LGBTQ LOYALTY HOLDINGS, INC. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations to "us," "we," "our," and similar terms refer toLGBTQ Loyalty Holdings, Inc. , aDelaware corporation. This discussion includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as "anticipate," "estimate," "plan," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. See "Note Regarding Forward-Looking Statements." Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in "Risk Factors" and elsewhere in this Annual Report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Results of Operations for the Year Ended
Revenues for 2020 and 2019 were$560 and$3,337 , respectively. Revenues were primarily from the sale of sports apparel and health and fitness products. We no longer have these business operations. - 12 -
The following is a breakdown of our operating expenses for 2020 and 2019:
Year Ended
December 31,
2020 2019 Change $ Change %
Personnel costs $ 827,201 $ 1,499,585 $ (672,384 ) -45 %
Consulting fees 300,659 734,403 (433,744 ) -59 %
Legal and professional fees 490,742 733,960 (243,218 ) -33 %
Merger costs - 388,675 (388,675 ) 100 %
Sales and marketing 33,432 50,147 (16,715 ) -33 %
General and administrative 137,037 288,911 (151,874 ) -53 %
Depreciation and amortization 27,592 4,499 23,093 513 %
$ 1,816,663 $ 3,700,180 $ (1,883,517 ) -51 %
Personnel costs include officer salaries, directors' compensation and deferred
officer compensation. The decrease in personnel costs is primarily due to
compensation associated with the formation of our board of directors in 2019 and
limited operations in 2020. During the years ended December 31, 2020 and 2019,
personnel costs included $290,728 and $858,620 , respectively, in non-cash
compensation costs for officers and directors
Consulting fees decreased by $433,744 in 2020, primarily due to our efforts to
launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF that were made in 2019. In
comparison, our operations were limited during the year ended December 31, 2020 .
Legal and professional fees decreased by
Merger costs represents expenses incurred upon the acquisition of
Sales and marketing expenses were
General and administrative expenses decreased by
Depreciation and amortization expense was
The following is a breakdown of our other income (expenses) for 2020 and 2019:
Year Ended
December 31,
2020 2019 Change $ Change %
Interest expense $ (2,463,310 ) $ (1,024,179 ) (1,439,131 ) 141 %
Other income 3,000 - 3,000 100 %
Change in derivative liability 167,658 (430,458 )
598,116 -139 %
$ (2,292,652 ) $ (1,454,637 ) $ (838,015 ) 58 %
Interest expense increased by
Change in derivative liability includes the mark-to-market adjustment of the derivative liability in connection with our convertible debenture.
Net loss was$4,108,755 in 2020 as compared to$5,151,480 in 2019, primarily due to decreased operating activities, such as decreased personnel costs, consulting fees and professional fees, offset by an increase in financing costs. - 13 -
Liquidity and Capital Resources
Based on our current planned expenditures, we will require approximately$2.5 million over the next 12 months. Our existing sources of liquidity may not be sufficient for us to implement our continuing business plan. Our need for future capital will be dependent upon the speed at which we expand our product offerings. There are no assurances that we will be able raise additional capital as and when needed. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, its ability to obtain the necessary debt or equity financing, and generate profitable operations from the Company's planned future operations. We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned activities. There are no assurances that our plans will be successful. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Our audit firm included an explanatory paragraph in their report regarding substantial doubt about our Company's ability to continue as a going concern. Working Capital AtDecember 31, 2020 , we had current assets of$151,295 and current liabilities of$5,490,160 , resulting in a working capital deficit of$5,338,865 . AtDecember 31, 2019 , we had current assets of$122,408 and current liabilities of$3,069,929 , resulting in a working capital deficit of$2,947,521 . The increase in our working capital deficit was primarily due to the increase in our derivative liability, accounts payable and accrued salaries and consulting
fees
in 2020.
Cash Flows
Year Ended
December 31,
2020 2019
Net cash used in operating activities
17,124 (27,720 )
Net cash used in operating activities for 2020 was $941,668 . This was primarily
attributable to our net loss of $4,108,755 , partially offset by non-cash
expenses and losses of $2,289,293 and net cash provided by changes in operating
assets and liabilities of $877,794 . Net cash used in operating activities for
2019 was $1,275,855 . This was primarily attributable to our net loss of
$5,151,480 , partially offset by non-cash expenses and losses of $2,769,154 and
net cash provided by changes in operating assets and liabilities of $1,106,471 .
Net cash used in investing activities was
Net cash provided by financing activities was$991,592 in 2020. We received$856,000 from the issuance of convertible debentures, as well as$47,250 from an additional promissory note. We also received$93,342 from the exercise of warrants. Net cash provided by financing activities was$1,327,510 in 2019. We received$1,00,000 from the issuances of our convertible debenture with Pride, as well as net proceeds of$64,986 from additional promissory notes. We also received$125,000 from the issuance of our Series B preferred stock and$137,524 in proceeds from the exercise of warrants.
Off-Balance Sheet Arrangements
None. - 14 - Contractual Obligations Not applicable.
Critical Accounting Policies and Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"), which contemplates our
continuation as a going concern. As of December 31, 2020 , we have incurred
losses of $13,239,189 . To date we have funded our operations through advances
from a related party, issuance of convertible debt, and the sale of our common
stock. We intend to raise additional funding through third party equity or debt
financing. There is no certainty that funding will be available as needed. These
factors raise substantial doubt about our ability to continue operating as a
going concern. Our ability to continue our operations as a going concern,
realize the carrying value of our assets, and discharge our liabilities in the
normal course of business is dependent upon our ability to raise capital
sufficient to fund our commitments and ongoing losses, and ultimately generate
profitable operations.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in the balance sheets and revenues and expenses during
the years reported. Actual results may differ from these estimates.
Fair Value Measurements:
ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), provides a
comprehensive framework for measuring fair value and expands disclosures which
are required about fair value measurements. Specifically, ASC 820 sets forth a
definition of fair value and establishes a hierarchy prioritizing the inputs to
valuation techniques, giving the highest priority to quoted prices in active
markets for identical assets and liabilities and the lowest priority to
unobservable value inputs. ASC 820 defines the hierarchy as follows:
Level 1 - Quoted prices are available in active markets for identical assets or
liabilities as of the reported date. The types of assets and liabilities
included in Level 1 are highly liquid and actively traded instruments with
quoted prices, such as equities listed on the
Level 2 - Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs. Level 3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights. Our financial instruments consist of cash and cash equivalents, other current assets, payables, accruals and notes payable. The carrying values of these amounts approximate fair value because of the short-term maturities of these instruments. Intangibles Intangibles, which include website development costs, databases acquired, internet domain name costs, and customer lists, are being amortized over the expected useful lives which we estimate to be three to five years. In accordance withFinancial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 350 Intangibles -Goodwill and Other ("ASC 350"), the costs to obtain and register internet domain names were capitalized. - 15 -
Derivative Financial Instruments:
The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company's balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with a fixed conversion price or floor would be settled first, and interest payable in shares settle next. Thereafter, share settlement order is based on instrument issuance date - earlier dated instruments settling before later dated. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. The policy includes all shares issuable pursuant to debenture and preferred stock instruments as well as shares issuable under service and employment contracts and interest on short term loans. Stock-Based Compensation The Company accounts for stock-based compensation for employees and non-employees in accordance with ASC 718, Compensation - Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period, which is generally the option vesting period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options.
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