UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period endedMarch 31,September 30, 2019

For the transition period from ____________ to ____________

Commission file number:000-54867

LGBTQ LOYALTY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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)

LifeApps Brands Inc. (Former name, former address and former fiscal year, if changed since last report)

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

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 ☒[X] No ☐[  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☐[X] No ☒[  ]

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

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 ☒[X]

As of May 15,November 14, 2019 there were 167,682,460 shares of common stock, $0.001 par value, issued and outstanding 289,291,798 shares of Common Stock, $0.001 par value.
outstanding.

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands Inc.)

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31,SEPTEMBER 30, 2019

TABLE OF CONTENTS

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands Inc.)

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands Inc.)

Condensed Consolidated Balance Sheets

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands Inc.)

Condensed Consolidated Statements of Operations

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands Inc.)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands, Inc.)

ReconciliationCondensed Consolidated Statements of Stockholders’ DeficitOperations

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

LGBTQ Loyalty Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

See the accompanying notes to the unaudited condensed consolidated financial statements

LGBTQ Loyalty Holdings, Inc.

CondensedConsolidated Statement of Stockholders’ Deficit

For the Period Ended September 30, 2019

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

LGBTQ Loyalty Holdings, Inc.

(formerly LifeApps Brands Inc.)

Notes to Condensed Consolidated Financial Statements

March 31,September 30, 2019 and 2018

(Unaudited)

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. The accompanying unaudited condensed consolidated financial statements of LGBTQ Loyalty Holdings, Inc. at March 31,and for the periods ended September 30, 2019 and 2018 and 2017 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2018. In management'smanagement’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of operations for the periods ended March 31,September 30, 2019 and 2018 presented are not necessarily indicative of the results to be expected for the full year. The December 31, 2018 condensed consolidated balance sheet has been derived from our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2018.

Through our wholly owned subsidiary LifeApps, Inc.,On January 25, 2019, we acquired LGBT Loyalty LLC, a New York limited liability company, with the goal of creating a LGBTQ Loyalty Preference Index (the “Index”) to provide the LGBTQ community with the power to influence the allocation of capital within the Index based upon their consumer preferences. The Index is intended to link the economic power of the LGBTQ community with many of the top companies that support and market their products to the LGBTQ demographic. We also plan to create ancillary businesses that are a licensed developerintended to complement and publishersupport the Index including LGBTQ Loyalty Sponsorship which will be established to promote the Index along with the companies from around the world that desire to market and advertise directly to LGBTQ consumers. We intend to join forces with some of apps for the Apple Apps Store for iPhone, iPod touch, iPadmost recognizable LGBTQ community leaders from around the world and iPad mini. We are also a licensed developer on both Google Playhave them become LGBTQ Loyalty Sponsorship members. The LGBTQ Loyalty Sponsorship is expected to incorporate marketing and Amazon Appstore for Android. We have distributed apps on all three platforms.support of the companies included in the Index. All companies will be offered the opportunity to purchase LGBTQ Loyalty Sponsorship packages.

Moving forwardOn October 30, 2019, we launched the LGBTQ100 ESG Index, which references LGBTQ community survey data in the methodology for a benchmark listing of the nation’s highest financially performing companies that our respondents believe are developingmost committed to advancing equality.

We also plan to develop a digital media network specializingthat will specialize in targeting highly sought-after niche demographic audiences. The company willIn that regard, we intend to focus on two core businesses, an LGBT AdLGBTQ Advertising Network and an LGBT DigitalLGBTQ Media Network. Through our digital platform, we willexpect to aggregate content from around the world. We willalso intend to create original content along with sponsored content in a 24/7 digital network. The LGBT AdLGBTQ Advertising Network willis intended to assist brands in global targeting of the LGBTLGBTQ demographic. The AdLGBTQ Advertising Network willis expected to provide advertisers and brands with over 300 mainstream digital platforms and a “bullseye” onaccess to this loyal, affluent and ever-expanding audience. We willintend to deliver to our audience with a relevant sponsored content marketing message across all spectrums of digitally connected devices. Our uniqueWe believe that our value proposition to our audience and sponsors iswill be the ability to deliver aggregated and original content, with emphasis on interactive content and captive video.

LGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

Note 2. Summary of Significant Accounting Policies

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”),GAAP, which contemplates our continuation as a going concern. We have incurred losses to date of $5,596,402$8,092,081 and have negative working capital of $(535,560).$672,961. To date we have funded our operations through advances from related parties, issuanceissuances of convertible debt, and the sale of our common and preferred stock. We intend to raise additional funding through third party equity or debt financing. There is no certainty that funding will be available as needed. These factors raise substantial doubt about our ability to continue operating as a going concern. Our ability to continue our operations as a going concern, realize the carrying value of our assets, and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses, and ultimately generate profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, LGBTQ Loyalty, LLC, LifeApps Inc. and, Sports One Group Inc. and Loyalty Preference Index, Inc. (“LPI”), which was formed on July 24, 2019. All material inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

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

LGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

Derivative Liabilities

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.

Intangibles

Intangibles, which include websites and 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”), ASC Topic 350Intangibles – Goodwill and Other (“ASC 350”), the costs to obtain and register internet domain names were capitalized. We expended $10,000 and $0 for website development for the three months ended September 30, 2019 and 2018, respectively and $47,500 and $0 for the nine months ended September 30, 2019 and 2018, respectively. Amortization of these costs will begin when the website becomes active.

LGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

Revenue Recognition

ASC Topic606, “Revenue from Contracts with Customers” establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity'sentity’s contracts to provide goods or services to customers.

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

Revenue iswas derived primarily from the sale of sports and fitness apparel and equipment,equipment.

Website and software applications designed for use on mobile devices such as smart phones and tablets. Revenue is recognized only when persuasive evidence of an arrangement exists, the fee is fixed or determinable, the product or service has been delivered, and collectability is probable.development costs

Website and software costs are eligible for capitalization under ASC 350-50 and ASC 985-20, Software-Costs of Software to be Sold, Leased or Marketed. We sell our software directly via Internet download through third party agents. We recognize revenueexpended $10,000 and $0 for website development for the three months ended September 30, 2019 and 2018, respectively and $47,500 and $0 for the nine months ended September 30, 2019 and 2018, respectively. Amortization of these costs will begin when payment is received from the agent. Payment is received net of commission paid to the agent, usually 70% to us and 30% to the agent. We record the net amount received as revenue.website becomes active.

We also publish and sell digital magazines through the internet. Magazines can be purchased as individual volumes or as a subscription. To date we have not had any subscription sales.

Rent Expense

We recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 840,842, Leases (“ASC 840”842”). Our lease is short term and will be renewedmembership agreement for shared office space expires on a month to month basis.May 31, 2020. Rent expense was $0$13,671 and $255$0 for the three months ended March 31,September 30, 2019 and 2018, respectively and $17,894 and $255 for the nine months ended September 30, 2019 and 2018, respectively. We adopted ASC 842 on its effective date of January 1, 2019. The adoption did not have any effect on our condensed consolidated financial statements.

LGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

Earnings per share

We calculate earnings per share in accordance with ASC Topic 260Earnings 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 periods ended March 31,September 30, 2019 and 2018, and the outstanding stock options and warrants are anti-dilutive.

Weighted average shares outstanding would have increased by approximately 2,902,5007,717,000 and 3,412,2003,098,000 for the nine months ended September 30, 2019 and 2018, respectively, and 7,252,000 and 2,885,000 for the three months ended March 31,September 30, 2019 and 2018, respectively, on a fully diluted basis.

Recent Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.

In February 2016, the FASB issued ASU No. 2016-02,Leases, to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company has determined that to date the adoption of ASU 2016-02 has had no impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other, which eliminates step two of the quantitative goodwill impairment test. Step two required determination of the implied fair value of a reporting unit, and then a comparison of this implied fair value with the carrying amount of goodwill for the reporting unit, in order to determine any goodwill impairment. Under the new guidance, an entity is only required to complete a one-step quantitative test, by comparing the fair value of a reporting unit with its carrying amount, and any goodwill impairment charge is determined by the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for the Company in the first quarter of 2020, with early adoption permitted as of January 1, 2017, and is to be applied on a prospective basis.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, which modifies the presentation and disclosure of hedging results. Further, it provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in income. The Company has determined that to date the adoption of this ASU has had no impact on its consolidated financial statements.

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. Related Party Transactions – Officer, Director and Shareholder Advances

Amounts due to related party representsrepresent cash advances, salary accruals, notes payable, and amounts paid on our behalf by an officer, director and shareholders of the Company. TheseThe cash advances are non-interest bearing, short term in nature and due on demand. The balance of our cash advances at March 31,September 30, 2019 and December 31, 2018 was $10,974. $10,900 and $10,974, respectively. Salary accruals as of September 30, 2019 and December 31, 2018 amounted to $116,250 and $348,800, respectively. Payments of accrued salaries for the three-month periods ended September 30, 2019 and 2018 amounted to $82,500 and $0, respectively. Payments of accrued salaries for the nine-month periods ended September 30, 2019 and 2018 amounted to $162,750 and $0, respectively.

Notes payable to related parties at March 31,September 30, 2019 and December 31, 2018 totaled $17,885 with a 2% annual interest rate. Currently the companyCompany has defaulted on all of their related party loan obligations. Forbearance has been granted by the related parties on all loans. Salary accruals forNet cash advances to the three-month periods ended March 31, 2019 and 2018 amounted to $62,250 and $81,000 respectively and net cash advancesCompany amounted to $0 and $2,770,$3,029, respectively, for the periods ended March 31,September 30, 2019 and 2018.  Total unpaid

During the nine months ended September 30, 2019 we began the accrual of director’s fees for five individuals at the rate of $25,000 per annum. Four of the directors have agreed to receive their fee payments in shares of the Company’s common stock with the number of shares to be issued based on the 5-day average trading price of the stock at the end of each month. During the three and nine months ended September 30, 2019 we accrued salary was $74,350an aggregate of $31,250 and $348,800 as$68,750, respectively, for director fees. As of March 31,September 30, 2019, and December 31, 2018, respectively. an aggregate of 649,080 shares of our common stock are issuable pursuant to the director compensation agreements.

On March 21, 2019 all parties to the employment and service agreements converted amounts due thereunder at December 31, 2018 into 8,600,298 shares of common stock.

On December 19, 2017 we entered into an Employment Services Agreements with our Chief Executive Officer and our President and an Executive Management Consulting Agreement with our former Chief Executive Officer. The Agreements have a two-year term and are subject to automatic renewal for successive periods of one year unless either we or the counterparties give the other written notice of intention to not renew at least 30 days prior to the end of the existing term. The AgreementAgreements with our current and former Chief Executive Officers provide for base compensation of $150,000 and$150,000. We also have a separate Agreement with our President that provides for a base annual salary of $24,000 for our President.$24,000. The compensation payments are payable in bi-weekly installments. In the event any of the payments are not made within 30 days of the due date, they will accrue interest at the rate of 10% per annum.

TheLGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

Each of the foregoing Agreements contain customary termination provisions including terminations with or without cause, for good reason or voluntarily, non-competition and non-solicitation provisions, and an inventions and patents provision which provides that all the work produced by the counterparties, which is created, designed, conceived or developed by them in the course of their employment under the Agreements belong to us. Effective as of January 1, 2018, the agreementsAgreements were modified to remove the conversion right provisions. On February 15, 2019 the Executive Management Consulting Agreement with our former Chief Executive Officer was terminated by mutual agreement.

During the periodsthree months ended March 31,September 30, 2019 and 2018 we recorded interest accruals of $4,645$694 and $658,$5,736, respectively, related to the contracts. During the nine months ended September 30, 2019 and 2018 we recorded interest accruals of $7,179 and $7,976, respectively, related to the contracts.

Note 4.Notes Payable

Notes payable to two unrelated third parties amounted to $32,486$10,986 at March 31,September 30, 2019 and $33,000 at December 31, 2018 with interest rates of 2% and 7% per annum, respectively. One of the notesThe note in the amount of $17,486$10,986 at March 31,September 30, 2019 is past due and is, therefore, in default. The other notes were issued in August and December of 2018 aggregating $15,000. On March 7, 2019, the lender agreed in principal to convert the $15,000 in loan principal into shares of our common stock at a conversion price of $0.08 per share resulting in an issuance obligation of 187,500 shares. We have yet to issueshares during the shares but expect to issue them in the near future.quarter ended June 30, 2019. The lender also agreed to waive all interest due on the loans. During the nine months ended September 30, 2019, the Company repaid $7,014 pertaining to these notes.

Note 5. Convertible Note Payable

On March 6, 2018, we executed a Promissory Note (the “2018 Note”) to an unrelated entity and received an aggregate of $32,000. The 2018 Note has an initial term of one year and provides for an original issue discount of $3,000, which is being amortized over the initial term. The note2018 Note carries a face interest ratesrate of 12% per annum. The Lender haslender had the right, at any time and/or after 180 days at their election to convert all or part of the outstanding and unpaid principal and accrued interest into shares of our common stock. The conversion price iswas 58% of a two-day average of the lowest trading price in the 15 range of 15 trading days prior to the conversion. The Notes provide2018 Note provided for additional penalties if we cannotcould not deliver the underlying common stock on a timely basis.

We evaluated the terms of the conversion features of the convertible note in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity'sEntity’s Own Stock and determined it is indexed to the Company'sCompany’s common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.

We valued the conversion feature at origination of the Note at $55,118 using the Black Scholes valuation model with the following assumptions: dividend yield of zero, 1 yearLGBTQ Loyalty Holdings, Inc.

Notes to maturity, risk free interest rate of 3.03%Condensed Consolidated Financial Statements

September 30, 2019 and annualized volatility of 298.79%. $32,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as reduction (contra-liability) to the convertible Note and is being amortized over the initial term of the convertible Note. The balance of $23,118 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on origination.2018

(Unaudited)

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.

During the quarter ended September 30, 2018, the companyCompany became subject to a penalty assessment of $17,500 due to a loan covenant violation. Such amount has been expensed as additional interest. Additionally, the fair value of the derivative liability associated with the penalty amounted to $29,265 and has been recorded as additional interest expense.

On September 20, 2018, the lender exercised conversion rights pursuant to the loan agreement and converted $8,000 of the loan principal into 1,777,778 shares of common stock. The companyCompany recognized an aggregate of $10,375 of shareholder equity as a result of the conversion based of a fair value calculation at the conversion date and related adjustments to remaining loan discounts applicable to the converted loan amount. On December 31, 2018, the lender exercised conversion rights pursuant to the loan agreement and converted $8,000 of the loan principal into 5,305,040 shares of common stock. The companyCompany recognized an aggregate of $7,583 of shareholder equity as a result of the conversion based of a fair value calculation at the conversion date and related adjustments to remaining loan discounts applicable to the converted loan amount.

We valuevalued the derivative liability at estimated fair market value and at the end of each accounting period with theperiod. The difference in value is recognized as gain or loss. At March 31, 2018 we determinedloss in the valuation using the Black-Sholes valuation model with the following assumptions: dividend yieldstatement of zero, .94 years to maturity, risk free interest rate of 2.85% and annualized volatility of 289.61%. We recognized $15,730 of expense for the change in value of the derivative for the three months ended March 31, 2018. Interest expense for the period includes $23,118 of origination interest, amortization of debt discounts of $2,394 and interest accrual of $288.operations.

During the period February 6, 2019 through and including February 11, 2019, the holder of a March 6,the 2018 convertible promissory note (the “Note”)Note in the original principal amount of $35,000 converted the remaining $26,920 in principal and $4,255 in interest into an aggregate of 26,398,734 shares of our common stock at a conversion price of $0.0015 per share. As the result of such conversions, the 2018 Note has been repaid in full and terminated. The shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

Note 6. Long-term Debt

Interest

On June 4, 2019 (the “Closing Date”), we entered into and closed a Securities Purchase Agreement (the “SPA”) with Pride Partners LLC (the “Purchaser” or “Pride”), a New York limited liability company, pursuant to which for a purchase price of $500,000, the Purchaser purchased $550,000 in principal amount of a 10% Original Issue Discount Senior Convertible Debenture (the “Debenture”) due 15 months following the date of issuance and an 18 month common stock purchase warrant (the “Warrant”) exercisable for up to 6,250,000 shares (subject to adjustment thereunder) of our common stock.

LGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

Subject to earlier conversion or redemption, the Debenture is due on June 4, 2020 (the “Maturity Date”). At any time after June 4, 2019, the Debenture is convertible, in whole or in part, into shares of common stock (the “Conversion Shares”) at the option of the holder, at any time and from time to time (subject to a 4.99% beneficial ownership limitation). If, on the Maturity Date, the outstanding principal balance of the Debenture is $50,000 or less, the Debenture, including all accrued and unpaid interest then due thereon, is automatically convertible into common stock. Subject to adjustment, the per share conversion price for the Debenture on any conversion date is the lesser of (i) $0.1069 or (ii) 85% of the lowest single trading date volume weighted average price for our Common stock during the 5 trading days prior to the conversion date. No later than the earlier of (i) 2 trading days after our receipt of a notice of conversion and (ii) the number of trading days comprising the standard settlement period after our receipt of a notice of conversion, we are required to deliver Conversion Shares which, when permitted under applicable securities laws, will be delivered free of restrictive legends and trading restrictions. In the event that we fail to deliver Conversion Shares by the applicable delivery date, the holder may rescind such conversion until such time that the Conversion Shares are received by the holder. Our failure to timely deliver Conversion Shares subjects us to the payment of liquidated damages to the holder as well as buy-in liability under circumstances where the holder is required to purchase Common Stock in the open market in satisfaction of a sale by the holder of Conversion Shares which the holder was entitled to receive. We are required to reserve and keep available from our authorized and unissued shares of Common Stock a sufficient number of shares to cover conversions of the Debenture. The number and amount of Conversion Shares issuable upon conversion is subject to adjustment in the event of stock splits and stock dividends. The Debenture also provides for full ratchet anti-dilution price adjustments under circumstances where, during the term of the Debenture, we issue Common Stock or common stock equivalents, exclusive of certain exempt issuances, at prices below the then applicable Debenture conversion price. The Debenture further provides for adjustments in the event of certain rights offerings, pro rata distributions to shareholders and fundamental transactions. The Debenture is subject to optional redemption by us, for cash, in whole or in part, upon 20 trading days prior written notice by us but only in the event, unless waived by the holder, we satisfy certain equity conditions (as such term is defined in the Debenture) during such 20 trading day period. Penalty interest is payable by us if we fail to effect an optional redemption by the applicable optional redemption date. The Debenture subjects us to negative covenants while the Debenture is outstanding.

We evaluated the terms of the conversion features of the Debenture and the Warrant in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined it is indexed to the Company’s common stock and that the conversion features meet the definition of a liability and therefore 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 condensed consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.

We valued the conversion features at origination of the Debenture and the Warrant at $962,887 using the Black Scholes valuation model with the following assumptions: dividend yield of zero, 1.25 year to maturity, risk free interest rate of 2.11% and annualized volatility of 312.4%. $500,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as reduction (contra-liability) to the convertible debenture and is being amortized over the initial term of the convertible debenture.

LGBTQ Loyalty Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019 and 2018

(Unaudited)

The balance of $462,887 of the value assigned to the derivative liability 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 debenture would be settled subsequent to the Company’s Series B preferred stock as described in Note 1.

On August 27, 2019, the Company entered into Amendment No. 1 to Securities Purchase Agreement, Debentures and Registration Rights Agreement (the “Amendment”) with Pride. Pursuant to the terms of the Amendment, Pride agreed to purchase an additional $220,000 in principal amount of 10% Original Issue Discount Senior Convertible Debenture for $200,000 in cash, $100,000 of which was paid at signing of the Amendment and the remaining $100,000 of which was paid on September 16, 2019. As a result of this additional investment, the Company amended the currently outstanding 10% Original Issue Discount Senior Convertible Debenture that was issued to Pride on June 4, 2019 to increase the face value of the debenture from $550,000 to $770,000. No additional warrants were included in the amended agreement.

We valued the conversion features of the additional Debenture at $237,149 using the Black Scholes valuation model with the following assumptions: dividend yield of zero, 1 year to maturity, risk free interest rate of 1.75% and annualized volatility of 303.7%. $200,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as reduction (contra-liability) to the convertible debenture and is being amortized over the remaining term of the convertible debenture. The balance of $37,149 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on origination.

During the period from August 14, 2019 to September 30, 2019 the Purchaser exercised an aggregate of 1,405,000 shares of common stock pursuant to the exercise provisions of the Warrant. The company received an aggregate of $51,569 as a result of the Warrant exercises.

During the period from July 25, 2019 to August 14, 2019 the Purchaser converted an aggregate of $21,910 of the Debenture into an aggregate of 427,500 shares of common stock. The company recognized $18,925 of interest expense related to the write-off of discounts related to the conversion amounts.

A summary of the derivative liability associated with the SPA for the period ended March 31,September 30, 2019 amountedis as follows: