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 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. 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 December 31, 2021 Compared to the Year Ended December 31, 2020

Revenues for 2021 and 2020 were $0 and $560, respectively. Revenues were primarily from the sale of sports apparel and health and fitness products. We no longer have these business operations.





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The following is a breakdown of our operating expenses for 2021 and 2020:





                                        Year Ended
                                       December 31,
                                   2021            2020          Change $       Change %
Personnel costs                 $ 1,781,124     $   827,201     $   953,923           115 %
Consulting fees                     111,020         300,659        (189,639 )         -63 %
Legal and professional fees         719,288         490,742         228,546            47 %
Fund expenses                       305,000               -         305,000           100 %
Sales and marketing                 335,825          33,432         302,393           904 %
General and administrative          161,534         137,037          24,497            18 %
Depreciation and amortization        25,792          27,592          (1,800 )          -7 %
                                $ 3,439,583     $ 1,816,663     $ 1,622,920            89 %

Personnel costs include officer salaries and directors' compensation. The increase in personnel costs is primarily due to $1,141,666 in stock compensation for shares issued to the board and executives in March 2021.

Consulting fees decreased by $189,639 in 2021, primarily due to limited operations in developing the Index in 2021.

Legal and professional fees increased by $228,546, primarily due to increased legal costs in 2021 pertaining to our financing activities.

Funds expenses represents the estimated costs incurred at the Fund's custodian pertaining to the operations of the Fund.

Sales and marketing expenses increased by $302,393 in 2021 as we ramped our marketing efforts over the launch of the ETF.

General and administrative expenses increased by $24,497 in 2021, primarily related to D&O insurance.

Depreciation and amortization expense was $25,792 and $27,592 in 2021 and 2020, respectively.

The following is a breakdown of our other income (expenses) for 2021 and 2020:





                                          Year Ended
                                         December 31,
                                     2021             2020           Change $         Change %
Interest expense                 $ (2,134,113 )   $ (2,463,310 )   $    329,197              -13 %
Other income (expense)                 (7,076 )          3,000          (10,076 )           -336 %
Change in derivative liability     (1,031,907 )        167,658       (1,199,565 )           -715 %
                                 $ (3,173,096 )   $ (2,292,652 )   $   (880,444 )             38 %

Interest expense decreased by $329,197 in 2021, primarily attributable to origination interest and amortization of debt discount of the newly issued and converted debentures.

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

Net loss was $6,612,679 in 2021 as compared to $4,108,755 in 2020, primarily due to increased personnel and sales costs and an increase in other expenses.





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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 December 31, 2021, we had $78,348 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.

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

At December 31, 2021, we had current assets of $85,273 and current liabilities of $7,087,152, resulting in a working capital deficit of $7,001,879. At December 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. The increase in our working capital deficit was primarily due to the increase in our derivative liability and Series D preferred stock liability.





Cash Flows



                                                    Year Ended
                                                   December 31,
                                                2021            2020

Net cash used in operating activities $ (1,329,084 ) $ (941,668 ) Net cash used in investing activities

           (205,750 )      (32,800 )

Net cash provided by financing activities 1,582,870 991,592 Net increase (decrease) in cash

                   48,036         17,124

Net cash used in operating activities for 2021 was $1,329,084. This was primarily attributable to our net loss of $6,612,679, partially offset by non-cash expenses and losses of $4,434,552 and net cash provided by changes in operating assets and liabilities of $849,043. 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 investing activities was $205,750 and $32,800 in 2021 and 2020, respectively. Cash used in 2021 pertains to the net funds provided to the Fund's custodian for the ETF launch. Cash used in 2020 is attributable to capitalized costs pertaining to the development of the LGBTQ100 ESG Index and ETF website.

In 2021, we received $500,000 in proceeds from the issuance of five convertible debentures and repaid notes payable of $56,350. We received net proceeds of $1,061,600 from the issuance of Series D preferred stock. We also received $78,620 from our equity line of credit agreement. In 2020, we received $856,000 in proceeds from the issuance of convertible debentures. In 2020, we received $47,250 pursuant to bridge note agreements. We also received $93,342 from the exercise of warrants.

Off-Balance Sheet Arrangements





None.



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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, 2021, we have incurred losses of $19,906,537. 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 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.

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 with Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 350 Intangibles - Goodwill and Other ("ASC 350"), the costs to obtain and register internet domain names were capitalized.





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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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