PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Executive
Officers and Directors
Below
are the names of and certain information regarding the Company’s executive officers and directors as of April 15,
2021.
|
Name
|
|
Age
|
|
Title
|
|
Date
of Appointment as a Director
|
|
|
|
|
|
|
|
|
|
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
|
Directors
are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Executive
officers are appointed by the Board of Directors and serve at its pleasure.
The
principal occupation and business experience during at least the past five years for our executive officers and directors is as
follows:
Robert
A. Blair
Robert
A. Blair brings to us a rich history in professional tennis, sports management and directing digital media platforms. His vision
and passion coupled with an impressive portfolio of business success is leading us in an exciting new direction for revenue and
growth in the LGBTQ Digital Media Marketplace. His skill in developing and delivering cutting edge marketing techniques and his
passion for serving the community in the highly desired LGBTQ marketspace is expected to enable us to become a global leader in
this market. From January 2015 until May 2016 Mr. Blair served as Chief Executive Officer of Multimedia Platforms Inc., (“MPI”)
a multimedia, technology and publishing company. He became the Chairman of MPI in May 2016 and became CEO again in September 2016.
MPI filed for Chapter 11 bankruptcy protection on October 4, 2016. Mr. Blair resigned from MPI in December 2017. We believe that
Robert A. Blair is qualified to serve on our board of directors based upon his industry and management experience.
Eric
Sherb
Mr.
Sherb has been a Certified Public Accountant since May 2011. He founded EMS Consulting in 2018 which provides CFO services and
accounting advisory services for both private and public entities. From March 2015 to October 2018, Mr. Sherb was a Senior Manager
at CFGI, with roles including audit readiness, IPO readiness, technical accounting and M&A advisory. He has several years
of experience within the OTC and NASDAQ capital markets. Eric has a Bachelor of Business Administration degree in accounting and
Finance from Emory University.
Jeffrey
Sterling
Lawrence
Patrick Roan, Director
Lawrence
Patrick Roan has been a National Account Manager for Poly Print Packaging Company since February 2018. From April 2008 until September
2016, Mr. Roan served as a National Account Manager for Ultra Flex Packaging Company in their consumer packaging division. He
has over twenty years of sales and marketing experience in the commercial printing and consumer packaging business. Mr. Roan was
previously with Exopack, LLC, as a National Account Manager for their consumer plastics business. He managed high volume national
accounts as well as key developmental market accounts, and was responsible for transitioning customers with multiple manufacturing
sites throughout the U.S. He is a graduate of the University of Iowa and resides in Iowa. We believe that Lawrence Roan is qualified
to serve on our board of directors based upon his management experience.
Barney
Frank, Director
Barney
Frank is a graduate of Harvard College and Harvard Law School. He was the Executive Assistant to the mayor of Boston from 1968-1970;
he was the Administrative Assistant to former Congressman Michael Harrington from 1971-1972 and a Massachusetts State Representative
from 1973-1980. Mr. Frank was a US Congressman, representing the 4th District of Massachusetts from 1981-2013. As Chair of the
House Financial Services Committee, from 2007-2010, he was the co-author of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the regulatory overhaul signed into law in July 2010. In 1987 he became the first Member of Congress voluntarily to acknowledge
that he is gay, and in 2012 became the first sitting Member of Congress to marry a same-sex partner, James Ready. He has written
two books: Speaking Frankly, in 1992, a critique of some aspects of the Democrats approach to public policy; and a political memoir
published in 2015 titled “Frank: From the Great Society to Same Sex Marriage.” The book was nominated for a Triangle
Award and co-won the Randy Shilts Award for Gay Nonfiction. He has also written chapters in two other books, one on LGBT rights
and more recently on the response to the financial crisis. He has taught at Harvard, Boston University, the University of Massachusetts
Boston and the University of Massachusetts Dartmouth. Before joining government, he was a political activist, including his participation
as a volunteer in the Mississippi Freedom Summer in 1964. Mr. Frank also serves on the Board of directors of Signature Bank Corp.
We believe Mr. Frank is qualified to serve on our Board of Directors based upon his industry and professional background.
William
(“Billy”) D. Bean, Director
Billy
Bean is a former professional baseball player and is currently a major league baseball (“MLB”) front office executive
serving as Vice President and Special Assistant to the Commissioner. As a senior advisor to Commissioner Rob Manfred, his role
focuses on baseball’s social responsibility initiatives and LGBT inclusion. Among his responsibilities, Mr. Bean works with
MLB’s 30 clubs to bring awareness to all players, coaches, managers, umpires, employees, and stakeholders throughout baseball
to ensure an equitable, inclusive, and supportive workplace for everyone. On July 14, 2014, Mr. Bean was announced as MLB’s
first-ever Ambassador for Inclusion. He played major league baseball from 1987-1995. He broke into the big leagues with the Detroit
Tigers, and tied a major-league record with four hits in his first game. He went on to play for the Los Angeles Dodgers and the
San Diego Padres. Mr. Bean was a two-time “All-America” outfielder at Loyola Marymount University before graduating
with a degree in Business Administration. During the 1986 season, Bean led the Loyola Marymount Lions to a midseason #1 national
ranking and a berth into the College World Series in Omaha, Nebraska. Mr. Bean is a member of the MLB Owner’s Diversity
and Inclusion Committee, and was instrumental in the development of MLB’s ‘Shred Hate’ bullying prevention program,
a ground breaking educational youth campaign and partnership with ESPN. He is also the author of the book, “Going the Other
Way: Lessons from a Life in and out of Major League Baseball.” We believe Mr. Bean is qualified to serve on our Board of
Directors based upon his industry and management experience.
Martina
Navratilova, Director
Martina
Navratilova is a former professional tennis player deemed by many to be the most successful female tennis player of the U.S. Open
era. Over a career spanning four decades, Ms. Navratilova won 59 Grand Slam titles, including a record 9 Wimbledon singles championships,
167 singles and 177 doubles championships. Over the course of her tennis career, Ms. Navratilova was distinguished as the Women’s
Tennis Association’s (“WTA”) “Tour Player of the Year” seven times, named the Associated Press’s
“Female Athlete of the Year” and declared one of the “Top Forty Athletes of All-Time” by Sports Illustrated.
After being inducted into the International Tennis Hall of Fame, she continued to take part in WTA events as well as the 2004
Olympics Games. As she approached her 50th birthday in 2006, she decided to leave the tour circuit behind after her final Grand
Slam, a mixed-doubles championship with Bob Bryan at the U.S. Open making her the oldest player to ever win a Grand Slam title.
Ms. Navratilova provides commentary to the Tennis Channel’s audience during its coverage of the Grand Slams. She is an ambassador
for the WTA and is a regular commentator for the British Broadcasting Corporation and Tennis Channel at Wimbledon. Ms. Navratilova
also works for BT Sport and appears regularly on their tennis commentary. She spends as much time as she can with her family in
Miami, and often finds herself traveling the world, speaking at events, playing in numerous exhibition matches, and tirelessly
promoting all of the issues that are close to her heart. As one of the first openly gay sports figures, she has spent much of
her career overcoming prejudices and stereotypes, giving up millions of dollars in endorsements and sponsorships as a result of
her insistence on living a life of integrity and honesty. Since coming out in 1981, she has been an inspiring and vocal advocate
for equal rights and a strong supporter of many charities benefiting the LGBT community. She has received numerous awards from
many of the most influential organizations within the LGBT community. We believe Ms. Navratilova is qualified to serve on our
Board of Directors based upon her industry and professional background.
Robert
Tull, Director
A
leading figure in the ETF market since 1996, Mr. Tull played a critical role in the launch of the first ETFs that provided access
to international, country-specific indexes. Mr. Tull was a key member of the American Stock Exchange’s New Products division,
overseeing product and index development and consulting to many companies within the domestic ETF marketplace, as well as several
traditional mutual fund managers. He has engineered ETF development in 17 country-specific ETFs known as the World Equity Benchmark
Shares (WEBS) and later rebranded iShares after the sale of WEBS to BGI in 1999. Mr. Tull served as a Vice President of the Amex
from 2000 to 2005. Prior to joining the Company, during the period from October 1, 2005 until February 2018 he was an outsourced
COO for five ETF issuers and employed as a COO by GlobalShares an ETF issuer with roots in South Africa. Mr. Tull is a named inventor
on multiple financial products and currently has a pending patent at the USPTO for non-transparent ETFs. We believe Mr. Tull is
qualified to serve on our Board of Directors based upon his industry and management experience.
Orlando
Reece, Director
As
Chief Executive Officer for Pride Media, Orlando Reece is the steward of the world’s largest media company dedicated to
serving the LGBTQ+ community. He is responsible for expanding brands like The Advocate and Out beyond their print titles into
digital, social and events while maximizing revenue growth across all of the company’s businesses units. His strategic vision
for the company focuses on three pillars: great creative content, innovative use of technology and expanding the brands to a larger
audience with a “queer” lens. Prior to taking on the CEO role, he served as the Chief Revenue and Marketing Officer
growing revenue over 26%. Before joining Pride Media, Orlando was a co-founder and the Chief Operating Officer of Swoup, a fast-growing
shopping and saving mobile app. He played a key role in growing the app’s user base and developing the state-of-the-art
app, which allows consumers to save money on everyday purchases and repurpose the saved money for higher education expenses, charitable
donations, savings and retirement. Throughout his career, Orlando has developed a reputation for transforming and disrupting business
models at major media and entertainment companies, with a proven history of success in corporate growth, revenue maximization,
strategic planning and cross-media sales and marketing. We believe Mr. Reece is qualified to serve on our Board of Directors based
upon his industry and management experience.
Family
Relationships
There
are no family relationships among our Directors or Executive Officers.
Involvement
in Certain Legal Proceedings
Except
as described above, none of our directors or executive officers has been involved in any of the following events during the past
ten years:
|
|
●
|
Any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
|
|
●
|
Any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
|
|
|
|
|
●
|
Being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business,
securities or banking activities; or
|
|
|
|
|
|
|
●
|
Being
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Board
Committees
The
Company currently has not established any committees of the Board of Directors. Our Board of Directors may designate from among
its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a
nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended
by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire
Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board
it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand
the size of our board and allocate responsibilities accordingly.
Audit
Committee Financial Expert
We
have no separate audit committee at this time. The entire Board of Directors oversees our audits and auditing procedures. The
Board of Directors has determined that no director is an “audit committee financial expert” within the meaning of
Item 407(d)(5) for SEC regulation S-K.
Board
of Directors and Corporate Governance
Our
Board of Directors consists of seven members, Robert A. Blair, Lawrence P. Roan, Barney Frank, Billy Bean, Martina Navratilova,
Robert Tull and Orlando Reece.
Board
Independence
We
are not currently listed on any national securities exchange or quoted on an inter-dealer quotation system that has a requirement
that certain of the members of the Board of Directors be independent. However, the Board of Directors has made a determination
as to which of its members are independent. In evaluating the independence of its members and the composition of the committees
of the Board of Directors, the Board utilizes the definition of “independence” developed by the Nasdaq Stock Market
and in SEC rules, including the rules relating to the independence standards in audit committee members and the non-employee director
definition of Rule 16b-3 promulgated under the Exchange Act.
The
Board of Directors expects to continue to evaluate whether and to what extent the members of the Board are independent. The Company
intends to appoint persons to the Board who will meet the corporate governance requirements imposed by a national securities exchange.
Therefore, the Company expects that a majority of its directors will be independent directors of which at least one director will
qualify as an “audit committee financial expert,” within the meaning of SEC rules.
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.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of a registered class of our equity
securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, officers
and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms that we received with respect to the fiscal year ended December 31, 2018,
we believe that each person who at any time during the fiscal year was a director, officer or beneficial owner of more than 10%
of our common stock, satisfied their Section 16(a) filing requirements although Robert Gayman filed a report on a late basis.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table sets forth information concerning the total compensation paid or accrued by us during the fiscal years ended December
31, 2020 and 2019 to all individuals that served as our principal executive officers.
Summary
Compensation Table
|
Name & Principal Position
|
|
Fiscal Year ended December 31
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
Non-Qualified Deferred Compensation
Earnings ($)
|
|
|
All Other Compensation ($)
|
|
|
Total ($)
|
|
|
Robert A. Blair, CEO, Director
|
|
|
2020
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
19,366
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
219,366
|
|
|
|
|
|
2019
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
24,391
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Sherb, CFO
|
|
|
2020
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
|
|
2019
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
28,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Sterling, COO
|
|
|
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.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership of our common stock, our only outstanding class
of voting stock, known by us as of April 15, 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)
|
|
|
Beneficial Owners
|
|
|
|
|
|
|
|
|
|
Brian Neal
|
|
|
50,522,206
|
|
|
|
10.7
|
%
|
|
Lawrence P. Roan
|
|
|
35,315,899
|
|
|
|
7.5
|
%
|
|
Robert A. Blair
|
|
|
27,561,374
|
|
|
|
5.8
|
%
|
|
Jeffrey Sterling
|
|
|
24,330,000
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Robert A. Blair
|
|
|
27,561,374
|
|
|
|
5.8
|
%
|
|
Eric Sherb
|
|
|
1,556,673
|
|
|
|
0.3
|
%
|
|
Jeffrey Sterling
|
|
|
24,330,000
|
|
|
|
5.1
|
%
|
|
Lawrence P. Roan
|
|
|
35,315,899
|
|
|
|
7.5
|
%
|
|
Barney Frank
|
|
|
22,000,000
|
|
|
|
4.7
|
%
|
|
Billy Bean
|
|
|
22,661,374
|
|
|
|
4.8
|
%
|
|
Martina Navratilova
|
|
|
22,661,374
|
|
|
|
4.8
|
%
|
|
Robert Tull
|
|
|
22,648,333
|
|
|
|
4.8
|
%
|
|
Orlando Reece
|
|
|
21,148,174
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (9 persons)
|
|
|
199,883,201
|
|
|
|
42.2
|
%
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”). For
this purpose, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise, has or shares (a) the power to vote, or to direct the voting of, such security
and/or (b) the power to dispose, or to direct the disposition of, such security. Shares of common stock subject to options
or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of April 15, 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 473,098,618 shares of common stock outstanding as of April 15, 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
|
|
|
1,800,000
|
|
|
|
0.0045
|
|
|
|
2,753,312
|
|
|
Equity compensation
plans not approved by securities holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1,800,000
|
|
|
|
0.0045
|
|
|
|
2,753,312
|
|
During
2020, 4,000,000 options were exercised for shares of common stock and 1,800,000 options remained outstanding.
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.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Transactions
Involving LFAP and/or LFAP Stockholders
On
January 25, 2019, in connection with the closing of the January 25, 2019 Securities Exchange Agreement we issued 120,959,996 shares
of our common stock and one share of our Series A Convertible Preferred Stock to Maxim in exchange for all of the membership interests
of LGBT Loyalty LLC. Effective March 26, 2019, the share of Series A Convertible Preferred Stock was automatically converted into
8,598,578 shares of our common stock.
On
November 1, 2018, we entered into an Employment Services Agreement with Lawrence Roan (see Item 11. Executive Compensation –
Employment Agreements).
On
December 5, 2018 we issued 10,946,688 shares of our restricted common stock to Robert Gayman pursuant to the exercise of (i) 6,000,000
stock options at an exercise price of $0.0026 per share or an aggregate of $15,600, and (ii) 4,946,688 stock options at an exercise
price of $0.01 per share or an aggregate of $49,467, the payment for which was made by making a corresponding deduction to amounts
owed by us to Mr. Gayman.
On
January 25, 2019 we issued common stock purchase warrants to Brian Neal (the “Neal Warrants”) and Robert Gayman (the
“Gayman Warrants”) in consideration of amounts due to Brian Neal, Robert Gayman and Robert Blair at the close of business
on December 31, 2018. Effective March 26, 2019, the Neal Warrants were automatically converted into 4,609,458 shares of our common
stock and the Gayman Warrants were automatically converted into 3,990,840 shares of our common stock (see Item 1. – Business).
In
March 2019, Bobby Blair was granted the right to participate in the commission program relating to our LGBTQ Loyalty Sponsorship
Program with a 20% commission for a direct sale and 5% commission for assisting the sale of a Sponsorship.
In
connection with the March and April 2019 appointments of Barney Frank, Billy Bean, Martina Navratilova, Robert Tull and LZ Granderson
(former member) to our Board of Directors, we issued 1,000,000 shares of our restricted common stock to each of them. We also
agreed to pay each of them an annual fee of $25,000 for serving as a Director, payable in monthly installments. As of December
31, 2019, an aggregate of 1,358,382 shares of common stock are issuable pursuant to the monthly fees under the director compensation
agreements. We also granted each of them the right to participate in the commission program we intend to establish with respect
to direct (20% commission) and indirect (10% commission) sales related to our LGBT Loyalty Sponsorship Programs.
In
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.”
|
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Audit
Fees
|
Fee
Category
|
|
Fiscal
year ended
December 31,
2020
|
|
|
Fiscal
Year
Ended
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit fees (1)
|
|
$
|
82,500
|
|
|
$
|
82,500
|
|
|
Audit-related fees (2)
|
|
|
|
|
|
|
|
|
|
Tax fees (3)
|
|
|
|
|
|
|
|
|
|
All other fees
(4)
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
82,500
|
|
|
$
|
42,900
|
|
(1)
Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for
reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that
are normally provided in connection with statutory or regulatory filings or engagements.
(2)
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit
or review of our consolidated financial statements but are not reported under “Audit fees.”
(3)
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4)
All other fees consist of fees billed for all other services.
Audit
Committee’s Pre-Approval Practice
Prior
to our engagement of our independent auditor, such engagement was approved by our board of directors. The services provided under
this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is generally
provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally
subject to a specific budget. Pursuant our requirements, the independent auditors and management are required to report to our
board of directors at least quarterly regarding the extent of services provided by the independent auditors in accordance with
this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services
on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us for the years ended December 31, 2020
and 2019, were approved by our board of directors.
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:
|
|
|
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:
|
|
|
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:
|
|
|
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:
|
Principal amount outstanding
|
|
$
|
2,458,024
|
|
|
Less: Unamortized original issue discount
|
|
|
(94,857
|
)
|
|
Less: Unamortized debt discount
|
|
|
(701,647
|
)
|
|
|
|
$
|
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:
|
|
|
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:
|
|
|
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
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:
|
|
|
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:
|
|
|
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:
|
|
|
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:
|
|
|
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:
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
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.