|
ITEM 1.
|
FINANCIAL STATEMENTS
|
LifeApps Brands Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,282
|
|
|
$
|
1,388
|
|
Other current assets
|
|
|
595
|
|
|
|
940
|
|
Total current assets
|
|
|
1,877
|
|
|
|
2,328
|
|
Intangible asset, net of amortization
|
|
|
450
|
|
|
|
1,125
|
|
Total Assets
|
|
$
|
2,327
|
|
|
$
|
3,453
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
130,708
|
|
|
$
|
130,708
|
|
Amounts due to related party
|
|
|
697,649
|
|
|
|
536,639
|
|
Total current liabilities
|
|
|
828,357
|
|
|
|
667,347
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 10,000,000 authorized, none issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 300,000,000 shares authorized, 25,311,186 shares issued and outstanding, as of September 30, 2017 and December 31, 2016
|
|
|
25,311
|
|
|
|
25,311
|
|
Additional paid in capital
|
|
|
2,106,699
|
|
|
|
2,099,358
|
|
Accumulated (deficit)
|
|
|
(2,958,010
|
)
|
|
|
(2,788,563
|
)
|
Total stockholders’ (deficit)
|
|
|
(826,030
|
)
|
|
|
(663,894
|
)
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
2,327
|
|
|
$
|
3,453
|
|
See the accompanying notes to the condensed
consolidated financial statements
LifeApps Digital Media Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
787
|
|
|
|
147
|
|
|
|
3,093
|
|
|
|
11,168
|
|
Cost of revenue
|
|
|
—
|
|
|
|
51
|
|
|
|
49
|
|
|
|
8,122
|
|
Gross profit (loss)
|
|
|
787
|
|
|
|
96
|
|
|
|
3,044
|
|
|
|
3,046
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
47,726
|
|
|
|
56,670
|
|
|
|
171,816
|
|
|
|
171,719
|
|
Depreciation and amortization
|
|
|
225
|
|
|
|
225
|
|
|
|
675
|
|
|
|
9,574
|
|
Total operating expenses
|
|
|
47,951
|
|
|
|
56,895
|
|
|
|
172,491
|
|
|
|
181,293
|
|
(Loss) before income taxes
|
|
|
(47,164
|
)
|
|
|
(56,799
|
)
|
|
|
(169,447
|
)
|
|
|
(178,247
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net (loss)
|
|
$
|
(47,164
|
)
|
|
$
|
(56,799
|
)
|
|
$
|
(169,447
|
)
|
|
$
|
(178,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information - basic and fully diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
25,311,186
|
|
|
|
20,515,731
|
|
|
|
25,311,186
|
|
|
|
20,500,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share
|
|
$
|
(0.00
|
)*
|
|
$
|
(0.00
|
)*
|
|
$
|
(0.0
|
1)
|
|
$
|
(0.01
|
)
|
* Denotes a loss of less than $(0.01) per share.
See the accompanying notes to the unaudited
condensed consolidated financial statements
LifeApps Brands Inc.
Condensed Consolidated Statements of Cash
Flows
(Unaudited)
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash used in operations
|
|
$
|
(48,616
|
)
|
|
$
|
(54,918
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Net Cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
Related party advances
|
|
|
49,310
|
|
|
|
54,485
|
|
Repayments of advances from related parties
|
|
|
(800)
|
|
|
|
(2,000
|
)
|
Net cash provided by financing activities
|
|
|
48,510
|
|
|
|
52,485
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(106)
|
|
|
|
(2,433)
|
|
Cash at beginning of period
|
|
|
1,388
|
|
|
|
4,968
|
|
Cash at end of period
|
|
$
|
1,282
|
|
|
$
|
2,535
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Conversion of accounts payable to common stock
|
|
$
|
—
|
|
|
$
|
8,058
|
|
Officer salary accrual
|
|
$
|
112,500
|
|
|
$
|
112,500
|
|
Stock based compensation expense
|
|
$
|
7,312
|
|
|
$
|
—
|
|
See the accompanying notes to the condensed
consolidated financial statements
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017 and 2016
(Unaudited)
Note
1. Nature of Business
Throughout
this report, the terms “our,” “we,” “us,” and the “Company” refer to LifeApps
Brands Inc., including its subsidiaries. The accompanying unaudited condensed consolidated financial statements of LifeApps
Brands Inc. at September 30, 2017 and 2016 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, 2016. In management’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 September 30, 2017 and 2016 presented are not necessarily
indicative of the results to be expected for the full year. The December 31, 2016 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, 2016.
We
are building health, fitness and sports communities across multiple digital platforms including mobile apps, digital sports and
fitness publications, sports and fitness products, sporting events, gateway platforms, online websites and social media.
Note
2. Summary of Significant Accounting Policies
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”),
which contemplates our continuation as a going concern. We have incurred losses to date of $2,958,010. 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.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, LifeApps
Inc. and Sports One Group Inc. 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.
Financial
Instruments
The
estimated fair values for financial instruments were determined at discrete points in time based on relevant market information.
These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts receivable,
accounts payable and accrued liabilities approximated fair value because of the short-term maturities of these instruments. The
fair value of notes payable approximated to their carrying value as generally their interest rates reflected our effective annual
borrowing rate.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017 and 2016
(Unaudited)
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”),
Accounting Standards Codification (“ASC”) Topic 350
Intangibles – Goodwill and Other
(“ASC 350”),
the costs to obtain and register internet domain names were capitalized.
Fixed
Assets
Fixed
assets consists of furniture and equipment and are stated at cost less accumulated depreciation and accumulated impairment loss,
if any. Depreciation is calculated on a straight line basis over the estimated useful lives of the assets. The estimated useful
lives used for financial statement purposes is 3 years.
Derivative
Financial Instruments:
We
do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial
instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based
derivative financial instruments, we used a Black Scholes valuation model to value the derivative instruments at inception and
on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance
sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required
within 12 months of the balance sheet date.
Revenue
Recognition
Revenue
is derived primarily from the sale of sports and fitness apparel and equipment, 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.
We
sell our software directly via Internet download through third party agents. We recognize revenue 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.
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.
Cost
of Revenue
Cost
of revenue includes the cost of amounts paid for articles, photography, editorial and production cost of the magazine and ongoing
web hosting costs. Cost of revenue related to product sales includes the direct cost of those products sold.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017 and 2016
(Unaudited)
Research
and development, Website Development Costs, and Software Development Costs
All
research and development costs are expensed as incurred. Software development costs eligible for capitalization under ASC 350-50,
Website Development Cost
, and ASC 985-20,
Software-Costs of Software to be Sold, Leased or Marketed
, were not material
to our financial statements for the periods ended September 30, 2017 and 2016. Research and development expenses amounted to $0
and $200 for three months ended September 30, 2017 and 2016, respectively and $0 and $200 for nine months ended September 30,
2017 and 2016, respectively. Research and development expenses were included in general and administrative expenses.
Advertising
Costs
We
recognize advertising expense when incurred. Advertising expense was $0 and $130 for the three months ended September 30, 2017
and 2016, respectively and $0 and $130 for nine months ended September 30, 2017 and 2016, respectively.
Rent
Expense
We
recognize rent expense on a straight-line basis over the reasonably assured lease term as defined in ASC Topic 840,
Leases
(“ASC 840”). Our lease is short term and will be renewed on a month to month basis. Rent expense was $363 and
$2,110 for the for three months ended September 30, 2017 and 2016, respectively and $3,975 and $5,685 for the for nine months
ended September 30, 2017 and 2016, respectively.
Equity-Based
Compensation
Stock-based
compensation is presented in accordance with the guidance of ASC Topic 718,
Compensation – Stock Compensation
(“ASC
718”). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards
on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service periods in our consolidated statements of operations.
Income
Taxes
The
provision for income taxes is determined in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements,
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts.
For
the for three and six months ended September 30, 2017 and 2016 we did not have any interest, penalties or any significant unrecognized
uncertain tax positions.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017 and 2016
(Unaudited)
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 for three months ended September 30, 2017 and 2016, and the outstanding stock options and warrants are anti-dilutive.
Recent
Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the recently
issued standards that are not yet effective may not have an impact on our results of operations and financial position.
Note
3. Fixed Assets
At
September 30, 2017 and December 31, 2016, fixed assets consisted of the following:
|
|
2017
|
|
|
2016
|
|
Furniture and Equipment
|
|
$
|
7,670
|
|
|
$
|
7,670
|
|
Less accumulated depreciation
|
|
|
(7,670
|
)
|
|
|
(7,670
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
amount charged to depreciation expense furniture and equipment was $0 and $629 for of the three months ended September 30, 2017
and 2016, respectively and was $0 and $1,278 for of the nine months ended September 30, 2017 and 2016, respectively.
Note
4. Intangible Assets
At
September 30, 2017 and December 31, 2016, intangible assets consist of the following:
|
|
2017
|
|
|
2016
|
|
Internet domain names
|
|
$
|
58,641
|
|
|
$
|
58,641
|
|
Less accumulated amortization
|
|
|
(58,641
|
)
|
|
|
(58,641
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Website and data bases
|
|
$
|
56,050
|
|
|
$
|
56,050
|
|
Less accumulated amortization
|
|
|
(56,050
|
)
|
|
|
(56,050
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Customer and supplier lists
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
Less accumulated amortization
|
|
|
(4,050
|
)
|
|
|
(3,375
|
)
|
|
|
$
|
450
|
|
|
$
|
1,125
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
119,191
|
|
|
$
|
119,191
|
|
|
|
|
(118,741
|
)
|
|
|
(118,066
|
)
|
|
|
$
|
450
|
|
|
$
|
1,125
|
|
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017 and 2016
(Unaudited)
We
recognized identifiable intangibles arising from the allocation of the purchase prices of assets acquired in accordance with ASC
805.. We have not recognized any goodwill in these financial statements. Additionally, ASC 805 gives guidance on five types of
assets: marketing-related, customer-related, artistic-related, contract-related, and technology based intangible assets. We identified
identifiable intangibles that are marketing-related, customer-related, and technology based.
The
amount charged to amortization expense for all intangibles was $225 and $9,356 for the three months ended September 30, 2017 and
2016, respectively and was $675 and $18,055 for the nine months ended September 30, 2017 and 2016, respectively.
Estimated
future amortization expense related to the intangibles as of September 30, 2017 is as follows:
Year Ended December 31,
|
|
|
|
|
2017
|
|
|
|
225
|
|
2018
|
|
|
|
225
|
|
|
|
|
$
|
450
|
|
Note
5. Amounts Due Related Parties
Parties,
which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common control or common significant influence.
Amount
due to related parties represent cash advances, salary accruals and amounts paid on our behalf by officers and shareholders of
the Company. These advances are non-interest bearing, short term in nature and due on demand. The balance at September 30, 2017
and December 31, 2016, was $697,649 and $536,639, respectively. Salary accruals for each period amounted to $112,500 and net cash
advances amounted to $48,510 and $52,485, respectively for the nine months ended September 30, 2017 and 2016, and were included
in amounts due to related party.
LifeApps
Brands Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017 and 2016
(Unaudited)
Note
7. Stock Based Compensation
In
prior periods, our Board of Directors adopted the 2012 Equity Incentive Plan (“2012 Plan”), which was approved by
our shareholders. The 2012 Plan provided for the issuance of up to 666,667 shares of our common stock. During October 2015 the
Board of Directors amended the plan to increase the number of shares issuable under the LifeApps Digital Media Inc. 2012 Equity
Incentive Plan to 20,000,000, on a post-Reverse Stock Split basis. The plan provides for the award of options, stock appreciation
rights, performance share awards, and restricted stock and stock units. The plan is administered by the Board of Directors. Pursuant
to the 2012 Plan our Board of Directors granted options to purchase 418,333 shares of our common stock in periods prior to December
31, 2015. All of those options have been cancelled or lapsed as of December 31, 2016. On May 24, 2016 our Board of Directors granted
options to purchase 15,000,000 shares of our common stock to officers and or directors and a consultant. The options are exercisable
quarterly from the grant date over a four-year term.
The
fair value of the options granted, $39,000, was estimated at the date of grant using the Black-Scholes option pricing model, with
the following assumptions:
Expected life (in years)
|
|
|
4
|
|
Volatility
|
|
|
383
|
%
|
Risk Free interest rate
|
|
|
0.68
|
%
|
Dividend yield (on common stock)
|
|
|
—
|
|
Stock
based compensation expense recorded for the periods ended September 30, 2017 and 2016 was $7,312 and $0, respectively.
The
following is a summary of stock options issued to employees and directors:
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2017
|
|
|
|
10,000,000
|
|
|
$
|
0.0026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding September 30, 2017
|
|
|
|
10,000,000
|
|
|
$
|
.0026
|
|
|
|
2.65
|
|
|
|
—
|
|
Exercisable September 30, 2017
|
|
|
|
3,125,000
|
|
|
$
|
.0026
|
|
|
|
2.65
|
|
|
|
—
|
|
There
will be approximately $17,875 of additional compensation expense recognized in future periods.
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2017 and 2016
(Unaudited)
The following is a summary of stock options
issued to non-employees, excluding Directors:.
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value at
date of
grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
January 1, 2016
|
|
|
|
5,000,000
|
|
|
$
|
0.026
|
|
|
|
3.4
|
|
|
|
—
|
|
Granted
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
September 30, 2017
|
|
|
|
5,000,000
|
|
|
$
|
0.0026
|
|
|
|
2.65
|
|
|
$
|
—
|
|
Exercisable
September 30, 2017
|
|
|
|
1,562,500
|
|
|
$
|
0.026
|
|
|
|
2.65
|
|
|
$
|
—
|
|
There will be approximately $8,935 of additional
compensation expense recognized in future periods.
Note 8. Outstanding Warrants
There were no warrants issued during the
periods ended September 30, 2017 or 2016. At December 31, 2016 there were warrants outstanding for the purchase of an aggregate
of 400,000 shares of the company’s common stock at an exercise price of $15 per share.
The warrants expired on September 20,
2017.
Note 10. Income Taxes
Income tax provision (benefit) for the
periods ended September 30, 2017 and 2016, is summarized below:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
—
|
|
|
—
|
|
Total current
|
|
—
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(19,400
|
)
|
|
|
(41,300
|
)
|
State
|
|
|
(3,100
|
)
|
|
|
(6,700
|
)
|
Total deferred
|
|
|
(22,500
|
)
|
|
|
(48,000
|
)
|
Increase
in valuation allowance
|
|
|
22,500
|
|
|
|
48,000
|
|
Total
provision
|
|
$
|
—
|
|
|
$
|
—
|
|
The provision for income taxes differs
from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources
and tax effects of the differences as of September 30, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Income tax provision at the federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
Increase in valuation allowance
|
|
|
(39.5
|
)%
|
|
|
(39.5
|
)%
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
LifeApps Brands Inc.
Notes to Condensed Consolidated Financial
Statements
September 30, 2017 and 2016
(Unaudited)
There are open statutes of limitations
for taxing authorities in federal and state jurisdictions to audit our tax returns from 2010 through the current period. Our policy
is to account for income tax related interest and penalties in income tax expense in the consolidated statement of operations.
There have been no income tax related interest or penalties assessed or recorded.
Note 11. Business Segments
We currently have two business segments;
(i) the sale of physical products (“Products”) and (ii) digital publishing (“Publishing”). The accounting
policies of the segments are the same as those described in the summary of significant accounting policies.
The publishing segment does not meet the
quantitative threshold for disclosure as outlined ASC Topic 280
Segment Reporting.
All of our revenue is generated in the
United States and accordingly no geographic segment reporting is included.
No customers accounted for more than 10%
of our revenues in the periods September 30, 2017 and 2016.
Note 12. Subsequent Events
Management has evaluated all activity and concluded that no
subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these
financial statements
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 of September 30, 2017 and September 30, 2016 and for the
nine months ended September 30, 2017 and 2016 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 to LifeApps Brands 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. 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 ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on
April 18, 2017. 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.
Overview
LifeApps® is a licensed developer and
publisher of apps for the Apple App Store for iPhone, iPod touch, iPad and iPad mini. LifeApps® is also a licensed developer
on both Google Play and Amazon Appstore for Android. LifeApps® has distributed apps/publications on all three platforms. Moving
forward LifeApps® is developing new apps, and exploring new opportunities pairing apps with physical retail and e-commerce/mobile-commerce
products.
Plan of Operation
LifeApps® intends to continue to develop
and license the LifeApps Mobile App Platform. We will research and seek out aligned companies with need for tutorial based apps
for mobile and we will work to create new revenue through development and licensing of our presentation format for their use. We
will pursue a business model of physical-tied-to-mobile, combining mobile app training with a physical retail product. LifeApps®
is developing a suite of software tools and enhanced customer experiences that will enable us to scale the LifeApps Mobile App
Platform through technology enhancements.
LifeApps® intends to monetize and drive
revenue through a combination of its software development, e-commerce/mobile-commerce of mobile applications and in-app sales,
subscriptions and advertising across all platforms.
Our SportsOne business has been curtailed
in order to better utilize resources to serve the new direction and focus of the Company.
The Company’s acquisition strategy
of purchasing companies, development resources and assets that are aligned with our areas of interest can further aid in our entering
additional market segments. We will actively research and engage in the acquisition of companies and resources that can expedite
our entrance into new markets, or strengthen our position in existing ones.
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 September 30, 2017, we have incurred losses of $2,958,010. 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, short-term trade receivables, prepaid expenses, payables, accruals and convertible notes payable. The carrying
values of cash and cash equivalents, short-term trade receivables, prepaid expenses, payables, and accruals approximate fair value
because of the short term maturities of these instruments.
Inventory
Inventory consists of finished goods, sports
and fitness products, and is stated at the lower of cost or net realizable value, with cost being determined on a first-in first-out
basis.
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”), Accounting Standards
Codification (“ASC”) Topic 350 Intangibles – Goodwill and Other (“ASC 350”), the costs to obtain
and register internet domain names were capitalized.
Derivative Financial Instruments:
We do not use derivative instruments to
hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments,
we used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current
based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet
date.
Revenue Recognition
Revenue is derived primarily from the sale
of sports and fitness apparel and equipment, 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.
We sell our software directly via Internet
download through third party agents. We recognize revenue 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.
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.
Cost of Revenue
Cost of revenue includes the cost of amounts
paid for articles, photography, editorial and production cost of the magazine and ongoing web hosting costs. Cost of revenue related
to product sales includes the direct cost of those products sold.
Equity Based Payments
Equity based payments are accounted for
in accordance with ASC Topic 718, Compensation – Stock Compensation. The compensation cost is based upon fair value of the
equity instrument at the date grant. The fair value has been estimated using the Black-Sholes option pricing model.
Results of Operations
Three months ended September 30,
2017, compared with the three months ended September 30, 2016
Revenues for the three months ended September
30, 2017 and 2016 were $787 and $147, respectively. Revenues for both periods were derived primarily from the sale of sports apparel
and health and fitness products.
Cost of revenue normally includes our cost
of products sold and amounts paid for articles, photography, editorial and production cost of the magazine. In the future we will
incur direct cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable future we
anticipate outsourcing such costs. Cost of revenue related to product sales includes the direct cost of those products sold.
Cost of revenue for the three months ended
September 30, 2017 and 2016 was $0 (0%) and $51 (34.7%), respectively. This resulted in a gross profit for three months ended September
30, 2017 and 2016 of $787 (100%) and $96 (65.3%), respectively. Costs were primarily the cost of products sold. The increase in
gross margin is primarily due to product mix and the sale of inventory fully reserved in prior years..
We had net losses of $47,164 and $56,799
for the three months ended September 30, 2017 and 2016, respectively.
The following is a breakdown of our selling,
general and administrative expenses for the three months ended September 30, 2017 and 2016:
|
|
Three months Ended September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Difference
|
|
Personnel costs
|
|
$
|
37,500
|
|
|
$
|
37,689
|
|
|
$
|
(179
|
)
|
Professional fees
|
|
|
6,500
|
|
|
|
11,265
|
|
|
|
(4,765
|
)
|
Marketing and advertising
|
|
|
—
|
|
|
|
164
|
|
|
|
(164
|
)
|
Travel and entertainment
|
|
|
200
|
|
|
|
—
|
|
|
|
200
|
|
Stock related expenses
|
|
|
2,437
|
|
|
|
—
|
|
|
|
2,437
|
|
Research and development
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Rent
|
|
|
363
|
|
|
|
2,110
|
|
|
|
(1,747
|
)
|
Other expenses
|
|
|
726
|
|
|
|
5,452
|
|
|
|
(4,726
|
)
|
|
|
$
|
47,726
|
|
|
$
|
56,670
|
|
|
$
|
(8,499
|
)
|
Personnel costs were constant for the periods
and consist solely of accrual of officer salary pursuant to an employment contract.
Professional fees decreased $4,765 (73.3%)
from $11,265 for the three months ended September 30, 2016 to $6,500 for the three months ended September 30, 2017. The decrease
is a result of timing of accounting and legal services rendered.
Marketing and advertising expenses were
not significant during the quarters ended September 30, 2017 and 2016.
Research and development includes website
and applications development costs. Research and development and development activities were not significant during the quarters
ended September 30, 2017 and 2016. Development is an ongoing cost and we anticipate that our development costs both for website
and applications may increase in future periods.
Travel expenses were not significant during the
quarters ended September 30, 2017 and 2016.
Rent expense decreased by $4,726 (650%) from $5,452
for the three months ended September 30, 2016 to $363 for the three months ended September 30, 2017. The decrease is a result of
the relocation of our corporate office to a shared office facility.
All
of our other operating costs decreased as result of generally keeping costs down.
We had operating losses of $47,164 and $56,799 for the three months ended September 30, 2017 and 2016, respectively.
Nine months ended September 30, 2017, compared
with the nine months ended September 30, 2016
Revenues for the nine months ended September 30,
2017 and 2016 were $3,093 and $11,168 respectively. Revenues for both periods were derived primarily from the sale of sports apparel
and health and fitness products. The decrease in revenues is due to an across the board downturn in our business.
Cost of revenue normally includes our cost of products
sold and amounts paid for articles, photography, editorial and production cost of the magazine. In the future we will incur direct
cost related to revenue such as webhosting and direct cost for our customer support. For the foreseeable future we anticipate outsourcing
such costs. Cost of revenue related to product sales includes the direct cost of those products sold.
Cost of revenue for the nine months ended September
30, 2017 and 2016 was $49 (1.6%) and $8,122 (72.7%) respectively. This resulted in a gross profit for the nine months ended September
30, 2017 and 2016 of $3,044 (98.4%) and $3,046 (27.2%), respectively. Costs were primarily the cost of products sold and the margin
varies depending on products sold has been sold. The decrease in gross margin is primarily to product mix and the sale if inventory
fully reserved in prior years..
We had net losses of $169,447 and $178,247 for
the nine months ended September 30, 2017 and 2016, respectively.
The following is a breakdown of our selling, general
and administrative expenses for the nine months ended September 30, 2017 and 2016:
|
|
Nine months Ended September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Difference
|
|
Personnel costs
|
|
$
|
112,500
|
|
|
$
|
113,221
|
|
|
$
|
(721
|
)
|
Professional fees
|
|
|
38,500
|
|
|
|
30,930
|
|
|
|
(7,570
|
)
|
Marketing and advertising
|
|
|
3,495
|
|
|
|
1,895
|
|
|
|
1,600
|
|
Travel and entertainment
|
|
|
2,810
|
|
|
|
—
|
|
|
|
2,810
|
|
Stock related expenses
|
|
|
7,311
|
|
|
|
7,534
|
|
|
|
(223
|
)
|
Rent
|
|
|
3,975
|
|
|
|
5,685
|
|
|
|
(1,710
|
)
|
Research and development
|
|
|
—
|
|
|
|
200
|
|
|
|
(200
|
)
|
Other expenses
|
|
|
3,225
|
|
|
|
12,254
|
|
|
|
(9,028
|
)
|
|
|
$
|
171,816
|
|
|
$
|
171,719
|
|
|
$
|
97
|
|
Personnel costs were constant for the periods and
consist solely of accrual of officer salary pursuant to an employment contract.
Professional fees decreased $7,570 (40.8%) from
$30,930 for the nine months ended September 30, 2016 to $38,500 for the nine months ended September 30, 2017. The decrease is a
result of lower accounting and legal services rendered as a result of reduced business activities.
Marketing and advertising increased $1,600 (45.8%)
from $1,895 for the nine months ended September 30, 2016 to $3,495 for the nine months ended September 30, 2017. The increase is
a result of a consulting contract for new market research.
Research and development includes website and applications
development costs. Research and development and development activities were not significant during the quarters ended September
30, 2017 and 2016. Development is an ongoing cost and we anticipate that our development costs both for website and applications
may increase in future periods.
Travel expenses increased $2,810 (100%) from $0
for the nine months ended September 30, 2016 to $2,810 for the nine months ended September 30, 2017. The increase is due to executive
travel in connection with the new marketing research effort.
Rent expense decreased by $1,710 (43%) from $5,685
for the nine months ended September 30, 2016 to $3,975 for the nine months ended September 30, 2017. The decrease is a result
of the relocation of our corporate office to a shared office facility.
All of our other operating costs decreased as result
of generally keeping costs down.
We had operating losses of $169,447 and $178,247 for the nine months ended September 30, 2017 and 2016, respectively.
Liquidity and Capital Resources
We were financed primarily by capital contributions
from members of LifeApps LLC, the predecessor to LifeApps, from short term borrowings, and through our private placement which
we completed in October 2012. Our existing sources of liquidity may not be sufficient for us to implement our initial 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 needed.
As of September 30, 2017, we had negative working
capital of $(826,480) as compared to negative working capital of $(665,019) at December 31, 2016.
During the nine months ended September 30, 2017
and 2016, operations used cash of $48,616 and $54,918 respectively.
During the nine months ended September 30, 2017
and 2016, we used no cash in investing activities.
During the nine months ended September 30, 2017
and 2016, net cash provided by financing activities was $48,510 and $52,485, respectively.
Additionally, we received net amounts of $15,510
and $2,350 of cash advances from our chief executive officer and net amounts of $33,000 and $52,135 of cash advances from a director
and shareholders during the nine months ended September, 2017 and 2016, respectively.
We will continue to seek out additional capital
in the form of debt or equity under the most favorable terms we can find.
Going Concern
Our financial statements have been prepared on
a going concern basis which assumes that we will be able to realize our assets and discharge our liabilities in the normal course
of business for the foreseeable future. We have incurred losses since inception resulting in an accumulated deficit of approximately
$2,958,010 as of September 30, 2017 and further losses are anticipated in the development of our business raising substantial doubt
about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our generating profitable
operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from
normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing
cash on hand and/or additional officer and shareholder advances. These financials do not include any adjustments relating to the
recoverability and reclassification of recorded asset amounts, or amounts and classifications of liabilities that might result
from this uncertainty.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.