuant to the terms of the Amendment, Pride agreed to purchase an additional $220,000 in principal amount of 10% Original Issue
Discount Senior Convertible Debenture for $200,000 in cash proceeds. As a result of this additional investment, the Company amended the
currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued to Pride on June 4, 2019 to increase the
face value of the debenture from $550,000 to $770,000. No additional warrants were included in the amended agreement.
On
October 14, 2019 the Company entered into Amendment No. 2 to the Securities Purchase Agreement (the “Second Amendment”) with
Pride. Pursuant to the terms of Amendment. Pride agreed to purchase an additional $330,000 in principal amount of 10% Original Issue
Discount Senior Convertible Debenture for $300,000 in cash proceeds. As a result of this additional investment, the Company amended the
currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued to Pride on June 4, 2019 and amended on
August 27, 2019 to increase the face value of the debenture from $770,000 to $1,100,000.
Pursuant
to the terms of the Second Amendment, the shares of common stock underlying the additional $330,000 in principal amount of 10% Original
Issue Discount Senior Convertible Debenture (the “Additional Underlying Shares”) are not subject to the registration rights
agreement entered into between the parties on June 4, 2019, but the Company has granted certain demand registration rights to Pride in
connection with the Additional Underlying Shares.
From
July to August 2019, Pride converted $21,910 in principal into 427,500 shares of our common stock. The Company recognized $18,925 of
interest expense related to the write-off of discounts related to the conversion amounts.
On
February 12, 2020, the Company entered into a Securities Purchase Agreement with Cavalry Fund I LP (the “Calvary Note”).
Pursuant to the terms of the Calvary Note, the lender agreed to purchase from the Company, for a purchase price of $100,000, a 10% convertible
note in the principal amount of $115,500. The Cavalry Note matured and became due and payable on November 11, 2020 and accrues interest
at a rate of 10% per annum. The Calvary Note, plus all accrued but unpaid interest, may be prepaid at any time prior to the maturity
date.
The
Calvary Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”) equal to the lower of: (i) the lowest closing price of the common stock during the preceding twenty (20) trading day period
ending on the latest complete trading day prior to the issuance date of the Note (the “Closing Price”), (ii) $0.04, or (iii)
60% of the lowest traded price for the Common Stock on the principal market on which the Common Stock is then trading during the twenty
(20) consecutive trading days on which at least 100 shares of Common Stock were traded including and immediately preceding the date of
conversion. Upon an event of default, the holder may elect to convert at an alternate conversion price which is the lower of: (i) the
closing price of the Common Stock on the Principal Market on the Trading Day immediately preceding the issue date of the Calvary Note
or (ii) 60% of either the lowest traded price or the closing bid price, whichever is lower for the common stock on the principal market
during any trading day in which the event of default has not been cured. The conversion price of the Note will be further adjusted by
another 15% reduction, regardless of whether there is an event of default, if (A) the Common stock is no longer a reporting company pursuant
to the Securities Exchange Act of 1934, as amended, (B) the Note cannot be converted into free trading shares after 181 days from the
issuance date of the Note, (C) the Common Stock is chilled for deposit at DTC or becomes chilled at any point while the Note remains
outstanding, (D) deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or (E) if
the closing price at any time falls below $0.015. The conversion price is subject to customary adjustments. The conversion price is not
subject to a floor.
Effective
July 14, 2020, the Company and Calvary Fund I LP entered into an amendment to the Calvary Note to extend the maturity date of the note
from November 11, 2020 to December 31, 2020, prohibit any conversions of the note prior to October 31, 2020, and extend the prepayment
option from August 9, 2020 to December 31, 2020. As of the date of this prospectus, the entire outstanding principal and accrued interest
has been converted into shares of the Company’s common stock.
On
March 10, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up Note”).
Pursuant to the terms of the Power Up Note, the lender agreed to purchase from the Company, for a purchase price of $75,000, a 10% convertible
note in the principal amount of $85,800. The Power Up Note matures and becomes due and payable on March 10, 2021 and accrues interest
at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid at any time prior to the maturity
date.
The
Power Up Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor. As of the date of this prospectus, the entire outstanding principal and accrued interest has been converted into
shares of the Company’s common stock.
On
May 26, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up May Note”).
Pursuant to the terms of the Power Up May Note, the lender agreed to purchase from the Company, for a purchase price of $75,000, a 10%
convertible note in the principal amount of $85,800. The Power Up May Note matures and becomes due and payable on May 26, 2021 and accrues
interest at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid at any time prior to the
maturity date.
The
Power Up May Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor. As of the date of this prospectus, the entire outstanding principal and accrued interest has been converted into
shares of the Company’s common stock.
On
September 29, 2020, the Company entered into a Securities Purchase Agreement with Power Up (“Power Up September Note”). Pursuant
to the terms of the Power Up September Note, the lender agreed to purchase from the Company, for a purchase price of $80,000, a 10% convertible
note in the principal amount of $91,300. The Power Up September Note matures and becomes due and payable on September 29, 2021 and accrues
interest at a rate of 10% per annum. The Power Up September Note, plus all accrued but unpaid interest, may be prepaid at any time prior
to the maturity date.
The
Power Up September Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor. As of the date of this prospectus, the entire outstanding principal and accrued interest has been converted into
shares of the Company’s common stock.
As
of December 31, 2020, Power Up fully converted the March and May notes, consisting of $150,000 in principal and accrued interest, into
an aggregate of 49,110,485 shares of common stock.
On
August 11, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Auctus Fund, LLC (“Auctus”).
Pursuant to the terms of the SPA, the Purchaser agreed to purchase from the Company, for a purchase price of $132,000, a 12% Convertible
Note in the principal amount of $150,000. The Note matures and becomes due and payable on August 11, 2021 and accrues interest at a rate
of 12% per annum while the Note remains outstanding. The Note may be prepaid on a monthly basis commencing six months after closing.
The Note is convertible into shares of the Company’s common stock at any time at a conversion price (“Conversion Price”)
equal to the lesser of (i) Current Market Price and (ii) the Variable Conversion Price. The Variable Conversion Price shall mean 100%
multiplied by the Market Price (representing a discount rate of 0%). Market Price means the average of the previous 5 days volume weighted
average price. In connection with the Note, the Company issued two common stock purchase warrants to purchase up to an aggregate of 15,000,000
shares of common stock (separately, “Warrant A” and “Warrant B”, and together, the “Warrants” and
each a “Warrant”), upon the terms and subject to the limitations and conditions set forth in the Note. As of December 31,
2020, one warrant to purchase 7,500,000 shares was issued and outstanding to Auctus. The fair value of the warrants was determined to
be $45,068 and was recorded as a debt discount to the note.
On
October 8, 2020, the Company entered into a Securities Purchase Agreement (the “Auctus October Note”) with Auctus Fund, Pursuant
to the terms of the Auctus October Note, Auctus agreed to purchase from the Company, for a purchase price of $300,000: (i) a Convertible
Promissory Note in the principal amount of $300,000 (the “Auctus Note”); (ii) a common stock purchase warrant permitting
Auctus to purchase up to 100,000,000 shares of the Company’s common stock at an exercise price of $0.015 per share (the “Warrant
A”); and (iii) a common stock purchase warrant permitting Auctus to purchase up to 100,000,000 shares of the Company’s Common
Stock at an exercise price of $0.015 per share (the “Warrant B”) and together with the Warrant A, the “Warrants”).
As of December 31, 2020, two warrants to purchase an aggregate of 200,00,000 shares was issued and outstanding to Auctus. The fair value
of the warrants was determined to be $1,237,906, which was recorded as origination interest and included in interest expense in the consolidated
statements of operations.
The
Auctus October Note accrues interest at a rate of 12% per annum and matures on October 8, 2021. The Auctus October Note is convertible
into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price shall be the “Market
Price” which is defined as the volume weighted average price for the Common Stock during the 5 trading day period ending on the
latest complete trading day prior to the conversion date.
On
September 28, 2020, the Company entered into a convertible promissory note (“JSJ Note”) with JSJ Investments, Inc., pursuant
to which JSJ purchased from the Company, at a purchase price of $100,000, a 10% Convertible Note in the principal amount of $108,000.
The
JSJ Note accrues interest at a rate of 10% per annum and matures on September 28, 2021. The JSJ Note, plus all accrued but unpaid interest
and other amounts due on the JSJ Note, may be prepaid at any time prior to the maturity date. Upon an event of default, the interest
rate shall increase to 18% for as long as the event of default is continuing (“Default Interest”). At any time on or after
the Maturity Date, the Company may repay the then outstanding principal plus accrued interest and Default Interest, if any, to JSJ.
The
JSJ Note is convertible into shares of the Company’s common stock at any time after 180 days from the issuance date. The conversion
price is 60% multiplied by the lowest trading price for the common stock during the 20 trading day period ending on the latest complete
trading day prior to the date of a conversion notice. As of the date of this prospectus, the entire outstanding principal and accrued
interest has been converted into shares of the Company’s common stock.
On
March 11, 2020, the Company entered into a Securities Purchase Agreement (the “EMA Note”) with EMA Financial, LLC. Pursuant
to the terms of the EMA Note, EMA agreed to purchase from the Company, for a purchase price of $75,000, a 10% Convertible Note in the
principal amount of $85,000.
The
EMA Note accrues interest at a rate of 10% per annum and matures on November 5, 2020. The EMA Note, plus all accrued but unpaid interest
and other amounts due on the EMA Note, may be prepaid at any time prior to the maturity date.
The
EMA Note is convertible into shares of the Company’s common stock. The conversion price shall be the lower of: (i) the lowest closing
price of the common stock during the preceding 20 trading day period ending on the latest complete trading day prior to March 11, 2020,
(ii) $0.04, or (iii) 60% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading days
on which at least 100 shares of common stock were traded including and immediately preceding the conversion date. Additional discounts
to the conversion price and penalties will apply if certain events occur, including if the closing price drops below $0.015, if the Company’s
stock is subject to a DTC chill, or if the EMA Note cannot be converted in free trading shares after 181 days from the issuance date.
Effective
as of September 29, 2020, the Company and EMA entered into an Amendment to the Note (the “EMA Amendment”), pursuant to which
EMA and the Company agreed to amend the issuance date of the EMA Note from March 11, 2020 to September 29, 2020 and to extend the maturity
date of the EMA Note from November 5, 2020 to September 29, 2021.
As
of December 31, 2020, the EMA Note was in default and the parity value of the EMA Note was determined to be $615,134. As a result, the
Company recorded an expense of $530,134, which is included in interest expense in the consolidated statements of operations.
On
January 21, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up January 2021
Note”). Pursuant to the terms of the Power Up January 2021 Note, the lender agreed to purchase from the Company, for a purchase
price of $75,000, a 10% convertible note in the principal amount of $86,350. The Power Up January 2021 Note matures and becomes due and
payable on March 5, 2022 and accrues interest at a rate of 10% per annum. The Power Up January 2021 Note, plus all accrued but unpaid
interest, may be prepaid at any time prior to the maturity date.
The
Power Up January 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
On
March 5, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up March 2021 Note”).
Pursuant to the terms of the Power Up March 2021 Note, the lender agreed to purchase from the Company, for a purchase price of $75,000,
a 10% convertible note in the principal amount of $86,350. The Power Up March 2021 Note matures and becomes due and payable on March
5, 2022 and accrues interest at a rate of 10% per annum. The Power Up March 2021 Note, plus all accrued but unpaid interest, may be prepaid
at any time prior to the maturity date.
The
Power Up March 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
On
May 4, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up May 2021 Note”).
Pursuant to the terms of the Power Up 2021 Note, the lender agreed to purchase from the Company, for a purchase price of $150,000, a
10% convertible note in the principal amount of $169,125. The Power Up 2021 Note matures and becomes due and payable on May 4, 2022 and
accrues interest at a rate of 10% per annum. The Power Up May 2021 Note, plus all accrued but unpaid interest, may be prepaid at any
time prior to the maturity date.
The
Power Up May 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
Stock
Options
As
of August 13, 2021, we have 1,800,000 stock options issued and outstanding. (See “Market for Common Equity and Related Stockholder
Matters—Securities Authorized for Issuance Under Equity Compensation Plans”.)
Transfer
Agent
The
transfer agent for our common stock is Action Stock Transfer. The transfer agent’s address is 2469 E. Fort Union Blvd., Suite 214,
Salt Lake City, UT 84121 and its telephone number is (801) 274-1088.
Anti-Takeover
Effects of Provisions of Delaware State Law
In
general, Delaware corporations are subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder,
with the following exceptions:
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before
such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in
the stockholder becoming an interested holder;
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upon
completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining
the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by
persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer;
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on
or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting
of the stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that
is not owned by the interested stockholder; or
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the
corporation does not have a class of voting stock that is: (i) listed on a national securities exchange; or (ii) held of record by
more than 2,000 stockholders, unless any of the foregoing results from action taken, directly or indirectly, by an interested stockholder
or from a transaction in which a person becomes an interested stockholder
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In
general, Section 203 defines business combination to include the following:
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any
merger or consolidation involving the corporation and the interested stockholder;
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any
sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
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subject
to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
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any
transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series
of the corporation beneficially owned by the interested stockholder; or
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the
receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or
through the corporation.
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Section
203 defines interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation
or any entity or person affiliated with or controlling or controlled by such entity or person.
While
we are currently not subject to the restrictions contained in Section 203, we will become subject to these restrictions if our common
stock is listed on a national securities exchange or we have more than 2,000 stockholders of record of our common stock.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No
expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon
the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common
stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee.
DESCRIPTION
OF BUSINESS
Organizational
History
We
were incorporated in the state of Delaware as Prime Time Travel, Inc. on November 23, 2010, for the purpose of creating and managing
trips to destination locations for youth basketball teams. On August 23, 2012, we filed an Amended and Restated Certificate of Incorporation
with the Delaware Secretary of State to, among other things, change our name from Prime Time Travel, Inc. to LifeApps Digital Media Inc.,
and increase our authorized capitalization to 310,000,000 shares, consisting of 300,000,000 shares of common stock, $0.001 par value
per share, and 10,000,000 shares of blank check preferred stock, $0.001 par value per share.
On
September 5, 2012, we effected a 15-for-1 forward stock split in the form of a dividend to holders of our common stock as of record on
September 4, 2012.
On
September 20, 2012, LifeApps Acquisition Corp., a wholly owned Nevada subsidiary of ours, merged with and into LifeApps Inc., which had
been organized as a California limited liability company on July 13, 2009, and was converted to a Nevada corporation on September 7,
2012 in anticipation of the merger. In connection with the merger, each share of LifeApps Inc. common stock was cancelled and converted
into the right to receive 400 shares of our common stock. LifeApps Inc. was the surviving corporation of that merger. As a result of
the merger, we acquired the business of LifeApps Inc. Immediately following the merger, we split off our wholly owned subsidiary, Prime
Time Split Corp., a Delaware corporation, through the exchange of 6,000,000 shares of our common stock for all of the issued and outstanding
shares of common stock of Prime Time Split Corp. All of our assets and liabilities immediately following the merger, excluding any assets
and liabilities assumed in the merger, were transferred to Prime Time Split Corp.
On
December 31, 2015, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Delaware Secretary
of State to (i) change our name to LifeApps Brands Inc., (ii) effect a one-for-fifteen (1:15) reverse stock split of our common stock,
$0.001 par value per share, and (iii) increase our authorized capitalization from 300,000,000 shares of common stock, par value $0.001
per share, and 10,000,000 shares of blank check preferred stock, par value $0.001 per share, to 500,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. The reverse split and name change took
effect on OTC Markets at the commencement of business on January 7, 2016, at which time our common stock began trading on a post-reverse
split basis.
From
approximately January 1, 2013, through approximately June 1, 2019, we were a licensed developer and publisher of apps for the Apple Apps
Store for iPhone, iPod touch, iPad and iPad mini. We were also a licensed developer on both Google Play and Amazon Appstore for Android.
We distributed apps on all three platforms.
On
January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating a LGBTQ Loyalty Preference
Index (the “Index”) that will provide the LGBTQ community with the power to influence the allocation of capital within the
Index based upon their consumer preferences. The Index is intended to link the economic power of the LGBTQ community with many of the
top companies that support and market their products to the LGBTQ demographic. We also plan to create ancillary businesses that are intended
to complement and support the Index including LGBTQ Loyalty Sponsorship which will be established to promote the Index along with the
companies from around the world that desire to market and advertise directly to LGBTQ consumers. We intend to join forces with some of
the most recognizable LGBTQ community leaders from around the world and have them become LGBTQ Loyalty Sponsorship members. The LGBTQ
Loyalty Sponsorship is expected to incorporate marketing and support of the companies included in the Index. All companies will be offered
the opportunity to purchase LGBTQ Loyalty Sponsorship packages. We also plan to develop a digital media network that will specialize
in targeting highly sought-after niche demographic audiences. In that regard, we intend to focus on two core businesses, an LGBTQ Advertising
Network and an LGBTQ Media Network. Through our digital platform, we expect to aggregate content from around the world. We also intend
to create original content along with sponsored content in a 24/7 digital network. The LGBTQ Advertising Network is intended to assist
brands in global targeting of the LGBTQ demographic. The LGBTQ Advertising Network is expected to provide advertisers and brands with
over 300 mainstream digital platforms and access to this loyal, affluent and ever-expanding audience. We intend to deliver to our audience
relevant sponsored content marketing message across all spectrums of digitally connected devices. We believe that our unique value proposition
to our audience and sponsors will be the ability to deliver aggregated and original content, with emphasis on interactive content and
captive video.
On
January 24, 2019 we filed a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock with the Delaware
Secretary of State to create a series of preferred stock designated Series A Convertible Preferred Stock consisting of one share. The
share of Series A Convertible Preferred Stock was issued to Maxim Partners, LLC, a New York limited liability company, in connection
with the January 25, 2019 Securities Exchange Agreement described below.
On
January 25, 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement with LGBT Loyalty LLC, and Maxim
Partners, LLC, pursuant to which we acquired all of the membership interests of LGBT Loyalty LLC, making LGBT Loyalty LLC a wholly owned
subsidiary of ours, in exchange for 120,959,996 shares of our restricted common stock and one share of our Series A Convertible Preferred
Stock. The common stock issued to Maxim Partners, LLC represented, upon issuance, 49.99% of our then issued and outstanding shares of
common stock. Effective March 26, 2019, the share of Series A Convertible Preferred Stock was converted into 8,598,578 shares of our
common stock.
On
March 26, 2019, we filed a Certificate of Amendment to our Certificate of Incorporation to increase our authorized capitalization from
500,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $0.001 per share,
to 1,000,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $0.001 per share.
On
April 3, 2019 we filed a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock with the Delaware
Secretary of State to create a class of preferred stock, $0.001 par value per share, designated Series B Convertible Preferred Stock
and authorized the issuance of up to 1,500,000 shares of Series B Convertible Preferred Stock. The Series B Preferred Stock has no voting,
liquidation or other rights other than the right to receive dividends and to convert into shares of our common stock. (See – “Description
of Securities—Preferred Stock”) Effective April 3, 2019, we issued 125,000 shares of our Series B Convertible Preferred Stock
to five persons at a price of $1.00 per share or an aggregate of $125,000.
On
April 25, 2019, we filed a Certificate of Amendment to our Certificate of Incorporation with the Delaware Secretary of State to change
our name from LifeApps Brands Inc. to LGBTQ Loyalty Holdings, Inc.
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 class of preferred stock, $0.001 par value per share, designated
Series C Convertible Preferred Stock and authorized the issuance of up to 129,559 shares of Series C Convertible Preferred Stock. On
June 4, 2019, all of the 129,559 shares of Series C Convertible Preferred Stock were issued to Pride Partners, LLC, the assignee and
an affiliate of Maxim Partners LLC. The Series C Convertible Preferred Stock has no voting or other rights other than the right to receive
dividends on a pari passu basis with holders of our common stock, the right to receive assets in the event of liquidation, dissolution
or winding up on a pari passu basis with holders of our common stock and the right to convert into common stock. (See - “Description
of Securities”)
On
June 4, 2019, we entered into and closed a Securities Purchase Agreement with Pride Partners, LLC pursuant to which for a purchase price
of $500,000, Pride Partners, LLC 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. Pursuant to the Securities Purchase Agreement,
Pride Partners, LLC was given an 18 month right of first refusal to participate in up to 50% of any subsequent financings by us. The
Securities Purchase Agreement also provides that without the prior written consent of Pride Partners, LLC, from June 4, 2019 until the
earlier of (i) September 4, 2020 and (ii) the date on which the Debenture has been converted or paid in full, neither we nor any subsidiary
of ours may issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of our common stock
or common stock equivalents, except for Exempt Issuances (as such term is defined in the Securities Purchase Agreement), unless 50% of
the proceeds from such issuance are used towards an Optional Redemption (as such term is defined in the Debenture) of the Debenture pursuant
to the terms thereof, provided further, however, that at such time that all of the Registrable Securities (as such term is defined in
the June 4, 2019 Registration Rights Agreement (the “Registration Rights Agreement”) between us and Pride Partners, LLC)
have been registered, only 10% of the proceeds from such issuance need to be used towards an Optional Redemption. The Securities Purchase
Agreement further provides that, without the written consent of Pride Partners, LLC, from June 4, 2019 through the date on which Pride
Partners, LLC no longer holds any Warrants, we shall be prohibited from effecting or entering into any agreement to effect any issuance
by us or any of our subsidiaries of common stock or common stock equivalents involving a variable rate transaction except for Exempt
Issuances (as such term is defined in the Securities Purchase Agreement).
Our
Brand
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 and 2020 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 Advancing Equality Preference
Inc., and through our strategic partnerships for new potential financial equality-driven Indices.
New
initiatives in 2021 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 Q2-2021.
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 on our website.
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.
Intellectual
Property
The
following Trademark applications have been filed with the US Patent and Trademark Office:
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Application
serial no. 90322860
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Application
serial no. 90324408
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●
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Application
serial no. 90324642
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●
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Application
serial no. 90324689
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Government
Regulation
We
are subject to a number of domestic and foreign laws and regulations that affect our business. Not only are these laws constantly evolving,
which could result in them being interpreted in ways that could harm our business, but legislation is also continually being introduced
that may affect both the content of our products and their distribution.
Further,
because our services are available worldwide, certain foreign jurisdictions and others may claim that we are required to comply with
their laws, including in jurisdictions where we have no local entity, employees or infrastructure.
Employees
As
of August 13, 2021, 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.
DESCRIPTION
OF PROPERTY
Our
principal executive office is located 4235 Dixie Highway, Wilton Manors, FL 33305 and our telephone number is (954) 947-6133. The property
is currently being rented on a month to month basis at a rate of $250 per month. We do not own any real estate.
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.
MARKET
PRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common
Stock
Our common stock is not traded on any exchange but
is currently available for trading in the over-the-counter market and is quoted on the OTC Pink operated by OTC Markets Group, Inc. under
the symbol “LFAP”. We have applied for admission to the OTCQB on July 19, 2021. While we believe that we will qualify
for quotation on the OTCQB we cannot assure you that our common stock will, in fact, be quoted on the OTCQB and, further, when we will
receive such qualification. Trading in stocks quoted on these markets is often thin and is characterized by wide fluctuations in
trading prices due to many factors that may have little to do with a company’s operations or business prospects. The SEC also has
rules that regulate broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities listed on certain national exchanges, provided that the current
price and volume information with respect to transactions in that security is provided by the applicable exchange or system). The penny
stock rules require a broker/dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver
a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing before effecting the transaction, and must be given to the customer in
writing before or with the customer’s confirmation. These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for shares of our common stock. As a result of these rules, investors may find it difficult
to sell their shares.
Set
forth below are the range of high and low bid quotations for the periods indicated as reported by the OTC Bulletin Board. The market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
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High
$
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Low
$
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June 30, 2021
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0.0896
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|
|
|
0.0060
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March 31, 2021
|
|
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0.0088
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|
|
|
0.0078
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December 31, 2020
|
|
|
0.0061
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|
|
|
0.0052
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September 30, 2020
|
|
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0.0100
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|
|
|
0.0079
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June 30, 2020
|
|
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0.0144
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|
|
|
0.0120
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March 31, 2020
|
|
|
0.0134
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|
|
|
0.0105
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December 31, 2019
|
|
|
0.0349
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|
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0.0320
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September 30, 2019
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0.0980
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0.0702
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June 28, 2019
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0.1000
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|
|
|
0.0850
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Holders
of Record
As
of August 13, 2021, we had 62 holders of record of our common stock. The actual number of stockholders is greater than this number
of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Dividends
We
have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings
for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future, if
at all. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our
financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors
may deem relevant.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction
with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including
our unaudited condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and
2020 and the related notes. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations
section to “us,” “we,” “our,” and similar terms refer to LGBTQ Loyalty Holdings, Inc., a Delaware
corporation. This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current
expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing
of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words
such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,” and similar
expressions are used to identify forward-looking statements.
We caution you that these statements are not guarantees
of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our
control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may
affect our results include, but are not limited to, the risk factors in Item 2.01 in our Annual Report on Form 10-K for the year ended
December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021. 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.
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’.
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 LGBTQ + ESG100 ETF (the “Fund”) launched in May 2021 on the NASDAQ.
The Fund seeks to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index and earns management fees based on
assets under management (“AUM”).
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 and 2020 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 Advancing Equality Preference
Inc., and through our strategic partnerships for new potential financial equality-driven Indices.
New
initiatives in 2021 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 Q4-2021.
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.
Critical
Accounting Policies and Estimates
Going
Concern
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates our
continuation as a going concern. We have incurred losses to date of $18,611,658 and have negative working capital of $6,286,415 as of
June 30, 2021. 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.
Use
of Estimates
The
preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results
may differ from these estimates.
Derivative
Financial Instruments:
The
Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded
derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance
sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results
of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with a
fixed conversion price or floor would be settled first, and interest payable in shares settle next. Thereafter, share settlement order
is based on instrument issuance date – earlier dated instruments settling before later dated. The sequencing policy also considers
contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event
giving rise to the additional shares. The policy includes all shares issuable pursuant to debenture and preferred stock instruments as
well as shares issuable under service and employment contracts and interest on short term loans.
Results
of Operations
Three
months ended June 30, 2021 compared with the three months ended June 30, 2020
There
were no revenues during the three months ended June 30, 2021 or 2020.
The
following is a breakdown of our operating expenses for the three months ended June 30, 2021 and 2020:
|
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
$
|
|
Change
%
|
|
Personnel costs
|
|
$
|
93,121
|
|
|
$
|
284,507
|
|
|
$
|
(191,386
|
)
|
|
|
-67
|
%
|
|
Consulting fees
|
|
|
38,500
|
|
|
|
93,515
|
|
|
|
(55,015
|
)
|
|
|
-59
|
%
|
|
Legal and professional fees
|
|
|
153,527
|
|
|
|
95,347
|
|
|
|
58,181
|
|
|
|
61
|
%
|
|
Sales and marketing
|
|
|
40,500
|
|
|
|
45
|
|
|
|
40,455
|
|
|
|
89840
|
%
|
|
General and administrative
|
|
|
28,392
|
|
|
|
20,736
|
|
|
|
7,655
|
|
|
|
37
|
%
|
|
Depreciation and amortization
|
|
|
6,448
|
|
|
|
6,448
|
|
|
|
-
|
|
|
|
0
|
%
|
|
|
|
$
|
360,488
|
|
|
$
|
500,598
|
|
|
$
|
(140,110
|
)
|
|
|
-28
|
%
|
Personnel
costs include officer salaries and directors’ compensation. The decrease in personnel costs is primarily due to stock compensation
to the board and executives in 2020.
Consulting
fees decreased by $55,015 during the three months ended June 30, 2021, primarily due to limited operations in developing the Index in
2021. Consulting fees represent our efforts to launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF.
Legal
and professional fees increased by $58,181, primarily due to increased legal costs pertaining to our financing activities.
Sales
and marketing costs were $40,500 in the three months ended June 30, 2021 as we began our marketing efforts over the launch of the ETF.
General
and administrative expenses increased by $7,655 in 2021 due to increased operations surrounding the ETF launch.
Depreciation
and amortization expense was $6,448 in the three months ended June 30, 2021, which represents amortization on our index development costs.
The
following is a breakdown of our other income (expenses) for the three months ended June 30, 2021 and 2020:
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change $
|
|
|
Change %
|
|
|
Interest expense
|
|
$
|
(727,642
|
)
|
|
$
|
(376,473
|
)
|
|
|
(351,169
|
)
|
|
|
93
|
%
|
|
Other income
|
|
|
-
|
|
|
|
3,000
|
|
|
|
(3,000
|
)
|
|
|
-100
|
%
|
|
Change in derivative liability
|
|
|
(2,658,949
|
)
|
|
|
442,626
|
|
|
|
(3,101,576
|
)
|
|
|
-701
|
%
|
|
|
|
$
|
(3,386,591
|
)
|
|
$
|
69,154
|
|
|
$
|
(3,455,745
|
)
|
|
|
-4997
|
%
|
Interest
expense increased by $351,169 in the three months ended June 30, 2021, primarily attributable to origination interest and amortization
of debt discount of the newly issued and converted debentures.
Change
in derivative liability includes the mark-to-market adjustment of the derivative liability in connection with our convertible debenture.
Net
loss was $3,747,079 and $431,445 for the three months ended June 30, 2021 and 2020, respectively.
Results of
Operations
Six
months ended June 30, 2021 compared with the six months ended June 30, 2020
There
were no revenues during the three months ended June 30, 2021 and $560 in revenue for 2020.
The
following is a breakdown of our operating expenses for the six months ended June 30, 2021 and 2020:
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change $
|
|
|
Change %
|
|
|
Personnel costs
|
|
$
|
1,389,121
|
|
|
$
|
499,462
|
|
|
$
|
889,653
|
|
|
|
178
|
%
|
|
Consulting fees
|
|
|
71,500
|
|
|
|
168,015
|
|
|
|
(96,515
|
)
|
|
|
-57
|
%
|
|
Legal and professional fees
|
|
|
258,650
|
|
|
|
222,342
|
|
|
|
36,308
|
|
|
|
16
|
%
|
|
Sales and marketing
|
|
|
40,500
|
|
|
|
7,590
|
|
|
|
32,910
|
|
|
|
434
|
%
|
|
General and administrative
|
|
|
56,514
|
|
|
|
70,728
|
|
|
|
(14,214
|
)
|
|
|
-20
|
%
|
|
Depreciation and amortization
|
|
|
12,896
|
|
|
|
12,896
|
|
|
|
-
|
|
|
|
0
|
%
|
|
|
|
$
|
1,829,181
|
|
|
$
|
981,033
|
|
|
$
|
848,148
|
|
|
|
86
|
%
|
Personnel
costs include officer salaries and directors’ compensation. The increase in personnel costs is primarily due to $1,141,666 in stock
compensation for shares issued to the board and executives in March 2021.
Consulting
fees decreased by $96,515 during the six months ended June 30, 2021, primarily due to limited operations in developing the Index in 2021.
Legal
and professional fees increased by $36,308, primarily due to increased legal costs in 2021 pertaining to our financing activities.
Sales
and marketing costs increased by $32,910 in 202 as we began our marketing efforts over the launch of the ETF.
General
and administrative expenses decreased by $14,214 due to our cost cutting measures in our operations.
Depreciation
and amortization expense was $12,986 in the six months ended June 30, 2021, which represents amortization on our index development costs.
The
following is a breakdown of our other income (expenses) for the six months ended June 30, 2021 and 2020:
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change $
|
|
|
Change %
|
|
|
Interest expense
|
|
$
|
(1,289,328
|
)
|
|
$
|
(737,312
|
)
|
|
|
(552,016
|
)
|
|
|
75
|
%
|
|
Other income
|
|
|
-
|
|
|
|
3,000
|
|
|
|
(3,000
|
)
|
|
|
-100
|
%
|
|
Change in derivative liability
|
|
|
(2,245,976
|
)
|
|
|
324,872
|
|
|
|
(2,570,848
|
)
|
|
|
-791
|
%
|
|
|
|
$
|
(3,535,304
|
)
|
|
$
|
(409,440
|
)
|
|
$
|
(3,125,864
|
)
|
|
|
763
|
%
|
Interest
expense increased by $552,016 in the six months ended June 30, 2021, primarily attributable to origination interest and amortization
of debt discount of the newly issued and converted debentures.
Change
in derivative liability includes the mark-to-market adjustment of the derivative liability in connection with our convertible debenture.
Net
loss was $5,364,485 and $1,389,913 for the six months ended June 30, 2021 and 2020, respectively.
Liquidity
and Capital Resources
Historically,
we have been financed through advances from related parties, issuances of convertible debt, and the sale of our common and preferred
stock. Our existing sources of liquidity will not be sufficient for us to implement our business plans. There are no assurances that
we will be able to raise additional capital as and when needed. As of June 30, 2021, we had $179,192 of cash on hand. Based on our current
planned expenditures, we will require approximately $2.5 million over the next 12 months. Our existing sources of liquidity may not be
sufficient for us to implement our continuing business plan. Our need for future capital will be dependent upon the speed at which we
expand our product offerings. There are no assurances that we will be able raise additional capital as and when needed.
As
of June 30, 2021, we had a working capital deficit of $6,863,770 as compared to a working capital deficit of $5,338,865 at December
31, 2020.
During
the six months ended June 30, 2021 and 2020, operations used cash of $519,220 and $727,216, respectively, primarily related to our net
loss partially offset by non-cash charges and cash provided by changes in operating assets and liabilities.
During
the six months ended June 30, 2021 and 2020, net cash used in investing activities was $205,000 and $31,000, respectively. Cash used
in 2021 pertains to the net funds provided to the Fund’s custodian for the ETF launch. Cash used in 2020 is attributable to capitalized
costs pertaining to the development of the LGBTQ100 ESG Index and ETF website.
In
2021, we received $300,000 in proceeds from the issuance of three convertible debentures and repaid notes payable of $1,000. We also
received net proceeds of $574,100 from the issuance of Series D preferred stock. From February to March 2020, we received $175,000 in
proceeds from the issuance of two convertible debentures. In January 2020, we received $47,500 pursuant to a bridge note agreement. We
also received $93,343 from the exercise of warrants.
We
will continue to seek out additional capital in the form of debt or equity under the most favorable terms we can find.
The
Company is currently, and has for some time, been in financial distress. It has no cash resources and current assets and has no ongoing
source of revenue. Management is continuing to address numerous aspects of the Company’s operations and obligations, including,
without limitation, debt obligations, financing requirements, and regulatory compliance, and has taken steps to continue to raise new
debt and equity capital to fund the Company’s business activities.
The
Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund its business activities
on a going forward basis and regularly evaluates various measures to satisfy the Company’s liquidity needs. Though the Company
actively pursues opportunities to finance its operations through external sources of debt and equity financing, there can be no assurance
that such financing will be available on terms acceptable to the Company, or at all.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We
have had no changes in, and no disagreements with our accountants on accounting and financial disclosure.
DIRECTORS
AND EXECUTIVE OFFICERS
The
Board of Directors elects our executive officers annually. A majority vote of the directors who are in office is required to fill vacancies.
Each director shall be elected for the term of one year, and until his successor is elected and qualified, or until the earlier of his
resignation or removal. Information on our Board of Directors and executive officers is included below. Our executive officers are appointed
annually by our Board of Directors. Our executive officers hold their offices until they resign, are removed by the Board, or their successor
is elected and qualified.
The
following sets forth information about our director and executive officer as of the date of this report:
|
NAME
|
|
AGE
|
|
POSITION
|
|
DATE
FIRST ELECTED OR APPOINTED
|
|
|
|
|
|
|
|
|
|
Robert
Blair
|
|
56
|
|
Chief
Executive Officer
|
|
December
19, 2017
|
|
|
|
|
|
|
|
|
|
Eric
Sherb
|
|
34
|
|
Chief
Financial Officer
|
|
August
1, 2019
|
|
|
|
|
|
|
|
|
|
Jeffrey
Sterling
|
|
50
|
|
Chief
Operating Officer
|
|
September
1, 2020
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
Andrea Breanna
|
|
45
|
|
Director
|
|
July 6, 2021
|
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, Chief Executive Officer
Robert A. Blair, the Company’s founder, has
served as its Chief Executive Officer since January 2018 and as Chief Financial Officer from January 2018 to April 2019. Prior to joining
the Company, Mr. Blair served as the Chief Executive Officer of Multimedia Platforms Inc. (“MPI”), a multimedia, technology
and publishing company from January 2015 until May 2016 and served as its Chairman from May 2016 to December 2017. From 1975 to 1988,
Mr. Blair played competing junior, collegiate and professional tennis, from 1990 to 1992, he served as the General Manager & Head
Coach for Billie Jean King and World Team Tennis and from 1990 to 1990 he started up and led a tennis academy. In 1992, Mr. Blair started
a home development company, Blair Investment Properties, Inc., which still exists through today. Mr. Blair brings to us a rich history
in professional tennis, sports management and directing digital media platforms. 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. We believe that Robert A. Blair is qualified to serve on our board of directors based upon his entrepreneurial
background, his commitment to the LGBTQ community and his significant marketing and management experience.
Eric
Sherb, Chief Financial Officer
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.
Jeffrey
Sterling, Chief Operating Officer
Jeff Sterling is a high-profile and charismatic
entrepreneur, business leader, philanthropist and community organizer whose substantive contributions to the LGBTQ community have earned
him widespread recognition and praise in South Florida. From October 2008 to the present, he has been the Chief Managing Partner of Sterling
Holdings and affiliated entities, a group of companies headquartered in the LGBTQ mecca of Wilton Manors, whose services include tax
preparation, accounting, tax planning, corporate management, CFO services, real estate sales and property management. As an experienced
outsourced CFO to multiple South Florida-based companies over the past ten years, Jeff has financially managed and operated several private
and public micro-cap entities. This has provided him with an extensive understanding of the SEC regulatory requirements and compliance
for publicly traded companies. Jeff also serves as the principal of the Wilton Manors Entertainment Group, a non-profit partnership that
produces numerous civic and cultural events including the annual Stonewall Pride Festival, one of the largest LGBTQ events in South Florida.
Highly regarded for his business acumen, he is active in numerous other non-profits and sits on the board of Wilton Manors Taste of the
Island, Art Walk Wilton Manors, Wilton Manors Development Alliance and the Wilton Manors Business Association, a 300-member strong business
organization. A native of Fort Wayne, Indiana, he earned his undergraduate degree in Business Management and Administration from Indiana
University in 2001. Prior to relocating to Wilton Manors in 2006, Jeff held management positions and gained invaluable experience in
several sectors including retail, accounting, real estate, property management, and rental services. He has been honored with the Key
to The City of Wilton Manors as well as the Karl Clark community service award in recognition of his outstanding contributions to the
LGBTQ community.
Lawrence
Patrick Roan, Executive 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.
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 Amazon Prime Video 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, Mr. Reece 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, Mr. Reece 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.
Andrea
Breanna, Director
Andrea
Breanna, formerly known as Paul Berry, is currently the CEO of RebelMouse, a creative agency and content management system software company
for enterprise brands and media companies. She also serves on the American Express Consumer Advisory Board and early-stage venture capital
fund Lerer Hippeau Ventures. Prior to founding RebelMouse, Ms. Breanna was the chief technology officer of The Huffington Post. She has
a master’s in technology from NYU’s ITP Program. We believe Ms. Breanna is qualified to serve on our Board of Directors
based upon her work as a transgender person and respected advocate for LGBTQ rights in addition to her significant industry and management
experience.
Family
Relationships
There
are no family relationships among our Directors or Executive Officers.
Involvement
in Certain Legal Proceedings
Except
as described above, none of our directors or executive officers has been involved in any of the following events during the past ten
years:
|
|
●
|
Any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
|
|
●
|
Any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor
offences);
|
|
|
|
|
|
|
●
|
Being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities
or banking activities; or
|
|
|
|
|
|
|
●
|
Being
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Board
Committees
The
Company currently has not established any committees of the Board of Directors. Our Board of Directors may designate from among its members
an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee
charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders.
To date, other than as described above, no security holders have made any such recommendations. The entire Board of Directors performs
all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have
committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities
accordingly.
Audit
Committee Financial Expert
We
have no separate audit committee at this time. The entire Board of Directors oversees our audits and auditing procedures. The Board of
Directors has determined that no director is an “audit committee financial expert” within the meaning of Item 407(d)(5) for
SEC regulation S-K.
Board
of Directors and Corporate Governance
Our
Board of Directors consists of eight members, Robert A. Blair, Lawrence P. Roan, Barney Frank, Billy Bean, Martina Navratilova,
Robert Tull, Orlando Reece and Andrea Breanna.
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.
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.
EXECUTIVE
COMPENSATION
The
following table sets forth information concerning the total compensation paid or accrued by us during the fiscal years ended December
31, 2020 and 2019 to all individuals that served as our principal executive officers.
The
particulars of the compensation paid to the following persons:
|
(a)
|
our
principal executive officer;
|
|
|
|
|
(b)
|
our
principal financial officer;
|
|
|
|
|
(c)
|
each
of our three most highly compensated executive officers who were serving as executive officers at the end of the years ended December
31, 2020 and 2019; and
|
|
|
|
|
(d)
|
up
to two additional individuals for whom disclosure would have been provided under (c) but for the fact that the individual was not
serving as our executive officer at the end of the years ended December 31, 2020 and 2019,
|
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 ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
A. Blair, Chief Executive Officer and Director
|
|
|
2020
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
19,366
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
219,366
|
|
|
|
|
|
2019
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
24,391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric
Sherb, Chief Financial Officer
|
|
|
2020
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
|
|
2019
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
28,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Sterling, Chief Operating Officer
|
|
|
2020
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
Outstanding
Equity Awards at December 31, 2020
None.
Director
Compensation
During
the year ended December 31, 2020, we incurred a total of $312,728 in directors’ compensation, including $100,011 in issued stock
awards. In 2020, we issued an aggregate of 12,942,161 shares of common stock to the board of director members, including the Chief Executive
Officer who serves on the board, and in conjunction cancelled 7,000,000 previously issued warrants in 2019. 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.
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. Effective January 1, 2020,
Mr. Blair’s salary was increased to $200,000 per year.
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.
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 August 13, 2021, 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)
|
|
|
Greater than 5% Beneficial Owners
|
|
|
|
|
|
|
|
|
|
Brian Neal
|
|
|
44,322,206
|
|
|
|
6.5
|
%
|
|
Lawrence P. Roan
|
|
|
35,315,899
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Robert A. Blair
|
|
|
27,561,374
|
|
|
|
4.0
|
%
|
|
Eric Sherb
|
|
|
1,556,673
|
|
|
|
0.2
|
%
|
|
Jeffrey Sterling
|
|
|
24,330,000
|
|
|
|
3.6
|
%
|
|
Lawrence P. Roan
|
|
|
35,315,899
|
|
|
|
5.2
|
%
|
|
Barney Frank
|
|
|
22,000,000
|
|
|
|
3.2
|
%
|
|
Billy Bean
|
|
|
22,661,374
|
|
|
|
3.3
|
%
|
|
Martina Navratilova
|
|
|
22,661,374
|
|
|
|
3.3
|
%
|
|
Robert Tull
|
|
|
22,648,333
|
|
|
|
3.3
|
%
|
|
Orlando Reece
|
|
|
21,148,174
|
|
|
|
3.2
|
%
|
|
Andrea Breanna
|
|
|
0
|
|
|
|
0
|
|
|
All directors and executive officers as a group (10 persons)
|
|
|
199,883,201
|
|
|
|
29.3
|
%
|
|
(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 July 16, 2021,
are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing
the percentage of any other person.
|
|
(2)
|
Percentages based upon 682,553,402 shares of common
stock outstanding as of August 13, 2021.
|
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, 2020, 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
|
|
|
1,8000,000
|
|
|
|
0.0045
|
|
|
|
2,753,312
|
|
|
Equity
compensation plans not approved by securities holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1,8000,000
|
|
|
|
0.0045
|
|
|
|
2,753,312
|
|
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.
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.
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
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 “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 “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
March 2020, Orlando Reece joined the board in replacement of LZ Granderson. We issued 1,000,000 shares of restricted stock to Mr. Reece
in connection to joining.
During
2020, we issued an aggregate of 12,942,161 shares of common stock to the board members, including the Chief Executive Officer, who serves
on the board.
In
March 2021, we issued an aggregate of 163,330,000 to board members and directors of the Company
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.”
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under
the Delaware General Corporate Law, our directors and officers are not individually liable to us or our stockholders for any damages
as a result of any act or failure to act in their capacity as an officer or director unless it is proven that:
|
|
●
|
His
or her act or failure to act constituted a breach of his or her fiduciary duty as a director or officer; and
|
|
|
|
|
|
|
●
|
His
or her breach of these duties involved intentional misconduct, fraud or a knowing violation of law.
|
Delaware
law allows corporations to provide broad indemnification to its officers and directors. At the present time, our Articles of Incorporation
and Bylaws also provide for broad indemnification of our current and former directors, trustees, officers, employees and other agents.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons,
we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual reports, quarterly reports, current reports and other information with the SEC. You may obtain information on the operation
of the public reference room and their copy charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains registration
statements, reports, proxy information statements and other information regarding registrants that file electronically with the SEC.
The address of the website is http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing to us at 2435
Dixie Highway, Wilton Manors, FL 33305.
We
have filed with the SEC a Registration Statement on Form S-1 under the Securities Act to register the shares offered by this prospectus.
The term “registration statement” means the original registration statement and any and all amendments thereto, including
the schedules and exhibits to the original registration statement or any amendment. This prospectus is part of that registration statement.
This prospectus does not contain all of the information set forth in the registration statement or the exhibits to the registration statement.
For further information with respect to us and the shares we are offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred
to are not necessarily complete, and you should refer to the copy of that contract or other documents filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement at the SEC’s public reference facilities and Internet site
referred to above.
LGBTQ
LOYALTY HOLDINGS, INC.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
179,192
|
|
|
$
|
30,312
|
|
|
Other
receivables
|
|
|
305,000
|
|
|
|
100,000
|
|
|
Other
current assets
|
|
|
6,925
|
|
|
|
20,983
|
|
|
Total
current assets
|
|
|
491,117
|
|
|
|
151,295
|
|
|
Property
and equipment, net
|
|
|
|
|
|
|
-
|
|
|
Intangible
assets, net
|
|
|
66,139
|
|
|
|
78,285
|
|
|
Total
assets
|
|
$
|
557,256
|
|
|
$
|
229,580
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
814,869
|
|
|
$
|
920,569
|
|
|
Accrued
salaries and consulting fees
|
|
|
468,719
|
|
|
|
605,857
|
|
|
Accrued
interest and dividends
|
|
|
313,506
|
|
|
|
226,108
|
|
|
Notes
payable
|
|
|
126,986
|
|
|
|
127,986
|
|
|
Notes
payable to related party
|
|
|
1,800
|
|
|
|
17,885
|
|
|
Convertible
notes payable, net of debt discount
|
|
|
1,897,277
|
|
|
|
1,661,520
|
|
|
Derivative
liability on convertible notes payable
|
|
|
3,154,374
|
|
|
|
1,930,235
|
|
|
Series D preferred
stock
|
|
|
577,356
|
|
|
|
-
|
|
|
Total
liabilities
|
|
|
7,354,887
|
|
|
|
5,490,160
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
Series
A, 1 share designated, no shares issued or outstanding as of June 30, 2021 and December 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
Series
B, 500,000 shares designated, 50,000 shares issued and outstanding as of June 30, 2021 and December
31, 2020, respectively
|
|
|
50
|
|
|
|
50
|
|
|
Series
C, 129,559 shares designated, 76,559 and no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
|
|
|
77
|
|
|
|
130
|
|
|
Series
D, 1,000 shares designated, 550 and no shares issued and outstanding as of June 30, 2021 and December 31, 2020,
respectively
|
|
|
1
|
|
|
|
-
|
|
|
Preferred stock value
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 2,000,000,000 shares authorized, 669,390,677 and 263,725,234 shares issued and outstanding as of June 30,
2021 and December 31, 2020, respectively
|
|
|
669,389
|
|
|
|
263,725
|
|
|
Additional
paid-in capital
|
|
|
11,721,866
|
|
|
|
7,714,704
|
|
|
Accumulated
deficit
|
|
|
(18,614,915
|
)
|
|
|
(13,239,189
|
)
|
|
Total
stockholders’ equity (deficit)
|
|
|
(6,797,631
|
)
|
|
|
(5,260,580
|
)
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
557,256
|
|
|
$
|
229,580
|
|
See
the accompanying notes to the unaudited condensed consolidated financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
560
|
|
|
Cost
of net revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gross
profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
costs
|
|
|
93,121
|
|
|
|
284,507
|
|
|
|
1,389,121
|
|
|
|
499,462
|
|
|
Consulting
fees
|
|
|
38,500
|
|
|
|
93,515
|
|
|
|
71,500
|
|
|
|
168,015
|
|
|
Legal
and professional fees
|
|
|
153,527
|
|
|
|
95,347
|
|
|
|
258,650
|
|
|
|
222,342
|
|
|
Merger
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
40,500
|
|
|
|
45
|
|
|
|
40,500
|
|
|
|
7,590
|
|
|
General
and administrative
|
|
|
28,392
|
|
|
|
20,736
|
|
|
|
56,514
|
|
|
|
70,728
|
|
|
Depreciation
and amortization
|
|
|
6,448
|
|
|
|
6,448
|
|
|
|
12,896
|
|
|
|
12,896
|
|
|
Total
operating expenses
|
|
|
360,488
|
|
|
|
500,598
|
|
|
|
1,829,181
|
|
|
|
981,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(360,488
|
)
|
|
|
(500,598
|
)
|
|
|
(1,829,181
|
)
|
|
|
(980,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(727,642
|
)
|
|
|
(376,473
|
)
|
|
|
(1,289,328
|
)
|
|
|
(737,312
|
)
|
|
Other
income
|
|
|
-
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
3,000
|
|
|
Change
in derivative liability
|
|
|
(2,658,949
|
)
|
|
|
442,626
|
|
|
|
(2,245,976
|
)
|
|
|
324,872
|
|
|
Total
other income (expense), net
|
|
|
(3,386,591
|
)
|
|
|
69,154
|
|
|
|
(3,535,304
|
)
|
|
|
(409,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net
loss
|
|
$
|
(3,747,079
|
)
|
|
$
|
(431,445
|
)
|
|
$
|
(5,364,485
|
)
|
|
$
|
(1,389,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding -basic
and diluted
|
|
|
553,901,386
|
|
|
|
190,052,683
|
|
|
|
432,821,915
|
|
|
|
187,427,874
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
See
the accompanying notes to the unaudited condensed consolidated financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
|
June
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,364,485
|
)
|
|
$
|
(1,389,913
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount and original issue discount
|
|
|
704,007
|
|
|
|
403,267
|
|
|
Change
in fair value of derivative liability
|
|
|
2,245,976
|
|
|
|
(324,872
|
)
|
|
Financing
related costs - debt
|
|
|
460,780
|
|
|
|
257,158
|
|
|
Merger
expenses
|
|
|
-
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
1,218,114
|
|
|
|
213,276
|
|
|
Officer
deferred compensation
|
|
|
-
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
12,896
|
|
|
|
12,896
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
|
-
|
|
|
|
|
|
|
Other
current assets
|
|
|
14,058
|
|
|
|
-
|
|
|
Bank
overdraft
|
|
|
-
|
|
|
|
1,279
|
|
|
Accounts
payable
|
|
|
(105,699
|
)
|
|
|
89,514
|
|
|
Accrued
salaries and consulting fees
|
|
|
201,470
|
|
|
|
304,115
|
|
|
Accrued
interest and dividends
|
|
|
93,663
|
|
|
|
60,250
|
|
|
Net
cash used in operating activities
|
|
|
(519,220
|
)
|
|
|
(373,030
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
|
(205,000
|
)
|
|
|
-
|
|
|
Purchases
of property and equipment
|
|
|
-
|
|
|
|
|
|
|
Investment
in intangible assets
|
|
|
-
|
|
|
|
(31,000
|
)
|
|
Net
cash used in investing activities
|
|
|
(205,000
|
)
|
|
|
(31,000
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible debenture agreements
|
|
|
300,000
|
|
|
|
250,000
|
|
|
Net
proceeds (repayments) from promissory note agreements
|
|
|
(1,000
|
)
|
|
|
47,500
|
|
|
Repayments
of notes payable
|
|
|
(5,000
|
)
|
|
|
(97,514
|
)
|
|
Proceeds
from issuance of Series D preferred stock
|
|
|
574,100
|
|
|
|
-
|
|
|
Proceeds
from exercise of warrants
|
|
|
-
|
|
|
|
93,342
|
|
|
Net
cash provided by financing activities
|
|
|
873,100
|
|
|
|
390,842
|
|
|
Net
increase (decrease) in cash
|
|
|
148,880
|
|
|
|
(13,888
|
)
|
|
Cash
at beginning of period
|
|
|
30,312
|
|
|
|
13,188
|
|
|
Cash
at end of period
|
|
$
|
179,192
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
Conversion
of accrued consulting fees into common shares
|
|
$
|
338,608
|
|
|
$
|
617,750
|
|
|
Conversion
of related party notes payable into common shares
|
|
$
|
16,085
|
|
|
$
|
-
|
|
|
Conversion
of Series C preferred stock into common stock
|
|
$
|
53,000
|
|
|
$
|
-
|
|
|
Exercise
of common stock warrants - derivative liability
|
|
$
|
-
|
|
|
$
|
32,742
|
|
|
Amortization
of preferred stock discount
|
|
$
|
-
|
|
|
$
|
31,820
|
|
|
Dividends
on preferred stock
|
|
$
|
11,241
|
|
|
$
|
10,400
|
|
See
the accompanying notes to the unaudited condensed consolidated financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
|
Series
A
|
|
Series
B
|
|
Series
C
|
|
Series
D
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
263,725,234
|
|
|
$
|
263,725
|
|
|
|
7,714,704
|
|
|
$
|
(13,239,189
|
)
|
|
$
|
(5,260,580
|
)
|
|
Common shares issued in connection with notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in connection with notes
payable, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for accrued services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for accrued services, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger with Maxim Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger with Maxim Partners, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxim exchange agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maxim exchange agreement, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock, net of discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock, net of
discount, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred stock for common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred stock for common shares, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for related party debt conversions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for related party debt conversions, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to note conversions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to note conversions, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to debenture conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to debenture
conversion, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for services performed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for services performed, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued to board of directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with convertible debenture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued to board of directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,000,000
|
|
|
|
140,000
|
|
|
|
980,000
|
|
|
|
-
|
|
|
|
1,120,000
|
|
|
Common
shares issued for services and compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,834,386
|
|
|
|
31,834
|
|
|
|
204,614
|
|
|
|
-
|
|
|
|
236,448
|
|
|
Debenture
conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,538,998
|
|
|
|
37,539
|
|
|
|
318,815
|
|
|
|
-
|
|
|
|
356,354
|
|
|
Conversion
of notes and payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes and payables, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series C preferred stock into common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series C preferred stock into common stock, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock warrants, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B dividend common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B dividend common shares, shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of preferred stock discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,722
|
)
|
|
|
(1,722
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,617,405
|
)
|
|
|
(1,617,405
|
)
|
|
Balances
at March 31, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
473,098,618
|
|
|
$
|
473,098
|
|
|
|
9,218,133
|
|
|
$
|
(14,858,316
|
)
|
|
$
|
(5,166,906
|
)
|
|
Debenture
conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,448,779
|
|
|
|
100,449
|
|
|
|
1,821,061
|
|
|
|
-
|
|
|
|
1,921,510
|
|
|
Conversion
of notes and payables
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,956,004
|
|
|
|
11,956
|
|
|
|
192,408
|
|
|
|
-
|
|
|
|
204,364
|
|
|
Exercise
of warrants
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,887,276
|
|
|
|
30,887
|
|
|
|
(30,887
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Conversion
of Series C preferred stock into common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(53,000
|
)
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
53,000,000
|
|
|
|
53,000
|
|
|
|
(52,947
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Dividends
on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,519
|
)
|
|
|
(9,519
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,747,079
|
)
|
|
|
(3,747,079
|
)
|
|
Balances
at June 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
76,559
|
|
|
$
|
77
|
|
|
|
550
|
|
|
$
|
1
|
|
|
|
669,390,677
|
|
|
$
|
669,390
|
|
|
$
|
11,147,767
|
|
|
$
|
(18,614,915
|
)
|
|
$
|
(6,797,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
Common
shares issued in connection with notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
294,994
|
|
|
|
295
|
|
|
|
9,705
|
|
|
|
-
|
|
|
|
10,000
|
|
|
Common
shares issued for accrued services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,662,312
|
|
|
|
6,662
|
|
|
|
311,338
|
|
|
|
-
|
|
|
|
318,000
|
|
|
Common
shares issued to board of directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
16,800
|
|
|
|
-
|
|
|
|
17,800
|
|
|
Exercise
of common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,170,000
|
|
|
|
4,170
|
|
|
|
121,914
|
|
|
|
-
|
|
|
|
126,084
|
|
|
Amortization
of preferred stock discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,910
|
|
|
|
(15,910
|
)
|
|
|
-
|
|
|
Dividends
on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,588
|
)
|
|
|
(2,588
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(958,468
|
)
|
|
|
(958,468
|
)
|
|
Balances
at March 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
75,000
|
|
|
$
|
75
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
181,344,766
|
|
|
$
|
181,344
|
|
|
|
6,511,211
|
|
|
$
|
(10,054,580
|
)
|
|
$
|
(3,361,820
|
)
|
|
Balance
|
|
|
-
|
|
|
$
|
-
|
|
|
|
75,000
|
|
|
$
|
75
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
181,344,766
|
|
|
$
|
181,344
|
|
|
|
6,511,211
|
|
|
$
|
(10,054,580
|
)
|
|
$
|
(3,361,820
|
)
|
|
Common
shares issued to board of directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,942,161
|
|
|
|
11,942
|
|
|
|
202,652
|
|
|
|
-
|
|
|
|
214,595
|
|
|
Common
shares issued for services and compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,279,273
|
|
|
|
16,279
|
|
|
|
264,353
|
|
|
|
-
|
|
|
|
280,632
|
|
|
Exercise
of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
6,400
|
|
|
|
-
|
|
|
|
10,400
|
|
|
Conversion
of Series B preferred stock for common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
958,333
|
|
|
|
958
|
|
|
|
(933
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Issuance
of Series B dividend common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,216
|
|
|
|
90
|
|
|
|
3,360
|
|
|
|
-
|
|
|
|
3,450
|
|
|
Amortization
of preferred stock discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,910
|
|
|
|
(15,910
|
)
|
|
|
-
|
|
|
Dividends
on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,725
|
)
|
|
|
(1,725
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(431,445
|
)
|
|
|
(431,445
|
)
|
|
Balances
at June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
214,614,749
|
|
|
$
|
214,615
|
|
|
$
|
7,002,953
|
|
|
$
|
(10,503,660
|
)
|
|
$
|
(3,285,912
|
)
|
|
Ending
Balance
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
214,614,749
|
|
|
$
|
214,615
|
|
|
$
|
7,002,953
|
|
|
$
|
(10,503,660
|
)
|
|
$
|
(3,285,912
|
)
|
See
the accompanying notes to the unaudited condensed consolidated financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June
30, 2021
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”) launched in May 2021 on the NASDAQ.
The Fund seeks to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index and earns management fees based on
assets under management (“AUM”).
In
late 2020, LPI was renamed to Advancing Equality Preference, Inc.
Note
2. Summary of Significant Accounting Policies
Going
Concern
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States (“US GAAP”), which contemplates our continuation as a going concern. We have incurred losses
to date of $18,614,915 and
have negative working capital of $6,863,770
as of June 30, 2021. To date we have funded our operations
through advances from a related party, issuance of convertible debt, and the sale of our common stock. We intend to raise additional
funding through third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise
substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern,
realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability
to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Basis
of Presentation
We
have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited
and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation
of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not
necessarily indicative of the results that may be expected for fiscal year 2021. Certain information and footnote disclosures normally
included in condensed consolidated financial statements prepared in accordance with US GAAP have been omitted in accordance with the
rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC. The condensed consolidated balance sheet as
of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date, but does not include
all disclosures, including notes, required by GAAP.
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries,
LGBTQ Loyalty, LLC, and Advancing Equality Preference, Inc. All material inter-company transactions and balances have been eliminated
in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results
may differ from these estimates.
Fair
Value Measurements
ASC
Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), provides a comprehensive framework for measuring fair value
and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value
and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets
for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets
and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on
the New York Stock Exchange.
Level
2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported
date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced
with models using highly observable inputs.
Level
3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts
used to determine the fair value of financial transmission rights and derivative liabilities.
Our
financial instruments consist of cash, other current assets, accounts payables, accruals, and notes payable. The carrying values of these
instruments approximate fair value because of the short-term maturities. The fair value of the Company’s convertible debentures
and promissory notes approximates their carrying values as the underlying imputed interest rates approximates the estimated current market
rate for similar instruments. The derivative is measured as a Level 3 instrument due to the various inputs which requires significant
management judgment. Refer to Note 6 for detail.
The
following table is a summary of our financial instruments measured at fair value:
Schedule of Financial Instruments at Fair Value
|
|
|
Fair Value
Measurements
|
|
|
|
|
as
of June 30, 2021:
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,154,374
|
|
|
$
|
3,154,374
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,154,374
|
|
|
$
|
3,154,374
|
|
|
|
|
Fair Value
Measurements
|
|
|
|
|
as
of December 31, 2020:
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,930,235
|
|
|
$
|
1,930,235
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,930,235
|
|
|
$
|
1,930,235
|
|
Other
Receivables – Related Party
Other
receivables represent amounts held in escrow at the Fund’s custodian. In the second quarter of 2021, the Company retrieved
$100,000 from
the Fund’s custodian, and provided $305,000
related to the ETF launch. As of June 30, 2021,
$305,000 was
in escrow.
Earnings
per Share
We
calculate earnings per share in accordance with ASC Topic 260 Earnings Per Share, which requires a dual presentation of basic
and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during
the fiscal year. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive effect of
outstanding stock options and warrants. The diluted earnings per share were not calculated because we recorded net losses for the three
and six months ended June 30, 2021 and 2020, and the outstanding stock options and warrants are anti-dilutive. For the three and six
months ended June 30, 2021 and 2020, the following number of potentially dilutive shares have been excluded from diluted net loss since
such inclusion would be anti-dilutive:
Schedule of Anti-dilutive Securities Excluded from Diluted Net Loss
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Series D preferred stock
|
|
|
67,826
|
|
|
|
-
|
|
|
Stock options outstanding
|
|
|
1,800,000
|
|
|
|
1,800,000
|
|
|
Warrants
|
|
|
204,946,057
|
|
|
|
-
|
|
|
Shares to be issued upon conversion of notes
|
|
|
203,651,096
|
|
|
|
173,870,349
|
|
|
|
|
|
410,464,979
|
|
|
|
175,670,349
|
|
Recent
Pronouncements
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until
a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Note
3. Intangible Assets
The
Company capitalizes costs pertaining to the development of the LGBTQ100 ESG Index website. The Company began amortizing these costs
upon the launch of the index, and will amortize the costs over a three-year useful life.
At
June 30, 2021 and December 31, 2020, intangible assets, net was $66,139
and $78,285,
respectively. Amortization expense was $6,448
and $12,895
for both the three and six months ended June
30, 2021 and 2020, respectively.
Note
4. Notes Payable
As
of June 30, 2021 and December 31, 2020, the Company has a note payable outstanding in the amount of $1,986
and $2,986,
respectively. The note is past due at June 30, 2021 and is, therefore, in default. The note accrues interest at a rate
of 2%
per annum. During the six months ended June 30,
2021, the Company repaid $1,000
pertaining to this note.
In
December 2019, the Company issued a promissory note to Pride Partners LLC (“Pride”) for $75,000. The note is secured, accrues
interest at a rate of 10% per annum, and matured on June 20, 2020. As of June 30, 2021, the full principal amount was outstanding and
in default.
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.
Note
5. Convertible Notes Payable
On
January 21, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up January 2021
Note”). Pursuant to the terms of the Power Up January 2021 Note, the lender agreed to purchase from the Company, for a purchase
price of $75,000, a 10% convertible note in the principal amount of $86,350. The Power Up January 2021 Note matures and becomes due and
payable on March 5, 2022 and accrues interest at a rate of 10% per annum. The Power Up January 2021 Note, plus all accrued but unpaid
interest, may be prepaid at any time prior to the maturity date.
The
Power Up January 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
On
March 5, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up March 2021 Note”).
Pursuant to the terms of the Power Up March 2021 Note, the lender agreed to purchase from the Company, for a purchase price of $75,000,
a 10% convertible note in the principal amount of $86,350. The Power Up March 2021 Note matures and becomes due and payable on March
5, 2022 and accrues interest at a rate of 10% per annum. The Power Up March 2021 Note, plus all accrued but unpaid interest, may be prepaid
at any time prior to the maturity date.
The
Power Up March 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
On
May 4, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up May 2021 Note”).
Pursuant to the terms of the Power Up 2021 Note, the lender agreed to purchase from the Company, for a purchase price of $150,000, a
10% convertible note in the principal amount of $169,125. The Power Up 2021 Note matures and becomes due and payable on May 4, 2022 and
accrues interest at a rate of 10% per annum. The Power Up May 2021 Note, plus all accrued but unpaid interest, may be prepaid at any
time prior to the maturity date.
The
Power Up May 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
During
the three and six months ended June 30, 2021, the Company recorded amortization of debt discount and original issue discount of
$364,877
and $582,631,
respectively, for all convertible debentures. During the three and six months ended June 30, 2020, the Company recorded amortization
of debt discount and original discount of $201,028
and $403,267,
respectively, for all convertible debentures. This amount is included in interest expense in our consolidated statements of operations.
The
following is a summary of the activity of the convertible notes payable and convertible debenture for the six months ended June 30, 2021:
Summary of Activity of Convertible Notes Payable and Convertible Debenture
|
|
|
Convertible
|
|
|
|
|
Debenture
|
|
|
Balance as of December 31, 2020
|
|
$
|
1,661,520
|
|
|
Issuance of convertible
debenture - principal amount
|
|
|
341,825
|
|
|
Issuance of convertible
debenture - debt discount and original issue discount
|
|
|
(341,825
|
)
|
|
Amortization of debt discount
and original issue discount
|
|
|
582,631
|
|
|
Conversion
to common stock, net of discount
|
|
|
(346,874
|
)
|
|
Balance as of June 30, 2021
|
|
$
|
1,897,277
|
|
The
following comprises the balance of the convertible debenture outstanding at June 30, 2021 and December 31, 2020:
Schedule of Balance Convertible Debenture Outstanding
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Principal amount outstanding
|
|
$
|
2,304,602
|
|
|
$
|
2,458,024
|
|
|
Less: Unamortized original issue discount
|
|
|
(55,271
|
)
|
|
|
(94,857
|
)
|
|
Less: Unamortized debt
discount
|
|
|
(352,053
|
)
|
|
|
(701,647
|
)
|
|
Convertible note payable,
net of debt discount
|
|
$
|
1,897,277
|
|
|
$
|
1,661,520
|
|
At
December 31, 2020, convertible notes payable includes a balance of $615,134 pertaining to a parity default penalty booked in 2020. The
EMA Note has an original principal of $85,000. In the second quarter of 2021, EMA converted $180,447 in principal for shares of common
stock, with an outstanding principal balance of $434,687 as of June 30, 2021. The Company is currently settling the remaining note into
shares and warrants to be issued to EMA, and expects the ultimate value to be less than the stated balance included in the consolidated
balance sheet.
Note
6. Derivative Liability
We
evaluated the terms of the conversion features of each of the outstanding convertible debentures in accordance with ASC Topic No. 815
- 40, Derivatives and Hedging - Contracts in Entity’s Own Stock, and determined they are indexed to the Company’s
common stock and that the conversion features meet the definition of a liability. Therefore, we bifurcated the conversion feature and
accounted for it as a separate derivative liability.
To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events.
Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and
derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the
actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting
in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
We
value the conversion feature at origination of the notes using the Black-Scholes valuation model. We
value the derivative liability at the end of each accounting period, and upon conversion of the underlying note or warrant, with the
difference in value recognized as gain or loss included in other income (expense) in our consolidated statements of operations.
The
original debentures had conversion features that resulted in derivative liabilities. We valued the conversion features at each origination
date with the following assumptions, on a weighted-average basis:
Schedule of Conversion Feature of Derivative Liability
|
|
|
Six Months
Ended
|
|
|
|
|
June
30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Risk-free interest rate
|
|
|
0.09
|
%
|
|
|
0.78
|
%
|
|
Expected term (in years)
|
|
|
1.00
|
|
|
|
0.90
|
|
|
Expected volatility
|
|
|
237.4
|
%
|
|
|
161.9
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Exercise price of underlying common shares
|
|
$
|
0.004
|
|
|
$
|
0.01
|
|
During
the six months ended June 30, 2021, the entire value of the principal of the debentures were assigned to the derivative
liability and recognized as a debt discount on the convertible debentures. The debt discount is recorded as reduction (contra-liability)
to the debentures and are being amortized over the initial term. The balance of $460,780 was recognized as origination interest on the
derivative liability and expensed on origination. In accordance with the Company’s sequencing policy, shares issuable pursuant
to the convertible debentures would be settled subsequent to the Company’s Series B preferred stock.
The
following is a summary of the activity of the derivative liability for the six months ended June 30, 2021:
Schedule of Derivative Liability Activity
|
|
|
Derivative
|
|
|
|
|
Liability
|
|
|
Balance as of December 31, 2020
|
|
$
|
1,930,235
|
|
|
Initial fair value on issuance
of convertible debenture
|
|
|
760,740
|
|
|
Conversion of debenture
to common stock
|
|
|
(1,782,577
|
)
|
|
Change
in fair value of derivative liability
|
|
|
2,245,976
|
|
|
Balance as of June 30, 2021
|
|
$
|
3,154,374
|
|
Note 7. Preferred Stock
Series
D Convertible Preferred Stock
On
April 8, 2021, the Company issued 400 shares of Series D Convertible Preferred Stock (the Series D Preferred Stock”) to GHS
Investments, LLC (“GHS”) pursuant to a Securities Purchase Agreement (“GHS April
Agreement”) for net proceeds of $427,600. In conjunction with the GHS Agreement, the Company issued warrants to purchase 40,000,000
shares of common stock at an exercise price of $0.001.
On
May 12, 2021, the Company issued 150 shares of Series D Preferred Stock to GHS Investments, LLC pursuant to a Securities Purchase Agreement
(“GHS May Agreement”) for net proceeds of $146,500. In conjunction with the GHS Agreement, the Company issued warrants to
purchase 1,500,000 shares of common stock at an exercise price of $0.001.
Notwithstanding,
on June 23, 2021, GHS and the Company entered into a Rescission Agreement (the “Rescission Agreement”) pursuant to which
the Company and GHS agreed to rescind, ab initio, the issuances of Warrants to GHS. Pursuant to the Rescission Agreement, GHS and the
Company agreed that the issuance of the Warrants are unconditionally and irrevocably rescinded ab initio by GHS and the Company, and
the Warrants are neither valid nor effective in any manner whatsoever. Further, GHS and the Company acknowledged that each has been restored
to the position in which such party found itself on the date that the respective GHS Agreement was executed but without any references,
rights or obligations relative to the Warrants contained in, or otherwise granted in, either the GHS Agreements or the Warrants. As a
result, GHS has no rights whatsoever to the Warrants and the Company has no rights whatsoever to the any exercise price that it may have
received pursuant to the Warrants. In connection with the execution and delivery of the Rescission Agreement, the Company and GHS entered
into two (2) Amended and Restated Purchase Agreements which each seek to amend and restate the terms and conditions contained in the
April Agreement and the May Agreement.
In
connection with the issuance of the Series D Preferred Stock, on April 7, 2021 and May 12, 2021, we filed a Certificates of Designation
of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”) with the Delaware Secretary
of State to create a new class of preferred stock, $0.001 par value per share, designated Series D Convertible Preferred Stock and authorized
the issuance of up to one thousand (1,000) shares of Series D Preferred Stock.
The
Series D Preferred Stock has a stated value of $1,200 per share (“Stated Value”) and the holder of the Series D Preferred
Stock has the right to receive a dividend equal to eight percent (8%) per annum, payable quarterly, beginning on the issuance date of
the Series D Preferred Stock and ending on the date that Series D Preferred Share has been converted or redeemed. Dividends may be paid
in cash or in shares of Series D Preferred Stock at the discretion of the Company. Further, the holders of the Series D Preferred Stock
has the right to receive assets in the event of liquidation, dissolution or winding up before any distribution or payment shall be made
to the holders of any securities junior to the Series D Preferred Stock.
The
conversion price (the “Conversion Price”) for the Series D Preferred Stock shall be $0.008109, equal to 90% of the average
VWAP for the ten (10) Trading Days immediately preceding the date of the SPA. The Conversion Price will be appropriately adjusted for
any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases
the Common Stock. Following an “Event of Default,” as defined in the SPA, the Conversion price shall equal the lower of:
(a) the then applicable Conversion Price; or (b) a price per share equaling eighty percent (80%) of the lowest traded price for the Company’s
common stock during the fifteen (15) Trading Days immediately preceding, but not including, the Conversion Date.
Each
share of Series D Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof, into that number
of shares of Common Stock (subject in each case to a 4.99% beneficial ownership limitation) determined by dividing the Stated Value of
such share of Series D Preferred Stock by the Series D Preferred Stock Conversion Price.
Additionally,
the Company shall have the right to redeem (a “Corporation Redemption”), all (but not less than all), shares of the Series
D Preferred Stock issued and outstanding at any time after the issuance date, upon five (5) business days’ notice, at a redemption
price per Series D Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the product
of (i) the Premium Rate multiplied by (ii) the sum of (x) the Stated Value, (y) all accrued but unpaid dividends, and (z) all other amount
due to the holder pursuant to the Series D COD and the SPA including, but not limited to late fees, liquidated damages and the legal
fees and expenses of the holder’s counsel relating to the Series D COD and/or the SPA. “Premium Rate” means (a) 1.15
if all of the Series D Preferred Stock is redeemed within ninety (90) calendar days from the issuance date thereof; (b) 1.2 if all of
the Series D Preferred Stock is redeemed after ninety (90) calendar days and within one hundred twenty (120) calendar days from the issuance
date thereof; (c) 1.25 if all of the Series D Preferred Stock is redeemed after one hundred twenty (120) calendar days and within one
hundred eighty (180) calendar days from the issuance date thereof; and (iv) each share of Series D Preferred Stock shall be redeemed
on the date that is one (1) calendar year from the date of its issuance.
On
the one-year anniversary of the date of issuance of the Preferred Stock, the Company must redeem the Preferred Stock then outstanding
at a price equal to the outstanding Stated Value together with any accrued but unpaid dividends.
Pursuant
to the Series D COD, we are required to reserve and keep available out of our authorized and unissued shares of Common Stock two times
the number of Common Stock needed to convert or exercise all Series D Preferred Stock. Further, the holders of the Series
D Preferred Stock are entitled to vote with all holders of the Common Stock on an as converted or as exercised basis.
The
Series D COD provides for conversion price adjustments in the event of stock dividends, stock splits and similar transactions. It also
provides for certain adjustments in connection with subsequent rights offerings, pro rata distributions to holders of our Common Stock
and fundamental transactions. Additionally, from the date of the SPA until the date when the holder no longer holds any Series D Preferred
Stock, upon any issuance by the Company or any of its subsidiaries of Common Stock or common stock equivalents (as defined in the Series
D COD) for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the holder may
elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of Series D Preferred Stock
then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis.
Following
an “Event of Default” (as defined in the Series D COD), all outstanding shares of Series D Preferred Stock shall come immediately
due for redemption and the redemption amount shall accrue interest at the lesser of: (a) eighteen percent (18%) per annum; or (b) the
maximum legal rate. Redemption following an Event of Default shall occur at an amount equaling: 1.35 multiplied by the sum of the Stated
Value, all accrued but unpaid dividends and all other amounts due pursuant to the Series D COD for all Series D Preferred Stock outstanding.
Additionally, following an Event of Default, the Conversion Price shall equal the lower of: (a) the then applicable conversion price;
or (b) a price per share equaling eighty percent (80%) of the lowest traded price for the Company’s Common Stock during the fifteen
(15) trading days preceding the relevant conversion.
The
Series D Preferred Stock will vote together with the common stock on an as-converted basis subject to the Beneficial Ownership Limitation
(as defined in the Series D COD). However, as long as any shares of Series D Preferred Stock are outstanding, the Company shall not,
without the affirmative vote of the holders of a majority of the then outstanding shares of the Series D Preferred Stock directly and/or
indirectly (a) alter or change adversely the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the
Series D COD, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined
in the Series D COD) senior to, or otherwise pari passu with, the Series D Preferred Stock or, authorize or create any class of stock
ranking as to dividends senior to, or otherwise pari passu with, the Series D Preferred Stock, (c) amend its Articles of Incorporation
or other charter documents in any manner that adversely affects any rights of the Holders (as defined in the Series D COD), (d) increase
the number of authorized shares of Series D Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Due
to the mandatorily redeemable features, the Series D preferred stock was classified as a liability pursuant to ASC 480-10. The Company
recorded a debt discount of $15,900, of which $3,256 was amortized to interest expense in the three months ended June 30, 2021. The Company
also determined that the conversion option represented a beneficial conversion feature, however calculated the fair value of this feature
to be negligible.
As
of June 30, 2021, we had $9,159 in accrued Series D dividends.
Note
8. Stockholders’ Equity (Deficit)
Common
Stock
2021
Transactions
In
March 2021, an aggregate of 140,000,000 shares of common stock were issued to the board members for accrued dividends as well as current
compensation the year ended December 31, 2021. Of these shares issuances, $961,666 is included in personnel costs in the consolidated
statements of operations.
In
March 2021, an aggregate of 31,834,386 shares of common stock were issued to employees and consultants for accrued and current consulting
services for a total fair value of $236,448.
In
June 2021, an aggregate of 11,956,004 shares of common stock were issued pursuant to conversion of balances owed to a related party and
accrued consulting services totaling $204,364.
In
June 2021, Auctus exercised 30,887,276 warrants into shares of common stock.
During
the six months ended June 30, 2021, Pride converted 53,000 shares of Series C preferred stock for 53,000,000 shares of common stock.
During
the six months ended June 30, 2021, the Company issued 137,987,777 shares of common stock pursuant to conversion of debentures in the
principal amount of $495,247.
2020
Transactions
In
January 2020, we issued 294,994 shares of common stock to a bridge noteholder in connection with promissory notes received.
During
the six months ended June 30, 2020, we issued an aggregate of 10,052,318 shares of common stock to consultants for 2019 services which
were accrued at a fair value of $459,417.
In
March 2020, we issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the Board of Directors.
In
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation.
In
April 2020, we issued 90,216 shares and 958,333 shares of common stock to a Series B Preferred Stock investor for accrued dividends and
conversion of 25,000 shares of the Series B Preferred Stock.
In
May 2020, we issued an aggregate of 12,889,267 shares of common stock to executives, officers and consultants for services rendered for
a total fair value of $139,215.
In
June 2020, two option holders exercised their outstanding options for a total of 4,000,000 shares of common stock at an exercise price
of $0.0026. The value of $10,400 was converted from outstanding accounts payable.
During
the six months ended June 30, 2020, we issued an aggregate of 4,170,000
shares of common stock to Pride Partners pursuant
to warrant exercises. Refer to Note 9.
Series
B Convertible Preferred Stock
As
of June 30, 2021, we had $13,800 in remaining accrued Series B dividends.
Series
C Convertible Preferred Stock
During
the quarter ended June 30, 2021, Pride converted 53,000 shares of Series C preferred stock for 53,000,000 shares of common stock. As
of June 30, 2021, there were 76,559 shares of Series C preferred stock issued and outstanding.
The
stated value of each share of Series B Convertible Preferred Stock for purposes of conversions and dividends is $1.15 (the “Conversion/Dividend
Stated Value”). The stated value of each share of Series B Convertible Preferred for purposes of redemptions is $1.35 (the “Redemption
Stated Value”). On April 3, 2019 we received an aggregate of $125,000 from the issuance of 125,000 shares of the Series B Convertible
Preferred Stock. Each $25,000 of the preferred stock is convertible into $28,750 worth of common stock. The discount between the $28,750
and $25,000 for each $25,000 investment has been recognized and amortized. Additionally, the Preferred Stock contains a Beneficial Conversion
Feature (BCF) that has been recognized. The BCF is the difference between the conversion price and the market price at inception multiplied
by the number of common shares into which the Preferred Stock is convertible. The BCF is also treated as a discount on the Preferred
Stock, which is amortized over the life of the instrument. Amortization of the discount will continue through April 3, 2021 and amounted
to $36,412 for the year ended December 31, 2019. Subject to earlier conversion or redemption, the Series B Preferred Stock will automatically
convert into fully paid and non-accessible shares of our common stock 24 months following the date of issuance of such Series B Preferred
Stock without any action or payment required on the part of the holder of the Series B Convertible Preferred Stock. Subject to a floor
price limitation of $0.03 per share, the automatic conversion price to which the Conversion/Dividend Stated Value will be applied will
be the lower of (i) $0.10 per share of common stock; or (ii) a 20% discount to the lowest volume weighted average price (“VWAP”)
for our common stock on our principal trading market during the five (5) trading days immediately prior to the automatic conversion date.
Note
9. Options and Warrants
Options
As
of June 30, 2021 and December 31, 2020, we had 1,800,000 options remaining outstanding pursuant to the 2012 Equity Incentive Plan.
There
was no stock based compensation expense for options for the six months ended June 30, 2021 and 2020. There will be no additional compensation
expense recognized in future periods.
Warrants
As
of June 30, 2021 and December 31, 2020, we had 204,946,057 and 235,833,333 warrants outstanding, respectively, with a weighted average
exercise price of $0.02 per share. In June 2021, Auctus exercised 30,887,276 warrants into shares of common stock.
Note
10. Related Party Transactions
Parties,
which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also
considered to be related if they are subject to common control or common significant influence.
Notes
Payable to Related Party
Notes
payable to related parties at June 30, 2021 and December 31, 2020 totaled $1,800 and $17,885, respectively, with a 2% annual interest
rate. In June 2021, the Company converted $16,085 of a related party note payable into shares of common stock.
Currently
the Company has defaulted on all of their remaining related party loan obligations. Forbearance has been granted by the related parties
on all loans.
Accrued
Salaries and Compensation
As
of June 30, 2021 and December 31, 2020, accrued salaries to our company officers and executive director totaled $319,735 and $299,732,
respectively and is included in accrued salaries and consulting fees in our consolidated balance sheets.
In
March 2021, we issued 200,000,000 shares of common stock to the Chief Operating Officer for a total fair value of $160,000.
Board
of Directors
In
March 2021, we issued 20,000,000 shares of common stock to each of the seven board members, including the Chief Executive Officer, for
an aggregate of 140,000,000 shares. Of these share issuances, $961,666 is included in personnel costs in the consolidated statements
of operations and the remaining $138,334 was converted from accrued salaries and consulting fees.
Total
accrued directors’ compensation of $0 and $94,584 at June 30, 2021 and December 31, 2020, respectively, is included in accrued
salaries and consulting fees on our consolidated balance sheets.
A
board member is the co-founder and president of ProcureAM, LLC, the fund advisor for the Fund. As of June 30, 2021 and December 31, 2020,
we have $305,000 and $100,000, respectively, included as other receivables on our consolidated balance sheet, which represents amounts
held in escrow at the Fund’s custodian.
Note
11. Subsequent Events
Management
has evaluated all activity up to August 16, 2021 and concluded that no subsequent events have occurred that would require recognition
in these financial statements or disclosure in the notes to these financial statements other than the following:
On
July 6, 2021, the Board increased the size of its Board from seven persons to nine persons and appointed Andrea Breanna to fill a vacant
director position created thereby, effective immediately. At this time, Ms. Breanna has not been named to any committees of the Board.
On
July 13, 2021, we entered into a Securities Purchase Agreement (the “July SPA”) with GHS Investments, LLC (the “Purchaser”),
a Nevada limited liability company, pursuant to which for a purchase price of $250,000, the Purchaser purchased an additional two hundred
and fifty (250) shares of the Company’s Series D Convertible Preferred Stock (“Series D Preferred Stock”). Further,
subject to the terms and conditions contained in the July SPA, on or prior to the thirtieth (30) calendar day following the initial Closing
Date (as defined in the July SPA), the Company agrees to sell, and the Purchaser agrees to purchase an additional two hundred and fifty
(250) shares of Preferred Stock at price of $1,000 per share of Preferred Stock. As previously reported on a Current Report on Form 8-K
filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2021, we filed a Certificate of Designation of
Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”) with the Delaware Secretary
of State to create a new class of preferred stock, $0.001 par value per share, designated Series D Convertible Preferred Stock and authorized
the issuance of up to four hundred (400) shares of Series D Preferred Stock. On the April 9, 2021, all of the four hundred (400) shares
of Series D Preferred Stock were issued to the Purchaser. The Series D Preferred Stock has a stated value of $1,200 per share (“Stated
Value”) and the holder of the Series D Preferred Stock has the right to receive a dividend equal to eight percent (8%) per annum,
payable quarterly, beginning on the issuance date of the Series D Preferred Stock and ending on the date that Series D Preferred Share
has been converted or redeemed. Dividends may be paid in cash or in shares of Series D Preferred Stock at the discretion of the Company.
Further, the holders of the Series D Preferred Stock have the right to receive assets in the event of liquidation, dissolution or winding
up before any distribution or payment shall be made to the holders of any securities junior to the Series D Preferred Stock.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of (the Company) as of , and the related consolidated statements of operations,
stockholders’ deficit, and cash flows for each of the years in the two-year period ended 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 , and the results of its operations and its cash flows for each of the years in the two-year period ended , 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 recognized recurring losses, negative cash flows from operations, and currently has negative
working capital. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans
with regard to these matters are also described in Note 2. 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.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters
or on the accounts or disclosures to which they relate.
Critical
Audit Matter Description
As
described further in Notes 5, 6, 7, and 8 of the financial statements, during the year ended December 31, 2020 and in prior periods,
the Company issued convertible debt and warrants that required management to assess whether the conversion features of the convertible
debt required bifurcation and separate valuation as a derivative liability and whether the warrants required accounting as derivative
liabilities. The Company determined that the conversion features of certain of its convertible debt and certain warrants issued in financing
arrangements required to be accounted for as derivative liabilities due to: (1) variable conversion prices; (2) the inclusion of ratchet
provisions in some of the instruments; (3) and in some cases the Company could not assert it had sufficient authorized but unissued shares
available to settle instruments considering all other stock-based commitments. The derivative liabilities were recorded at fair value
when issued and subsequently re-measured to fair value upon settlement or at the end of each reporting period. The Company utilized a
Black-Scholes option pricing model to determine the fair value of the derivative liabilities, which uses certain assumptions related
to exercise price, term, expected volatility, and risk-free interest rate.
We
identified auditing the determination and valuation of the derivative liabilities as a critical audit matter due to the significant judgements
used by the Company in determining whether the embedded conversion features and warrants required derivative accounting treatment and
the significant judgements used in determining the fair value of the derivative liabilities. Auditing the determination and valuation
of the derivative liabilities involved a high degree of auditor judgement, and specialized skills and knowledge were needed.
How
the Critical Audit Matter Was Addressed in the Audit
Our
audit procedures included the following, among others:
|
|
●
|
We
inspected and reviewed debt agreements, warrant agreements, and conversion notices to evaluate the Company’s determination
of whether derivative accounting was required, including assessing and evaluating management’s application of relevant accounting
standards to such transactions.
|
|
|
●
|
We
tested the reasonableness, accuracy, and completeness of the data and assumptions used by the Company in the Black-Scholes option
pricing model, including exercise price, expected term, expected volatility, and risk-free interest rate.
|
|
|
●
|
We
developed independent expectations for comparison to the Company’s estimates.
|
|
|
●
|
We
evaluated the accuracy and completeness of the Company’s presentation of these instruments in the financial statements and
related disclosures in Notes 5, 6, 7, and 8, including evaluating whether such disclosures were in accordance with relevant accounting
standards.
|
|
|
|
Haynie
& Company
|
|
|
Salt
Lake City, Utah
|
|
|
April
15, 2021
|
|
LGBTQ
LOYALTY HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
2020
|
|
|
2019
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
30,312
|
|
|
$
|
13,188
|
|
|
Other
receivables
|
|
|
100,000
|
|
|
|
100,000
|
|
|
Other
current assets
|
|
|
20,983
|
|
|
|
9,220
|
|
|
Total
current assets
|
|
|
151,295
|
|
|
|
122,408
|
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
1,800
|
|
|
Intangible
assets, net
|
|
|
78,285
|
|
|
|
73,076
|
|
|
Total
assets
|
|
$
|
229,580
|
|
|
$
|
197,284
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
920,569
|
|
|
$
|
772,065
|
|
|
Accrued
salaries and consulting fees
|
|
|
605,857
|
|
|
|
650,133
|
|
|
Accrued
interest and dividends
|
|
|
226,108
|
|
|
|
71,212
|
|
|
Notes
payable
|
|
|
127,986
|
|
|
|
82,986
|
|
|
Notes
payable to related party
|
|
|
17,885
|
|
|
|
17,885
|
|
|
Convertible
notes payable, net of debt discount
|
|
|
1,661,520
|
|
|
|
363,769
|
|
|
Derivative
liability on convertible notes payable
|
|
|
1,930,235
|
|
|
|
1,111,879
|
|
|
Total
liabilities
|
|
|
5,490,160
|
|
|
|
3,069,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
Series
A, 1 share designated, no shares issued or outstanding as of September 30, 2020 and December 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
Series
B, 500,000 shares designated, 50,000 and 75,000 shares issued and outstanding as of December 31, 2020 and 2019, respectively
|
|
|
50
|
|
|
|
75
|
|
|
Series
C, 129,559 shares designated, 129,559 and no shares issued and outstanding as of December 31, 2020 and 2019, respectively
|
|
|
130
|
|
|
|
130
|
|
|
Series
D, 400 shares designated, no shares issued and outstanding as of December 31, 2020 and 2019
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock, $0.001 par value, 2,000,000,000 shares authorized, 263,725,234 and 169,217,460 shares issued and outstanding as of December
31, 2020 and 2019, respectively
|
|
|
263,725
|
|
|
|
169,217
|
|
|
Additional
paid-in capital
|
|
|
7,714,704
|
|
|
|
6,035,547
|
|
|
Accumulated
deficit
|
|
|
(13,239,189
|
)
|
|
|
(9,077,614
|
)
|
|
Total
stockholders’ equity (deficit)
|
|
|
(5,260,580
|
)
|
|
|
(2,872,645
|
)
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
229,580
|
|
|
$
|
197,284
|
|
See
the accompanying notes to the consolidated financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
2020
|
|
|
2019
|
|
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenue
|
|
$
|
560
|
|
|
$
|
3,337
|
|
|
Cost
of net revenue
|
|
|
-
|
|
|
|
-
|
|
|
Gross
profit
|
|
|
560
|
|
|
|
3,337
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Personnel
costs
|
|
|
827,201
|
|
|
|
1,499,585
|
|
|
Consulting
fees
|
|
|
300,659
|
|
|
|
734,403
|
|
|
Legal
and professional fees
|
|
|
490,742
|
|
|
|
733,960
|
|
|
Merger
costs
|
|
|
-
|
|
|
|
388,675
|
|
|
Sales
and marketing
|
|
|
33,432
|
|
|
|
50,147
|
|
|
General
and administrative
|
|
|
137,037
|
|
|
|
288,911
|
|
|
Depreciation
and amortization
|
|
|
27,592
|
|
|
|
4,499
|
|
|
Total
operating expenses
|
|
|
1,816,663
|
|
|
|
3,700,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,816,103
|
)
|
|
|
(3,696,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2,463,310
|
)
|
|
|
(1,024,179
|
)
|
|
Other
income
|
|
|
3,000
|
|
|
|
-
|
|
|
Change
in derivative liability
|
|
|
167,658
|
|
|
|
(430,458
|
)
|
|
Total
other income (expense), net
|
|
|
(2,292,652
|
)
|
|
|
(1,454,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
Net
loss
|
|
$
|
(4,108,755
|
)
|
|
$
|
(5,151,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
203,791,785
|
|
|
|
210,883,281
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
See
the accompanying notes to the consolidated financial statements
LGBTQ
LOYALTY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Series
A
|
|
|
Series
B
|
|
|
Series
C
|
|
Series
D
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
Balances
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
75
|
|
|
|
129,559
|
|
|
|
130
|
|
|
-
|
|
|
|
-
|
|
|
|
169,217,460
|
|
|
|
169,217
|
|
|
|
6,035,547
|
|
|
|
-
|
|
|
|
(9,077,614
|
)
|
|
|
(2,872,645
|
)
|
|
Common
shares issued in connection with notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
294,994
|
|
|
|
295
|
|
|
|
9,705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
Common
shares issued for accrued services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
6,662,312
|
|
|
|
6,662
|
|
|
|
311,338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
318,000
|
|
|
Common
shares issued to board of directors
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
12,942,161
|
|
|
|
12,942
|
|
|
|
219,452
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232,394
|
|
|
Common
shares issued for services and compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
16,279,273
|
|
|
|
16,279
|
|
|
|
264,353
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280,632
|
|
|
Exercise
of common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
4,170,000
|
|
|
|
4,170
|
|
|
|
121,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
126,084
|
|
|
Exercise
of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
6,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,400
|
|
|
Warrants
issued in connection with convertible debenture
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
328,815
|
|
|
|
-
|
|
|
|
-
|
|
|
|
328,815
|
|
|
Debenture
conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
49,110,485
|
|
|
|
49,110
|
|
|
|
369,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
418,808
|
|
|
Conversion
of Series B preferred stock for common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
958,333
|
|
|
|
958
|
|
|
|
(933
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issuance
of Series B dividend common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
90,216
|
|
|
|
90
|
|
|
|
3,360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,450
|
|
|
Amortization
of preferred stock discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,056
|
|
|
|
-
|
|
|
|
(45,056
|
)
|
|
|
-
|
|
|
Dividends
on preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,764
|
)
|
|
|
(7,764
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,108,755
|
)
|
|
|
(4,108,755
|
)
|
|
Balances
at December 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
-
|
|
|
$
|
-
|
|
|
|
263,725,234
|
|
|
$
|
263,723
|
|
|
$
|
7,714,705
|
|
|
$
|
-
|
|
|
$
|
(13,239,189
|
)
|
|
$
|
(5,260,580
|
)
|
|
Balances
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,000
|
|
|
$
|
50
|
|
|
|
129,559
|
|
|
$
|
130
|
|
|
-
|
|
|
$
|
-
|
|
|
|
263,725,234
|
|
|
$
|
263,723
|
|
|
$
|
7,714,705
|
|
|
$
|
-
|
|
|
$
|
(13,239,189
|
)
|
|
$
|
(5,260,580
|
)
|
See
the accompanying notes to the consolidated financial statements.
LGBTQ
LOYALTY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
2020
|
|
|
2019
|
|
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,108,755
|
)
|
|
$
|
(5,151,480
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization
of debt discount and original issue discount
|
|
|
862,209
|
|
|
|
368,257
|
|
|
Change
in fair value of derivative liability
|
|
|
(167,658
|
)
|
|
|
430,468
|
|
|
Financing
related costs - debt
|
|
|
1,353,874
|
|
|
|
595,248
|
|
|
Merger
expenses
|
|
|
-
|
|
|
|
388,675
|
|
|
Stock-based
compensation expense
|
|
|
213,276
|
|
|
|
786,954
|
|
|
Officer
deferred compensation
|
|
|
-
|
|
|
|
195,054
|
|
|
Depreciation
and amortization
|
|
|
27,592
|
|
|
|
4,499
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
Other
current assets
|
|
|
(11,763
|
)
|
|
|
(8,625
|
)
|
|
Accounts
payable
|
|
|
148,504
|
|
|
|
520,959
|
|
|
Accrued
salaries and consulting fees
|
|
|
586,157
|
|
|
|
649,647
|
|
|
Accrued
interest and dividends
|
|
|
154,896
|
|
|
|
44,490
|
|
|
Net
cash used in operating activities
|
|
|
(941,668
|
)
|
|
|
(1,275,855
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
Investment
in intangible assets
|
|
|
(32,800
|
)
|
|
|
(77,375
|
)
|
|
Net
cash used in investing activities
|
|
|
(32,800
|
)
|
|
|
(79,375
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible debenture agreements
|
|
|
856,000
|
|
|
|
1,000,000
|
|
|
Net
proceeds from promissory note agreements
|
|
|
47,250
|
|
|
|
162,500
|
|
|
Repayments
of notes payable
|
|
|
(5,000
|
)
|
|
|
(97,514
|
)
|
|
Proceeds
from Series B preferred stock
|
|
|
-
|
|
|
|
125,000
|
|
|
Proceeds from exercise
of warrants
|
|
|
93,342
|
|
|
|
137,524
|
|
|
Net
cash provided by financing activities
|
|
|
991,592
|
|
|
|
1,327,510
|
|
|
Net
increase (decrease) in cash
|
|
|
17,124
|
|
|
|
(27,720
|
)
|
|
Cash at beginning
of period
|
|
|
13,188
|
|
|
|
40,908
|
|
|
Cash at end of period
|
|
$
|
30,312
|
|
|
$
|
13,188
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash
paid for interest
|
|
$
|
27,500
|
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
Conversion
of accrued consulting fees into common shares
|
|
$
|
617,750
|
|
|
$
|
-
|
|
|
Conversion
of convertible debenture and notes
|
|
$
|
418,809
|
|
|
$
|
53,553
|
|
|
Conversion
of related party debt
|
|
$
|
-
|
|
|
$
|
393,034
|
|
|
Exercise
of common stock warrants - derivative liability
|
|
$
|
126,084
|
|
|
$
|
168,771
|
|
|
Amortization
of preferred stock discount
|
|
$
|
45,056
|
|
|
$
|
36,412
|
|
|
Exercise of options
|
|
$
|
10,400
|
|
|
$
|
5,000
|
|
|
Warrants
issued in connection with debt
|
|
$
|
328,815
|
|
|
$
|
-
|
|
|
Dividends
on preferred stock
|
|
$
|
7,763
|
|
|
$
|
9,488
|
|
See
the accompanying notes to the consolidated financial statements
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 fourth quarter of 2021 on the NASDAQ. In late 2020, LPI was renamed to Advancing Equality Preference,
Inc.
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 $13,239,189 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, and Advancing Equality Preference, Inc. All material inter-company transactions and balances have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in accordance with 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, 2020 and 2019, 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:
Schedule of Financial Instruments at Fair Value
|
|
|
Fair
Value Measurements
|
|
|
|
|
as
of December 31, 2020:
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,930,235
|
|
|
$
|
1,930,235
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,930,235
|
|
|
$
|
1,930,235
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
|
as
of December 31, 2019:
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability on convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,111,879
|
|
|
$
|
1,111,879
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,111,879
|
|
|
$
|
1,111,879
|
|
Other
Receivables – Related Party
Other
receivables represent amounts held in escrow at the Fund’s custodian. The Company expects to retrieve the funds upon commencement
of the Fund’s operations.
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.
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;
|
|
●
|
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.
Stock-Based
Compensation
The
Company accounts for stock-based compensation for employees and non-employees 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.
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, 2020 and 2019 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, 2020 and 2019, and the outstanding stock options and warrants are anti-dilutive. For the years ended December 31,
2020 and 2019, the following number of potentially dilutive shares have been excluded from diluted net loss since such inclusion would
be anti-dilutive:
Schedule of Anti-dilutive Securities Excluded from Diluted Net Loss
|
|
|
Year
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Stock
options outstanding
|
|
|
1,800,000
|
|
|
|
5,800,000
|
|
|
Warrants
|
|
|
235,833,333
|
|
|
|
8,885,000
|
|
|
Shares
to be issued upon conversion of notes
|
|
|
600,479,598
|
|
|
|
47,170,778
|
|
|
|
|
|
838,112,931
|
|
|
|
61,855,778
|
|
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.
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.
Note
3. Intangible Assets
The
Company capitalized costs pertaining to the development of the LGBTQ100 ESG Index website. The Company began amortizing upon the launch
of the index, and will amortize the costs over a three-year useful life.
At
December 31, 2020 and 2019, intangible assets, net was $78,285 and $73,076, respectively. Amortization expense was $25,792 and $4,499,
respectively, for the years ended December 31, 2020 and 2019
Note
4. Notes Payable
As
of December 31, 2020 and 2019, the Company has a note payable outstanding in the amount of $2,986 and $7,986, respectively. The note
is past due at December 31, 2020 and is therefore in default. The note accrues interest at a rate of 2% per annum. During the years ended
December 31, 2020 and 2019, the Company repaid $5,000 and $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 matured on June 20, 2020. As of December 31, 2020, the full principal amount was outstanding
and in default.
Note
5. Convertible Notes Payable
Convertible
Note
In
February 2019, the holder of a 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
Pride
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
notice of conversion and (ii) the number of trading days comprising the standard settlement period after our receipt of a notice of conversion,
we are required to deliver Conversion Shares which, when permitted under applicable securities laws, will be delivered free of restrictive
legends and trading restrictions. In the event that we fail to deliver Conversion Shares by the applicable delivery date, the holder
may rescind such conversion until such time that the Conversion Shares are received by the holder. Our failure to timely deliver Conversion
Shares subjects us to the payment of liquidated damages to the holder as well as buy-in liability under circumstances where the holder
is required to purchase Common Stock in the open market in satisfaction of a sale by the holder of Conversion Shares which the holder
was entitled to receive. We are required to reserve and keep available from our authorized and unissued shares of Common Stock a sufficient
number of shares to cover conversions of the Debenture. The number and amount of Conversion Shares issuable upon conversion is subject
to adjustment in the event of stock splits and stock dividends. The Debenture also provides for full ratchet anti-dilution price adjustments
under circumstances where, during the term of the Debenture, we issue Common Stock or common stock equivalents, exclusive of certain
exempt issuances, at prices below the then applicable Debenture conversion price. The Debenture further provides for adjustments in the
event of certain rights offerings, pro rata distributions to shareholders and fundamental transactions. The Debenture is subject to optional
redemption by us, for cash, in whole or in part, upon 20 trading days prior written notice by us but only in the event, unless waived
by the holder, we satisfy certain equity conditions (as such term is defined in the Debenture) during such 20 trading day period. Penalty
interest is payable by us if we fail to effect an optional redemption by the applicable optional redemption date. The Debenture subjects
us to negative covenants while the Debenture is outstanding.
On
August 27, 2019, the Company entered into Amendment No. 1 to the Securities Purchase Agreement (the “First Amendment”) with
Pride. Pursuant to the terms of the Amendment, Pride agreed to purchase an additional $220,000 in principal amount of 10% Original Issue
Discount Senior Convertible Debenture for $200,000 in cash proceeds. As a result of this additional investment, the Company amended the
currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued to Pride on June 4, 2019 to increase the
face value of the debenture from $550,000 to $770,000. No additional warrants were included in the amended agreement.
On
October 14, 2019 the Company entered into Amendment No. 2 to the Securities Purchase Agreement (the “Second Amendment”) with
Pride. Pursuant to the terms of Amendment. Pride agreed to purchase an additional $330,000 in principal amount of 10% Original Issue
Discount Senior Convertible Debenture for $300,000 in cash proceeds. As a result of this additional investment, the Company amended the
currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued to Pride on June 4, 2019 and amended on
August 27, 2019 to increase the face value of the debenture from $770,000 to $1,100,000.
Pursuant
to the terms of the Second Amendment, the shares of common stock underlying the additional $330,000 in principal amount of 10% Original
Issue Discount Senior Convertible Debenture (the “Additional Underlying Shares”) are not subject to the registration rights
agreement entered into between the parties on June 4, 2019, but the Company has granted certain demand registration rights to Pride in
connection with the Additional Underlying Shares.
From
July to August 2019, Pride converted $21,910 in principal into 427,500 shares of our common stock. The Company recognized $18,925 of
interest expense related to the write-off of discounts related to the conversion amounts.
Cavalry
On
February 12, 2020, the Company entered into a Securities Purchase Agreement with Cavalry Fund I LP (the “Calvary Note”).
Pursuant to the terms of the Calvary Note, the lender agreed to purchase from the Company, for a purchase price of $100,000, a 10% convertible
note in the principal amount of $115,500. The Cavalry Note matured and became due and payable on November 11, 2020 and accrues interest
at a rate of 10% per annum. The Calvary Note, plus all accrued but unpaid interest, may be prepaid at any time prior to the maturity
date.
The
Calvary Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”) equal to the lower of: (i) the lowest closing price of the common stock during the preceding twenty (20) trading day period
ending on the latest complete trading day prior to the issuance date of the Note (the “Closing Price”), (ii) $0.04, or (iii)
60% of the lowest traded price for the Common Stock on the principal market on which the Common Stock is then trading during the twenty
(20) consecutive trading days on which at least 100 shares of Common Stock were traded including and immediately preceding the date of
conversion. Upon an event of default, the holder may elect to convert at an alternate conversion price which is the lower of: (i) the
closing price of the Common Stock on the Principal Market on the Trading Day immediately preceding the issue date of the Calvary Note
or (ii) 60% of either the lowest traded price or the closing bid price, whichever is lower for the common stock on the principal market
during any trading day in which the event of default has not been cured. The conversion price of the Note will be further adjusted by
another 15% reduction, regardless of whether there is an event of default, if (A) the Common stock is no longer a reporting company pursuant
to the Securities Exchange Act of 1934, as amended, (B) the Note cannot be converted into free trading shares after 181 days from the
issuance date of the Note, (C) the Common Stock is chilled for deposit at DTC or becomes chilled at any point while the Note remains
outstanding, (D) deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or (E) if
the closing price at any time falls below $0.015. The conversion price is subject to customary adjustments. The conversion price is not
subject to a floor.
Effective
July 14, 2020, the Company and Calvary Fund I LP entered into an amendment to the Calvary Note to extend the maturity date of the note
from November 11, 2020 to December 31, 2020, prohibit any conversions of the note prior to October 31, 2020, and extend the prepayment
option from August 9, 2020 to December 31, 2020.
Power
Up
On
March 10, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up Note”).
Pursuant to the terms of the Power Up Note, the lender agreed to purchase from the Company, for a purchase price of $75,000, a 10% convertible
note in the principal amount of $85,800. The Power Up Note matures and becomes due and payable on March 10, 2021 and accrues interest
at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid at any time prior to the maturity
date.
The
Power Up Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
On
May 26, 2020, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up May Note”).
Pursuant to the terms of the Power Up May Note, the lender agreed to purchase from the Company, for a purchase price of $75,000, a 10%
convertible note in the principal amount of $85,800. The Power Up May Note matures and becomes due and payable on May 26, 2021 and accrues
interest at a rate of 10% per annum. The Power Up Note, plus all accrued but unpaid interest, may be prepaid at any time prior to the
maturity date.
The
Power Up May Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
On
September 29, 2020, the Company entered into a Securities Purchase Agreement with Power Up (“Power Up September Note”). Pursuant
to the terms of the Power Up September Note, the lender agreed to purchase from the Company, for a purchase price of $80,000, a 10% convertible
note in the principal amount of $91,300. The Power Up September Note matures and becomes due and payable on September 29, 2021 and accrues
interest at a rate of 10% per annum. The Power Up September Note, plus all accrued but unpaid interest, may be prepaid at any time prior
to the maturity date.
The
Power Up September Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
As
of December 31, 2020, Power Up fully converted the March and May notes, consisting of $150,000 in principal and accrued interest, into
an aggregate of 49,110,485 shares of common stock.
Auctus
On
August 11, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Auctus Fund, LLC (“Auctus”).
Pursuant to the terms of the SPA, the Purchaser agreed to purchase from the Company, for a purchase price of $132,000, a 12% Convertible
Note in the principal amount of $150,000. The Note matures and becomes due and payable on August 11, 2021 and accrues interest at a rate
of 12% per annum while the Note remains outstanding. The Note may be prepaid on a monthly basis commencing six months after closing.
The Note is convertible into shares of the Company’s common stock at any time at a conversion price (“Conversion Price”)
equal to the lesser of (i) Current Market Price and (ii) the Variable Conversion Price. The Variable Conversion Price shall mean 100%
multiplied by the Market Price (representing a discount rate of 0%). Market Price means the average of the previous 5 days volume weighted
average price. In connection with the Note, the Company issued two common stock purchase warrants to purchase up to an aggregate of 15,000,000
shares of common stock (separately, “Warrant A” and “Warrant B”, and together, the “Warrants” and
each a “Warrant”), upon the terms and subject to the limitations and conditions set forth in the Note. As of December 31,
2020, one warrant to purchase 7,500,000 shares was issued and outstanding to Auctus. The fair value of the warrants was determined to
be $45,068 and was recorded as a debt discount to the note.
On
October 8, 2020, the Company entered into a Securities Purchase Agreement (the “Auctus October Note”) with Auctus Fund, Pursuant
to the terms of the Auctus October Note, Auctus agreed to purchase from the Company, for a purchase price of $300,000: (i) a Convertible
Promissory Note in the principal amount of $300,000 (the “Auctus Note”); (ii) a common stock purchase warrant permitting
Auctus to purchase up to 100,000,000 shares of the Company’s common stock at an exercise price of $0.015 per share (the “Warrant
A”); and (iii) a common stock purchase warrant permitting Auctus to purchase up to 100,000,000 shares of the Company’s Common
Stock at an exercise price of $0.015 per share (the “Warrant B”) and together with the Warrant A, the “Warrants”).
As of December 31, 2020, two warrants to purchase an aggregate of 200,00,000 shares was issued and outstanding to Auctus. The fair value
of the warrants was determined to be $1,237,906, which was recorded as origination interest and included in interest expense in the consolidated
statements of operations.
The
Auctus October Note accrues interest at a rate of 12% per annum and matures on October 8, 2021. The Auctus October Note is convertible
into shares of the Company’s Common Stock, subject to the adjustments described therein. The conversion price shall be the “Market
Price” which is defined as the volume weighted average price for the Common Stock during the 5 trading day period ending on the
latest complete trading day prior to the conversion date.
JSJ
On
September 28, 2020, the Company entered into a convertible promissory note (“JSJ Note”) with JSJ Investments, Inc., pursuant
to which JSJ purchased from the Company, at a purchase price of $100,000, a 10% Convertible Note in the principal amount of $108,000.
The
JSJ Note accrues interest at a rate of 10% per annum and matures on September 28, 2021. The JSJ Note, plus all accrued but unpaid interest
and other amounts due on the JSJ Note, may be prepaid at any time prior to the maturity date. Upon an event of default, the interest
rate shall increase to 18% for as long as the event of default is continuing (“Default Interest”). At any time on or after
the Maturity Date, the Company may repay the then outstanding principal plus accrued interest and Default Interest, if any, to JSJ.
The
JSJ Note is convertible into shares of the Company’s common stock at any time after 180 days from the issuance date. The conversion
price is 60% multiplied by the lowest trading price for the common stock during the 20 trading day period ending on the latest complete
trading day prior to the date of a conversion notice.
EMA
On
March 11, 2020, the Company entered into a Securities Purchase Agreement (the “EMA Note”) with EMA Financial, LLC. Pursuant
to the terms of the EMA Note, EMA agreed to purchase from the Company, for a purchase price of $75,000, a 10% Convertible Note in the
principal amount of $85,000.
The
EMA Note accrues interest at a rate of 10% per annum and matures on November 5, 2020. The EMA Note, plus all accrued but unpaid interest
and other amounts due on the EMA Note, may be prepaid at any time prior to the maturity date.
The
EMA Note is convertible into shares of the Company’s common stock. The conversion price shall be the lower of: (i) the lowest closing
price of the common stock during the preceding 20 trading day period ending on the latest complete trading day prior to March 11, 2020,
(ii) $0.04, or (iii) 60% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading days
on which at least 100 shares of common stock were traded including and immediately preceding the conversion date. Additional discounts
to the conversion price and penalties will apply if certain events occur, including if the closing price drops below $0.015, if the Company’s
stock is subject to a DTC chill, or if the EMA Note cannot be converted in free trading shares after 181 days from the issuance date.
Effective
as of September 29, 2020, the Company and EMA entered into an Amendment to the Note (the “EMA Amendment”), pursuant to which
EMA and the Company agreed to amend the issuance date of the EMA Note from March 11, 2020 to September 29, 2020 and to extend the maturity
date of the EMA Note from November 5, 2020 to September 29, 2021.
As
of December 31, 2020, the EMA Note was in default and the parity value of the EMA Note was determined to be $615,134. As a result, the
Company recorded an expense of $530,134, which is included in interest expense in the consolidated statements of operations.
In
connection with the EMA Note, in October 2020 the Company issued a warrant to purchase 28,333,333 shares of common stock at an exercise
price of $0.015 per share. The fair value of the warrants was determined to be $99,935, which was recorded as origination interest and
included in interest expense in the consolidated statements of operations.
During
the years ended December 31, 2020 and 2019, the Company, recorded amortization of debt discount and original discount of $862,209 and
$368,257, respectively, for all convertible debentures. This amount is included in interest expense in our consolidated statements of
operations.
The
following is a summary of the activity of the convertible notes payable and convertible debenture for the year ended December 31, 2020
and 2019:
Summary
of Activity of Convertible Notes Payable and Convertible Debenture
|
|
|
Note
|
|
|
Debenture
|
|
|
Total
|
|
|
Balance
as of December 31, 2018
|
|
$
|
34,065
|
|
|
$
|
-
|
|
|
$
|
34,065
|
|
|
Issuance
of convertible debenture - principal amount
|
|
|
-
|
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
|
Issuance
of convertible debenture - debt discount and original issue discount
|
|
|
-
|
|
|
|
(1,100,000
|
)
|
|
|
(1,100,000
|
)
|
|
Amortization
of debt discount and original issue discount
|
|
|
-
|
|
|
|
368,257
|
|
|
|
368,257
|
|
|
Conversion
to common stock, net of discount
|
|
|
(34,065
|
)
|
|
|
(4,487
|
)
|
|
|
(38,552
|
)
|
|
Balance as of December
31, 2019
|
|
|
-
|
|
|
|
363,769
|
|
|
|
363,769
|
|
|
Issuance
of convertible debenture - principal amount
|
|
|
-
|
|
|
|
1,021,400
|
|
|
|
1,021,400
|
|
|
Issuance
of convertible debenture - debt discount and original issue discount
|
|
|
-
|
|
|
|
(1,021,400
|
)
|
|
|
(1,021,400
|
)
|
|
Amortization
of debt discount and original issue discount
|
|
|
-
|
|
|
|
862,209
|
|
|
|
862,209
|
|
|
Default
penalty
|
|
|
-
|
|
|
|
530,134
|
|
|
|
530,134
|
|
|
Conversion
to common stock, net of discount
|
|
|
-
|
|
|
|
(94,593
|
)
|
|
|
(94,593
|
)
|
|
Balance as of December
31, 20120
|
|
$
|
-
|
|
|
$
|
1,661,520
|
|
|
$
|
1,661,520
|
|
The
following comprises the balance of the convertible debenture outstanding at December 31, 2020:
Schedule of Balance Convertible Debenture Outstanding
|
|
|
|
*
|
|
|
Principal
amount outstanding
|
|
$
|
2,458,024
|
|
|
Less:
Unamortized original issue discount
|
|
|
(94,857
|
)
|
|
Less:
Unamortized debt discount
|
|
|
(701,647
|
)
|
|
Convertible note
payable, net of debt discount
|
|
$
|
1,661,520
|
|
Note
6. Derivative Liability
We
evaluated the terms of the conversion features of the debentures and related debenture warrants as noted above in accordance with ASC
Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock, and determined they are indexed to the Company’s
common stock and that the conversion features meet the definition of a liability. Therefore, we bifurcated the conversion feature and
accounted for it as a separate derivative liability.
To
determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events.
Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and
derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the
actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting
in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
We
value the conversion feature at origination of the notes using the Black-Scholes valuation model. We
value the derivative liability at the end of each accounting period, and upon conversion of the underlying note or warrant, with the
difference in value recognized as gain or loss included in other income (expense) in our consolidated statements of operations.
2018
Note
In
February 2019, the 2018 Note was converted into common stock and the remaining derivative liability balance of $42,104 was recorded to
additional paid-in capital and change in fair value.
Convertible
Debentures and Warrants
The
Pride debentures and warrants issued in 2019, as well as the Calvary, Power Up, JSJ, EMA and Auctus debentures issued in 2020 have conversion
features that resulted in derivative liabilities. We valued the conversion features at each origination date with the following assumptions,
on a weighted-average basis:
Schedule of Conversion Feature of Derivative Liability
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
Risk-free
interest rate
|
|
|
0.14
|
%
|
|
Expected
term (in years)
|
|
|
0.89
|
|
|
Expected
volatility
|
|
|
188.3
|
%
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
Exercise price of
underlying common shares
|
|
$
|
0.01
|
|
|
|
|
Year
Ended December 31, 2019
|
|
|
|
|
Tranche
1
|
|
|
Tranche
2
|
|
|
Tranche
3
|
|
|
Warrants
|
|
|
Risk-free
interest rate
|
|
|
2.11
|
%
|
|
|
1.75
|
%
|
|
|
1.67
|
%
|
|
|
2.11
|
%
|
|
Expected
term (in years)
|
|
|
1.25
|
|
|
|
1.03
|
|
|
|
0.89
|
|
|
|
1.25
|
|
|
Expected
volatility
|
|
|
312.4
|
%
|
|
|
303.70
|
%
|
|
|
326.88
|
%
|
|
|
312.4
|
%
|
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Exercise
price of underlying common shares
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
During
the years ended December 31, 2020 and 2019, the entire value of the principal of the debentures were assigned to the derivative
liability and recognized as a debt discount on the convertible debentures. The debt discount is recorded as reduction (contra-liability)
to the debentures and are being amortized over the initial term. Any excess balance was recognized as origination interest on the derivative
liability and expensed on origination. In accordance with the Company’s sequencing policy, shares issuable pursuant to the
convertible debentures would be settled subsequent to the Company’s Series B preferred stock.
The
following is a summary of the activity of the derivative liability for the years ended December 31, 2020 and 2019:
Schedule of Derivative Liability Activity
|
|
|
Debenture
|
|
|
Warrants
|
|
|
Total
|
|
|
Balance
as of December 31, 2018
|
|
$
|
42,104
|
|
|
$
|
-
|
|
|
$
|
42,104
|
|
|
Conversion
of convertible notes payable to common stock
|
|
|
(737,813
|
)
|
|
|
-
|
|
|
|
(737,813
|
)
|
|
Initial
fair value on issuance of convertible debenture
|
|
|
1,077,117
|
|
|
|
492,921
|
|
|
|
1,570,038
|
|
|
Common
stock warrant exercises
|
|
|
-
|
|
|
|
(168,771
|
)
|
|
|
(168,771
|
)
|
|
Conversion
of principal amount of debenture to common stock
|
|
|
(24,137
|
)
|
|
|
-
|
|
|
|
(24,137
|
)
|
|
Change
in fair value of derivative liability
|
|
|
690,707
|
|
|
|
(260,249
|
)
|
|
|
430,458
|
|
|
Balance as of December
31, 2019
|
|
|
1,047,977
|
|
|
|
63,902
|
|
|
|
1,111,879
|
|
|
Initial
fair value on issuance of convertible debenture
|
|
|
1,265,775
|
|
|
|
-
|
|
|
|
1,265,775
|
|
|
Debenture
conversions
|
|
|
(247,209
|
)
|
|
|
-
|
|
|
|
(247,209
|
)
|
|
New
warrant issuances
|
|
|
-
|
|
|
|
39,690
|
|
|
|
39,690
|
|
|
Common
stock warrant exercises
|
|
|
-
|
|
|
|
(72,244
|
)
|
|
|
(72,244
|
)
|
|
Change
in fair value of derivative liability
|
|
|
(136,310
|
)
|
|
|
(31,348
|
)
|
|
|
(167,658
|
)
|
|
Balance as of December
31, 2020
|
|
$
|
1,930,235
|
|
|
$
|
-
|
|
|
$
|
1,930,235
|
|
Note
7. Stockholders’ Equity (Deficit)
On
March 26, 2019, we filed a Certificate of Amendment to our Certificate of Incorporation to increase our authorized capitalization from
500,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $0.001 per share,
to 1,000,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $0.001 per share.
Common
Stock
2020
Transactions
In
January 2020, we issued 294,994 shares of common stock to a bridge noteholder in connection with promissory notes received.
During
the year ended December 31, 2020, we issued an aggregate of 10,052,318 shares of common stock to consultants for 2019 services which
were accrued at a fair value of $459,417.
In
March 2020, we issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the Board of Directors.
In
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation.
In
April 2020, we issued 90,216 shares and 958,333 shares of common stock to a Series B Preferred Stock investor for accrued dividends and
conversion of 25,000 shares of the Series B Preferred Stock.
In
May 2020, we issued an aggregate of 12,889,267 shares of common stock to executives, officers and consultants for services rendered for
a total fair value of $139,215.
In
June 2020, two option holders exercised their outstanding options for a total of 4,000,000 shares of common stock at an exercise price
of $0.0026. The value of $10,400 was converted from outstanding accounts payable.
During
the year ended December 31, 2020, we issued an aggregate of 4,170,000 shares of common stock to Pride Partners pursuant to warrant exercises.
Refer to Note 8.
From
September through December 2020, the Company issued 49,110,845 shares of common stock pursuant to conversion of debentures in the principal
amount of $171,600.
2019
Transactions
On
January 25, 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement (the “Securities Exchange
Agreement”) with LGBT Loyalty LLC (“LGBT Loyalty”) and Maxim Partners, LLC (“Maxim”), pursuant to which
we acquired all of the membership interests of LGBT Loyalty, making LGBT Loyalty a wholly owned subsidiary of ours, in exchange for 120,959,996
shares (the “Shares”) of our restricted common stock and one share of our newly created Series A Convertible Preferred Stock
(the “Series A Preferred Stock”). The Shares issued to Maxim represented, upon issuance, 49.99% of our then issued and outstanding
shares of common stock. On March 29, 2019 an additional 8,598,578 shares were issued to Maxim for the conversion of the Series A Convertible
Preferred Stock. LGBT Loyalty has no assets, liabilities nor operations at the exchange date, therefore, the value ascribed to the issued
stock ($388,675) has been charged to operations as expenses of the merger.
In
February 2019, we issued an aggregate of 750,000 shares of common stock to a consultant in accordance with a service contract that provided
for a 250,000 stock grant for services performed of $7,500, as well as the exercise of 500,000 stock options in exchange for the cancellation
of $5,000 then outstanding accounts payable due to the consultant for prior services.
In
March 2019, we issued an aggregate of 8,600,298 shares of our common stock pursuant to the automatic exercise of warrants issued to two
current and prior company officers. The warrants were issued in exchange for the cancellation of an aggregate of $348,312 of salary and
interest accruals through December 31, 2018.
During
the year ended December 31, 2019, we issued an aggregate of 26,586,234 shares of our common stock to two lenders pursuant to note conversions.
Additionally, we issued 427,500 shares to Pride pursuant to debenture conversions. Refer to Note 5 above.
During
the year ended December 31, 2019, we issued an aggregate of 5,000,000 shares of common stock to five unrelated individuals in accordance
with their appointment as directors of the Company.
During
the year ended December 31, 2019, we issued an aggregate of 4,365,000 shares of common stock to Pride pursuant to warrant exercises.
Refer to Note 8.
During
the year ended December 31, 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.
Series
B Convertible Preferred Stock
On
April 3, 2019 we filed a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock with the Delaware
Secretary of State to create a new class of preferred stock, $0.001 par value per share, designated Series B Convertible Preferred Stock
(“Series B Preferred Stock”) and authorized the issuance of up to 1,500,000 shares of Series B Preferred Stock. The Series
B Preferred Stock has no voting, liquidation or other rights other than the right to receive dividends and to convert into common stock.
The
stated value of each share of Series B Convertible Preferred Stock for purposes of conversions and dividends is $1.15 (the “Conversion/Dividend
Stated Value”). The stated value of each share of Series B Convertible Preferred for purposes of redemptions is $1.35 (the “Redemption
Stated Value”). On April 3, 2019 we received an aggregate of $125,000 from the issuance of 125,000 shares of the Series B Convertible
Preferred Stock. Each $25,000 of the preferred stock is convertible into $28,750 worth of common stock. The discount between the $28,750
and $25,000 for each $25,000 investment has been recognized and amortized. Additionally, the Preferred Stock contains a Beneficial Conversion
Feature (BCF) that has been recognized. The BCF is the difference between the conversion price and the market price at inception multiplied
by the number of common shares into which the Preferred Stock is convertible. The BCF is also treated as a discount on the Preferred
Stock, which is amortized over the life of the instrument. Amortization of the discount will continue through April 3, 2021 and amounted
to $36,412 for the year ended December 31, 2019. Subject to earlier conversion or redemption, the Series B Preferred Stock will automatically
convert into fully paid and non-accessible shares of our common stock 24 months following the date of issuance of such Series B Preferred
Stock without any action or payment required on the part of the holder of the Series B Convertible Preferred Stock. Subject to a floor
price limitation of $0.03 per share, the automatic conversion price to which the Conversion/Dividend Stated Value will be applied will
be the lower of (i) $0.10 per share of common stock; or (ii) a 20% discount to the lowest volume weighted average price (“VWAP”)
for our common stock on our principal trading market during the five (5) trading days immediately prior to the automatic conversion date.
In
April 2020, we issued 90,216 shares and 958,333 shares of common stock to a Series B Preferred Stock investor for accrued dividends and
conversion of 25,000 shares of the Series B Preferred Stock.
In
September 2019, a Series B investor converted 25,000 shares of Series B Preferred Stock for 734,918 shares of common stock. In October
2019, a Series B investor converted 25,000 shares of Series B Preferred Stock for 731,031 shares of common stock. Additionally, we issued
an aggregate of 38,287 shares for Series B dividends.
As
of December 31, 2020, we had $12,075 in remaining accrued Series B dividends.
Series
C Convertible Preferred Stock
On
June 3, 2019 we filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the
“Series C COD”) with the Delaware Secretary of State to create a new class of preferred stock, $0.001 par value per share,
designated Series C Convertible Preferred Stock (“Series C Preferred Stock”) and authorized the issuance of up to 129,559
shares of Series C Preferred Stock. On the Closing Date, all of the 129,559 shares of Series C Preferred Stock were issued to Pride,
the assignee of Maxim. On June 4, 2019 we entered into a Securities Exchange Agreement with Maxim (the “Holder”) pursuant
to which the Holder exchanged 129,558,574 shares of Common Stock for 129,559 shares (the “Exchange Shares”) of our Series
C Preferred Stock (the “Share Exchange”). At the request of the Holder, the Exchange Shares were issued to Holder’s
assignee. The Series C Preferred Stock has no voting or other rights other than the right to receive dividends on a pari passu basis
with holders of our Common Stock, the right to receive assets in the event of liquidation, dissolution or winding up on a pari passu
basis with holders of our Common Stock and the right to convert into common stock. The stated value of each share of Series C Convertible
Preferred for purposes of conversions is $1,000 (the “Stated Value”).
Each
share of Series C Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof, into that number
of shares of Common Stock (subject in each case to a 4.99% beneficial ownership limitation) determined by dividing the Stated Value of
such share of Series C Preferred Stock by the Series C Preferred Stock conversion price of $1.00 per share. Consequently, each Share
of Series C Preferred Stock is presently convertible into 1,000 shares of Common Stock.
Deferred
Officer Compensation
We
recorded $195,054 of amortization of deferred officer compensation during the year ended December 31, 2019. As of December 31, 2019,
all deferred officer compensation had been fully amortized.
Note
8. Options and Warrants
Options
The
following is a summary of stock options issued pursuant to the 2012 Equity Incentive Plan:
Schedule of Stock Options
|
|
|
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (in years)
|
|
|
Intrinsic
Value
|
|
|
Outstanding
as of December 31, 2018
|
|
|
6,300,000
|
|
|
$
|
0.0049
|
|
|
|
2.4
|
|
|
$
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
(500,000
|
)
|
|
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of
December 31, 2019
|
|
|
5,800,000
|
|
|
$
|
0.00
|
|
|
|
1.5
|
|
|
$
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
(4,000,000
|
)
|
|
|
0.01
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of
December 31, 2020
|
|
|
1,800,000
|
|
|
$
|
0.00
|
|
|
|
0.5
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of
December 31, 2020
|
|
|
1,800,000
|
|
|
$
|
0.0045
|
|
|
|
0.5
|
|
|
$
|
-
|
|
As
of December 31, 2020 and 2019, we had 1,800,000 and 5,800,000 options, respectively, remaining outstanding pursuant to the 2012 Equity
Incentive Plan.
There
was no stock based compensation expense for options for the years ended December 31, 2020 and 2019. There will be no additional compensation
expense recognized in future periods.
Warrants
2020
Transactions
During
the year ended December 31, 2020, Pride exercised an aggregate of 4,170,000 shares of common stock pursuant to the exercise provisions
of the warrant, including a simultaneous grant and exercise of 2,285,000 warrants. As of December 31, 2020, Pride had no outstanding
warrants remaining. The Company received total proceeds of $93,342 a result of the warrant exercises.
In
May 2020, we cancelled warrants that were issued in 2019 to board members to purchase an aggregate of 7,000,000 shares of our common
stock. See Note 9.
In
August 2020, we issued 7,500,000 warrants to Auctus in connection with the Auctus Note. The exercise price of the Auctus Warrants is
$0.15 per share. In October 2020, we issued 200,000,000 warrants in connection with the Auctus October Note with an exercise price of
$0.15 per share. Furthermore, we issued 28,333,333 warrants to EMA in connection with the EMA note. The exercise price of the EMA Warrants
is $0.15 per share.
2019
Transactions
On
January 25, 2019 we issued warrants to two Company executives in exchange for the cancellation of an aggregate of $348,312 of salary
and interest accruals through December 31, 2018. The warrants were fully exercised as described in Note 7 above.
On
January 25, 2019 we issued warrants to two Company executives in exchange for the cancellation of an aggregate of $348,312 of salary
and interest accruals through December 31, 2018. The warrants were fully exercised as described in Note 7 above.
On
June 4, 2019 we issued a warrant to Pride to purchase an aggregate of 6,250,000 shares of our common stock. The warrant is exercisable
through December 4, 2020. The exercise price per share of common stock under this warrant shall be the lesser of (i) $0.0855, or (ii)
75% of the lowest single trading day closing price during the five trading days prior to the exercise date.
During
the year ended December 31, 2019, Pride exercise an aggregate of 4,365,000 shares of common stock pursuant to the exercise provisions
of the warrant. The Company received total proceeds of $137,524 a result of the warrant exercises.
On
December 13, 2019, we issued warrants to board members to purchase an aggregate of 7,000,000 shares of our common stock. The exercise
price per share of common stock is $0.03 and the warrants were exercisable immediately.
The
following is a summary of the warrant activity for the years ended December 31, 2020 and 2019:
Summary of Warrant Activity
|
|
|
Warrants
|
|
|
Weighted
Average Exercise Price
|
|
|
Outstanding as of
December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
21,850,298
|
|
|
|
0.05
|
|
|
Exercised
|
|
|
(12,965,298
|
)
|
|
|
0.05
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of
December 31, 2019
|
|
|
8,885,000
|
|
|
$
|
0.04
|
|
|
Granted
|
|
|
238,118,333
|
|
|
|
0.02
|
|
|
Exercised
|
|
|
(4,170,000
|
)
|
|
|
0.08
|
|
|
Forfeited
|
|
|
(7,000,000
|
)
|
|
|
0.03
|
|
|
Outstanding as of
December 31, 2020
|
|
|
235,833,333
|
|
|
$
|
0.02
|
|
Note
9. Related Party Transactions
Parties,
which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also
considered to be related if they are subject to common control or common significant influence.
Notes
Payable to Related Party
Notes
payable to related parties at December 31, 2020 and 2019 totaled $17,885 with a 2% annual interest rate. Currently the Company has defaulted
on all of their related party loan obligations. Forbearance has been granted by the related parties on all loans.
Accrued
Salaries
In
March 2019, we issued an aggregate of 8,600,298 shares of our common stock pursuant to the automatic exercise of warrants issued to two
current and prior company officers. The warrants were issued in exchange for the cancellation of an aggregate of $348,312 of salary and
interest accruals through December 31, 2018.
As
of December 31, 2020 and 2019, accrued salaries to our company officers and executive director totaled $299,732 and $91,352, respectively
and is included in accrued salaries and consulting fees in our consolidated balance sheets.
Board
of Directors
In
March 2020, the Company issued 1,000,000 shares to Orlando Reece pursuant to his appointment to the board, and recognized $17,800 in
compensation expense.
In
May 2020, we issued an aggregate of 11,942,161 shares to directors as compensation, including 3,942,161 shares pursuant to accrued monthly
fees and 8,000,000 shares pursuant to 2020 annual compensation. In conjunction with this transaction, we cancelled 7,000,000 warrants
that were issued to the board in December 2019. We accounted for the modification in accordance with ASC 718-20-35. Total fair value
of the shares issued and warrant modification was $214,595.
In
March and April 2019, we issued an aggregate of 5,000,000 shares of common stock to five unrelated individuals in accordance with their
appointment as directors of the Company, and recognized $555,401 in compensation expense.
In
2019, we began the accrual of director’s fees for five individuals at the rate of $25,000 per annum. Four of the directors have
agreed to receive their fee payments in shares of the Company’s common stock with the number of shares to be issued based on the
5-day average trading price of the stock at the end of each month.
Total
accrued directors’ compensation of $94,584 and $80,000 at December 31, 2020 and 2019, respectively, is included in accrued salaries
and consulting fees on our consolidated balance sheets.
A
board member is the co-founder and president of ProcureAM, LLC, the fund advisor for the Fund. As of December 31, 2020 and 2019, we have
$100,000 included as other receivables on our consolidated balance sheet, which represents amounts held in escrow at the Fund’s
custodian.
Accounts
Payable
As
of December 31, 2020, the Company had $18,981 included in accounts payable to related parties including officers and board members.
Note
10. Income Taxes
Income
tax provision (benefit) for the years ended December 31, 2020 and 2019 is summarized below:
Schedule of Income Tax Provision Benefit
|
|
|
2020
|
|
|
2019
|
|
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current
income tax provision:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
Total
current income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax benefit:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(139,793
|
)
|
|
|
(497,200
|
)
|
|
State
|
|
|
(36,607
|
)
|
|
|
(130,200
|
)
|
|
Total
deferred income tax benefit
|
|
|
(176,400
|
)
|
|
|
(627,400
|
)
|
|
Change
in deferred tax asset valuation allowance
|
|
|
176,400
|
|
|
|
627,400
|
|
|
Total
provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision
for income taxes. The sources and tax effects of the differences as of December 31, 2020 and 2019 are as follows:
Schedule of Sources and Tax Effects
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Federal
statutory income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
State
income taxes, net of federal benefit
|
|
|
5.5
|
|
|
|
5.5
|
|
|
Change
in deferred tax asset valuation allowance
|
|
|
(26.5
|
)
|
|
|
(26.5
|
)
|
|
Effective
income tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
Components
of the net deferred income tax assets at December 31, 2020 and 2019 were as follows:
Schedule of Components of Deferred Income Tax Assets
|
|
|
2020
|
|
|
2019
|
|
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net
operating loss carryforwards
|
|
$
|
1,363,000
|
|
|
$
|
1,155,600
|
|
|
Depreciation
and amortization
|
|
|
(31,000
|
)
|
|
|
-
|
|
|
Valuation
allowance
|
|
|
(1,332,000
|
)
|
|
|
(1,155,600
|
)
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Schedule of Valuation Allowance
|
|
|
December
31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Valuation
allowance as of beginning of year
|
|
$
|
1,155,600
|
|
|
$
|
528,200
|
|
|
Increases
recorded to income tax provision
|
|
|
176,400
|
|
|
|
627,400
|
|
|
Valuation
allowance as of end of year
|
|
$
|
1,332,000
|
|
|
$
|
1,155,600
|
|
In
accordance with ASC 740, at December 31, 2020 we determined that a valuation allowance should be recognized against deferred tax assets
because, based on the weight of available evidence, it is more likely than not (i.e., greater than 50% probability) that some portion
or all of the deferred tax asset will not be realized in the future. We recognized a reserve of 100% of the amounts of the deferred tax
benefit in the amount of $1,332,000.
As
of December 31, 2020, we had cumulative net operating loss carry forwards of approximately $6,539,000 which have varying expirations.
There
are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2010 through
the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the consolidated
statement of operations. There have been no income tax related interest or penalties assessed or recorded.
Note
11. Commitments and Contingencies
Employment
Agreements
On
December 19, 2017 we entered into an Employment Services Agreements with our Chief Executive Officer and our President and an Executive
Management Consulting Agreement with our former Chief Executive Officer. The Agreements have a two-year term and are subject to automatic
renewal for successive periods of one year unless either we or the counterparties give the other written notice of intention to not renew
at least 30 days prior to the end of the existing term. The Agreements with our current and former Chief Executive Officers provide for
base compensation of $150,000. Effective January 1, 2020, the Board approved that the Chief Executive Officer’s salary is $200,000
per year.
Each
of the foregoing Agreements contain customary termination provisions including terminations with or without cause, for good reason or
voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all the work
produced by the counterparties, which is created, designed, conceived or developed by them in the course of their employment under the
Agreements belong to us. Effective January 1, 2018, the Agreements were modified to remove the conversion right provisions. On February
15, 2019 the Executive Management Consulting Agreement with our former Chief Executive Officer was terminated by mutual agreement.
Contingencies
The
Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings
cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matters
will have a material adverse effect on its business, financial condition or results of operations.
Note
12. Subsequent Events
On
February 5, 2021, we amended our Certificate of Incorporation to increase our authorized capitalization from 1,000,000,000 shares
of common stock, par value $0.001 per share, to 2,000,000,000 shares of common stock.
On
March 5, 2021, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd (“Power Up 2021 Note”).
Pursuant to the terms of the Power Up 2021 Note, the lender agreed to purchase from the Company, for a purchase price of $78,500, a 10%
convertible note in the principal amount of $86,350. The Power Up 2021 Note matures and becomes due and payable on March 5, 2022 and
accrues interest at a rate of 10% per annum. The Power Up 2021 Note, plus all accrued but unpaid interest, may be prepaid at any time
prior to the maturity date.
The
Power Up 2021 Note is convertible into shares of the Company’s common stock at any time at a conversion price (the “Conversion
Price”), which shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied
by the Market Price, which is the lowest Trading Price for the common stock during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date. The conversion price is subject to customary adjustments. The conversion price is
not subject to a floor.
Through
the issuance date, the Company issued an aggregate of 37,538,998 shares of common stock pursuant to conversions of Calvary and Power
Up debentures.
In
April 2021, we filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the
“Series D COD”) with the Delaware Secretary of State to create a new class of preferred stock, $0.001 par value per share,
designated Series D Convertible Preferred Stock and authorized the issuance of up to four hundred (400) shares of Series D Preferred
Stock. The Series D Preferred Stock has a stated value of $1,200 per share (“Stated Value”) and the holder of the Series
D Preferred Stock has the right to receive a dividend equal to eight percent (8%) per annum, payable quarterly, beginning on the issuance
date of the Series D Preferred Stock and ending on the date that Series D Preferred Share has been converted or redeemed. Dividends may
be paid in cash or in shares of Series D Preferred Stock at the discretion of the Company. Further, the holders of the Series D Preferred
Stock has the right to receive assets in the event of liquidation, dissolution or winding up before any distribution or payment shall
be made to the holders of any securities junior to the Series D Preferred Stock.
On
April 8, 2021, the Company issued 400 shares of Series D Preferred Stock to GHS Investments, LLC pursuant to a Securities Purchase Agreement
(“GHS Agreement”) for net proceeds of $427,600. In conjunction with the GHS Agreement, the Company issued warrants to purchase
40,000,000 shares of common stock at an exercise price of $0.001.
Management
has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in these financial statements
or disclosure in the notes to these financial statements.
LGBTQ
LOYALTY HOLDINGS, INC.
236,906,002 Shares of Common
Stock
PROSPECTUS
August
25, 2021
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