10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2022

 

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

 

For the transition period from ____________ to ____________

 

Commission file number: 000-54867

 

LGBTQ LOYALTY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   80-0671280

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2435 Dixie Highway, Wilton Manors, FL 33305

(Address of principal executive offices, including zip code)

 

Tel: (858)-577-1746

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

As of December 9, 2022 the Company had 1,179,890,617 shares of common stock, $0.001 par value, issued and outstanding.

 

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

 

 

 

 
 

 

LGBTQ Loyalty Holdings, Inc.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

 

    PAGE
     
  PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
     
Item 4. Controls and Procedures 21
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 22
     
Item 1A. Risk Factors 22
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
     
Item 3. Defaults Upon Senior Securities 22
     
Item 4. Mine Safety Disclosures 22
     
Item 5. Other Information 22
     
Item 6. Exhibits 22
     
  SIGNATURES 23

 

i
 

 

LGBTQ Loyalty Holdings, Inc.

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

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

 

1
 

 

LGBTQ LOYALTY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,   December 31, 
   2022   2021 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $9,387   $78,348 
Prepaid expenses and other current assets   8,270    6,925 
Total current assets   17,657    85,273 
Intangible assets, net   33,899    53,243 
Total assets  $51,556   $138,516 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities:          
Accounts payable  $1,549,593   $985,917 
Accrued salaries and consulting fees   743,321    660,331 
Accrued interest and dividends   948,604    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   3,036,614    1,398,127 
Series D preferred stock   1,758,224    - 
Total liabilities   10,780,170    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 September 30, 2022 and December 31, 2021   -    - 
Series B, 500,000 shares designated, 0 and 50,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively   -    - 
Series C, 129,559 shares designated, 52,559 and no shares issued and outstanding as of September 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 September 30, 2022 and December 31, 2021, respectively   1    - 
Common stock, $0.001 par value, 2,000,000,000 shares authorized, 1,244,213,365 and 832,719,287 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively   1,244,213    832,719 
Additional paid-in capital   12,549,666    13,215,129 
Accumulated deficit   (24,522,546)   (19,917,844)
Total stockholders’ equity (deficit)   (10,728,614)   (5,869,943)
Total liabilities and stockholders’ equity (deficit)  $51,556   $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   Nine Months Ended 
   September 30,   September 30, 
   2022   2021   2022   2021 
Revenue   -    -   $-    - 
Cost of net revenue   -    -    -   $- 
Gross profit   -    -    -    - 
                     
Operating expenses:                    
Personnel costs   27,852    132,097    188,253    1,521,218 
Consulting fees   11,250    2,220    37,750    73,720 
Legal and professional fees   78,245    308,382    360,030    567,032 
Fund expenses   -    -    100,000    - 
Sales and marketing   21,036    117,012    119,975    157,512 
General and administrative   12,921    30,727    64,266    87,241 
Depreciation and amortization   6,448    6,448    19,344    19,344 
Total operating expenses   157,752    596,886    889,618    2,426,067 
                     
Loss from operations   (157,752)   (596,886)   (889,618)   (2,426,067)
                     
Other expense:                    
Interest expense   (149,439)   (437,528)   (1,675,189)   (1,726,856)
Other income (expense)   -    (7,076)   -    (7,076)
Change in derivative liability   (318,536)   1,422,551    (1,471,760)   (823,425)
Total other expense   (467,975)   977,947    (3,146,949)   (2,557,357)
                     
Provision for income taxes   -    -    -    - 
Net income (loss)  $(625,727)  $381,062   $(4,036,567)  $(4,983,424)
                    
Weighted average common shares outstanding - basic and diluted   1,218,194,847    553,901,386    1,032,011,912    650,976,730 
Net income (loss) per common share - basic and diluted  $(0.001)  $0.00   $(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 
   Nine Months Ended 
   September 30, 
   2022   2021 
Cash flows from operating activities:          
Net loss  $(4,036,567)  $(4,983,424)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt discount and original issue discount   158,690    1,077,708 
Change in fair value of derivative liability   1,471,760    823,425 
Financing related costs - debt   1,220,986    460,780 
Stock-based compensation expense   -    1,218,114 
Depreciation and amortization   19,344    19,344 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (1,345)   (12,058)
Accounts payable   551,600    (54,428)
Accrued salaries and consulting fees   82,990    223,279 
Accrued interest and dividends   263,581    141,132 
Net cash used in operating activities   (268,961)   (1,086,128)
Cash flows from investing activities:          
Purchases of property and equipment   -    - 
Other receivables   -    (205,000)
Net cash used in investing activities   -    (205,000)
Cash flows from financing activities:          
Net proceeds (repayments) from promissory note agreements   200,000    (1,000)
Proceeds from issuance of convertible debenture agreements   -    300,000 
Repayments of convertible debt agreements   -    (56,350)
Proceeds from issuance of common stock under equity line of credit   -    78,620 
Proceeds from issuance of Series D preferred stock   -    1,061,600 
Net cash provided by financing activities   200,000    1,382,870 
Net change in cash   (68,961)   91,741 
Cash at beginning of period   78,348    30,312 
Cash at end of period  $9,387   $122,053 
           
Supplemental disclosure of cash flow information:          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $-   $4,944 
           
Supplemental disclosure of non-cash financing activities:          
Exercise of common stock warrants  $140,966   $- 
Dividends on preferred stock  $44,870   $30,866 
Conversion of Series D preferred stock for common stock  $111,000   $- 
Deemed dividend on conversion of preferred stock  $523,266   $- 
Debenture conversions  $238,764   $- 
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  $-   $78,000 

 

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)
Debenture conversions   -    -    -    -    -    -    -    -    20,479,798    20,480    304,123    -    324,603 
Exercise of warrants   -    -    -    -    -    -    -    -    30,887,275    30,887    (30,887)   -    - 
Conversion of Series C preferred stock into common stock   -    -    -    -    (25,000)   (25)   -    -    25,000,000    25,000    (24,975)   -    - 
Common shares issued pursuant to equity line of credit   -    -    -    -    -    -    -    -    13,386,862    13,387    72,309    -    85,696 
Common shares issued for services   -    -    -    -    -    -    -    -    13,440,860    13,441    111,559    -    125,000 
Conversion of Series B preferred stock for common shares   -    -    (25,000)   (25)   -    -    -    -    958,333    958    (933)   -    - 
Issuance of Series B dividend common shares   -    -    -    -    -    -    -    -    461,395    461    6,439    -    6,900 
Dividends on preferred stock   -    -    -    -    -    -    -    -    -    -    -    (19,625)   (19,625)
Net loss   -    -    -    -    -    -    -    -    -    -    -    381060    381,060 
Balances at September 30, 2021   -   $-    25,000   $25    51,559   $52    -   $-    774,005,200   $774,004   $11,585,402   $(18,253,480)  $(5,893,997)
                                                                  
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    42,236    -    126,561 
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   -    -    -    -    -    -    -    -    -    -    -    (2,489,020)   (2,489,020)
Balances at June 30, 2022   -   $-    -   $-    51,559   $52    986   $1    1,132,010,984   $1,132,011   $12,549,666   $(23,896,819)  $(10,215,094)
Debenture conversions   -    -    -    -    -    -    -    -    112,202,381    112,202    -    -    112,202 
Net loss   -    -    -    -    -    -    -    -    -    -    -    (625,727)   (625,727)
Balances at September 30, 2022   -   $-    -   $-    51,559   $52    986   $1    1,244,213,365   $1,244,213   $12,549,666   $(24,522,546)  $(10,728,614)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

5
 

 

LGBTQ LOYALTY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2022

 

Note 1. Nature of Business

 

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

 

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

 

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

 

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

 

6
 

 

Note 2. Correction of Previously Issued Financial Statements

 

Subsequent to the issuance of its Quarterly Report on SEC Form 10-Q for the three and six months ended September 30, 2022, the Company discovered several errors in its accounts on its condensed consolidated balance sheets and statements of operations.

 

The tables below reflect the effect of restatement on the Company’s financial statements for the three and six month periods ending June 30, 2022:

 

   Original   Adjustment   As Restated 
   June 30, 2022 
   Original   Adjustment   As Restated 
Cash  $11,269   $1,665   $12,934 
Total assets  $59,886   $1,665   $61,551 
                
Accounts payable  $1,386,797   $21,979   $1,408,776 
Accrued salaries and consulting fees   743,321    (20,314)   723,007 
Derivative liability on convertible notes payable   2,769,066    12,369    2,781,435 
Total liabilities   10,262,606    14,034    10,276,640 
Common stock   1,132,007    3    1,132,010 
Additional paid-in capital   12,549,666    1    12,549,667 
Accumulated deficit   (23,884,446)   (12,373)   (23,896,819)
Total stockholders’ equity (deficit)   (10,202,720)   (12,369)   (10,215,089)
Total liabilities and stockholders’ equity (deficit)  $59,886   $1,665   $61,551 

 

   Original   Adjustment   As Restated 
   Six months Ended June 30, 2022 
   Original   Adjustment   As Restated 
General and administrative  $39,453   $11,892   $51,345 
Total operating expenses   719,974    11,892    731,866 
Interest expense   (1,525,116)   (634)   (1,525,750)
Change in derivative liability   (1,105,465)   (47,759)   (1,153,224)
Net loss  $(3,350,555)  $(60,285)  $(3,410,840)

 

   Original   Adjustment   As Restated 
   Six months Ended June 30, 2022 
   Original   Adjustment   As Restated 
Net cash used in operating activities  $(237,079)  $1,665   $(235,414)

 

   Original   Adjustment   As Restated 
   Three Months Ended Sep June 30, 2022 
   Original   Adjustment   As Restated 
Debenture conversions  $114,040   $12,522   $126,562 

 

Note 3. Summary of Significant Accounting Policies

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“US GAAP”), which contemplates our continuation as a going concern. We have incurred losses to date of $24,522,546 and have negative working capital of $10,762,513 as of September 30, 2022. To date we have funded our operations through advances from a related party, issuances of convertible debt, and the sale of common stock, preferred stock and warrants. We intend to raise additional funding through third-party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Basis of Presentation

 

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

 

Prior Period Adjustments

 

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

 

Principles of Consolidation

 

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

 

Use of Estimates

 

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

 

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 September 30, 2022: 
   Level 1   Level 2   Level 3   Total 
Liabilities:                               
Derivative liability on convertible notes payable and preferred stock  $-   $-   $3,036,614   $3,036,614 
   $-   $-   $3,036,614   $3,036,614 

 

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

 

Refer to Note 7 for detail on the unobservable inputs used in the fair value of the derivative liability.

 

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

   2022   2021 
   Nine Months Ended 
   September 30, 
   2022   2021 
Stock options outstanding   -    1,800,000 
Warrants   28,333,333    204,946,057 
Shares to be issued upon conversion of notes   9,726,808,810    203,651,096 
Series D preferred stock   2,010,000,000    67,826 
Anti-dilutive securities   11,765,142,143    410,464,979 

 

Recent Pronouncements

 

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

 

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

 

Note 4. Intangible Assets

 

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

 

At September 30, 2022 and December 31, 2021, net intangible assets were $33,899 and $53,243, respectively. Amortization expense was $19,344 for both the nine months ended September 30, 2022 and 2021, respectively.

 

9
 

 

Note 5. Notes Payable

 

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

 

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

 

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

 

In April 2022, Advancing Equality Preference entered into a loan payable for $130,000 for proceeds of $100,000. The loan matured on September 30, 2022 and is currently in default.

 

Note 6. Convertible Notes Payable

 

During the nine months ended September 30, 2022 and 2021, the Company recorded amortization of debt discount and original issue discount of $158,690 and $1,077,708, respectively, for all convertible debentures. This amount is included in interest expense in our consolidated statements of operations.

 

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

 

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

 

   Convertible 
   Debenture 
Balance as of December 31, 2021  $2,195,145 
Convertible debenture - debt discount   (213,932)
Additional principal per default provisions   374,125 
Amortization of debt discount and original issue discount   158,690 
Conversion to common stock, net of discount   (99,000)
Balance as of September 30, 2022  $2,415,028 

 

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

 

   September 30,   December 31, 
   2022   2021 
Principal amount outstanding  $2,496,152   $2,221,027 
Less: Unamortized original issue discount   (79,962)   - 
Less: Unamortized original issue discount   (1,162)   (25,882)
Total  $2,415,028   $2,195,145 

 

10
 

 

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

 

Note 7. Derivative Liability

 

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

 

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

 

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

 

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

 

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

 

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

 

   Debenture 
Balance as of December 31, 2021  $1,398,127 
Initial fair value per derivative recognition   294,124 
Conversion of debenture to common stock   (127,397)
Change in fair value of derivative liability   1,471,760 
Balance as of September 30, 2022  $3,036,614 

 

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Note 8. Preferred Stock

 

Series D Convertible Preferred Stock

 

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

 

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

 

Notwithstanding, on June 23, 2021, GHS and the Company entered into a Rescission Agreement (the “Rescission Agreement”) pursuant to which the Company and GHS agreed to rescind, ab initio, the issuances of Warrants to GHS. Pursuant to the Rescission Agreement, GHS and the Company agreed that the issuance of the Warrants are unconditionally and irrevocably rescinded ab initio by GHS and the Company, and the Warrants are neither valid nor effective in any manner whatsoever. Further, GHS and the Company acknowledged that each has been restored to the position in which such party found itself on the date that the respective GHS Agreement was executed but without any references, rights or obligations relative to the Warrants contained in, or otherwise granted in, either the GHS Agreements or the Warrants. As a result, GHS has no rights whatsoever to the Warrants and the Company has no rights whatsoever to the any exercise price that it may have received pursuant to the Warrants. In connection with the execution and delivery of the Rescission Agreement, the Company and GHS entered into two (2) Amended and Restated Purchase Agreements which each seek to amend and restate the terms and conditions contained in the April Agreement and the May Agreement.

 

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

 

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

 

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

 

In June 2022, GHS converted 19 shares of Series D preferred stock with a stated value of $