LGBTQ LOYALTY HOLDINGS, INC. The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"), including our unaudited condensed consolidated financial statements as ofJune 30, 2022 and for the three and six months endedJune 30, 2022 and 2021 and the related notes. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations section to "us," "we," "our," and similar terms refer 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. Factors that may affect our results include, but are not limited to, the risk factors in Item 2.01 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSecurities and Exchange Commission (the "SEC") onApril 15, 2022 . Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Moreover, we operate in a very competitive changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and certainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise. Business Overview OnJanuary 25, 2019 , we acquiredLGBT Loyalty LLC , aNew York limited liability company, with the goal of creating the first LGBTQ Loyalty Preference Index ETF (the "Index ETF") to provide the LGBTQ community with the power to influence the allocation of capital within a financial Index ETF based upon LGBTQ consumer preferences. The Index ETF is intended to link the growing economic influence of the LGBTQ community and their allies with many of the top Fortune 500 companies that support and implement diversity, inclusion and equality policies within their organizations. The incorporation of diversity and inclusion in a company's recruitment and human resource policies is becoming a key concern to investors as part of their growing focus on ESG allocations. Our data and analytics unequivocally reinforce that corporations that have embraced diversity and inclusion policies within their corporate culture perform at a higher level financially than their peers. This includes advancing a more invigorated workforce that attracts and retains the best talent. Innovation and agility have been identified as great benefits of diversity, and there is an increasing awareness of what has come to be known as 'the power of difference'. OnOctober 30, 2019 , through our wholly-owned subsidiaryAdvancing Equality Preference, Inc. ("AEP") and our strategically aligned partnerships with crowd sourced data and analytic providers, we launched the LGBTQ100 ESG Index which integrates LGBTQ community survey data into the methodology for a benchmark listing of the nation's highest financially performing large-cap publicly listed corporations that our respondents believe are most committed to advancing equality. LPI is the index provider for the LGBTQ + ESG100 ETF;LGBTQ Loyalty was the Sponsor for the prospectus that was filed by the highly regarded licensed Fund Adviser ProcureAM, a wholly owned subsidiary ofProcure Holdings, LLC ., which is through our platform service agreement ("PSA"), and was approved by theSecurities and Exchange Commission ("SEC") in earlyJanuary 2020 . The LGBTQ + ESG100 ETF (the "Fund") sought to track the investment results (before fees and expenses) of the LGBTQ100 ESG Index. The Fund earned management fees based on assets under management ("AUM") and launched in Q3 - 2021 on the NASDAQ. 14 Fund Closure OnMarch 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, theBoard of Trustees of Procure ETF Trust I (the "Trust") has approved a Plan of Liquidation for the Fund under which the Fund will be liquidated on or aboutApril 28, 2022 (the "Liquidation Date"). The Liquidation Date may be changed without notice at the discretion of the officers of the Trust. Beginning when the Fund commences the liquidation of its portfolio, the Fund will not pursue its investment objectives or, with certain exceptions, engage in normal business activities, and the Fund may hold cash and securities that may not be consistent with the Fund's investment objective and strategy, which may adversely affect Fund performance.LGBTQ Loyalty has generated an abundance of media coverage for our premier LGBTQ Index product with the launch and listing on NYSE of the LGBTQ100 ESG Index. The exclusive media launch with Bloomberg Media was instrumental in propelling the LGBTQ100 brand to center stage overnight in the financial sector. In addition,LGBTQ Loyalty was featured at the Inside ETFs Summit in early 2020 with Board Members,Barney Frank andBilly Bean speaking on the "The Power of Inclusion & Equality" for investors. Our media strategy objective is to lay the groundwork for additional high-profile positioning of the brand as we work to achieve the desired increased financial media coverage and growth in AUM valuation for
our company and shareholders. Our Products
Our mission is to build a sustainable and well recognized brand focused on unlocking the growing purchasing power of the LGTBQ community globally by offering a robust LGBTQ Index and core ETF portfolio that attracts key institutional investors and corporations.
At the nucleus of our LGBTQ Loyalty Preference Index is our partner-driven Crowd Preference Index Methodology (CPIM) which we believe disrupts ESG investing. This is achieved through an elevated screening process of financial performance data and ESG standards and practices, whereby LGBTQ community data on diversity and inclusion compliance directly impacts corporate financial results and transparently identifies and recognizes high performance companies who have consistently outperformed the S&P 500 index or equivalent sector standards
and norms. We intend to extend the LGBTQ Loyalty Index brand with future plans to develop indices with a focus on the 'Social' component of ESG utilizing our proprietary financial slogan of "Advancing Equality" within other gender, minority interest groups. Revenue The Company focus over the past few years was to create and launch our first of many financial Index products through an equality driven thematic ESG screened and alpha performance benchmark. The Company achieved this through its LGBTQ100 ESG Index listing and performance on the NYSE starting onOctober 30, 2019 . In 2022 our collective efforts and focus is to monetize and scale our model by capturing recurring revenue streams through our current financial Index product. Our goal is to accelerate our revenue pursuits through our partnership and licensed relationships to achieve a break-even point when we have secured AUM benchmarked against the LGBTQ100 Index in excess of$50,000,000 . We intend to introduce a new key partnered revenue source derived from Direct Index Licensing Fees generated by financial institutions and asset management companies for creating a product (e.g., Index Funds, Structured Financial Products, Turnkey Asset Management Providers) based on or linked to the LGBTQ100 index. This includes fees to use the LGBTQ100 index to track the performance of funds or as benchmarks for actively managed portfolios. We plan to capture Data Subscriptions which could provide recurring subscription revenue from our LGBTQ Index. This includes ongoing and historical data and information generated by our wholly owned divisionAdvancing Equality Preference Inc. , and through our strategic partnerships for new potential financial equality-driven Indices. New initiatives in 2022 include a plan to create ancillary revenue streams to complement and support this unique platform for the top 100 Equality driven Corporations in America represented in the LGBTQ100 Index. We believe our index will reward and elevate the status of those corporations that have adopted diversity and inclusion best practices, cared for their employees and positively impacted LGBTQ communities. Expert LGBTQ economists have repeatedly stressed the value of the LGBTQ brand loyalty to corporations. We consider the companies that best capture the spending trends and loyalty of the LGBTQ consumer will be better positioned for financial growth and success. Given the opportunity to link to the power and status generated between the LGBTQ community, these companies and their own workforce, we will launch a Partner Loyalty Program which includes benefits afforded to defined sponsorship tiers. 15 Our initial investments in creating a high performing product with a well-recognized brand have been established. As we begin to move into planning for the post-COVID-19 world, we will now shift our efforts to cultivate new revenue stream opportunities while building AUM as we construct a profitable business platform.
We have achieved no revenues to date from our LGBTQ related operations and have been focused on building our product and achieving performance results and media branding over the course of the past twelve months. There are no assurances that can be given that we will achieve revenues or profitability in the future.
Business Strategy Our business strategy is targeted to the estimatedthree trillion-dollar global purchasing power of the LGBTQ consumer demographic. More than nineteen million people identify themselves as LGBTQ in the US and four-hundred-fifty million globally while the LGBTQ community is composed of some of the most loyalty-driven consumers in the world. We believe that the LGBTQ demographic is one of the most highly sought-after economic groups in the world from corporate America down to the local business owner because of their higher median income and brand loyalty. What makes targeting and supporting this dynamic demographic even more extraordinary and rewarding is that friends, family, employers, employees, teachers, coaches and fans of our community so loyally support the brands, products and services that in turn support us. We further believe that this loyalty across the board is time tested, proven, growing and expanding and ultimately extremely rewarding to all that are embraced by the LGBTQ community. Connecting the world's most supportive LGBTQ companies to the dynamic, loyal and ever-increasing spending power of the LGBTQ community is a consequential step forward for the LGBTQ movement and investment community. Many Fortune 500 companies are directing more of their consumer advertising and promotional spend towards celebrating diversity and equality. Our long-term goal is to reinforce the financial performance of those Corporations as they foster and integrate LGBTQ equality practices through their Diversity and Inclusion policies as a cornerstone of their corporate culture. Our LGBTQ100 Index of the top 100 corporate constituents have already embraced and enacted this standard of Equality excellence. See our top LGBTQ100 Index constituents on our website.
Critical Accounting Policies and Estimates
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates our continuation as a going concern. We have incurred losses to date of$20,624,459 and have negative working capital of$6,861,277 as ofJune 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. 16 Use of Estimates
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the years reported. Actual results may differ from these estimates.
Derivative Financial Instruments:
The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company's balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with a fixed conversion price or floor would be settled first, and interest payable in shares settle next. Thereafter, share settlement order is based on instrument issuance date - earlier dated instruments settling before later dated. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. The policy includes all shares issuable pursuant to debenture and preferred stock instruments as well as shares issuable under service and employment contracts and interest on short term loans. Results of Operations
Three months ended
There were no revenues during the three months endedJune 30, 2022 or 2021.
The following is a breakdown of our operating expenses for the three months
ended
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021 Change $ Change %
Personnel costs $ 46,407 $ 93,122 $ 160,401 $ 1,389,120 $ (46,715 ) -50 %
Consulting fees 11,250 38,500 26,500 71,500 (27,250 ) -71 %
Legal and professional
fees 124,992 153,527 281,785 258,650 (28,535 ) -19 %
Fund expenses - - 100,000 - - 100 %
Sales and marketing 71,237 40,500 98,939 40,500 30,737
100 %
General and
administrative 3,136 28,391 39,453 56,514 (25,255 ) -89 %
Depreciation and
amortization 6,448 6,448 12,896 12,896 - 0 %
$ 263,470 $ 360,489 $ 719,974 $ 1,829,181 $ (97,019 ) -27 %
Personnel costs include officer salaries and directors' compensation. The decrease in personnel costs is primarily due 2021 board compensation.
Consulting fees decreased by$27,750 during the three months endedJune 30, 2022 , primarily due to limited operations in developing the Index. Consulting fees represent our efforts to launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF.
Legal and professional fees decreased by
Sales and marketing costs increased by
General and administrative expenses increased by
17
Depreciation and amortization expense was
The following is a breakdown of our other income (expenses) for the three months
ended
Three Months Ended
June 30,
2021 2020 Change $ Change %
Interest expense $ (1,418,989 ) $ (727,641 ) (691,348 ) 95 %
Change in derivative liability (746,277 ) (2,658,950 ) 1,912,673 -72 %
$ (2,165,266 ) $ (3,386,591 ) $ 1,221,325 -36 %
Interest expense is primarily attributable to origination interest and
amortization of debt discount. Interest expense includes the default penalties
to record additional amounts owed on the convertible debentures and SeriesD preferred stock.
Change in derivative liability includes the mark-to-market adjustment of the derivative liability in connection with our convertible debenture.
Net loss was
Six months ended
There were no revenues during the six months ended
The following is a breakdown of our operating expenses for the six months endedJune 30, 2022 and 2021: Six Months Ended June 30, 2022 2021 Change $ Change % Personnel costs$ 160,401 $ 1,389,120 $ (1,228,719 ) -88 % Consulting fees 26,500 71,500 (45,000 ) -63 % Legal and professional fees 281,785 258,650 23,135 9 % Fund expenses 100,000 - 100,000 100 % Sales and marketing 98,939 40,500 58,439 100 % General and administrative 39,453 56,514 (17,061 ) -30 % Depreciation and amortization 12,896 12,896 - 0 %$ 719,974 $ 1,829,181 $ (1,109,207 ) -61 %
Personnel costs include officer salaries and directors' compensation. The decrease in personnel costs is primarily due 2021 board compensation.
Consulting fees decreased by$45,000 during the six months endedJune 30, 2022 , primarily due to limited operations in developing the Index. Consulting fees represent our efforts to launch the LGBTQ100 ESG Index and LGBTQ + ESG100 ETF.
Legal and professional fees increased by
Fund expenses represented the
Sales and marketing costs increased by
General and administrative expenses increased by
Depreciation and amortization expense was
The following is a breakdown of our other income (expenses) for the six months
ended
Six Months Ended
June 30,
2021 2020 Change $ Change %
Interest expense $ (1,525,116 ) $ (1,289,328 ) (235,788 ) 18 %
Change in derivative liability (1,105,465 ) (2,245,976 ) 1,140,511 -51 %
$ (2,630,581 ) $ (3,535,304 ) $ 904,723 -26 %
Interest expense is primarily attributable to origination interest and
amortization of debt discount. Interest expense includes the default penalties
to record additional amounts owed on the convertible debentures and SeriesD preferred stock.
Change in derivative liability includes the mark-to-market adjustment of the derivative liability in connection with our convertible debenture.
Net loss was
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 ofJune 30, 2022 , we had$3,077 of cash on hand. Based on our current planned expenditures, we will require approximately$2.5 million over the next 12 months. Our existing sources of liquidity may not be sufficient for us to implement our continuing business plan. Our need for future capital will be dependent upon the speed at which we expand our product offerings. There are no assurances that we will be able raise additional capital as and when needed.
As of
During the six months endedJune 30, 2022 and 2021, operations used cash of$237,079 and$519,221 , respectively, primarily related to our net loss partially offset by non-cash charges and cash provided by changes in operating assets
and liabilities.
In 2022, we received
In 2021, we received
We will continue to seek out additional capital in the form of debt or equity under the most favorable terms we can find.
The Company is currently, and has for some time, been in financial distress. It has no cash resources or current assets, and has no ongoing source of revenue. Management is continuing to address numerous aspects of the Company's operations and obligations, including, without limitation, debt obligations, financing requirements, and regulatory compliance, and has taken steps to continue to raise new debt and equity capital to fund the Company's business activities. The Company is continuing its efforts to raise additional capital in order to be able to pay its liabilities and fund its business activities on a going forward basis and regularly evaluates various measures to satisfy the Company's liquidity needs. Though the Company actively pursues opportunities to finance its operations through external sources of debt and equity financing, there can be no assurance that such financing will be available on terms acceptable to the Company, or at all. 18
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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