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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 000-54867

 

LGBTQ LOYALTY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   80-0671280

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification No.)

 

2435 Dixie Highway, Wilton Manors, FL 33305

(Address of principal executive offices, including zip code)

 

Tel: (858)-577-1746

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if this registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of October 12, 2022 the Company had 1,179,890,617 shares of common stock, $0.001 par value, issued and outstanding.

Our independent audit firm has not finished their review and have not provided approval to this filing.

 

 

 

 
 

 

LGBTQ Loyalty Holdings, Inc.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS

 

    PAGE
     
  PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
     
Item 4. Controls and Procedures 19
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 20
     
Item 1A. Risk Factors 20
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
Item 3. Defaults Upon Senior Securities 20
     
Item 4. Mine Safety Disclosures 20
     
Item 5. Other Information 20
     
Item 6. Exhibits 20
     
  SIGNATURES 21

 

i
 

 

LGBTQ Loyalty Holdings, Inc.

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

  PAGE
   
Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 2
   
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited) 3
   
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) 4
   
Condensed Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2022 and 2021 (unaudited) 5
   
Notes to Condensed Consolidated Financial Statements (unaudited) 6

 

1
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30,   December 31, 
   2022   2021 
ASSETS          
Current assets:           
Cash  $11,269   $78,348 
Prepaid expenses and other current assets   8,270    6,925 
Total current assets   19,539    85,273 
Intangible assets, net   40,347    53,243 
Total assets  $59,886   $138,516 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities:          
Accounts payable  $1,386,797   $985,917 
Accrued salaries and consulting fees   743,321    660,331 
Accrued interest and dividends   861,384    640,153 
Notes payable   256,986    126,986 
Notes payable to related party   71,800    1,800 
Convertible notes payable, net of debt discount   2,415,028    2,195,145 
Derivative liability on convertible notes payable   2,733,676    1,398,127 
Series D preferred stock   1,758,224    - 
Total liabilities   10,227,216    6,008,459 
           
Commitments and contingencies   -    - 
           
Stockholders’ equity (deficit):          
Preferred stock, $0.001 par value, 10,000,000 shares authorized          
Series A, 1 share designated, no shares issued or outstanding as of June 30, 2022 and December 31, 2021   -    - 
Series B, 500,000 shares designated, 0 and 50,000 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   -    - 
Series C, 129,559 shares designated, 52,559 and no shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   52    52 
Series D, 2,000 shares designated, 986 and 1,050 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   1    1 
Common stock, $0.001 par value, 2,000,000,000 shares authorized, 1,132,010,984 and 832,719,287 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   1,132,007    832,719 
Additional paid-in capital   12,537,145    13,215,129 
Accumulated deficit   (23,836,535)   (19,917,844)
Total stockholders’ equity (deficit)   (10,167,330)   (5,869,943)
Total liabilities and stockholders’ equity (deficit)  $59,886   $138,516 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

2
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2022   2021   2022   2021 
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
Revenue   -    -   $-    - 
Cost of net revenue   -    -    -   $- 
Gross profit   -    -    -    - 
                     
Operating expenses:                    
Personnel costs   46,407    93,122    160,401    1,389,120 
Consulting fees   11,250    38,500    26,500    71,500 
Legal and professional fees   124,992    153,527    281,785    258,650 
Fund expenses   -    -    100,000    - 
Sales and marketing   71,237    40,500    98,939    40,500 
General and administrative   3,136    28,391    39,453    56,514 
Depreciation and amortization   6,448    6,448    12,896    12,896 
Total operating expenses   263,470    360,489    719,974    1,829,181 
                     
Loss from operations   (263,470)   (360,489)   (719,974)   (1,829,181)
                     
Other income (expense):                    
Interest expense   (1,418,989)   (727,641)   (1,525,116)   (1,289,328)
Change in derivative liability   (746,277)   (2,658,950)   (1,105,465)   (2,245,976)
Total other income (expense), net   (2,165,266)   (3,386,591)   (2,630,581)   (3,535,304)
                     
Provision for income taxes   -    -    -    - 
Net loss  $(2,428,736)  $(3,747,080)  $(3,350,555)  $(5,364,485)
                     
Weighted average common shares outstanding - basic and diluted   994,630,987    553,901,386    897,635,176    432,821,915 
Net loss per common share - basic and diluted  $(0.002)  $(0.01)  $(0.004)  $(0.01)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

3
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2022   2021 
   Six Months Ended 
   June 30, 
   2022   2021 
Cash flows from operating activities:          
Net loss   $(3,350,555)  $(5,364,485)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt discount and original issue discount   104,242    704,007 
Change in fair value of derivative liability   1,105,465    2,245,976 
Financing related costs - debt   1,220,986    460,780 
Stock-based compensation expense   -    1,218,114 
Depreciation and amortization   12,896    12,896 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (1,345)   14,058 
Accounts payable   411,881    (105,700)
Accrued salaries and consulting fees   82,990    201,470 
Accrued interest and dividends   176,361    93,663 
Net cash used in operating activities   (237,079)   (519,221)
Cash flows from investing activities:          
Other receivables   -    (205,000)
Net cash used in investing activities   -    (205,000)
Cash flows from financing activities:          
Net proceeds (repayments) from promissory note agreements   170,000    (1,000)
Proceeds from issuance of convertible debenture agreements   -    300,000 
Proceeds from issuance of Series D preferred stock   -    574,100 
Net cash provided by financing activities   170,000    873,100 
Net change in cash   (67,079)   148,879 
Cash at beginning of period   78,348    30,312 
Cash at end of period  $11,269   $179,191 
           
Supplemental disclosure of cash flow information:          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $-   $- 
           
Supplemental disclosure of non-cash financing activities:          
Exercise of common stock warrants  $140,966   $61,775 
Dividends on preferred stock  $44,870   $11,241 
Conversion of Series D preferred stock for common stock   $111,000   $- 
Deemed dividend on conversion of preferred stock   $523,266   $- 
Debenture conversions   $114,040   $- 
Reclassification of Series D preferred stock   $1,015,999   $- 
Conversion of accrued consulting fees into common shares  $-   $338,608 
Conversion of related party notes payable into common shares  $-   $16,085 
Conversion of Series C preferred stock into common stock   $-   $53,000 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

4
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Preferred Stock           Additional       Total 
   Series A   Series B   Series C   Series D   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
                                                     
Balances at December 31, 2020       -   $    -    50,000   $50    129,559   $130    -    -    263,725,234   $263,725   $7,714,704   $(13,239,189)  $(5,260,580)
Common shares issued to board of directors   -    -    -    -    -    -    -    -    140,000,000    140,000    980,000    -    1,120,000 
Common shares issued for services and compensation   -    -    -    -    -    -    -    -    31,834,386    31,834    204,614    -    236,448 
Debenture conversions   -    -    -    -    -    -    -    -    37,538,998    37,539    318,815    -    356,354 
Dividends on preferred stock   -    -    -    -    -    -    -    -    -    -    -    (1,722)   (1,722)
Net loss   -    -    -    -    -    -    -    -    -    -    -    (1,617,405)   (1,617,405)
Balances at March 31, 2021   -    -    50,000    50    129,559    130    -    -    473,098,618    473,098    9,218,133    (14,858,316)   (5,166,906)
Debenture conversions   -    -    -    -    -    -    -    -    100,448,779    100,449    1,821,061    -    1,921,510 
Conversion of notes and payables   -    -    -    -    -    -    -    -    11,956,004    11,956    192,408    -    204,364 
Exercise of warrants   -    -    -    -    -    -    -    -    30,887,276    30,887    (30,887)   -    - 
Conversion of Series C preferred stock into common stock   -    -    -    -    (53,000)   (53)   -    -    53,000,000    53,000    (52,947)   -    - 
Dividends on preferred stock   -    -    -    -    -    -    -    -    -    -    -    (9,519)   (9,519)
Net loss   -    -    -    -    -    -    -    -    -    -    -    (3,747,079)   (3,747,079)
Balances at June 30, 2021   -   $-    50,000   $50    76,559   $77    -   $-    669,390,677   $669,390   $11,147,767   $(18,614,915)  $(6,797,631)
                                                                  
Balances at December 31, 2021   -   $-    -   $-    51,559   $52    1,050   $1    832,719,287   $832,719   $13,215,129   $(19,917,844)  $(5,869,943)
Exercise of warrants   -    -    -    -    -    -    -    -    43,349,000    43,349    (43,349)   -    - 
Conversion of Series D preferred stock for common stock   -    -    -    -    -    -    (45)   -    36,000,000    36,000    (36,000)   -    - 
Deemed dividend on conversion of preferred stock   -    -    -    -    -    -    -    -    -    -    237,924    (237,924)   - 
Dividends on preferred stock   -    -    -    -    -    -    -    -    -    -    -    (22,720)   (22,720)
Net loss   -    -    -    -    -    -    -    -    -    -    -    (921,819)   (921,819)
Balances at March 31, 2022   -    -    -    -    51,559    52    1,005    1    912,068,287    912,068    13,373,704    (21,100,307)   (6,814,482)
Debenture conversions   -    -    -    -    -    -    -    -    84,325,397    84,325    29,714    -    114,040 
Exercise of warrants   -    -    -    -    -    -    -    -    97,617,300    97,617    (97,617)   -    - 
Conversion of Series D preferred stock for common stock   -    -    -    -    -    -    (19)   -    38,000,000    38,000    (38,000)   -    - 
Deemed dividend on conversion of preferred stock   -    -    -    -    -    -    -    -    -    -    285,342    (285,342)   - 
Reclassification of Series D preferred stock   -    -    -    -    -    -    -    -    -    -    (1,015,999)   -    (1,015,999)
Dividends on preferred stock   -    -    -    -    -    -    -    -    -    -    -    (22,150)   (22,150)
Net loss   -    -    -    -    -    -    -    -    -    -    -    (2,428,736)   (2,428,736)
Balances at June 30, 2022   -   $-    -   $-    51,559   $52    986   $1    1,132,010,984   $1,132,011   $12,537,145   $(23,836,535)  $(10,167,330)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

5
 

 

LGBTQ LOYALTY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2022

 

Note 1. Nature of Business

 

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

 

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

 

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

 

On March 25, 2022, ProcureAM, LLC (“Adviser”), the adviser to the Fund, after consultation with the Company, the sponsor of the ETF, determined that the Fund should be closed. Based upon a recommendation by the Adviser, the Board of Trustees of Procure ETF Trust I (the “Trust”) has approved a Plan of Liquidation for the Fund under which the Fund will be liquidated on or about April 28, 2022 (the “Liquidation Date”). The Liquidation Date may be changed without notice at the discretion of the officers of the Trust. Beginning when the Fund commences the liquidation of its portfolio, the Fund will not pursue its investment objectives or, with certain exceptions, engage in normal business activities, and the Fund may hold cash and securities that may not be consistent with the Fund’s investment objective and strategy, which may adversely affect Fund performance. On April 28, 2022, the Company effectuated the termination and liquidation of the Fund pursuant to the terms of a Plan of Liquidation. As of this date, the Fund has ceased operations.

 

6
 

 

Note 2. Summary of Significant Accounting Policies

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“US GAAP”), which contemplates our continuation as a going concern. We have incurred losses to date of $23,836,535 and have negative working capital of $10,207,677 as of June 30, 2022. To date we have funded our operations through advances from a related party, issuances of convertible debt, and the sale of common stock, preferred stock and warrants. We intend to raise additional funding through third-party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Basis of Presentation

 

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2022. Certain information and footnote disclosures normally included in unaudited condensed consolidated financial statements prepared in accordance with US GAAP have been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

 

Prior Period Adjustments

 

In the first quarter of 2022, we determined that the Series D preferred stock included a substantive conversion option, and therefore should be equity classified. Previously, the amount was included as a current liability. We have reclassified the amount to Series D preferred stock equity and additional paid-in capital on the consolidated balance sheet and consolidated statement of stockholders’ equity as of December 31, 2021. We do not believe the change to be qualitatively material to the consolidated financial statements as of December 31, 2021.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, LGBTQ Loyalty, LLC, and Advancing Equality Preference, Inc. All material inter-company transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

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

 

7
 

 

Fair Value Measurements

 

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

 

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

 

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

 

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

 

Our financial instruments consist of cash, other current assets, accounts payables, accruals, and notes payable. The carrying values of these instruments approximate fair value because of the short-term maturities. The fair value of the Company’s convertible debentures and promissory notes approximates their carrying values as the underlying imputed interest rates approximates the estimated current market rate for similar instruments. The derivative is measured as a Level 3 instrument due to the various inputs which requires significant management judgment. Refer to Note 6 for detail.

 

The following table is a summary of our financial instruments measured at fair value:

 

   Fair Value Measurements 
   as of June 30, 2022: 
   Level 1   Level 2   Level 3   Total 
Liabilities:                    
Derivative liability on convertible notes payable and preferred stock  $-   $-   $2,733,676   $2,733,676 
   $-   $-   $2,733,676   $2,733,676 

 

   Fair Value Measurements 
   as of December 31, 2021: 
   Level 1   Level 2   Level 3   Total 
Liabilities:                    
Derivative liability on convertible notes payable  $-   $-   $1,398,127   $1,398,127 
                     
   $-   $-   $1,398,127   $1,398,127 

 

8
 

 

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 six months ended June 30, 2022 and 2021, and the outstanding stock options and warrants are anti-dilutive. For the six months ended June 30, 2022 and 2021, the following number of potentially dilutive shares have been excluded from diluted net loss since such inclusion would be anti-dilutive:

 

   2022   2021 
   Six Months Ended 
   June 30, 
   2022   2021 
Stock options outstanding   -    1,800,000 
Warrants   33,092,482    204,946,057 
Shares to be issued upon conversion of notes and Series D preferred stock   8,180,908,567    203,651,096 
Anti-dilutive securities   8,214,001,049    410,397,153 

 

Recent Pronouncements

 

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company has elected to early adopt this ASU in the first quarter of 2022 and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

 

Note 3. Intangible Assets

 

The Company capitalizes costs pertaining to the development of the LGBTQ100 ESG Index website. The Company began amortizing these costs upon the launch of the index, and will amortize the costs over a three-year useful life.

 

At June 30, 2022 and December 31, 2021, net intangible assets were $40,347 and $53,243, respectively. Amortization expense was $12,896 for both the six months ended June 30, 2022 and 2021, respectively.

 

9
 

 

Note 4. Notes Payable

 

As of June 30, 2022 and December 31, 2021, the Company has a note payable outstanding in the amount of $1,986. The note is past due at June 30, 2022 and is, therefore, in default. The note accrues interest at a rate of 2% per annum.

 

In December 2019, the Company issued a promissory note to Pride Partners LLC (“Pride”) for $75,000. The note is secured, accrues interest at a rate of 10% per annum, and matured on June 20, 2020. As of June 30, 2022, the full principal amount was outstanding and in default.

 

In 2019, the Company issued a promissory note for $50,000. The note includes $2,500 in original issue discount. The noted is unsecured and matured in December 2019. As of June 30, 2022, the full principal amount was outstanding an in default.

 

In April 2022, Advancing Equality Preference entered into a loan payable for $130,000 for proceeds of $100,000.

 

Note 5. Convertible Notes Payable

 

During the six months ended June 30, 2022 and 2021, the Company recorded amortization of debt discount and original issue discount of $104,242 and $582,631, respectively, for all convertible debentures. This amount is included in interest expense in our consolidated statements of operations.

 

The Company did not file its Form 10-Q for the quarter ended March 31, 2022 on a timely basis. As a result, several default provisions were triggered with the Company’s outstanding debentures. The Company recorded an additional $374,125 in additional principal owed upon this default provision. Accordingly, the Company recorded $374,125 in interest expense in the consolidated statements of operations.

 

The following is a summary of the activity of the convertible notes payable and convertible debenture for the six months ended June 30, 2022:

 

   Convertible 
   Debenture 
Balance as of December 31, 2021  $2,195,145 
Additional principal per default provisions   374,125 
Amortization of debt discount and original issue discount   (104,242)
Conversion to common stock, net of discount   (50,000)
Balance as of June 30, 2022  $2,415,028 

 

The following comprises the balance of the convertible debenture outstanding at June 30, 2022 and December 31, 2021:

 

   June 30,   December 31, 
   2022   2021 
Principal amount outstanding  $2,545,152   $2,221,027 
Less: Unamortized original issue discount   (123,420)   - 
Less: Unamortized original issue discount   (6,703)   (25,882)
Total  $2,415,028   $2,195,145 

 

10
 

 

As of June 30, 2022 and December 31, 2021, the EMA Note was in default and the parity value of the EMA Note was determined to be $434,687. In 2021, the Company issued 60,714,000 shares of common stock pursuant to conversions of outstanding principal.

 

Note 6. Derivative Liability

 

We evaluated the terms of the conversion features of the debentures and related debenture warrants as noted above and below, in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock, and determined they are indexed to the Company’s common stock and that the conversion features meet the definition of a liability. Therefore, we bifurcated the conversion feature and accounted for it as a separate derivative liability.

 

To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.

 

We value the conversion feature at origination of the notes using the Black-Scholes valuation model with the below assumptions. We value the derivative liability at the end of each accounting period, and upon conversion of the underlying note or warrant, with the difference in value recognized as gain or loss included in other income (expense) in our consolidated statements of operations.

 

   Six Months Ended 
   June 30, 
   2022   2021 
Risk-free interest rate    2.01%   0.09%
Expected term (in years)    0.48    1.00 
Expected volatility    154.5%   237.4%
Expected dividend yield    0%   0%
Exercise price of underlying common shares  $0.001   $0.004 

 

During the six months ended June 30, 2022, the entire value of the principal of the debentures was assigned to the derivative liability and recognized as a debt discount. The debt discount is recorded as reduction (contra-liability) to the debentures and is being amortized over the initial term. Any excess balance was recognized as origination interest on the derivative liability and expensed on origination. In accordance with the Company’s sequencing policy, shares issuable pursuant to the convertible debentures would be settled subsequent to the Company’s Series B preferred stock.

 

The following is a summary of the activity of the derivative liability for the six months ended June 30, 2022:

 

     
   Debenture 
Balance as of December 31, 2021  $1,398,127 
Initial fair value per derivative recognition   294,124 
Conversion of debenture to common stock   (64,040)
Change in fair value of derivative liability   1,105,465 
Balance as of June 30, 2022  $2,733,676 

 

11
 

 

Note 7. Preferred Stock

 

Series D Convertible Preferred Stock

 

On April 8, 2021, the Company issued 400 shares of Series D Convertible Preferred Stock (the Series D Preferred Stock”) to GHS Investments, LLC (“GHS”) pursuant to a Securities Purchase Agreement (“GHS April Agreement”) for net proceeds of $427,600. In conjunction with the GHS Agreement, the Company issued warrants to purchase 40,000,000 shares of common stock at an exercise price of $0.001.

 

On May 12, 2021, the Company issued 150 shares of Series D Preferred Stock to GHS Investments, LLC pursuant to a Securities Purchase Agreement (“GHS May Agreement”) for net proceeds of $146,500. In conjunction with the GHS Agreement, the Company issued warrants to purchase 1,500,000 shares of common stock at an exercise price of $0.001.

 

On July 14, 2021, the Company issued 250 shares of Series D Preferred Stock to GHS pursuant to a Securities Purchase Agreement (“GHS July Agreement”) for net proceeds of $237,500. On August 20, 2021, the Company issued 250 shares of Series D Preferred Stock to GHS pursuant to a Securities Purchase Agreement (“GHS August Agreement”) for net proceeds of $250,000.

 

On the one-year anniversary of the date of issuance of the Preferred Stock, the Company must redeem the Preferred Stock then outstanding at a price equal to the outstanding Stated Value together with any accrued but unpaid dividends.

 

In January 2022, GHS converted 45 shares of Series D preferred stock with a stated value of $54,000 for 36,000,000 shares of common stock at a conversion price of $0.0015 per share. As a result of the conversion, the Company recorded a deemed dividend of $237,924, which is calculated as the number of shares of common stock issued multiplied by the difference between the conversion price ($0.0015) and original fixed conversion price of $0.008109.

 

In June 2022, GHS converted 19 shares of Series D preferred stock with a stated value of $57,000 for 38,000,000 shares of common stock at a conversion price of $0.0015 per share. As a result of the conversion, the Company recorded a deemed dividend of $285,342, which is calculated as the number of shares of common stock issued multiplied by the difference between the conversion price ($0.0015) and original fixed conversion price of $0.008109.

 

As of June 30, 2022, there were 986 shares of Series D preferred stock outstanding, and $97,814 in accrued Series D dividends. As of December 31, 2021, there were 1,050 shares of Series D preferred stock outstanding, and $52,944 in accrued Series D dividends.

 

Due to the Company’s late filing on its Form 10-Q for the quarter ended March 31, 2022 (see Note 7), default provisions were triggered with the GHS agreement. As a result, it was determined all preferred stock were due for redemption immediately. The Company determined that $1,758,224, inclusive of the stated value of the Series D preferred stock, and inclusive of accrued dividends, default penalties and interest, was due. As such, the Company reclassified $1,015,999 of Series D preferred stock from additional paid-in capital to a current liability. The remaining amount of $742,225 was included in interest expense in the consolidated statements of operations.

 

Note 8. Stockholders’ Equity (Deficit)

 

Common Stock

 

In January 2022, GHS converted 45 shares of Series D preferred stock with a stated value of $54,000 for 36,000,000 shares of common stock at a conversion price of $0.0015 per share.

 

In June 2022, GHS converted 19 shares of Series D preferred stock with a stated value of $57,000 for 38,000,000 shares of common stock at a conversion price of $0.0015 per share.

 

In the six months ended June 30, 2022, Auctus exercised warrants for 140,966,300 shares of common stock.

 

In March 2021, an aggregate of 140,000,000 shares of common stock were issued to the board members for accrued dividends as well as current compensation the year ended December 31, 2021. Of these shares issuances, $961,666 is included in personnel costs in the consolidated statements of operations.

 

In March 2021, an aggregate of 31,834,386 shares of common stock were issued to employees and consultants for accrued and current consulting services for a total fair value of $236,448.

 

In June 2021, an aggregate of 11,956,004 shares of common stock were issued pursuant to conversion of balances owed to a related party and accrued consulting services totaling $204,364.

 

In June 2021, Auctus exercised 30,887,276 warrants into shares of common stock.

 

During the six months ended June 30, 2021, Pride converted 53,000 shares of Series C preferred stock for 53,000,000 shares of common stock.

 

During the three months ended June 30, 2022 and 2021, the Company issued 84,325,397 and 137,987,777 shares of common stock pursuant to conversion of debentures in the principal amount of $50,000 and $495,247, all respectively.

 

Note 9. Options and Warrants

 

Options

 

As of June 30, 2022 and December 31, 2021, we had 0 options remaining outstanding pursuant to the 2012 Equity Incentive Plan.

 

Warrants

 

As of June 30, 2022 and December 31, 2021, we had 33,092,482 and 174,058,782 warrants outstanding, respectively, with a weighted average exercise price of $0.01 and $0.02 per share. In the six months ended June 30, 2022, Auctus exercised warrants for 140,966,300 shares of common stock.

 

12
 

 

Note 10. Related Party Transactions

 

Parties, which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

Notes Payable to Related Party

 

Notes payable to related parties at June 30, 2022 and December 31, 2021 included a note of $1,800 with a 2% annual interest rate. Currently the Company has defaulted on this obligation. Forbearance has been granted by the related party.

 

In February 2022, the Company issued a promissory note to a related party for $70,000. The note is unsecured and matures in April 2022. The note does not bear interest. The note includes a promise to issue shares of the Company’s preferred stock, which was undetermined as of June 30, 2022.

 

Accrued Salaries and Compensation

 

As of June 30, 2022 and December 31, 2021, accrued salaries to our company officers and executive director totaled $522,804 and $472,804, respectively, and is included in accrued salaries and consulting fees in our consolidated balance sheets.

 

In March 2021, we issued 200,000,000 shares of common stock to the Chief Operating Officer for a total fair value of $160,000.

 

Board of Directors

 

In March 2021, we issued 20,000,000 shares of common stock to each of the seven board members, including the Chief Executive Officer, for an aggregate of 140,000,000 shares. Of these share issuances, $961,666 is included in personnel costs in the consolidated statements of operations and the remaining $138,334 was converted from accrued salaries and consulting fees.

 

A former board member is the co-founder and president of ProcureAM, LLC, the fund advisor for the Fund. During 2021, we initially received $100,000 from ProcureAM and provided an additional $305,000 to the custodian. As of December 31, 2021, we have recorded $305,000 in fund expenses and do not expect to receive any amounts back from ProcureAM. In the three months ended June 30, 2022, we recorded an additional $100,000 in fund expenses which we do not expect to receive any amounts back from ProcureAM. As such, other receivable was $0 on the consolidated balance sheets.

 

On April 15, 2022, Deborah Fuhr submitted her resignation as a member of the Board, effective immediately. Ms. Fuhr submitted her resignation to pursue other interests. The Company’s Board accepted Ms. Fuhr’s resignation and expressed its appreciation for the services she provided to the Company.

 

Accounts Payable

 

As of June 30, 2022 and December 31, 2021, the Company had $168,308 and $102,808, respectively, included in accounts payable to related parties including officers and board members.

 

Note 11. Subsequent Events

 

Management has evaluated all activity up to October 14, 2022 and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements other than the following:

 

On August 25, 2022, Barney Frank and Martina Navratilova submitted their resignations as Directors of LGBTQ Loyalty Holdings, Inc. (the “Company”) with immediate effect. Additionally, on August 27, 2022, William Bean submitted his resignation as a Director of the Company with immediate effect. Mr. Frank and Mr. Bean submitted their resignations due to differences of opinion in the direction of the Company. Each of Messrs. Frank and Bean and Ms. Navratilova have offered to tender their respective shares of Common Stock back to the Company.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including our unaudited condensed consolidated financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 and the related notes. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “us,” “we,” “our,” and similar terms refer to LGBTQ Loyalty Holdings, Inc., a Delaware corporation. This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements.

 

We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risk factors in Item 2.01 in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2022. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Moreover, we operate in a very competitive changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and certainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

 

Business Overview

 

On January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating the first LGBTQ Loyalty Preference Index ETF (the “Index ETF”) to provide the LGBTQ community with the power to influence the allocation of capital within a financial Index ETF based upon LGBTQ consumer preferences. The Index ETF 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 Advancing Equality Preference, Inc. (“AEP”) and our strategically aligned partnerships with crowd sourced data and analytic providers, we launched the LGBTQ100 ESG Index which integrates LGBTQ community survey data into the methodology for a benchmark listing of the nation’s highest financially performing large-cap publicly listed corporations that our respondents believe are most committed to advancing equality. LPI is the index provider for the LGBTQ + ESG100 ETF; LGBTQ Loyalty was the Sponsor for the prospectus that was filed by the highly regarded licensed Fund Adviser ProcureAM, a wholly owned subsidiary of Procure Holdings, LLC., which is through our platform service agreement (“PSA”), and was approved by the Securities and Exchange Commission (“SEC”) in early January 2020. The LGBTQ + ESG100 ETF (the “Fund”) sought to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index. The Fund earned management fees based on assets under management (“AUM”) and launched in Q3 - 2021 on the NASDAQ.

 

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Fund Closure

 

On March 25, 2022, ProcureAM, LLC (“Adviser”), the adviser to the Fund, after consultation with the Company, the sponsor of the ETF, determined that the Fund should be closed. Based upon a recommendation by the Adviser, the Board of Trustees of Procure ETF Trust I (the “Trust”) has approved a Plan of Liquidation for the Fund under which the Fund will be liquidated on or about April 28, 2022 (the “Liquidation Date”). The Liquidation Date may be changed without notice at the discretion of the officers of the Trust. Beginning when the Fund commences the liquidation of its portfolio, the Fund will not pursue its investment objectives or, with certain exceptions, engage in normal business activities, and the Fund may hold cash and securities that may not be consistent with the Fund’s investment objective and strategy, which may adversely affect Fund performance.

 

LGBTQ Loyalty has generated an abundance of media coverage for our premier LGBTQ Index product with the launch and listing on NYSE of the LGBTQ100 ESG Index. The exclusive media launch with Bloomberg Media was instrumental in propelling the LGBTQ100 brand to center stage overnight in the financial sector. In addition, LGBTQ Loyalty was featured at the Inside ETFs Summit in early 2020 with Board Members, Barney Frank and Billy Bean speaking on the “The Power of Inclusion & Equality” for investors. Our media strategy objective is to lay the groundwork for additional high-profile positioning of the brand as we work to achieve the desired increased financial media coverage and growth in AUM valuation for our company and shareholders.

 

Our Products

 

Our mission is to build a sustainable and well recognized brand focused on unlocking the growing purchasing power of the LGTBQ community globally by offering a robust LGBTQ Index and core ETF portfolio that attracts key institutional investors and corporations.

 

At the nucleus of our LGBTQ Loyalty Preference Index is our partner-driven Crowd Preference Index Methodology (CPIM) which we believe disrupts ESG investing. This is achieved through an elevated screening process of financial performance data and ESG standards and practices, whereby LGBTQ community data on diversity and inclusion compliance directly impacts corporate financial results and transparently identifies and recognizes high performance companies who have consistently outperformed the S&P 500 index or equivalent sector standards and norms.

 

We intend to extend the LGBTQ Loyalty Index brand with future plans to develop indices with a focus on the ‘Social’ component of ESG utilizing our proprietary financial slogan of “Advancing Equality” within other gender, minority interest groups.

 

Revenue

 

The Company focus over the past few years was to create and launch our first of many financial Index products through an equality driven thematic ESG screened and alpha performance benchmark. The Company achieved this through its LGBTQ100 ESG Index listing and performance on the NYSE starting on October 30, 2019. In 2022 our collective efforts and focus is to monetize and scale our model by capturing recurring revenue streams through our current financial Index product. Our goal is to accelerate our revenue pursuits through our partnership and licensed relationships to achieve a break-even point when we have secured AUM benchmarked against the LGBTQ100 Index in excess of $50,000,000.

 

We intend to introduce a new key partnered revenue source derived from Direct Index Licensing Fees generated by financial institutions and asset management companies for creating a product (e.g., Index Funds, Structured Financial Products, Turnkey Asset Management Providers) based on or linked to the LGBTQ100 index. This includes fees to use the LGBTQ100 index to track the performance of funds or as benchmarks for actively managed portfolios. We plan to capture Data Subscriptions which could provide recurring subscription revenue from our LGBTQ Index. This includes ongoing and historical data and information generated by our wholly owned division Advancing Equality Preference Inc., and through our strategic partnerships for new potential financial equality-driven Indices.

 

New initiatives in 2022 include a plan to create ancillary revenue streams to complement and support this unique platform for the top 100 Equality driven Corporations in America represented in the LGBTQ100 Index. We believe our index will reward and elevate the status of those corporations that have adopted diversity and inclusion best practices, cared for their employees and positively impacted LGBTQ communities. Expert LGBTQ economists have repeatedly stressed the value of the LGBTQ brand loyalty to corporations. We consider the companies that best capture the spending trends and loyalty of the LGBTQ consumer will be better positioned for financial growth and success. Given the opportunity to link to the power and status generated between the LGBTQ community, these companies and their own workforce, we will launch a Partner Loyalty Program which includes benefits afforded to defined sponsorship tiers.

 

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

 

We have achieved no revenues to date from our LGBTQ related operations and have been focused on building our product and achieving performance results and media branding over the course of the past twelve months. There are no assurances that can be given that we will achieve revenues or profitability in the future.

 

Business Strategy

 

Our business strategy is targeted to the estimated three trillion-dollar global purchasing power of the LGBTQ consumer demographic. More than nineteen million people identify themselves as LGBTQ in the US and four-hundred-fifty million globally while the LGBTQ community is composed of some of the most loyalty-driven consumers in the world.

 

We believe that the LGBTQ demographic is one of the most highly sought-after economic groups in the world from corporate America down to the local business owner because of their higher median income and brand loyalty. What makes targeting and supporting this dynamic demographic even more extraordinary and rewarding is that friends, family, employers, employees, teachers, coaches and fans of our community so loyally support the brands, products and services that in turn support us. We further believe that this loyalty across the board is time tested, proven, growing and expanding and ultimately extremely rewarding to all that are embraced by the LGBTQ community. Connecting the world’s most supportive LGBTQ companies to the dynamic, loyal and ever-increasing spending power of the LGBTQ community is a consequential step forward for the LGBTQ movement and investment community.

 

Many Fortune 500 companies are directing more of their consumer advertising and promotional spend towards celebrating diversity and equality. Our long-term goal is to reinforce the financial performance of those Corporations as they foster and integrate LGBTQ equality practices through their Diversity and Inclusion policies as a cornerstone of their corporate culture. Our LGBTQ100 Index of the top 100 corporate constituents have already embraced and enacted this standard of Equality excellence. See our top LGBTQ100 Index constituents on our website.

 

Critical Accounting Policies and Estimates

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates our continuation as a going concern. We have incurred losses to date of $20,624,459 and have negative working capital of $6,861,277 as of June 30, 2022. To date we have funded our operations through advances from a related party, issuances of convertible debt, and the sale of common stock, preferred stock and warrants. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

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Use of Estimates

 

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

 

Derivative Financial Instruments:

 

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

 

Results of Operations

 

Three months ended June 30, 2022 compared with the three months ended June 30, 2021

 

There were no revenues during the three months ended June 30, 2022 or 2021.

 

The following is a breakdown of our operating expenses for the three months ended June 30, 2022 and 2021:

 

   Three Months Ended   Six Months Ended         
   June 30,   June 30,         
   2022   2021   2022   2021   Change $   Change % 
Personnel costs  $46,407   $93,122   $160,401   $1,389,120   $(46,715)   -50%
Consulting fees   11,250    38,500    26,500    71,500    (27,250)   -71%
Legal and professional fees   124,992    153,527    281,785    258,650    (28,535)   -19%
Fund expenses   -    -    100,000    -    -    100%
Sales and marketing   71,237    40,500    98,939    40,500    30,737    100%
General and administrative   3,136    28,391    39,453    56,514    (25,255)   -89%
Depreciation and amortization   6,448    6,448    12,896    12,896    -    0%
   $263,470   $360,489   $719,974   $1,829,181   $(97,019)   -27%

 

Personnel costs include officer salaries and directors’ compensation. The decrease in personnel costs is primarily due 2021 board compensation.

 

Consulting fees decreased by $27,750 during the three months ended June 30, 2022, primarily due to limited operations in developing the Index. Consulting fees represent our efforts to launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF.

 

Legal and professional fees decreased by $28,535 primarily due to less financing matters in 2022.

 

Sales and marketing costs increased by $30,737 in the three months ended June 30, 2022 based on some new branding efforts in 2022.

 

General and administrative expenses increased by $25,255 in 2022 due to less operations overall.

 

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Depreciation and amortization expense was $6,448 in the three months ended June 30, 2022 and 2021, which represents amortization on our index development costs.

 

The following is a breakdown of our other income (expenses) for the three months ended June 30, 2022 and 2021:

 

   Three Months Ended        
   June 30,        
   2021   2020   Change $   Change % 
Interest expense  $(1,418,989)  $(727,641)   (691,348)   95%
Change in derivative liability   (746,277)   (2,658,950)   1,912,673    -72%
   $(2,165,266)  $(3,386,591)  $1,221,325    -36%

 

Interest expense is primarily attributable to origination interest and amortization of debt discount. Interest expense includes the default penalties to record additional amounts owed on the convertible debentures and Series D preferred stock.

 

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

 

Net loss was $2,428,736 and $3,747,080 for the three months ended June 30, 2022 and 2021, respectively.

 

Six months ended June 30, 2022 compared with the six months ended June 30, 2021

 

There were no revenues during the six months ended June 30, 2022 or 2021.

 

The following is a breakdown of our operating expenses for the six months ended June 30, 2022 and 2021:

 

   Six Months Ended         
   June 30,         
   2022   2021   Change $   Change % 
Personnel costs  $160,401   $1,389,120   $(1,228,719)   -88%
Consulting fees   26,500    71,500    (45,000)   -63%
Legal and professional fees   281,785    258,650    23,135    9%
Fund expenses   100,000    -    100,000    100%
Sales and marketing   98,939    40,500    58,439    100%
General and administrative   39,453    56,514    (17,061)   -30%
Depreciation and amortization   12,896    12,896    -    0%
   $719,974   $1,829,181   $(1,109,207)   -61%

 

Personnel costs include officer salaries and directors’ compensation. The decrease in personnel costs is primarily due 2021 board compensation.

 

Consulting fees decreased by $45,000 during the six months ended June 30, 2022, primarily due to limited operations in developing the Index. Consulting fees represent our efforts to launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF.

 

Legal and professional fees increased by $23,135.

 

Fund expenses represented the $100,000 incurred to Procure.

 

Sales and marketing costs increased by $58,439 in the three months ended June 30, 2022 based on some new branding efforts in 2022.

 

General and administrative expenses increased by $17,061 in 2022 due to less operations overall.

 

Depreciation and amortization expense was $12,896 in the six months ended June 30, 2022 and 2021, which represents amortization on our index development costs.

 

The following is a breakdown of our other income (expenses) for the six months ended June 30, 2022 and 2021:

 

   Six Months Ended         
   June 30,         
   2021   2020   Change $   Change % 
Interest expense  $(1,525,116)  $(1,289,328)   (235,788)   18%
Change in derivative liability   (1,105,465)   (2,245,976)   1,140,511    -51%
   $(2,630,581)  $(3,535,304)  $904,723    -26%

 

Interest expense is primarily attributable to origination interest and amortization of debt discount. Interest expense includes the default penalties to record additional amounts owed on the convertible debentures and Series D preferred stock.

 

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

 

Net loss was $3,350,555 and $5,364,485 for the six months ended June 30, 2022 and 2021, respectively.

 

 

Liquidity and Capital Resources

 

Historically, we have been financed through advances from related parties, issuances of convertible debt, and the sale of our common and preferred stock. Our existing sources of liquidity will not be sufficient for us to implement our business plans. There are no assurances that we will be able to raise additional capital as and when needed. As of June 30, 2022, we had $3,077 of cash on hand. Based on our current planned expenditures, we will require approximately $2.5 million over the next 12 months. Our existing sources of liquidity may not be sufficient for us to implement our continuing business plan. Our need for future capital will be dependent upon the speed at which we expand our product offerings. There are no assurances that we will be able raise additional capital as and when needed.

 

As of June 30, 2022, we had a working capital deficit of $10,207,677 as compared to a working capital deficit of $7,001,879 at December 31, 2021.

 

During the six months ended June 30, 2022 and 2021, operations used cash of $237,079 and $519,221, respectively, primarily related to our net loss partially offset by non-cash charges and cash provided by changes in operating assets and liabilities.

 

In 2022, we received $70,000 in proceeds from a related party note. Advanced Equity also entered into a loan for $100,000.

 

In 2021, we received $300,000 in proceeds from the issuance of convertible debentures and repaid notes payable of $1,000. We also received $574,100 from the issuance of Series D preferred stock.

 

We will continue to seek out additional capital in the form of debt or equity under the most favorable terms we can find.

 

The Company is currently, and has for some time, been in financial distress. It has no cash resources or current assets, and has no ongoing source of revenue. Management is continuing to address numerous aspects of the Company’s operations and obligations, including, without limitation, debt obligations, financing requirements, and regulatory compliance, and has taken steps to continue to raise new debt and equity capital to fund the Company’s business activities.

 

The Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund its business activities on a going forward basis and regularly evaluates various measures to satisfy the Company’s liquidity needs. Though the Company actively pursues opportunities to finance its operations through external sources of debt and equity financing, there can be no assurance that such financing will be available on terms acceptable to the Company, or at all.

 

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Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information required under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective due to a lack of audit committee and segregation of duties caused by limited personnel to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Limitations on Effectiveness of Controls and Procedures

 

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

 

Management believes that the material weakness set forth above did not have an effect on our financial results.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the three and six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are no pending, nor to our knowledge threatened, legal proceedings against us.

 

ITEM 1A. RISK FACTORS

 

As of the date of this filing, there have been no material changes to the Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022, which may be accessed via EDGAR through the Internet at www.sec.gov (the “2020 Form 10-K”). The Risk Factors set forth in the 2021 Form 10-K should be read carefully in connection with evaluating the Company’s business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2021 Form 10-K could materially adversely affect the Company’s business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Securities

 

Refer to the footnotes of the accompanying consolidated financial statements for convertible debentures entered into and issuances of common and preferred stock.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

We are in default under a $20,000 Promissory Note dated May 20, 2017 that became due on August 31, 2017. We have entered into a payment plan with the payee thereunder wherein we are making monthly cash payments to reduce the outstanding balance due. At June 30, 2022 the outstanding balance was approximately $1,986.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

On April 15, 2022, Deborah Fuhr submitted her resignation as a member of the Board, effective immediately. Ms. Fuhr submitted her resignation to pursue other interests. The Company’s Board accepted Ms. Fuhr’s resignation and expressed its appreciation for the services she provided to the Company.

 

On August 25, 2022, Barney Frank and Martina Navratilova submitted their resignations as Directors of LGBTQ Loyalty Holdings, Inc. (the “Company”) with immediate effect. Additionally, on August 27, 2022, William Bean submitted his resignation as a Director of the Company with immediate effect. Mr. Frank and Mr. Bean submitted their resignations due to differences of opinion in the direction of the Company. Each of Messrs. Frank and Bean and Ms. Navratilova have offered to tender their respective shares of Common Stock back to the Company.

 

ITEM 6. EXHIBITS

 

Exhibit

Number

   Description of Exhibit
31.1*   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**   Inline XBRL Instance Document
101.SCH**   Inline XBRL Taxonomy Extension Schema Document
101.CAL**   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**   Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE**   Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**   Inline XBRL Taxonomy Extension Definition Linkbase Document
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith
** This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  LGBTQ LOYALTY HOLDINGS, INC.
     
October 17, 2022 By: /s/ Robert A. Blair
    Robert A. Blair, Chief Executive Officer

 

October 17, 2022 By: /s/ Eric Sherb
    Eric Sherb, Chief Financial Officer

 

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LGBTQ Loyalty (CE) (USOTC:LFAP)
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から 12 2024 まで 1 2025 LGBTQ Loyalty (CE)のチャートをもっと見るにはこちらをクリック
LGBTQ Loyalty (CE) (USOTC:LFAP)
過去 株価チャート
から 1 2024 まで 1 2025 LGBTQ Loyalty (CE)のチャートをもっと見るにはこちらをクリック