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FDBL Friendable

Filed: 10 Nov 21, 4:48pm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2021

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

 

Commission File Number: 000-52917

 

FRIENDABLE, INC.
(Exact name of registrant as specified in its charter)

 

Nevada 98-0546715
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)

 

1821 S Bascom Ave., Suite 353, Campbell, California 95008
(Address of principal executive offices) (zip code)
 
(855) 473-8473
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)

 

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. x Yes o 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). x Yes o 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filero Accelerated filero
Non-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyx
   Emerging growth companyo
     

If an emerging growth company, indicate by check mark if the 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. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
   

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

475,998,393 shares of common stock outstanding as of November 5, 2021, of which 6,324,453 are issuable as of the date of this report.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 1
   
ITEM 1. FINANCIAL STATEMENTS 1
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 35
   
ITEM 4. CONTROLS AND PROCEDURES 36
   
PART II - OTHER INFORMATION 37
   
ITEM 1. LEGAL PROCEEDINGS 37
   
ITEM 1A. RISK FACTORS 37
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 38
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 38
   
ITEM 4. MINE SAFETY DISCLOSURES 38
   
ITEM 5. OTHER INFORMATION 38
   
ITEM 6. EXHIBITS 39
   
SIGNATURES 40

ii 

 

As used in this report, the term “the Company” means Friendable, Inc., formerly known as iHookup Social, Inc., and its subsidiary, unless the context clearly indicates otherwise.

 

Special Note Regarding Forward-Looking Information

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: the Company’s future financial performance, the Company’s business prospects and strategy, anticipated trends and prospects in the industries in which the Company’s businesses operate and other similar matters. These forward-looking statements are based on the Company’s management’s expectations and assumptions about future events as of the date of this quarterly report, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

 

Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect the Company’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward-looking statements discussed in this quarterly report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of the Company’s management as of the date of this quarterly report. The Company does not undertake to update these forward-looking statements

 

In this quarterly report on Form 10-Q, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in the Company’s capital stock.

 

An investment in the Company’s common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this quarterly report on Form 10-Q in evaluating the Company and its business before purchasing shares of the Company’s common stock. The Company’s business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in the Company’s common stock only if you can afford to lose your entire investment.

iii 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

FRIENDABLE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)

 

Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 2
   
Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited) 3
   
Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2021 and 2020 (unaudited) 4-5
   
Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited) 6
   
Notes to the Consolidated Financial Statements 7-30

1

 

FRIENDABLE, INC.
CONSOLIDATED BALANCE SHEETS

 

  September 30,  December 31, 
  2021  2020 
  (Unaudited)    
ASSETS      
CURRENT ASSETS:        
Cash $446,884  $52,702 
Accounts receivable  -   12,500 
Prepaid expenses  16,857   83,399 
Total Current Assets  463,741   148,601 
         
Total Assets $463,741  $148,601 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES:        
Accounts payable and accrued expenses $2,731,409  $2,447,706 
Accounts payable - related party  55,821   190,320 
Short term loans  61,000   61,000 
Convertible debentures and convertible promissory notes, net of discounts  92,608   143,957 
Mandatorily redeemable Series C convertible Preferred stock, 1,000,000 designated, 441,375 and 173,100 issued and outstanding at September 30, 2021 and December 31, 2020, including a premium of $179,434 and $74,701 respectively (liquidation value $454,155 at September 30, 2021)  633,590   285,605 
Derivative liabilities  237,900   1,320,000 
Liability to be settled in common stock  988,375   988,375 
Total Current Liabilities  4,800,703   5,436,963 
         
Commitments and contingencies (Note 7)        
         
SHAREHOLDERS’ DEFICIT:        
Preferred stock, 50,000,000 authorized at par value $0.0001:        
Series A convertible Preferred stock, 25,000 shares designated at par value of $0.0001 19,684 and 19,786 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  2   2 
Series B convertible Preferred stock, 1,000,000 shares designated at par value of $0.0001 284,000 and 284,000 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively. (Liquidation value $284,000)  28   28 
Series D convertible Preferred stock, 500,000 shares designated at par value of $10.00 40,524 and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  405,240   - 
Common stock, $0.0001 par value, 2,000,000,000 shares authorized, 417,753,740 and 51,665,821 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  41,775   5,167 
Common stock issuable, $0.0001 par value, 11,548,528 and 103,547,079 shares at September 30, 2021 and December 31, 2020, respectively  1,154   10,354 
Additional paid-in capital  33,754,754   31,269,833 
Common stock subscription receivable  -   (4,500)
Accumulated deficit  (38,539,915)  (36,569,246)
Total Stockholders’ Deficit  (4,336,962)  (5,288,362)
         
Total Liabilities and Stockholders’ Deficit $463,741  $148,601 

 

See accompanying notes to consolidated financial statements 

2

 

FRIENDABLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

   For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
REVENUES                
Technology services $-  $109,500  $-  $319,331 
Subscription and merchandising sales  1,866   1,892   4,780   3,340 
Revenue  1,866   111,392   4,780   322,671 
                 
OPERATING EXPENSES:                
App hosting  7,500   12,000   22,500   33,000 
Commissions  247   191   605   625 
General and administrative  315,672   224,401   962,281   605,458 
Software development and support-related party  252,500   105,790   575,000   460,102 
Artists’ performance fees  -   425,058   -   425,058 
Revenue shares  920   402   2,124   402 
Investor relations  58,118   3,921   104,968   140,527 
Sales and marketing  127,269   30,081   393,321   82,335 
Total operating expenses  762,226   801,844   2,060,799   1,747,507 
                 
LOSS FROM OPERATIONS  (760,360)  (690,452)  (2,056,019)  (1,424,836)
                 
OTHER INCOME(EXPENSE):                
Accretion and interest expense  (426,200)  (38,423)  (936,113)  (266,710)
Gain on foreign exchange  -   -   -   2,580 
Initial derivative expense  -   -   (1,796,835)  (419,000)
Gain (loss) on settlement of derivatives  -   257,317   -   (640,821)
Derivative income (expense)  867,298   263,000   2,818,298   259,000 
Total other income (expense), net  441,098   481,894   85,350   (1,064,951)
                 
NET LOSS $(319,262) $(208,558) $(1,970,669) $(2,489,787)
                 
NET LOSS PER COMMON SHARE:                
Basic and Diluted $(0.001) $(0.002) $(0.01) $(0.04)
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :                
Basic and Diluted  309,158,542   121,819,362   233,457,551   66,468,267 

 

See accompanying notes to consolidated financial statements 

3

 

FRIENDABLE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the three and nine months ended September 30, 2021
(Unaudited)

 

  Series A Preferred  Series B Preferred  Series D Preferred  Common Stock  Additional  Common Stock     Total 
  Shares     Shares     Shares     Shares     Shares     Paid In  Subscription  Accumulated  Stockholders’ 
  Issued  Amount  Issued  Amount  Issued  Amount  Issued  Amount  Issuable  Amount  Capital  Receivable  Deficit  Deficit 
Balance, December 31, 2020  19,786  $2   284,000  $28   -   -   51,665,821  $5,167   103,547,079  $10,354  $31,269,833  $(4,500) $(36,569,246) $(5,288,362)
                                                         
Conversion of convertible notes  -   -   -   -   -   -   31,532,405   3,153   -   -   164,590   -   -   167,743 
                                                         
Common shares issued in payment of loan commitment fee  -   -   -   -   -   -   3,500,000   350   -   -   11,574   -   -   11,924 
                                                         
Issuance of common stock previously issuable  -   -   -   -   -   -   40,766,310   4,077   (40,766,310)  (4,077)  -   -   -   - 
                                                         
Common shares issued on conversion of Series C preferred  -   -   -   -   -   -   5,500,894   550   -   -   50,039   -   -   50,589 
                                                         
Common stock warrants issued, related to loans  -   -   -   -   -   -   -   -   -   -   301,411   -   -   301,411 
                                                         
Settlement of share subscription receivable  -   -   -   -   -   -   -   -   -   -   -   4,500   -   4,500 
                                                         
Amortization of value of employee stock options  -   -   -   -   -   -   -   -   -   -   20,988   -   -   20,988 
                                                         
Net loss  -   -   -   -   -   -   -   -   -   -   -   -   (2,484,956)  (2,484,956)
Balance, March 31, 2021  19,786  $2   284,000  $28   -   -   132,965,430  $13,297   62,780,769  $6,277  $31,818,435  $-  $(39,054,202) $(7,216,163)
                                                         
Sale of Series D preferred  -   -   -   -   85,000   850,000   -   -   -   -   -   -   -   850,000 
                                                         
Issuance of common stock previously issuable  -   -   -   -   -   -   42,522,600   4,252   (42,522,600)  (4,252)  -   -   -   - 
                                                         
Common shares issued on conversion of Series C preferred  -   -   -   -   -   -   11,496,360   1,150   -   -   136,403   -   -   137,553 
                                                         
Amortization of value of employee stock options  -   -   -   -   -   -   -   -   -   -   22,018   -   -   22,018 
                                                         
Common shares issued on conversion of Series A preferred  (50)  -   -   -   -   -   2,555,738   255   -   -   (255)  -   -   - 
                                                         
Common shares issued on conversion of Series D preferred  -   -   -   -   (44,970)  (449,700)  31,029,932   3,103   -   -   446,597   -   -   - 
                                                         
Regulation A expense  -   -   -   -   -   -   -   -   -   -   (31,309)  -   -  $(31,309)
                                                         
Net Income  -   -   -   -   -   -   -   -   -   -   -   -   833,549   833,549 
Balance, June 30, 2021  19,736  $2   284,000  $28   40,030  $400,300   220,570,060  $22,057   20,258,169  $2,025  $32,391,889  $-  $(38,220,653) $(5,404,352)
                                                         
Conversion of convertible notes  -   -   -   -   -   -   42,352,994  $4,235   -   -  $329,216   -   -  $333,451 
                                                         
Sale of Series D preferred  -   -   -   -   76,000   760,000   -   -   -   -   -   -   -   760,000 
                                                         
Common stock issued for services  -   -   -   -   -   -   2,000,000   200   -   -   17,200   -   -   17,400 
                                                         
Issuance of common stock previously issuable  -   -   -   -   -   -   8,709,641   871   (8,709,641)  (871)  -   -   -   - 
                                                         
Common stock issued to debenture holder to be offset against holder’s convertible debt  -   -   -   -   -   -   7,290,359   729   -   -   90,400   -   -   91,129 
                                                         
Common shares issued on conversion of Series C preferred  -   -   -   -   -   -   17,799,687   1,780   -   -   160,874   -   -   162,654 
                                                         
Amortization of value of employee stock options  -   -   -   -   -   -   -   -   -   -   22,018   -   -   22,018 
                                                         
Common shares issued on conversion of Series A preferred  (52)  -   -   -   -   -   4,928,511   493   -   -   (493)  -   -   - 
                                                         
Common shares issued on conversion of Series D preferred  -   -   -   -   (75,506)  (755,060)  114,102,488   11,410   -   -   743,650   -   -   - 
                                                         
Net Loss  -   -   -   -   -   -   -   -   -   -   -   -   (319,262)  (319,262)
Balance, September 30, 2021  19,684  $2   284,000  $28   40,524  $405,240   417,753,740  $41,775   11,548,528  $1,154  $33,754,754  $-  $(38,539,915) $(4,336,962)

 

See accompanying notes to consolidated financial statements 

4

 

FRIENDABLE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the three and nine months ended September 30, 2020

 

  Series A Preferred Stock  Series B Preferred  Common Stock  Additional  Common Stock     Total 
  Shares     Shares     Shares     Shares     Shares     Paid In  Subscription  Accumulated  Stockholders’ 
  Issued  Amount  Issuable  Amount  Issued  Amount  Issued  Amount  Issuable  Amount  Capital  Receivable  Deficit  Deficit 
Balance, December 31, 2019  19,789  $2   -  $-   284,000  $28   4,398,114  $438   8,518,335  $852  $16,476,758  $(4,500) $(32,443,883) $(15,970,305)
                                                         
Common shares cancelled  -   -   -   -   -   -   (2,000)  -   -   -   (500)  -   -   (500)
                                                         
Conversion of convertible notes  -   -   -   -   -   -   362,595   36   -   -   19,914   -   -   19,950 
                                                         
Common stock issuable under debt restructuring agreement  -   -   -   -   -   -   -   -   36,193,098   3,620   8,415,518   -   -   8,419,138 
                                                         
Common shares issued for services  -   -   -   -   -   -   600,000   60   -   -   89,940   -   -   90,000 
                                                         
Issuance of common stock previously issuable  -   -   -   -   -   -   2,575,746   258   (2,575,746)  (258)  -   -   -   - 
                                                         
Conversion of Series A preferred into common stock  (3)  -   -   -   -   -   54,076   5   -   -   (5)  -   -   - 
                                                         
Net loss  -   -   -   -   -   -   -   -   -   -   -   -   (1,547,616)  (1,547,616)
Balance, March 31, 2020  19,786  $2   -  $-   284,000  $28   7,988,531  $797   42,135,687  $4,214  $25,001,625  $(4,500) $(33,991,499) $(8,989,333)
                                                         
Conversion of convertible notes  -   -   -   -   -   -   2,211,445   221   -   -   56,299   -   -   56,520 
                                                         
Common shares issued for services  -   -   -   -   -   -   78,000   8   206,667   21   27,579   -   -   27,608 
                                                         
Series A preferred shares issuable to talent agencies in exchange for services  -   -   118   -   -   -   -   -   -   -   135,617   -   -   135,617 
                                                         
Return of Series A preferred shares to treasury  (118)  -   -   -   -   -   -   -   -   -   -   -   -   - 
                                                         
Common stock issued for cash  -   -   -   -   -   -   -   -   1,750,000   175   34,825   -   -   35,000 
                                                         
Net loss  -   -   -   -   -   -   -   -   -   -   -   -   (733,613)  (733,613)
Balance, June 30, 2020  19,668  $2   118   -   284,000  $28   10,277,976  $1,026   44,092,354  $4,410  $25,255,945  $(4,500) $(34,725,112) $(9,468,201)
                                                         
Common stock issuable under debt restructuring agreement  -   -   -   -   -   -   -   -   63,275,243   6,328   5,049,356   -   -   5,055,684 
                                                         
Common stock issuable for stock issued for cash  -   -   -   -   -   -   -   -   500,000   50   24,950   -   -   25,000 
                                                         
Common shares issued towards settlement of lawsuit  -   -   -   -   -   -   750,000   75   -   -   16,550   -   -   16,625 
                                                         
Common shares issued for services  -   -   -   -   -   -   5,058,333   506   -   -   427,936   -   -   428,442 
                                                         
Common stock issued on conversion of Series C preferred  -   -   -   -   -   -   3,822,958   383   -   -   134,660   -   -   135,043 
                                                         
Reclassification of common stock previously issuable  -   -   -   -   -   -   1,309,165   132   (1,309,165)  (132)  -   -   -   - 
                                                         
Reclassification of Series A preferred previously issuable  118   -   (118)      -   -   -   -   -   -   -   -   -   - 
                                                         
Net Loss  -   -   -   -   -   -   -   -   -   -   -   -   (208,558)  (208,558)
Balance, September 30, 2020  19,786  $2   -  $-   284,000  $28   21,218,432  $2,122   106,558,432  $10,656  $30,909,397  $(4,500) $(34,933,670) $(4,015,965)

 

See accompanying notes to consolidated financial statements

5

 

FRIENDABLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

  For the Nine Months Ended 
  September 30, 
  2021  2020 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net Loss $(1,970,669) $(2,489,787)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Common stock issued for services  17,400   575,500 
Loss on settlement of derivative  -   640,821 
Non-cash loan fees expensed  29,000   - 
Debt conversion fees charged to expense  8,600   - 
Stock option expense  65,024   - 
Amortization of debt discount  467,101   45,095 
Initial derivative expense  1,796,835   419,000 
(Gain) Loss on change in fair value of derivative  (2,818,298)  (259,000)
Accrual of dividend on Preferred C Stock  -   24,666 
Interest on convertible debentures and promissory note      171,156 
Premium, dividends and accretion on Series C preferred stock  281,654   - 
Change in operating assets and liabilities:        
Accounts receivable  12,500   (12)
Due from related party  -   30,083 
Prepaid expenses  66,543   30,000 
Accounts payable - related party  (134,499)  141,803 
Accounts payable and accrued expenses  335,176   409,744 
NET CASH USED IN OPERATING ACTIVITIES  (1,843,633)  (260,931)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from sale of convertible Series C preferred stock  515,900   33,000 
Redemption of Series C preferred stock  (95,150)  - 
Payment of Series C preferred stock dividends  (3,625)  - 
Proceeds from sale convertible Series D preferred stock from Regulation A offering  1,610,000   - 
Offering costs of convertible Series D preferred stock  (31,310)  - 
Refund on canceled common stock subscription  -   (500)
Proceeds from issuance of convertible notes  358,500   105,000 
Prepayment of convertible note  (116,500)    
Proceeds from short-term loans  -   61,000 
Proceeds from sale of common stock  -   60,000 
NET CASH PROVIDED BY FINANCING ACTIVITIES  2,237,815   258,500 
         
NET INCREASE IN CASH AND CASH EQUIVALENTS  394,182   (2,431)
         
CASH AND CASH EQUIVALENTS - beginning of period  52,702   11,282 
         
CASH AND CASH EQUIVALENTS - end of period $446,884  $8,851 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
Interest $-  $- 
Income taxes $-  $- 
         
Non-cash investing and financing activities:        
Settlement of stock subscription receivable $4,500  $- 
Conversion of convertible notes to common stock $401,949  $59,175 
Conversion of accrued interest to common stock $46,970  $17,295 
Conversion of Series C redeemable preferred shares to common stock $350,789  $- 
Conversion of Series D preferred stock to common stock $1,204,700  $- 
Series A shares granted for fee and recorded as prepaid asset $-  $135,617 
Premiums on Series C redeemable preferred shares $-  $135,042 
Reduction of liability to be settled with common stock $-  $16,625 
Recording of debt discount on convertible debt $446,700  $105,000 
Reduction of derivative liability based on reset common shares issuable $-  $13,474,521 
         
Cash consists of :        
Cash $446,884  $8,851 

 

See accompanying notes to consolidated financial statements

6

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

1. NATURE OF BUSINESS AND GOING CONCERN

 

Nature of Business

 

Friendable, Inc., a Nevada corporation (the “Company”), was incorporated in the State of Nevada.

 

Friendable, Inc. is a mobile-focused technology and marketing company, connecting and engaging users through two distinctly branded applications. The Company initially released its flagship product Friendable, as a social application where users can create one-on-one or group-style meetups. In 2019 the Company moved the Friendable app closer to a traditional dating application with its focus on building revenue, as well as reintroducing the brand as a non-threatening, all-inclusive place where “Everything starts with Friendship”…meet, chat & date.

 

On June 28, 2017, the Company formed a wholly owned Nevada subsidiary called Fan Pass, Inc.

 

Fan Pass is the Company’s most recent or second app/brand, released on July 24, 2020. Fan Pass believes in connecting Fans of their favorite celebrity or artist, to an exclusive VIP or Backstage experience, right from their smartphone or other connected devices. Fan Pass allows an artist’s fanbase to experience something they would otherwise never have the opportunity to afford or geographically attend. The Company aims to establish both Friendable and Fan Pass as premier brands and mobile platforms that are dedicated to connecting and engaging users from anywhere around the World.

 

Presently, until our apps gain greater adoption from paying subscribers through increased awareness, coupled with additional compelling and exclusive digital content to produce higher revenue levels, though December 31, 2020 the Company had largely supported its operations through the sale of its software services, and specifically its app development services, under a contractual relationship since inception with a third party. This services contract ended in 2020 and has not yet been replaced with any other similar software services with another customer. Presently, the Company’s only revenue is from its own Fan Pass and Friendable apps, which have various revenue streams tested for long term and/or recurring monthly viability. The Company has developed an enhanced version of its Fan Pass application (v2.0) with improved features and attributes which it released on July 24, 2021. This upgrade includes all new UI/UX attributes, upgraded feature sets for artists and fans, an accelerated artist on boarding process and enhanced dashboard features. On August 5, 2021 the Company announced the approval of the Fan Pass v2.0 livestream artist platform by both the Apple App and Google Play Stores. The mobile applications can be downloaded by users worldwide, and Fan Pass v2.0 is also accessible via desktop and web applications.

 

On August 8, 2019 the Company filed a Designation of Series B convertible Preferred Stock with the state of Nevada, designating 1,000,000 shares of the Series B Preferred Stock with a stated value of $1.00 per share. A holder of Series B Preferred Stock has the right to convert their Series B Preferred Stock into fully paid and non-assessable shares of Common Stock. Initially, the conversion price for the Series B Preferred Stock is $0.25 per share, subject to standard anti-dilution adjustments. Additionally, each share of Series B Preferred Stock shall be entitled to, as a dividend, a pro rata portion of an amount equal to 10% (Ten Percent) of the Net Revenues (“Net Revenues” being “Gross Sales” minus “Cost of Goods Sold” as defined in the agreements) derived from the subscriptions and other sales, but excluding and net of Vimeo fees, processing fees and up sells, generated by Fan Pass Inc., the wholly-owned subsidiary of the Corporation. The Series B Dividend shall be calculated and paid on a monthly basis in arrears starting on the day 30 days following the first day of the month following the initial issuance of the Series B Preferred and continuing for a period of 60 (Sixty) months. The holders of Series B Preferred stock shall have no voting rights. The holders of Series B Preferred stock shall not be entitled to receive any dividends. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the holders of shares of Series B Preferred Stock shall be entitled to be paid the liquidation amount, as defined out of the assets of the Company available for distribution to its shareholders, after distributions to holders of the Series A Preferred Stock and before distributions to holders of Common Stock.

 

On November 25, 2019 the Company filed a Designation of Series C convertible Preferred Stock with the state of Nevada, designating 1,000,000 shares of the Series C Preferred Stock with a stated value of $1.00 per share. The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends with the Company’s common stock, par value $0.0001 per share (“Common Stock”)(the Series C Preferred Stock will convert into common stock immediately upon liquidation and be pari passu with the common stock in the event of litigation), and (b) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. The Series C Preferred Stock does not have any voting rights. Each share of Series C Preferred Stock will carry an annual dividend in the amount of eight percent (8%) of the Stated Value of $1.00 (the “Divided Rate”), which shall be cumulative and compounded daily, payable solely upon redemption, liquidation or conversion and increase to 22% upon an event of default as defined. In the event of any default other than the Company’s failure to issue shares upon conversion, the stated price will be $1.50. In the event that a default event occurs where the Company fails to issue shares upon conversion, the stated price will be $2.00. The holder shall have the right six months following the issuance date, to convert all or any part of the outstanding Series C Preferred Stock into shares of common stock of the Company. The conversion price shall equal the Variable Conversion Price. 

7

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

1. NATURE OF BUSINESS AND GOING CONCERN

 

The “Variable Conversion Price” shall mean 71% multiplied by the market price, representing a discount rate of 29%. Market price means the average of the two lowest trading prices for the Company’s common stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or upon any deemed liquidation event, after payment or provision for payment of debts and other liabilities of the Company, and after payment or provision for any liquidation preference payable to the holders of any Preferred Stock ranking senior upon liquidation to the Series C Preferred Stock, if any, but prior to any distribution or payment made to the holders of Common Stock or the holders of any Preferred Stock ranking junior upon liquidation to the Series C Preferred Stock by reason of their ownership thereof, the Holders will be entitled to be paid out of the assets of the Company available for distribution to its stockholders. The Company will have the right, at the Company’s option, to redeem all or any portion of the shares of Series C Preferred Stock, exercisable on not more than three trading days prior written notice to the Holders, in full, in accordance with Section 6 of the designations at a premium of up to 35% for up to six months. Company’s mandatory redemption: On the earlier to occur of (i) the date which is twenty-four (24) months following the Issuance Date and (ii) the occurrence of an Event of Default (the “Mandatory Redemption Date”), the Company shall redeem all of the shares of Series C Preferred Stock of the Holders (which have not been previously redeemed or converted).

 

In conjunction with the Company’s intention to raise financing of up to $5 million through an offering of up to 500,000 Series D convertible Preferred Stock at the offering price of $10.00 per share, on March 29, 2021 the Company received a Notice of Qualification from the Securities and Exchange Commission indicating approval from the Company to proceed with the offering pursuant to Tier 2 of Regulation A of the Securities Act, which provides exemption from registration of such securities. Each Series D preferred share is convertible, at the option of the holder, at any time, into nonassessable common shares. The conversion right, of 80% of the average closing price reported on OTCMarkets, was initially based through June 30, 2021 on the average closing price of the Company’s common stock for the 20 trading days preceding conversion. Effective July 1, 2021 this basis was amended to the average closing price of the Company’s common stock for the 10 trading days preceding conversion. On April 5, 2021 the Company filed the necessary Certificate of Designation with the state of Nevada to designate 500,000 shares of Series D Preferred stock from the Company’s total authorized and unissued Preferred Stock. Through September 30, 2021, the Company has sold 161,000 Series D convertible Preferred Stock and received cash of $1,610,000. Of these stock sales, a total of 120,476 Series D Preferred shares were subsequently converted to 145,132,420 common shares at an average conversion rate of $0.0111 per common share, resulting in a remaining balance at September 30, 2021 of 40,524 Series D Preferred.

 

Effective July 1, 2021 the Company increased its authorized common shares from 1 billion (1,000,000,000) to 2 billion (2,000,000,000) of $0.0001 par value each.

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which implies that the Company would continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2021, the Company has a working capital deficiency of $4,336,962, an accumulated deficit of $38,539,915 and has a stockholder’s deficit of $4,336,962 and its operations continue to be funded primarily from sales of its stock, the issuance of convertible debentures and short-term loans. During the three and nine months ended September 30, 2021 the Company had a net loss of $319,262 and a net loss of $1,970,669, respectively, and net cash used in operations for the nine months ended September 30, 2021 and September 30, 2020 of $1,843,633 and $260,931, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain the necessary financing through the issuance of convertible notes and equity instruments. The unaudited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management plans to continue to raise financing through equity sales and the issuance of convertible notes, and to continue to expand its revenue from its FanPass app and seek the acquisition of compatible businesses that will be beneficial to the Company. No assurance can be given that any such additional financing will be available, or that it can be obtained on terms acceptable to the Company and its stockholders.

8

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The unaudited consolidated financial statements include all the accounts of the Company and all of its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The Company’s fiscal year end is December 31.

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. These unaudited consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements for the year ended December 31, 2020 of the Company which were included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission April 28, 2021.

 

Use of Estimates

 

The preparation of these statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to valuation of convertible debenture conversion options, derivative instruments, deferred income tax asset valuations, financial instrument valuations, share-based payments, other equity-based payments, and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Revenue Recognition

 

In accordance with ASC 606, revenue is recognized when the following criteria have been met; valid contracts are identified with specific customers, performance obligations have been identified, price is determinable, price is allocated to performance obligations, and the Company has satisfied the performance obligations. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. During the three and nine months ended September 30, 2021 the Company derived its only revenue of $1,866 and $4,780, respectively, from subscription fees and merchandising sales from its Friendable and Fan Pass apps, which revenues were recognized when received. During the three and nine months ended September 30, 2020 the Company derived revenue primarily from the development of apps for a third party of $109,500 and $319,331, respectively, which was recognized upon completion of services, and secondarily from subscription fees from the Friendable and Fan Pass apps totaling $1,892 and $3,340, respectively, which was recognized when received.

 

Subsequent to the launch of the Fan Pass app in July, 2020 and pursuant to various agreements between Fan Pass, Inc. and music artists, managers, talent agencies, partners and/or record labels and certain round one investors and convertible noteholders (collectively, “Revenue Share Participants”) such individuals and/or entities are eligible to receive a share of net proceeds derived by the Company from subscription receipts from the Fan Pass app and from merchandise sales. The Company has established an “Artist Pool” equal to 40% of net Fan Pass “Fan Subscriptions” received, in which the “pool” is paid out to individual artists based on fan activity or “Content Views” within an artist’s channel on the Fan Pass app. Additionally, a standard 50% of net merchandise sales (created by Fan Pass for each artist) received or sold by each artist is shared with each artist. In some instances, the Company may adjust the sharing percentage for special situation artists or “Mega Stars” who may command a different merchandise split. Certain investors, along with Series B Preferred stockholders, are entitled to proportionately participate in an “Investor Pool” equal to approximately 4% of net subscription and net merchandising sales receipts. In addition, as compensation for bringing music artists to perform for the initial Fan Pass app launch, Eclectic Artists is eligible receive 5% of Fan Pass net revenue, and the holder of a convertible note is entitled to receive a prorated share of 20% of Fan Pass net revenue up to $70,000 and, thereafter, a prorated share of 5% of Fan Pass net revenue for 5 years. Net revenue is defined as gross receipts, minus source commissions and other cost of goods sold as defined in the agreements, including deduction for the cost of merchandise, hosting, streaming and other platform and processing fees. During the three and nine months ended September 30, 2021 the Company incurred a revenue sharing expense of $920 and $2,124, respectively, and had a revenue share liability of $2,308 at September 30, 2021, which is included in accounts payable and accrued expenses.

9

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Sales and Marketing Costs

 

The Company’s policy regarding sales and marketing costs is to expense such costs when incurred. During the three and nine months ended September 30, 2021, the Company incurred $127,269 and $393,321 respectively (2020: $30,081 and $82,335) in sales and marketing costs, primarily for social media promotion programs and amortization of deferred expense (see Page 23, Eclectic Artists Series A Preferred stock).

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

 

Impairment of Long-Lived Assets

 

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.

 

If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

 

Derivative liabilities

 

The Company has a financial instrument associated with a debt restructuring agreement and conversion options embedded in convertible debt. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense partly as part of gain or loss on debt extinguishment and partly included in the gain or loss on change in fair value of derivatives.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of January 1, 2019 and the adoption did not have any impact on its consolidated financial statement and there was no cumulative effect adjustment.

 

Stock-based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation.

 

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option pricing model as its method in determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include but are not limited to the Company’s expected stock price volatility over the terms of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.

 

During January 2021, the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2 years and 10 million common shares vesting quarterly over 3 years, both sets of options are exercisable at a price of $0.014 per share. In addition, during January 2021, stock options on 1.5 million common shares, vesting quarterly over 3 years, were issued to a prospective employee, at the exercise price of $0.015 per share. Applying the Black-Scholes valuation method, the total cost of these options is $194,700 and $24,750 respectively, which is being amortized to general and administrative expense over their lifetime. Of this total, the Company incurred a stock option expense of $65,024 for the nine months ended September 30, 2021 (2020: $0). 

10

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company monitors its outstanding receivables for timely payments and potential collection issues. At September 30, 2021 and December 31, 2020, the Company did not have any allowance for doubtful accounts.

 

Financial Instruments

 

Financial assets and financial liabilities are recognized in the balance sheet when the Company has become party to the contractual provisions of the instruments.

 

The Company’s financial instruments consist of accounts receivable, accounts payable, convertible debentures, stock settled debt, derivatives, mandatorily redeemable Series C Preferred stock and promissory notes. The fair values of these financial instruments approximate their carrying value, due to their short-term nature, and current market rates for similar financial instruments. Fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company’s financial instruments recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

 

Concentrations

 

In each of the two years in the period ended December 31, 2020 the Company derived approximately 99% of its revenue from one client by providing certain project based software development services. That project was completed by the end of 2020. Since January 1, 2021 the Company’s sole source of revenue has been minimal receipts from subscribers to the Friendable and Fan Pass apps and from Fan Pass related merchandising sales. There are inherent risks whenever a large percentage of total revenues are concentrated with one primary client. It is not possible for us to predict the future level of demand for our services that will be generated by this client or the future demand for technology and software products and services from other similar clients. Until revenues generated from the Friendable and Fan Pass apps increase significantly the loss of this primary client, or the failure to retain similar clients, will negatively affect our revenues and results of operations and/or trading price of our common stock.

 

Basic and Diluted Loss Per Share

 

The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

As of September 30, 2021, there were approximately 4,190,838,922 potentially dilutive common shares outstanding, as follows.

 

Potential dilutive shares

 

  88,797,769  Warrants and Stock Options outstanding
  56,083,822  Common shares issuable upon conversion of convertible debt
 3,863,720,412  Common shares issuable upon conversion of Preferred Series A shares
 1,136,000  Common shares issuable upon conversion of Preferred Series B shares
  103,170,150  Common shares issuable upon conversion of Preferred Series C shares
  77,930,769  Common shares issuable upon conversion of Preferred Series D shares
 4,190,838,922   

11

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.

 

3. RELATED PARTY TRANSACTIONS AND BALANCES

 

During the nine months ended September 30, 2021, the Company incurred $480,884 (September 30, 2020: $369,558) in salaries and payroll taxes to officers, directors, and other related family employees with such costs being recorded as general and administrative expenses.

 

During the nine months ended September 30, 2021, the Company incurred $22,500, $575,000, and $45,000 (September 30, 2020: $33,000, $332,834, and $45,000) in app hosting, software development and support and office rent to a company with two officers and directors in common with such costs being recorded as app hosting, software development and support and general and administrative expenses.

 

As of December 31, 2020, the Company had a stock subscription receivable totaling $4,500 from an officer and director and from a company with an officer and director in common. This receivable was settled during the 3 months ended March 31, 2021 against the amount payable in accrued salaries to current directors and officers of the Company (see below).

 

As of September 30, 2021 accounts payable, related party includes $55,821 (December 31, 2020: $190,320) due to a company with two officers and directors in common, and $1,138,908 (December 31, 2020: $918,408) payable in salaries to current directors and officers of the Company, which is included in accounts payable and accrued expenses. The amounts are unsecured, non-interest bearing and are due on demand.

 

4. CONVERTIBLE DEBENTURES

 

On March 26, 2019 the Company entered into a Debt Restructuring Agreement (the “Agreement”) with Robert A. Rositano Jr. (“Robert Rositano”), Dean Rositano (“Dean Rositano”), Frank Garcia (“Garcia”), Checkmate Mobile, Inc. (“Checkmate”), Alpha 019 Capital Anstalt (“Alpha”), Coventry Enterprises, LLC (“Coventry”), Palladium Capital Advisors, LLC (“Palladium”), EMA Financial, LLC (“EMA”), Michael Finkelstein (“Finkelstein”), and Barbara R. Mittman (“Mittman”), each being a debt holder of the Company. Subsequent to March 26, 2019 Alpha sold all of its convertible debentures to Ellis International LP (“Ellis”).

12

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

4. CONVERTIBLE DEBENTURES

 

The debt holders agreed to convert their debt of approximately $6.3 million and accrued interest of approximately $1.8 million into an initial 5,902,589 shares of common stock as set forth in the Agreement upon the Company meeting certain milestones including but not limited to: the Company effecting a reverse stock split and maintaining a stock price of $1.00 per share; being current with its periodic report filings pursuant to the Securities Exchange Act; certain vendors and Company employees forgiving an aggregate of $1,000,000 in amounts owed to them; the Company raising not less than $400,000 in common stock at a post-split price of not less than $.20 per share; and certain other things as further set forth in the Agreement. The debt holders will be subject to certain lock up and leak out provisions as contained in the Agreement. As part of the Agreement the parties signed a Rights to Shares Agreement. Whereas the Agreement called for all the shares to be delivered at closing, the holders are generally restricted to beneficial ownership of up to 4.99% of the company’s common shares outstanding. The Rights to Shares Agreement allows for the Company to issue shares to each holder up the 4.99% limitation while preserving the holders’ rights to the total shares in schedule A of the Agreement. Accordingly, the 5,902,589 common shares were recorded as issuable in equity. On December 26, 2019, all parties signed an amendment to the Agreement which set forth, among other things, the following:

 

Company Principals have given Holders notice that it has satisfied all conditions of closing.

 

The Agreement is considered Closed as of November 5, 2019 (“Settlement Date”) and any conditions of closing not satisfied are waived.

 

Reset Dates. The “Reset Dates” as set forth in Section 1(h) of the Agreement shall be as follows: March 4, 2020 and July 2, 2020. As of the reset dates the holders can convert all or part of the settled note amounts at the lower of (i) 75% of the closing bid price for the Common Stock on such respective Reset Date, or (ii) the VWAP for the Company’s Common Stock for the 7 trading days immediately preceding and including such respective Reset Dates. This reset provision provides for the issuance of additional shares above the initial 5,902,589 shares for no additional consideration as measured at each of the two reset dates.

 

On March 4, 2020 the Company became obligated to issue an additional 36,193,098 shares of common stock and on July 2, 2020 it became obligated to issue an additional 63,275,242 shares, for a total amount of shares due of 105,370,930.

 

The Company determined that the reset provision represents a standalone derivative liability. Accordingly, this debt restructure transaction was accounted for in 2019 as an extinguishment of debt for consideration equal to the $2,384,646 value of the 5,902,589 common shares issuable, based on the $0.404 quoted trading price of the Company’s common stock price on the settlement date, and the initial fair value of the derivative liability of $12,653,000, resulting in a loss on debt extinguishment of $6,954,920.

 

Through the final reset date discussed below the Company adjusted its derivative liability to fair value at each reporting and settlement date, with changes in fair value reported in the statement of operations. The Company estimated the fair value of the obligations to issue common stock pursuant to the Debt Restructuring Agreement, as amended, using Monte Carlo simulations and the following assumptions: 

 

 November 5, 2019 December 31, 2019 June 30, 2020 
Volatility 617% 738.1% 293.6%
Risk Free Rate 1.59% 1.6% .13%
Expected Term 0.66  0.5  0.01 

 

 

On the second (and final) reset date of July 2, 2020 the Company determined that the total common shares issuable to fully settle this debt amounted to 105,370,930 and a derivative liability no longer exists. The Company recognized a final loss on settlement of $640,821 which represents the difference between the fair value of the 105,370,936 common shares due and the fair value of the derivatives settled.

 

On September 21, 2020, Ellis International LP (as successor to Alpha Capital Anstalt) submitted a request to drawdown and, on September 29, 2020, was issued 687,355 common shares against its entitlement above and reclassified from issuable shares in the accompanying balance sheet and statement of changes in stockholder deficit.

 

On November 9, 2020 and on December 9, 2020 Coventry Enterprises requested and was issued 915,000 and 1,262,000 common shares respectively, and on November 23, 2020 Barbara Mittman requested and was issued 1,134,353 (net) common shares against their respective entitlement under the debt settlement agreement, which was reclassified from issuable shares. 

13

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

4. CONVERTIBLE DEBENTURES

 

During the three months ended March 31, 2021 Ellis International LP requested and was issued a total of 28,211,310 common shares, Coventry Enterprises requested and was issued a total of 9,375,000 common shares, and Barbara Mittman requested and was issued a 3,180,000 common shares, all against their respective entitlements under the debt settlement agreement, which were reclassified from issuable shares.

 

During the three months ended June 30, 2021 Ellis International LP requested and was issued a total of 21,000,000 common shares, Coventry Enterprises requested and was issued a total of 15,500,000 common shares, and Barbara Mittman requested and was issued 6,022,600 common shares, all against their respective entitlements under the debt settlement agreement, which were reclassified from issuable shares.

 

During the three months ended September 30, 2021 Ellis International LP requested and was issued a total of 16,000,000 common shares. However, Ellis was only entitled to drawdown a total of 8,709,641 common shares to reach its maximum common shares allocation from its convertible debenture. The excess balance of 7,290,359 common shares, which carried a fair value of $91,129 based on the Company’s trading stock price of $0.0125 per share at the drawdown date, has been applied against the outstanding principal of $100,000 on the Ellis convertible note.

 

Derivative Liabilities

 

The Company accounts for its obligation to issue common stock (“Reset Provision”) as derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” which are reflected as liabilities at fair value on the consolidated balance sheet, with changes in fair value reported in the consolidated statement of operations. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. The number of shares of common stock the Company could be obligated to issue, is based on future trading prices of the Company’s common stock. To reflect this uncertainty in estimating the fair value of the potential obligation to issue common stock, the Company uses a Monte Carlo model that considers the reporting date trading price, historical volatility of the Company’s common stock, and risk-free rate in estimating the fair value of the potential obligation to issue common stock. The results of the Monte Carlo simulation model are most sensitive to inputs for expected volatility. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The estimated fair values may not represent future fair values and may not be realizable. We categorize our fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above.

 

The following is a summary of activity related to the reset provision derivative liability through the final reset date of July 2, 2020:

 

  
Balance, Derivative Liability at December 31, 2019 $12,778,000 
Record obligation to issue additional shares  (13,474,821)
Loss on settlement of derivative  640,821 
Loss on change in fair value of derivative  56,000 
Balance, Reset provision derivative liability at December 31, 2020 and September 30, 2021 $- 

 

 

5. CONVERTIBLE PROMISSORY NOTES

 

The following is a summary of Convertible Promissory Notes at September 30, 2021:

 

  Issuance Principal  Accrued  Principal and 
  Date Outstanding  Interest  Accrued interest 
J.P.Carey Inc. May 20, 2020 $60,000  $19,767  $79,767 
J.P.Carey Inc. June 11, 2020  10,000   -   10,000 
J.P.Carey Inc. March 3, 2021  150,000   8,671   158,671 
Ellis International LP October 13, 2020  100,000   9,669   109,669 
Anvil Financial Management LLC January 1, 2021  9,200   550   9,750 
Total    329,200  $38,657  $367,857 
Less: J.P.Carey Inc excess debt conversions to be allocated against other outstanding notes    (80,129)        
Less: Ellis International LP excess common stock drawdown to be offset against Ellis convertible note    (91,129)        
Less: Unamortized discounts    (65,334)        
Net carrying value: September 30, 2021   $92,608         

14

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

5. CONVERTIBLE PROMISSORY NOTES

 

The following is a summary of Convertible Promissory Notes at December 31, 2020: 

 

  Issuance: Principal  Accrued  Principal and 
  Date Outstanding  Interest  Accrued Interest 
J.P. Carey Inc. March 30, 2017  -  $20,029  $20,029 
J.P. Carey Inc May 20, 2020 $60,000   8,996   68,996 
J.P. Carey Inc June 11, 2020  10,000   -   10,000 
Green Coast Capital International April 6, 2020  10,755   848   11,603 
Ellis International LP October 13, 2020  100,000   2,190   102,190 
Trillium Partners LP December 3, 2020  21,436   258   21,694 
Trillium Partners LP December 8, 2020  27,500   145   27,645 
Total   $229,691  $32,466  $262,157 
Less: Unamortized discounts    (85,734)        
Net carrying value December 31, 2020   $143,957         

 

The derivative fair value of the above at September 30, 2021 and at December 31, 2020 is $237,900 and $1,320,000, respectively.

 

Further information concerning the above Notes is as follows:

 

JP Carey Convertible Note dated March 30, 2017 and assignments.

 

On April 7, 2017, the Company entered into a Settlement Agreement with Joseph Canouse (the “Agreement”). The Company and Mr. Canouse had been in a dispute regarding what amount, if any, was owed pursuant to a consulting agreement between the parties signed in April 2014. In December 2016, Mr. Canouse obtained a judgment in state court in Georgia and the right to garnish the Company’s bank accounts. Pursuant to the Settlement Agreement, the Company agreed to issue an 8% Convertible Note in the principal amount of $82,931 (the “Note”). The Note was issued to J.P. Carey LLC an entity controlled by Mr. Canouse. Although the Note is dated March 30, 2017, it was issued on April 7, 2017. The note maturity date was September 30, 2017. In return for the issuance of the Note, Mr. Canouse filed a Consent Motion to Withdraw Judgment, dismiss all garnishments, and cease all collection activities.

 

The Note is convertible into common stock, subject to Rule 144, at any time after the issue date at the lower of (i) the closing sale price of the common stock on the trading day immediately preceding the closing date, which was $20.00 per share, and (ii) 50% of the lowest sale price for the common stock during the twenty-five (25) consecutive trading days immediately preceding the conversion date or the closing bid price, whichever is lower. Mr. Canouse does not have the right to convert the Note, to the extent that he would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date of September 30, 2017 and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum and the Note becomes immediately due and payable. The Company defaulted by not paying the principal and interest on September 30, 2017 and has been recording interest at the 24% default rate. The Company also defaulted by being late with filing the Form 10-K on May 29, 2020.

 

During the year ended December 31, 2019, J.P. Carey converted $1,002 of principal into 120,000 shares of the Company’s common stock at a price of $0.0084 and J.P. Carey assigned $10,000 of the note to World Market Ventures, LLC and assigned $6,000 of the note to Anvil Financial Management Ltd LLC. The assignments carry the same conversion rights as the original note. World Market Ventures converted $6,000 of principal into 120,000 shares of the Company’s common stock at a price of $0.05. Anvil converted $6,000 of principal into 120,000 shares of the Company’s common stock at a price of $0.05.

 

At December 31, 2019, the J.P. Carey note balance including accrued interest of $51,980 was $121,910, including the portion assigned to World Market Ventures of $4,000.

15

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

5. CONVERTIBLE PROMISSORY NOTES

 

During the year ended December 31, 2020:

 

J.P. Carey converted $30,930 of principal and $18,020 of interest into 1,642,162 shares of the Company’s common stock at a price of $0.029.

 

World Market Ventures converted the remaining balance of $4,000 of principal into 72,595 shares of the Company’s common stock at a price of $0.0551.

 

On April 6, 2020 JP Carey assigned $35,000 of the note to Green Coast Capital International. The assignment carries the same conversion rights as the original note. During the year ended December 31, 2020 Green Coast converted $24,245 of principal into 859,283 shares of common stock of the Company at an average price of $0.029 and the Company incurred $414 of interest on the assigned note. As of December 31, 2020 and June 30, 2021 the assigned note had a principal balance of $10,755 and an accrued interest balance of $848 and $1,275, respectively, which has been accounted for as having a derivative liability due to the variable conversion price. On August 10, 2021 Green Coast exercised its right to convert the principal balance of $10,755 and accrued interest of $1,389 into 3,238,544 common shares in full settlement.

 

On December 3, 2020 JP Carey assigned $25,000 of the accrued interest balance to Trillium Partners LP. The assignment carried the same conversion rights as the original note. On December 23, 2020 Trillium converted $3,564 of principal, $214 of interest and $1,025 conversion fee into 1,372,200 common stock at an average price of $0.0035. As of December 31, 2020 the assigned note had a principal balance of $21,436 and an accrued interest balance of $258. On January 18, 2021 Trillium converted $8,317 of principal, $310 of interest and $1,025 conversion fee into 2,413,023 common stock at an average price of $0.004 and on January 27, 2021 Trillium converted the remaining balance of $13,119 of principal, $95 of interest and $1,025 conversion fee into 2,819,582 common stock at an average price of $0.00505. As of March 31, 2021 therefore, this assigned note has been fully converted to common shares by Trillium.

 

As of December 31, 2020 the remaining accrued interest on the original JP Carey note was $20,029.

 

During the three months ended March 31, 2021 JPCarey claimed a total of six additional conversions to common stock totaling $120,580, represented $116,080 in accrued interest and $4,500 in conversion fees, and received a total of 22,515,748 common shares at an average price of $0.0545 to fully convert the remaining balance on the note. Adjusting for additional interest expense, the Company believes that a cumulative amount of $80,129 has been received by JPCarey in excess of the remaining balance due. The Company is presently in negotiation with JPCarey to apply this excess to additionally retire the two outstanding JP Carey notes of $60,000 and $10,000, together with all accrued interest thereon.

 

Green Coast Capital International Securities Purchase Agreement and Convertible Note dated April 8, 2020

 

On April 8, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Green Coast whereby the Company agreed to sell to the holder convertible notes in amounts up to $150,000. The note holder shall be entitled to a pro rata share of 20% of the net revenues (excluding Brightcove) derived from subscriptions and other sales of Fan Pass, Inc., a wholly owned subsidiary of the Company. The pro rata 20% pays out two times the initial investment and continues at 5% for a period of five years.

 

On April 8, 2020, pursuant to the Securities Purchase Agreement, the Company issued a 0% note to Green Coast with a maturity date of October 8, 2020 and received $35,000 in cash. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date at $0.02 per share. On the date of issuance, the Company recorded a derivative liability of $228,000, resulting in derivative expense of $193,000 and a discount against the note of $35,000 to be amortized into interest expense through the maturity date of October 8, 2020.

 

Green Coast exercised its conversion right on November 17, 2020 and received 175,000 common shares in full settlement of the outstanding principal.

 

JP Carey Securities Purchase Agreement and Convertible Note dated May 20, 2020

 

On May 20, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) whereby the Company agreed to sell to the holder convertible notes in amounts up to $60,000. The note holder shall be entitled to a pro rata share of 20% of the net revenues (excluding Brightcove) derived from subscriptions and other sales of Fan Pass, Inc., a wholly owned subsidiary of the Company. The 20% pays out two times the initial investment and continues at 5% for a period of five years.

16

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

5. CONVERTIBLE PROMISSORY NOTES

 

On May 20, 2020 the Company issued a 0% interest rate note to JP Carey under this SPA with a maturity date of January 1, 2021 and received $60,000 in cash in three closings; $30,000 on April 9, 2020, $15,000 on May 13, 2020, and $15,000 on May 20, 2020. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date at $0.02 per share. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.9% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum and the note becomes immediately due and payable. Under certain default events the Company may incur a penalty of 20% to 50% of the note principal. Further, if the Company fails to comply with the exchange act the conversion price is the lowest price quoted on the trade exchange during the delinquency period.

 

Upon certain default events the conversion price may change. Therefore, the embedded conversion option is bifurcated and treated as a derivative liability. On the date of issuance, the Company recorded a derivative liability of $233,000, resulting in derivative expense of $173,000 and a discount against the note of $60,000 to be amortized into interest expense through the maturity date.

 

The Company defaulted by being late with filing the Form 10-K on May 29, 2020. The Company accrued $19,767 of interest at the default rate of 24% for the period from May 29, 2020 to September 30, 2021.

 

JP Carey Convertible Note dated June 11, 2020.

 

On June 11, 2020, the issued a 0% note to JP Carey with a maturity date of January 15, 2021 and received $10,000 in cash. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date at $0.01 per share. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 9.9% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum and the note becomes immediately due and payable. Under certain default events the Company may incur a penalty of 20% to 50% of the note principal. Further, if the Company fails to comply with the exchange act the conversion price is the lowest price quoted on the trade exchange during the delinquency period.

 

Upon certain default events the conversion price may change. Therefore, the embedded conversion option is bifurcated and treated as a derivative liability. On the date of issuance, the Company recorded a derivative liability of $63,000, resulting in derivative expense of $53,000 and a discount against the note of $10,000 to be amortized into interest expense through the maturity date.

 

Ellis International LP Convertible Note dated October 13, 2020.

 

On October 13, 2020, the Company issued a 10% convertible note in the principal amount of $100,000 to Ellis International LP with a maturity date of October 13, 2022 and received cash of $95,000 (net of $5,000 deducted for the noteholder’s legal fees). The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be 75% of the 3 day VWAP as reported by Bloomberg LP for the 3 trading days preceding conversion. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum and the note becomes immediately due and payable.

 

At September 30, 2021 and at December 31, 2020 the outstanding balance on the note was $100,000 principal and $9,669 and $2,190 accrued interest, respectively.

 

During the three months ended September 30, 2021 Ellis International LP requested and was issued a total of 16,000,000 common shares against its Convertible Debenture settlement (see Note 4). However, Ellis was only entitled to drawdown a total of 8,709,641 common shares to reach its maximum common shares allocation from its settlement. The excess balance of 7,290,359 common shares, which carried a fair value of $91,129 at the drawdown date based on the Company’s trading price of $0.0125 on that date, has been applied as an offset against the outstanding principal of $100,000 on the Ellis convertible note pending resolution of this issue with Ellis.

17

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

5. CONVERTIBLE PROMISSORY NOTES

 

Trillium Partners LP Convertible Note dated December 8, 2020

 

On December 8, 2020, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity date of December 8, 2021 and received cash of $25,000 (net of $2,500 deducted for the noteholder’s legal fees). The Note is convertible into common stock, subject to Rule 144, at any time after the issue date The Conversion Price shall be equal to the lower of: (i) the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading price for the common stock during the 30 trading day period prior to conversion. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum and the note becomes immediately due and payable.

 

On February 4, 2021 and March 10, 2021 Trillium exercised its right of conversion on a total of $21,000 principal, $222 accrued interest and $2,050 conversion fees, and received a total of 3,784,052 of the Company’s common shares, at an average of $0.00615 per share, leaving an outstanding principal balance of $6,500 and accrued interest of $1,111 at June 30, 2021.

 

On September 15, 2021 the Company paid off in cash the remaining note liability of $6,500 principal and accrued interest, together with a prepayment penalty of $3,477.

 

Anvil Financial Management, LLC Convertible Note dated January 1, 2021

 

On January 1, 2021 Company issued a 8% convertible note in the principal amount of $9,200 to Anvil Financial Management, LLC with a maturity date of July 1, 2021 in payment of introducing financing to the Company. The Note was recorded as a discount to be amortized over the debt term. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to the lower of: (i) the Fixed Price of $0.10 per share; and (ii) the Variable Conversion Price, being 60% of the average of the two lowest bid closing trading prices for the common stock during the 10 trading day period prior to conversion. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 9.99% of our outstanding common stock.

 

As additional compensation, Anvil was issued a 5 year warrant to purchase 92,000 of the Company’s common stock at a price of $0.25 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $2,015, but the relative fair value was recorded as a discount as discussed below.

 

At September 30, 2021 the outstanding balance on the note was $9,200 principal and $550 accrued interest.

 

Trillium Partners LP Convertible Note dated January 22, 2021

 

On January 22, 2021, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity date of January 22, 2022 and received cash of $25,000 (net of $2,500 expense deducted for the noteholder’s legal fees). The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to the lower of: (i) the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading price for the common stock during the 30 trading day period prior to conversion. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum and the note becomes immediately due and payable.

 

On August 16, 2021 Trillium exercised its right of conversion on the $27,500 principal and $1,218 accrued interest, and received a total of 7,557,245 of the Company’s common shares at an average of $0.0038 per share, in full settlement of the note.

18

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

5. CONVERTIBLE PROMISSORY NOTES

 

Trillium Partners LP Secured Convertible Note dated March 3, 2021

 

On March 3, 2021, the Company issued a 10% convertible note in the principal amount of $150,000 to Trillium Partners LP with a maturity date of March 3, 2022 and received cash of $122,500 (net of Original Issue Discount of $15,000 and $12,500 expense deducted for the noteholder’s legal fees). The $15,000 was recorded as debt discount to be amortized over the debt term. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to the Fixed Price of $0.005 per share. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes the lower of $0.005 per share or 50% of the lowest trading price during the trading day immediately preceding the Conversion Date. In addition, in the event of default where the amount of principal and interest is not paid when due shall bear default interest at the rate of 22% per annum until paid.

 

The note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue Discount of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.

 

The principal amount and interest is defined under the note agreement as being “Senior ” with priority in right of payment over all other indebtedness of the Company outstanding as of March 3, 2021. In addition, the obligations under the note are secured by a first lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.

 

As further inducement for Trillium to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock Purchase Warrant to Trillium for 30,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.005 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000, but the relative fair value was recorded as a debt discount, as discussed below.

 

On September 10, 2021 and September 23, 2021 Trillium exercised its right of conversion on the $150,000 principal and $7,562 accrued interest, and received a total of 31,551,205 of the Company’s common shares, at the rate of $0.005 per share in full settlement of the note.

 

JP Carey Secured Convertible Note dated March 3, 2021

 

On March 3, 2021, the Company issued a 10% convertible note in the principal amount of $150,000 to JP Carey Enterprises, Inc. with a maturity date of March 3, 2022 and received cash of $122,500 (net of Original Issue Discount of $15,000 and $12,500 expense deducted for the noteholder’s legal fees). The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to the Fixed Price of $0.005 per share. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes the lower of $0.005 per share or 50% of the lowest trading price during the trading day immediately preceding the Conversion Date. In addition, in the event of default where the amount of principal and interest is not paid when due shall bear default interest at the rate of 22% per annum until paid.

 

The note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue Discount of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.

 

The principal amount and interest is defined under the note agreement as being “Senior ” with priority in right of payment over all other indebtedness of the Company outstanding as of March 3, 2021. In addition, the obligations under the note are secured by a first lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.

 

As further inducement for JP Carey to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock Purchase Warrant to JP Carey for 30,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.005 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000, but the relative fair value was recorded as a debt discount, as discussed below.

 

At September 30, 2021 the outstanding balance on the note was $150,000 principal and $8,671 accrued interest.

19

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

5. CONVERTIBLE PROMISSORY NOTES

 

FirstFire Global Opportunities Fund LLC note dated March 9, 2021

 

On March 9, 2021, the Company issued a 10% convertible note in the principal amount of $110,000 to FirstFire Global Opportunities Fund LLC with a maturity date of March 9, 2022 and received cash of $88,500 (net of Original Issue Discount of $10,000, a finder’s fee of $10,000 to Primary Capital LLC and $1,500 expense deducted for the noteholder’s legal fees). The Company recorded $20,000 of the fees as discounts and expensed $1,500. The Note is convertible into common stock, subject to Rule 144, at any time after 180 days from the issue date. The Conversion Price shall be equal to the Fixed Price of $0.01 per share. The holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes $0.005 per share. In addition, in the event of default where the amount of principal and interest is not paid when due shall bear default interest at the rate of 20% per annum until paid. The note, together with accrued interest, may be prepaid prior to maturity at a premium of 115%.

 

As further inducement for FirstFire to agree to the terms of the note, on March 10, 2021 the Company issued 3,500,000 common shares to FirstFire as payment for a commitment fee, which had a fair value of $62,300 at time of issuance, but the relative fair value was recorded as debt discount as discussed below. In addition, on March 9, 2021 the Company issued a 3-year Common Stock Purchase Warrant to FirstFire on 3,500,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.025 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $66,500, but the relative fair value was recorded as debt discount as discussed below.

 

On March 11, 2021, in addition to the above mentioned finder’s fee, Primary Capital LLC was also issued a 3 year Common Stock Purchase Warrant for 1,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.01 per share and a 3 year Common Stock Purchase Warrant on 350,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.025 per share. In accordance with Black Scholes valuation requirements, the fair value of these Purchase Warrants was $18,000 and $6,300 respectively, but the relative fair value was recorded as debt discount as discussed below.

 

On September 20, 2021 the Company exercised its right to prepay the note and remitted cash totaling $130,000 to FirstFire, representing the prepayment of $110,000 principal, accrued interest of $5,816 and prepayment penalty of $14,184.

 

As discussed above, the Company determined that the conversion options embedded in certain convertible debt meet the definition of a derivative liability.

The Company estimated the fair value of the conversion options at the date of issuance, and at September 30, 2021, using Monte Carlo simulations and the following range of assumptions: 

 

Volatility139.96%234.97%
Risk Free Rate0.04%0.09%
Expected Term0.251.04

 

Loss on Conversion of Convertible Notes in the Three Months Ended September 30, 2021

 

The fair value of common shares issued upon conversion of convertible notes during the three months ended September 30, 2021 was $333,451 based on the quoted trading prices of the Company’s common stock on conversion dates. The total notes and accrued interest converted was $198,648, resulting in a loss on conversion of $134,803 which is included in derivative expense in the accompanying Statement of Operations. 

 

 

Warrants Issued Related to Notes

 

The Company recorded a relative fair value of $301,411 for all the warrants issued with Notes or issued as finder’s fees relating to Notes issued in the three months ended March 31, 2021. The discounts are being amortized over the respective Note terms.

 

The following is a summary of activity related to the embedded conversion options derivative liabilities for the nine months ended September 30, 2021.

 

Balance, December 31, 2020 $1,320,000 
Initial derivative liabilities charged to operations  1,796,835 
Initial derivative liabilities recorded as debt discount  74,165 
     
Gain on settlement of derivatives upon conversion and change in fair value of derivatives  (2,953,100)
Balance, September 30, 2021 $237,900 

20

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

6. SHORT TERM LOANS

 

The Company received short term, interest free, loans of $10,000, $16,000, $15,000 and $20,000 (total $61,000) on July 9, 2020, August 13, 2020, September 2, 2020 and September 28, 2020 respectively, from Joseph Canouse, the provider of the J.P. Carey Inc. convertible promissory notes. The balance was $61,000 at September 30, 2021 and December 31, 2020.

 

7. COMMITMENTS AND CONTINGENCIES

 

The following summarizes the Company’s commitments and contingencies as of September 30, 2021:

 

(12) Employment agreements with related parties.

 

On April 3, 2019, the Company entered into employment agreements with three officers. Pursuant to the agreements, the Company shall pay officers an aggregate annual salary amount of $400,000. Upon a successful launch of the Company’s Fan Pass mobile app or website, and the Company achieving various levels of subscribers, the officers are eligible to receive additional bonuses and salary increases. With mutual agreement with the Company, effective August 31, 2020 one of the officers chose early termination of his employment, which reduced the annual commitment for the remaining officers to $300,000.

 

(ii) Lawsuit Contingency-Integrity Media, Inc.

 

Integrity Media, Inc. (“Integrity”) had previously filed a lawsuit against the Company and the CEO of the Company for $500,000 alleging breach of contract alleging the Company failed to deliver marketable securities in exchange for services. The Company answered the allegations in court and Integrity filed a motion attacking the Company’s answers. While the court did not strike those responses, the clerk of the court entered a default judgment against the Company in the amount of $1,192,875 plus 10% interest. On May 8, 2019, the Company received a tentative ruling on the Company’s motion to vacate the default judgement whereby the previously entered default judgement was voided and a trial date of August 26, 2019 was set.

 

On September 19, 2019, the Company entered into a Settlement Agreement, as Amended, with Integrity Media settling the civil action known as Integrity Media, Inc. vs. Friendable, Inc. et al., Orange County Case No. 30-2016-00867956-CU-CO-CJC. Pursuant to the Settlement Agreement, the Company agreed to issue to Integrity 750,000 shares of its common stock to be issued in tranches every 30 days or according to the instructions of Integrity, in exchange for 275 of the Company’s preferred shares held by Integrity and the cash payment of $30,000 for costs. Robert Rositano, the Company’s CEO, has also personally guaranteed the Company’s compliance with the terms of the Settlement Agreement. The cash payment is to be made within 6 months of the date of the Settlement Agreement. However, at the date of this filing both the $30,000 cash payment has not been made and the preferred shares have not been returned.

 

Additionally, Integrity will be entitled to additional shares if (i) the price of the Company’s common stock is below $1.34 at either the 120 day or 240 day reset dates set forth in the Company’s Debt Restructure Agreement as amended entered into with various debt holders on March 26, 2019 effective November 5, 2019. The Company determined that a total of 4,275,000 additional shares would be issuable on the first “reset” date of March 4, 2020 based on a share price of $0.20 on that date and a total of 7,537,500 additional shares would be issuable on the second “reset” date of July 2, 2020 based on a share price of $0.08 on that date, for a total of 12,562,500 shares. Integrity will also be entitled to a “true-up” by the issuance of additional common shares on the issuance date should the share price of the Company’s common stock on the issuance date be below $1.00. It was determined by the Company that its liability was $1,005,000 ($750,000 plus a premium of $255,000), in accordance with ASC 480.

 

On August 28, 2020 Integrity requested and was issued 750,000 common shares, which Integrity advised the Company realized $16,625 when sold. Accordingly, at December 31, 2020 the Company reduced its liability payable in common stock from $1,005,000 to $988,375.

 

On October 14, 2020 the Company filed a “Declaration” with the Santa Clara County Courts challenging Integrity’s future ability to convert additional shares based on “Stock Market Manipulation” designed to harm the Company’s share price, valuation and number of shares issuable to Integrity following its sales. Additionally, the Company contended that Integrity disregarded the volume limitation set forth in its settlement for the Company’s thinly traded securities and caused a potential third party capital investment of $150,000 to be rescinded. The court agreed with the Company’s declaration that Integrity should have filed a motion so the Company would have the opportunity to present all arguments and evidence in opposition to deny Integrity’s application to enter judgment. On June 29, 2021 Integrity Media’s attempt to again obtain a motion for entry and enforcement of the judgement was denied in favor of an entirely separate lawsuit, if any, to be brought to try to resolve any disputes with either the original settlement agreement or with the entry of stipulated judgement itself. The matter therefore continues, unresolved.

21

 

FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 and 2020
(Unaudited)

 

7. COMMITMENTS AND CONTINGENCIES

 

(iii) Lawsuit Contingency- Infinity Global Consulting Group Inc

 

Infinity Global Consulting Group Inc. had previously filed a default judgement on May 29, 2018 in the 11th Judicial Circuit, Miami-Dade County, Florida court alleging that it was owed a services fee of $97,000, plus an entitlement to a warrant to purchase 5 million of the Company’s common shares at $0.03 per share. The Company believes that this claim is without merit since service on the Company was defective and the Company never received an actual notice of the lawsuit. Accordingly, on November 16, 2020 the Company filed a motion to set aside the default judgement. At the date of this filing, the motion still awaits a hearing and no accrued expense at September 30, 2021 has been established.

 

(iv) Claim asserted by StockVest

 

On March 11, 2021 the Company received claims asserted by StockVest for (a) the issuance of 1,054,820 common shares (market value of approximately $19,000) representing anti-dilution stock as additional compensation for services provided to the Company pursuant to a certain Consulting, Public Relations and Marketing Letter Agreement dated July 6, 2017, and (b) because said additional stock had not been issued by the Company, StockVest asserted an additional claim for liquidated damages of $155,000. The Company believes that these asserted claims are without merit. Accordingly, no accrued expense at September 30, 2021 has been established for these claims.

 

COVID-19 Disclosure

 

The coronavirus pandemic has at times adversely affected the Company’s business and is expected to continue to adversely affect certain aspects of our merchandise offerings and custom artist collections of merchandise specifically. This impact on our operations, supply chains and distribution systems may also impair our ability to raise capital. There is uncertainty around the duration and breadth of the COVID-19 pandemic and, as a result, uncertainty on the ultimate impact on our business. Such impact on the Company’s financial condition and operating results cannot be reasonably estimated at this time, since the extent of such impact is dependent on future developments, which are highly uncertain and cannot be predicted.

 

8. COMMON AND PREFERRED STOCK

 

Common Stock:

 

During the year ended December 31, 2020, the Company:

 

Cancelled 2,000 shares of common stock valued at $500 previously issued to an investor under a securities purchase agreement and returned the $500 to the investor.

 

Issued 7,005,855 shares of common stock on conversion of $127,524 of convertible notes, and accrued interest, at a fair value of the shares of $215,015, based on the quoted trading price on the conversion dates resulting in a loss on extinguishment of $87,491.

 

Issued 5,736,333 shares of common stock and recorded the obligation to issue a further 506,667 common shares, collectively valued at $552,050 based on the quoted price on the grant dates, in payment for services primarily to music artists providing live performances for the July 24, 2020 launch of the Fan Pass app.

 

Recorded the obligation to issue 36,193,098 and 63,275,243 additional shares of common stock based on the first and second reset dates in accordance with the debt restructuring agreement (See note 5).

 

Issued 750,000 common shares to Integrity Media pursuant to the Company’s settlement agreement, which Integrity Media advised had a realized value of $16,625.

 

Issued 7,196,264 common shares to parties where the original liability required the obligation to record such shares as issuable.

 

Issued 54,076 common shares to the Company’s founder upon conversion of 3 Series A Preferred Shares to meet their personal commitment to transfer certain common shares to the investors.

 

Recorded the obligation to issue 2,250,000 common shares in consideration for $60,000 received in cash.

22

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

8. COMMON AND PREFERRED STOCK

 

Issued 26,527,179 common shares upon conversion of Series C preferred stock having a value of $353,678.

 

During the three months ended March 31, 2021, the Company:

 

Issued 31,532,405 shares of common stock to two convertible note holders for partial conversion of an aggregate of $167,743 of the notes and accrued interest at an average price of approximately $0.0053.

 

Granted 3,500,000 shares of common stock to a noteholder as a commitment fee valued at its relative fair value of $11,924.

 

Issued, from issuable, an additional 40,766,310 shares of common stock based on the second reset date of July 2, 2020 in accordance with the debt restructuring agreement (See Note 5).

 

Issued a total of 5,500,894 common shares on conversion of 23,500 Preferred Series C shares having a redemption value of $36,190, including accrued dividend, plus a premium of $14,399, for an aggregate of $50,589.

 

Settled the common stock subscription receivable of $4,500 against the amount payable in accrued salaries to current directors and officers of the Company.

 

During the three months ended June 30, 2021, the Company:

 

Issued a total of 42,522,600 common shares to the holders of convertible debentures, which were recorded as reclassifications from issuable to issued common shares.

 

Issued 11,496,360 common shares upon conversion of Series C preferred stock having a value of $137,553.

 

Issued 2,555,738 common shares upon conversion of 50 Series A preferred stock

 

Issued 31,029,932 common shares upon conversion of 44,970 Series D preferred stock

 

During the three months ended September 30, 2021, the Company:

 

Issued a total of 8,709,641 common shares to the holders of convertible debentures, which were recorded as reclassifications from issuable to issued common shares.

 

Issued 7,290,359 common shares to a convertible debenture holder in excess of their entitlement valued at $91,129 , which will be offset against a separate convertible note also issued to that holder.

 

Issued 17,799,687 common shares upon conversion of Series C preferred stock having a book value of $162,654.

 

Issued 4,928,511 common shares upon conversion of 52 Series A preferred stock

 

Issued 114,102,488 common shares upon conversion of 75,506 Series D preferred stock

 

Issued 42,352,994 common shares with a fair value of $333,451 upon conversion of convertible notes with bifurcated derivatives and accrued interest, resulting in a loss on conversion of $134,803 which is included in derivative expense.

 

Issued 2,000,000 common shares in payment of services valued at a total of $17,400 based on the quoted trade price of $0.0087 on the grant date.

 

For sales of Series D preferred stock see page 26.

23

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

8. COMMON AND PREFERRED STOCK

 

Preferred Stock:

 

Series A:

 

The Series A Preferred Stock was authorized in 2014 and is convertible into nine (9) times the number of common stock outstanding at time of conversion until the closing of a Qualified Financing (Through June 30, 2021 “Qualified Financing” was defined as the sale and issuance of the Company’s equity securities that results in gross proceeds in excess of $2,500,000. Effective July 1, 2021 this was amended so that “Qualified Financing” is now defined as the sale and issuance of the Company’s equity securities that results in gross proceeds in excess of $10,000,000.). The number of shares of common stock issued on conversion of Series A preferred stock is based on the ratio of the number of shares of Series A preferred stock converted to the total number of shares of preferred stock outstanding at the date of conversion multiplied by nine (9) times the number of common stock outstanding at the date of conversion. After the qualified financing the conversion shares issuable shall be the original issue price of the Series A preferred stock divided by $0.002. The holders of Series A Preferred stock are entitled to receive non-cumulative dividends when and if declared at a rate of 6% per year. On all matters presented to the stockholders for action the holders of Series A Preferred stock shall be entitled to cast votes equal to the number of shares the holder would be entitled to if the Series A Preferred stock were converted at the date of record.

 

During the year ended December 31, 2019, 588 shares of Series A preferred stock were converted to common stock by two related parties who donated them to the Diocese of Monterey. In addition, 890 Series A shares were converted into 2,018,746 common shares by parties related to the two directors. The 2,018,746 common shares were issuable as of December 31, 2019 and were subsequently issued during the six months ended June 30, 2020.

 

During the six months ended June 30, 2020 two directors converted 3 shares of Series A Preferred Stock into 54,076 shares of common stock.

 

On June 3, 2020 the Company and Eclectic Artists LLC (“E Artists”) entered into a Partner Agreement and Stock Subscription Agreement, pursuant to which E Artists will engage musical artists and other talent to engage on the Company’s FanPass platform, providing live streaming events available through the FanPass mobile application for a term of 18 months. As compensation for bringing the artists to the FanPass platform, E Artists will receive 5% of net revenue attributable to the Fan Pass platform, initially for a period of 18 months. In addition, E Artists will receive Series A preferred stock such that when converted would be equal to 5% of the outstanding common stock. The number of Series A preferred shares was calculated at 118 shares valued at $135,617 based on the quoted trading price of the Company’s common stock of $0.0605 on the agreement date and 2,241,596 equivalent common shares. The Company recorded a prepaid expense of $135,617 and has amortized a total of $97,010 as sales and marketing expense for the period through June 30, 2021, which includes amortization of $44,793 for the six months ended June 30, 2021 (2020 $6,682). Concurrent with the issuance of the Series A Shares to E Artists, Robert Rositano, Jr., the Company’s CEO and Dean Rositano, the Company’s president, returned an aggregate of 118 Series A Preferred shares to the Company’s treasury.

 

On May 6, 2021 50 Series A Preferred shares held by a third party were converted to 2,555,738 common shares. After this conversion the total issued and outstanding Series A Preferred shares were reduced from 19,786 to 19,736.

 

On September 2, 2021 52 Series A Preferred shares held by a third party were converted to 4,928,511 common shares. After this conversion the total issued and outstanding Series A Preferred shares were further reduced from 19,736 to 19,684.

 

Series B:

 

On August 8, 2019 the Company filed a Designation of Series B convertible Preferred Stock with the state of Nevada, designating 1,000,000 shares of the Series B Preferred Stock with a stated value of $1.00 per share. A holder of Series B Preferred Stock has the right to convert their Series B Preferred Stock into fully paid and non-assessable shares of Common Stock. Initially, the conversion price for the Series B Preferred Stock is $.25 per share, subject to standard anti-dilution adjustments. Additionally, each share of Series B Preferred Stock shall be entitled to, as a dividend, a pro rata portion of an amount equal to 10% (Ten Percent) of the Net Revenues (“Net Revenues” being Gross Sales minus Cost of Goods Sold) derived from the subscriptions and other sales, but excluding and net of Vimeo fees, processing fees and up sells, generated by Fan Pass Inc., the wholly-owned subsidiary of the Corporation. The Series B Dividend shall be calculated and paid on a monthly basis in arrears starting on the day 30 days following the first day of the month following the initial issuance of the Series B Preferred and continuing for a period of 60 (Sixty) months. The holders of Series B Preferred stock shall have no voting rights. The holders of Series B Preferred stock shall not be entitled to receive any dividends other than noted above. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the holders of shares of Series B Preferred Stock shall be entitled to be paid the liquidation amount, as defined out of the assets of the Company available for distribution to its shareholders, after distributions to holders of the Series A Preferred Stock and before distributions to holders of Common Stock. 

24

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

8. COMMON AND PREFERRED STOCK

 

During the year ended December 31, 2019, the Company entered into Security Purchase Agreements with various investors for the purchase of 205,000 shares Series B convertible Preferred stock and received $205,000 in cash. Each Series B Preferred share is convertible into 4 shares of common stock valued at $0.25.

 

During the year ended December 31, 2019, The Company entered into a Security Purchase Agreements with a related party for the purchase of 79,000 shares Series B Preferred stock. The $79,000 was settled against accounts payable owed to the related party. Each Series B Preferred share is convertible into 4 shares of common stock valued at $0.25.

 

Series C:

 

On November 25, 2019 the Company filed a Designation of Series C convertible Preferred Stock with the state of Nevada, designating 1,000,000 shares of the Series C Preferred Stock with a stated value of $1.00 per share. The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends with the Company’s common stock, par value 0.0001 per share (“Common Stock”) (the Series C Preferred Stock will convert into common stock immediately upon liquidation and be pari passu with the common stock in the event of litigation), and (b) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. The Series C Preferred Stock does not have any voting rights. Each share of Series C Preferred Stock will carry an annual dividend in the amount of eight percent (8%) of the Stated Value of $1.00 (the “Divided Rate”), which shall be cumulative and compounded daily, payable solely upon redemption, liquidation or conversion and increase to 22% upon an event of default as defined. In the event of any default other than the Company’s failure to issue shares upon conversion, the stated price will be $1.50. In a default event where the Company fails to issue shares upon conversion, the stated price will be $2.00. The holder shall have the right six months following the issuance date, to convert all or any part of the outstanding Series C Preferred Stock into shares of common stock of the Company. The conversion price shall equal the Variable Conversion Price. The “Variable Conversion Price” shall mean 71% multiplied by the market price, representing a discount rate of 29%. Market price means the average of the two lowest trading prices for the Company’s common stock during the twenty trading day period ending on the latest complete trading day prior to the conversion date. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or upon any deemed liquidation event, after payment or provision for payment of debts and other liabilities of the Company, and after payment or provision for any liquidation preference payable to the holders of any Preferred Stock ranking senior upon liquidation to the Series C Preferred Stock, if any, but prior to any distribution or payment made to the holders of Common Stock or the holders of any Preferred Stock ranking junior upon liquidation to the Series C Preferred Stock by reason of their ownership thereof, the Holders will be entitled to be paid out of the assets of the Company available for distribution to its stockholders. The Company will have the right, at the Company’s option, to redeem all or any portion of the shares of Series C Preferred Stock, exercisable on not more than three trading days prior written notice to the Holders, in full, in accordance with Section 6 of the designations at a premium of up to 35% for up to six months. Company’s mandatory redemption: On the earlier to occur of (i) the date which is twenty-four (24) months following the Issuance Date and (ii) the occurrence of an Event of Default (the “Mandatory Redemption Date”), the Company shall redeem all of the shares of Series C Preferred Stock of the Holders (which have not been previously redeemed or converted).

 

During the year ended December 31, 2019, 149,300 shares of Series C convertible preferred stock were issued to an investor under preferred stock purchase agreements at a price of approximately $0.91 per share for a total of $136,000. Due to the mandatory redemption feature, these shares are reflected as a current liability at December 31, 2019. Furthermore, because these shares are convertible at 71% of the common shares market price around the time of the conversion date, they are treated as a stock settled debt under ASC 480 with a premium of $55,549 recorded and charged to interest expense. The total amount is reflected at $191,549 at December 31, 2019.

 

As of June 30, 2020, the Company has revalued the shares and premiums at the stated value of $1.50 per share in accordance with the events discussed below. On May 29, 2020 the Company defaulted on the shares by being late with the filing of the Form 10-K, thereby increasing the dividend rate to 22% and the stated value to $1.50 per share. During the three months ended March 31, 2020, 38,000 shares of Series C convertible preferred stock were issued to an investor under preferred stock purchase agreements at a price of approximately $0.87 per share for a total of $33,000.

 

Because Series C preferred shares are convertible at 71% of the common shares market price around the time of the conversion date, they are treated as a stock settled debt under ASC 480 with a total premium of $114,755 recorded as of June 30, 2020. In addition, the Company recorded a cumulative dividend payable of $11,885 as of June 30,2020 to the mandatorily redeemable Series C convertible preferred stock liability with this amount being recorded as interest expense since the Series C liability must be reflected at redemption value.

25

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

8. COMMON AND PREFERRED STOCK

 

During the three months ended September 30, 2020 the holder of the Series C converted 62,500 Series C shares to 3,822,958 common shares for a redemption value of $96,750 including accrued dividends plus premium of $38,292, which totaled $135,042 recorded into equity.

 

During the three months ended December 31, 2020 a holder of the Series C converted 101,300 Series C shares to 22,704,221 common shares for a redemption value of $218,655 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended December 31,2020 a total of 149,600 shares of Series C convertible preferred stock were issued to two investors under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $136,000 cash and premiums totaling $60,302 were recorded during this period with respect to these issuances. At December 31, 2020 the remaining liability totals $285,605, represented by a remaining balance of $184,850 in redeemable Series C stock, together with the related premium of $74,701 and accrued dividends of $26,054.

 

During the three months ended March 31, 2021 a holder of the Series C converted 23,500 Series C shares to 5,500,894 common shares for a redemption value of $50,589 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended March 31, 2021 a total of 296,450 shares of Series C convertible preferred stock were issued to two investors under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $269,350 cash and premiums totaling $121,084 were recorded during this period with respect to these issuances. At March 31, 2021 the remaining liability totals $634,143 represented by a remaining balance of $446,050 in redeemable Series C stock, together with the related premium of $181,385 and accrued dividends of $6,708.

 

During the three months ended June 30, 2021 the Company elected to redeem and cancelled 36,300 Series C shares through the payment of $50,938, which represented 135% of the outstanding principal of $36,300 and accrued dividend of $1,432. A holder of the Series C converted 84,700 Series C shares to 11,496,360 common shares for a redemption value of $137,553 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended June 30, 2021 a total of 92,125 shares of Series C convertible preferred stock were issued to an investors under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $83,750 cash and premiums totaling $37,629 were recorded during this period with respect to these issuances. At June 30, 2021 the remaining liability totals $597,490 represented by a remaining balance of $417,175 in redeemable Series C stock, together with the related premium of $169,550 and accrued dividends of $10,765.

 

During the three months ended September 30, 2021 the Company elected to redeem and cancelled 58,850 Series C shares through the payment of $82,408, which represented 135% of the outstanding principal of $58,850 and accrued dividend of $2,192. A holder of the Series C converted 95,700 Series C shares to 17,799,687 common shares for a redemption value of $162,654 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended September 30, 2021 a total of 178,750 shares of Series C convertible preferred stock were issued to an investor under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $162,500 cash and premiums totaling $73,011 were recorded during this period with respect to these issuances. At September 30, 2021 the remaining liability totals $633,590 represented by a remaining balance of $441,375 in redeemable Series C stock, together with the related premium of $179,435 and accrued dividends of $12,780.

 

Series D

 

In conjunction with the Company’s intention to raise future financing of up to $5 million through an offering of up to 500,000 Series D convertible Preferred Stock at the offering price of $10.00 per share, on March 29, 2021 the Company received a Notice of Qualification from the Securities and Exchange Commission indicating approval from the Company to proceed with the offering pursuant to Tier 2 of Regulation A of the Securities Act, which provides exemption from registration of such securities. Each Series D preferred share is convertible, at the option of the holder, at any time, into nonassessable common shares at 80% of the average closing price reported on OTCMarkets (a) for the 20 trading days preceding conversion through June 30, 2021 and (b) for the 10 trading days preceding conversion effective July 1, 2021. On April 5, 2021 the Company filed the necessary Certificate of Designation with the state of Nevada to designate 500,000 shares of Series D Preferred stock from the Company’s total authorized and unissued Preferred Stock.

 

During the three months ended June 30, 2021 the Company received a total of $850,000 from the sale of 85,000 Series D Convertible Preferred Stock, and incurred offering costs of $31,309. In addition, during that period 44,970 Series D Preferred shares were subsequently converted to 31,029,932 common shares at an average conversion rate of $0.01449 per common share, resulting in a remaining balance at June 30, 2021 of 40,030 Series D Preferred.

26

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

8. COMMON AND PREFERRED STOCK

 

During the three months ended September 30, 2021 the Company received a total of $760,000 from the sale of 76,000 Series D Convertible Preferred Stock. In addition, during that period 75,506 Series D Preferred shares were subsequently converted to 114,102,488 common shares at an average conversion rate of $0.00662 per common share, resulting in a remaining balance at September 30, 2021 of 40,524 Series D Preferred.

 

9. SHARE PURCHASE WARRANTS

 

Activity in 2021 is as follows:

 

Common stock warrants

 

  Number of  Weighted Average  Weighted Average 
  Warrants  Exercise Price $  Remaining Life (Years) 
Balance outstanding, December 31, 2020  60,908   72.00   0.3 
Expired  (60,908)  (72.00)  (0.3)
Granted  65,567,000   0.0065   4.18 
Balance outstanding, September 30, 2021  65,567,000  $0.0065   4.18 

 

Preferred Series D warrants

 

  Number of  Weighted Average  Weighted Average 
  Warrants  Exercise Price $  Remaining Life (years) 
Balance outstanding, December 31, 2020  -   -   - 
Granted  3,500   10.00   4.18 
Balance outstanding, September 30, 2021  3,500   10.00   4.18 

 

The Preferred Series D warrants, when exercised at the price of $10.00 per share, are then convertible to common shares at 80% of the Company’s average closing stock price over 10 trading days prior to conversion, which would equal 6,730,769 common shares at September 30, 2021.

 

On January 1, 2021 the Company issued warrants to Anvil Financial Management LLC to purchase up to 92,000 shares of the Company’s common stock (the “Warrants”) in part consideration for providing financing advice. The warrants are exercisable at any time on or after the date of issuance at the price of $0.25 per share and entitles Anvil to purchase the Company’s common stock for a period of up to 5 years from January 1, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note 5 “Warrants Issued Related to Notes”.

 

On March 9, 2021 the Company issued warrants to First Fire Global Opportunities Fund LLC to purchase up to 3,500,000 shares of the Company’s common stock (the “Warrants”) in connection with providing the Company with financing through a Convertible Promissory Note with the principal value of $110,000. The warrants are exercisable at any time on or after the date of issuance at the price of $0.025 per share and entitles First Fire to purchase the Company’s common stock for a period of up to 3 years from March 9, 2021.

 

On the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note 5 “Warrants issued related to Notes”.

 

On March 11, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 1,350,000 shares of the Company’s common stock (the “Warrants”) in part consideration as a finder’s fee in introducing First Fire to the Company. Warrants on 350,000 common shares are exercisable at any time on or after the date of issuance at the price of $0.025 per share and entitles the holder to purchase the Company’s common stock for a period of up to 3 years from March 11, 2021. Warrants on 1,000,000 common shares are exercisable at any time on or after the date of issuance at the price of $0.01 per share and also entitles the holder to purchase the Company’s common stock for a period of up to 3 years from March 11, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note 5 “Warrants Issued Related to Notes”.

 

On March 3, 2021 the Company issued warrants to JP Carey Enterprises, Inc. to purchase up to 30,000,000 shares of the Company’s common stock (the “Warrants”) in connection with providing the Company with financing through a Convertible Promissory Note with the principal value of $150,000. The warrants are exercisable at any time on or after the date of issuance at the price of $0.005 per share and entitles JPCarey to purchase the Company’s common stock for a period of up to 5 years from March 3, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note 5 “Warrants issued related to Notes”.

27

 

FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

9. SHARE PURCHASE WARRANTS

 

On March 3, 2021 the Company issued warrants to Trillium Partners LP to purchase up to 30,000,000 shares of the Company’s common stock (the “Warrants”) in connection with providing the Company with financing through a Convertible Promissory Note with the principal value of $150,000. The warrants are exercisable at any time on or after the date of issuance at the price of $0.005 per share and entitles Trillium to purchase the Company’s common stock for a period of up to 5 years from March 3, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note 5 “Warrants issued related to Notes”.

 

On May 6, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 2,500 shares of the Company’s Series D Preferred stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire of 25,000 Series D Preferred stock. Warrants on 2,500 Series D Preferred stock common shares are exercisable at any time on or after the date of issuance at the price of $10.00 per share and entitles the holder to purchase the Company’s Series D Preferred stock for a period of up to 5 years from May 6, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of the warrants was $25,000. However, there is no accounting entry since the cost of these warrants was treated as an offering cost against the proceeds of the Series D Preferred stock offering.

 

On August 9, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 1,000 shares of the Company’s Series D Preferred stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire of 10,000 Series D Preferred stock on July 23, 2021. Warrants on 1,000 Series D Preferred stock common shares are exercisable at any time on or after the date of issuance at the price of $10.00 per share and entitles the holder to purchase the Company’s Series D Preferred stock for a period of up to 5 years from August 9, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of the warrants was $10,000. However, there is no accounting entry since the cost of these warrants was treated as an offering cost against the proceeds of the Series D Preferred stock offering.

 

On September 10, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 625,000 shares of the Company’s common stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire of 12,500 Series D Preferred stock on August 31, 2021. Warrants on 1,000 Series D Preferred stock common shares are exercisable at any time on or after the date of issuance at the price of $10.00 per share and entitles the holder to purchase the Company’s Series D Preferred stock for a period of up to 5 years from September 10, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of the warrants was $6,250. However, there is no accounting entry since the cost of these warrants was treated as an offering cost against the proceeds of the Series D Preferred stock offering.

 

10. STOCK-BASED COMPENSATION

 

  Number of Stock  Weighted Average
Exercise Price
  Weighted Average
Remaining Life
 
  Options  $  (Years) 
Balance outstanding, December 31, 2020  -   -   - 
Granted  16,500,000  $0.0141   2.0 
Balance outstanding, September 30, 2021  16,500,000  $0.0141   2.0 

 

On November 22, 2011, the Board of Directors of the Company approved a stock option plan (“2011 Stock Option Plan”), the purpose of which is to enhance the Company’s stockholder value and financial performance by attracting, retaining and motivating the Company’s officers, directors, key employees, consultants and its affiliates and to encourage stock ownership by such individuals by providing them with a means to acquire a proprietary interest in the Company’s success through stock ownership. Under the 2011 Stock Option Plan, officers, directors, employees and consultants who provide services to the Company may be granted options to acquire common shares of the Company. The aggregate number of options authorized by the plan shall not exceed 4,974 shares of common stock of the Company.

 

There are 7 shares of common stock reserved for issuance under the 2014 Plan. The Board shall have the power and authority to make grants of stock options to employees, directors, consultants and independent contractors who serve the Company and its affiliates. Any stock options granted under the 2014 Plan shall have an exercise price equal to or greater than the fair market value of the Company’s shares of common stock. Unless otherwise determined by the Board of Directors, stock options shall vest over a four-year period with 25% being vested after the end of one (1) year of service and the remainder vesting equally over a 36-month period. The Board may award options that may vest based upon the achievement of certain performance milestones. As of September 30, 2020, no options have been awarded under the 2014 Plan. Effective August 27, 2019, the Company effected a reverse split of the common stock of 1 for 18,000 (Note 1) which eliminated all the options which were previously outstanding.

 

During January, 2021 the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2 years and 10 million common shares vesting quarterly over 3 years, both sets of option are exercisable at a price of $0.014 per share. In addition, during January, 2021 stock options on a further 1.5 million common shares, vesting quarterly over 3 years at the exercise price of $0.015 per share. Applying the Black-Scholes valuation method, the total cost of these options is $194,700 and $24,750 respectively, which is being amortized to general and administrative expense over their lifetime. Of this total, the Company incurred a stock option expense of $65,024 for the nine months ended September 30, 2021 (2020: $0).

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FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

11. FAIR VALUE MEASUREMENTS

 

ASC 820, Fair Value Measurements and Disclosures, require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.

 

Level 2

 

Level 2 applies to assets or liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and determining whether a market is considered active requires management judgment.

 

Level 3

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

 

11. FAIR VALUE MEASUREMENTS

 

Pursuant to ASC 825, cash is based on Level 1 inputs. The Company believes that the recorded values of accounts receivable and accounts payable approximate their current fair values because of their nature or respective relatively short durations. The fair value of the Company’s convertible debentures and promissory note approximates their carrying values as the underlying imputed interest rates approximates the estimated current market rate for similar instruments.

 

As of September 30, 2021 there were derivatives measured at fair value on a recurring basis (see note 5) presented on the Company’s balance sheet, as follows:

 

Liabilities at Fair Value

 

September 30, 2021

 

  Level 1  Level 2  Level 3  Total 
Embedded conversion options derivative liabilities  -   -  $237,900  $237,900 

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FRIENDABLE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and 2020

(Unaudited)

 

12. SUBSEQUENT EVENTS

 

Subsequent to September 30, 2021 the Company received $250,000 from the sales of 25,000 Series D Convertible Preferred Stock at $10.00 per share. In connection with these sales, the Company paid Primary Capital finder’s fees totaling $12,500 and issued 5 year Warrants on 1,250,000 common shares at an exercise price of $0.01 per share.

 

Subsequent to September 30, 2021 the Company issued 5,224,075 common shares to the holder of convertible debentures, which were recorded as reclassifications from issuable to issued common shares.

 

Subsequent to September 30, 2021 the Company issued 7,519,927 common shares on conversion of 50 Series A preferred stock.

 

Subsequent to September 30, 2021 the Company issued a total of 26,574,626 common shares on conversion of 13,892 Series D Preferred Stock, an at average conversion of $0.00523 per share.

 

Subsequent to September 30, 2021 the Company issued a total of 12,581,572 common shares to a holder of Series C preferred stock on conversion of $42,625 principal and $1,705 accrued dividends at an average conversion rate of $0.00352 per share.

 

On October 21, 2021 the Company signed a non-binding Letter of Intent to acquire all of the assets of Artist Republik, Inc. in consideration for the issuance of common stock of the Company equal to 37% of the common stock issued and outstanding (presently estimated to be 37% of 457,072,368, or 169,116,776 common shares). The transaction is scheduled to close in November, 2021.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1 “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.

 

Overview

 

Friendable, Inc., a Nevada corporation (the “Company”), was incorporated in the State of Nevada

 

Friendable Inc. (FDBL) is a mobile technology and marketing company focused on connecting and engaging users through its proprietary mobile and desktop applications. The Company’s first app, the “Friendable” subscription app, was a traditional dating application with its focus on building revenue, as well as reintroducing the brand as a non-threatening, all-inclusive place where “Everything starts with Friendship”…meet, chat & date.

 

On June 28, 2017, the Company formed a wholly owned Nevada subsidiary called Fan Pass, Inc.

 

Launched July 24, 2020, the Company’s “Fan Pass” flagship subscription app is designed to help artists engage with their fans around the world and earn revenue while doing so. The Live Streaming platform supports artists at all levels, providing exclusive artist content “channels,” live event streaming, promotional support, fan subscriptions and custom merchandise designs, all of which are revenue streams for each artist. With Fan Pass, artists can offer exclusive content channels to their fans, who can simply use their smartphones to gain access to their favorite artists as well as an all-access pass, giving them access to all artists on the platform. Additionally, the Fan Pass team will deploy social broadcasters to capture exclusive VIP experiences, interviews and behind-the-scenes content featuring their favorite artists – all available to fan subscribers for free on a trial basis. Thereafter, subscriptions are billed monthly, providing VIP access at a fraction of the cost of traditional face-to-face meetups. Presently, Fan Pass has signed more than 5,300 music artists, of which more than 750 artists have been on boarded with their own “broadcast” music Channel available on the Fan Pass app for live streaming and pre-recorded music content.

 

Friendable Inc. was founded by Robert A. Rositano Jr. and Dean Rositano, two brothers with over 25 years of experience working together on technology-related ventures.

 

The Company maintains websites at www.Friendable.com and www.fanpasslive.com. The information on these app websites is not incorporated herein. Additionally, you can download the Fan Pass app from the Apple app Store or Google Play Stores.

 

What precisely does Fan Pass Live do?

 

For starters, Fan Pass breaks down the barrier between artists and fans, with artists broadcasting their events, concerts, and announcements to supporters directly from the Fan Pass mobile application or desktop. More importantly, it gives back to artists a way to remain relevant to their fan base and earn revenue.

 

Fan Pass Live offers artists at all levels and genres, the opportunity to engage fans from one location, removing the need for multiple sharing platforms. It conveniently provides Exclusive Artist “Channels” jam-packed with all their relevant content from videos, photos, interviews, and past and upcoming events. While Fan Pass charges the fans a small transaction fee for ticket sales, artists keep the money earned from ticket sales. The handling of merchandise is also taken care of by the company and once it’s approved by the artist, all merchandising is released within the artist’s Channel.

 

For artists there are tools available to help them “up their game” such as the creation of custom logos and merchandising, live chat options, promotional aids that provide the ability to live stream, post photos, audio and video with ease. For subscribers, fans can browse for upcoming events, shop merchandising, search by music genre and create dashboards. They can also view notifications, discussions and their favorite music artists in one app.

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While it’s free for the artists to join, Fan Pass monetizes its business model by using an “ALL ACCESS VIP” Offering. Commencing with the release of Fan Pass v2.0 on July 24, 2021, this offering is priced at a $2.99 monthly subscription ($25.99 annual subscription), paid by fans through its website, Apple App Store or Google Play Stores, with a three-day free trial. Fan Pass also offers an “Artist Pro” monthly subscription of $8.99 which offers the “ALL ACCESS VIP”, plus advanced dashboard analytics, merchandising store access and promotion of scheduled music events, On August 5, 2021 the Company announced the approval of the Fan Pass v2.0 livestream artist platform by both the Apple App and Google Play Stores. The mobile applications can be downloaded by users worldwide, and Fan Pass v2.0 is also accessible via desktop and web applications.

 

How sweet does it get for the artists? These revenues are proportionately shared with all Channel artists according to fan views and downloads. In exchange for its platform features, live streaming tools, bandwidth, processing, and handling, Fan Pass also earns platform fees on each separately ticketed event, as well as splits with each artist on subscriber fees and merchandise designed and sold on the platform. Fan Pass v2.0 contains all new UI/UX user interface attributes, updated feature sets for artists and fan, as well as an accelerated onboarding process for artists and artists’ content, and enhanced dashboard features.

 

The Company aims to establish Fan Pass as its premier brand and mobile platform that is dedicated to connecting and engaging users from anywhere around the World.

 

Fan Pass Live provides fans exclusive access into the lives of their favorite artists, and provides artists a ‘virtual stage’ to perform, earn revenues, and engage with fans from around the world.

 

(IMAGE)

 

We previously advised that on April 7, 2021 the Company had entered into a letter of understanding with Santo Mining Corp. (“SMC”) to form a joint venture to pursue the development and sale of NFT’s ( non-fungible tokens of verifiable, tradable assets of digital art, music”) or other content or collectibles originating through the Company’s exploitation of the content associated with and from the Fan Pass app. However, the Company has not been able to conclude a definitive agreement with SMC and accordingly is no longer proceeding with this arrangement. Nonetheless, the Company is pursuing other opportunities for the distribution of its potential NFT’s.

 

On October 21, 2021 the Company signed a non-binding Letter of Intent to acquire all of the assets of Artist Republik, Inc. in consideration for the issuance of common stock of the Company equal to 37% of the common stock issued and outstanding (presently estimated to be 37% of 469,673,940, or 173,779,358 common stock). The transaction is scheduled to close in November, 2021. Started in early 2020, Artist Republik provides the tools for Music Artists to produce, distribute and market their original music on a variety of digital streaming platforms, including Spotify and Apple Music, together with providing Artists with the ability to find and book local venues and shows. Artist Republik presently serves 100,000 Artists and shares a portion of its revenue with the Artists. Closing the acquisition will complete the Company’s presence in the music industry by directly serving both independent Artists in the distribution of music content and the connection and participation with their fans.

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Executive Leadership

 

Our two founders are a team of Entrepreneurs who have over 25 years of tech related startup experience, recruiting talent, building teams and turning ideas into big business opportunities, as well as exits for investors. Together raising over $40M in capital, spanning various companies, with a history dating back to the first ever Internet IPO (Netcom Online Communications – 1993), as well as the development of the first ever World Wide Web Directory (sold to McMillan Publishing 1995) and even deploying a first mover social network by the name of nettaxi.com – 1998 – 2002, which was prior to Facebook and resulted in a top 10 most trafficked web site in the World, with a market cap of approximately $700M upon exiting the public company. Relationships developed over the years include such companies as Apple, eBay and AT&T, as well as joint ventures with Music Industry Giants, including Nocturne Productions, Herbie Herbert (Manager of the Band Journey) and Music.com; an early adopter offering digital music downloads.

 

Results of Operations For the Three Months Ended  For the Nine Months Ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
REVENUES:            
Technology services $-  $109,500  $-  $319,331 
Subscription and merchandising sales  1,866   1,892   4,780   3,340 
   1,866   111,392   4,780   322,671 
                 
OPERATING EXPENSES:                
App hosting  7,500   12,000   22,500   33,000 
Commissions  247   191   605   625 
General and administrative  315,672   224,401   962,281   605,458 
Software development and support  252,500   105,790   575,000   460,102 
Artists’ performance fees  -   425,058   -   425,058 
Revenue shares  920   402   2,124   402 
Investor relations  58,118   3,921   104,968   140,527 
Sales and marketing  127,269   30,081   393,321   82,335 
Total operating expenses  762,226   801,844   2,060,799   1,747,507 
                 
LOSS FROM OPERATIONS  (760,360)  (690,452)  (2,056,019)  (1,424,836)
                 
OTHER INCOME (EXPENSE)                
Accretion and interest expense  (426,200)  (38,423)  (936,113)  (266,710)
Gain on foreign exchange  -   -   -   2,580 
Initial derivative expense  -   -   (1,796,835)  (419,000)
Gain (loss) on settlement of derivatives  -   257,317   -   (640,821)
Derivatives income (expense)  867,298   263,000   2,818,298   259,000 
   441,098   481,894   85,350   (1,064,951)
                 
NET LOSS $(319,262) $(208,558) $(1,970,669) $(2,489,787)

 

For the three months ended September 30, 2021 compared to September 30, 2020

 

Revenues

 

The Company had revenues of $1,866 and $111,392 for the three months ended September 30, 2021 and 2020 respectively. Revenues in 2021 related entirely to subscriber and merchandising revenue from the Company’s Fan Pass and Friendable apps. (2020 $1,892). Revenues for the three months ended September 30, 2020 includes $109,500 from technology services provided under a contract with a third party, which expired at the end of 2020 (2021 $0). No new third-party technology services contract has been obtained to date in 2021.

 

Operating Expenses

 

The Company had operating expenses of $762,226 and $801,844 for the three months ended September 30, 2021 and 2020 respectively. The decrease in operating expenses was due primarily to Artists’ performance fees of $425,058 incurred in 2020 in connection with the initial launch of the Fan Pass app.in July, 2020, offset by higher salary costs of full time employees, higher software development costs to build and launch Fan Pass V 2.0 in July 2021 and higher sales and marketing costs to promote the Fan Pass app. in 2021.

33

 

Other Income and Expense

 

The Company had other net income of $441,098 for the three months ended September 30, 2021, compared to other income of $481,894 for the three months ended September 30, 2020. Higher interest expense in 2021 was offset by higher derivatives income.

 

Net Loss

 

The Company had a net loss of $319,262 for the three months ended September 30, 2021, compared to a net loss of $208,558 for the three months ended September 30, 2020. The increase in net loss was due primarily to the decline in revenues in 2021 explained above.

 

For the nine months ended September 30, 2021 compared to September 30, 2020

 

Revenues

 

The Company had revenues of $4,780 and $322,671 for the nine months ended September 30, 2021 and 2020 respectively. The decrease was due to the end of a contract to develop a third-party app at the end of 2020, which was not replaced by a new third-party app. development contract in 2021. Revenue in 2021 related entirely to subscriber and merchandising revenue from the Company’s own Fan Pass and Friendable apps.

 

Operating Expenses

 

The Company had operating expenses of $2,060,799 and $1,747,507 for the nine months ended September 30, 2021 and 2020 respectively. The increase in operating expenses of $313,292 was due primarily to an increase of $356,823 in general and administrative expenses arising primarily from higher legal fees and increased salaries, and an increase in sales and marketing expenses of $310,986 in 2021 to support the Fan Pass 2.0 app. launch, partially offset by the absence of Artists; performance fees of $425,058 incurred in 2020 in support of the initial launch of the Fan Pass app in July, 2020.

 

Other Income and Expense

 

The Company had other net income of $85,350 for the nine months ended September 30, 2021 compared with other expense of $1,064,951 for the nine months ended September 30, 2020. The change was due primarily to higher a derivatives income of $2,818,298, less interest expense and loss on initial derivative expense of $2,732,948 in 2021, compared with much smaller derivatives income $259,000 and loss on settlement of derivatives $640,821 and initial derivative expense $419,000 in 2020.

 

Net Loss

 

The Company had net losses of $1,970,669 and $2,489,787 for the nine months ended September 30, 2021 and 2020 respectively. The decrease in net loss was due primarily to the absence in 2021 of Artists’ performance fees totaling $425,058 incurred in 2020 to support the initial launch of the Fan Pass app.

 

Liquidity and Capital Resources

 

Working Capital

 

  September 30, 2021  December 31, 2020 
   (unaudited)     
Current Assets $463,741  $148,601 
Current Liabilities $4,800,703  $5,436,963 
Working Capital (Deficiency) $(4,336,962) $(5,288,362)

 

Current assets at September 30, 2021 increased compared to December 31, 2020 primarily due to higher cash from the Company’s Regulation A capital raise program, offset by a reduction in accounts receivable and prepaid expenses.

 

Current liabilities at September 30, 2021 decreased compared to December 31, 2020 primarily due to the reduction in derivative liabilities from convertible note conversions in 2021 and changes in the fair value of derivatives, offset by an increase in accounts payable and accrued expenses and an increase in the liability for mandatorily redeemable Series C convertible preferred stock from additional capital raises.

34

 

Cash Flows

 

  Nine months  Nine months 
  Ended  Ended 
  September 30, 2021  September 30, 2020 
Net Cash Used in Operating Activities $(1,843,633) $(260,931)
Net Cash Provided by Financing Activities  2,237,815   258,500 
Net Increase (Decrease) in Cash $394,182  $(2,431)

 

Net Cash Used in Operating Activities

 

Our cash used in operating activities was $1,843,633 for the nine month period ended September 30, 2021 compared to $260,931 for the nine month period ended September 30, 2020. Net loss was $1,970,669 and $2,489,787 for the nine month periods ending September 30, 2021 and 2020 respectively. In 2021, adjustments to reconcile the net loss to net cash used primarily included a loss on initial derivative expense of $1,796,835, offset by a gain from the change in fair value of derivatives of $2,818,298. In 2020, adjustments to reconcile the net loss to net cash used included adjustment for loss on settlement of derivative of $640,822, and loss on initial derivative expense of $419,000. In 2021, changes in operating assets and liabilities included a reduction in amount due to related party of $134,499 and an increase to accounts payable and accrued expenses of $335,173. In 2020 changes in operating assets and liabilities included an increase to accounts payable and accrued expenses of $409,743 and an increase due to related party $30,083.

 

Net Cash Provided by Financing Activities

 

Our cash provided by financing activities of $2,237,815 for the nine month period ended September 30, 2021 included the issuance of Series C preferred stock sold for cash of $515,900 offset by a redemption payments of Series C preferred stock totaling $95,150, issuance of Series D preferred stock under Regulation A of $1,610,000 less offering costs of $31,310, and net proceeds from the issuance of convertible notes of $358,500 and repayment of convertible notes of $116,500. Our cash provided by financing activities of $258,500 for the nine month period ended September 30, 2020 included the issuance of Series C preferred stock sold for cash of $33,000, net proceeds from the issuance of convertible notes of $105,000 and proceeds of $60,000 from the sale of common stock.

 

The Company derives the majority of its financing by issuing convertible notes or stock to investors. The investors have the right to convert the notes and certain preferred stock into common shares of the Company after the requisite Rule 144 waiting period. The notes generally call for the shares to be issued at a deep discount to the market price at the time of conversion. In addition, investors purchasing Series D preferred stock have the right to convert that stock to common shares.

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which implies that the Company would continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2021, the Company has a working capital deficiency of $4,336,962, has an accumulated deficit of $38,539,915 and has a stockholder’s deficit of $4,336,962 and its operations continue to be funded primarily from sales of its stock. During the nine months ended September 30, 2021 the Company had a net loss and net cash used in operations of $1,970,669 and $1,843,633. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain the necessary financing through short term loans and the issuance of convertible notes and equity instruments. The unaudited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management plans to continue raising financing through equity sales of Series C and Series D Preferred stock, while intending to reduce and/or eliminate its convertible debt. No assurance can be given that any such additional financing will be available, or that it can be obtained on terms acceptable to the Company and its stockholders.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2021, the Company had no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

This Item 3 is not applicable to us as a smaller reporting company and has been omitted.

35

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2021, our disclosure controls and procedures were not effective.

 

As reported in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2020, our management concluded that our internal control over financial reporting was not effective as of that date because of material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and ineffective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; (iii) and inadequate technical skills of accounting personnel. To remediate such weaknesses, we believe we would need to implement the following changes: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. Until we have the required funds, we do not anticipate implementing these remediation steps.

 

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

i) Integrity Media, Inc. (“Integrity”) had previously filed a lawsuit against the Company and the CEO of the Company for $500,000 alleging breach of contract alleging the Company failed to deliver marketable securities in exchange for services. The Company answered the allegations in court and Integrity filed a motion attacking the Company’s answers. While the court did not strike those responses, the clerk of the court entered a default judgment against the Company in the amount of $1,192,875 plus 10% interest. On May 8, 2019, the Company received a tentative ruling on the Company’s motion to vacate the default judgement whereby the previously entered default judgement was voided and a trial date of August 26, 2019 was set.

 

On September 19, 2019, the Company entered into a Settlement Agreement, as Amended, with Integrity Media settling the civil action known as Integrity Media, Inc. vs. Friendable, Inc. et al., Orange County Case No. 30-2016-00867956-CU-CO-CJC. Pursuant to the Settlement Agreement, the Company agreed to issue to Integrity 750,000 shares of its common stock to be issued in tranches every 30 days or according to the instructions of Integrity, in exchange for 275 of the Company’s preferred shares held by Integrity and the cash payment of $30,000 for costs. Robert Rositano, the Company’s CEO, has also personally guaranteed the Company’s compliance with the terms of the Settlement Agreement. At the date of this filing the $30,000 cash payment has not been made and the preferred shares have not been returned.

 

Additionally, Integrity will be entitled to additional shares if (i) the price of the Company’s common stock is below $1.34 at either the 120 day or 240 day reset dates set forth in the Company’s Debt Restructure Agreement as amended entered into with various debt holders on March 26, 2019 effective November 5, 2019. The Company determined that a total of 4,275,000 additional shares would be issuable on the first “reset” date of March 4, 2020 based on a share price of $0.20 on that date and a total of 7,537,500 additional shares would be issuable on the second “reset” date of July 2, 2020 based on a share price of $0.08 on that date, for a total of 12,562,500 shares. Integrity will also be entitled to a “true-up” by the issuance of additional common shares on the issuance date should the share price of the Company’s common stock on the issuance date be below $1.00. It was determined by the Company that its liability was $1,005,000 ($750,000 plus a premium of $255,000), in accordance with ASC 480.

 

On August 28, 2020 Integrity requested and was issued 750,000 common shares, which Integrity advised the Company realized $16,625 when sold. Accordingly, at September 30,2021 and December 31, 2020 the Company reduced its liability payable in common stock from $1,005,000 to $988,375 and retained $30,000 as an accrued liability for costs.

 

On October 14, 2020 the Company filed a “Declaration” with the Santa Clara County Courts challenging Integrity’s future ability to convert additional shares based on “Stock Market Manipulation” designed to harm the Company’s share price, valuation and number of shares issuable to Integrity following its sales. Additionally, the Company contended that Integrity disregarded the volume limitation set forth in its settlement for the Company’s thinly traded securities and caused a potential third party capital investment of $150,000 to be rescinded. The court agreed with the Company’s declaration that Integrity should have filed a motion so the Company would have the opportunity to present all arguments and evidence in opposition to deny Integrity’s application to enter judgment. On June 29, 2021 Integrity Media’s attempt to again obtain a motion for entry and enforcement of the judgement was denied in favor of an entirely separate lawsuit, if any, to be brought to try to resolve any disputes with either the original settlement agreement or with the entry of stipulated judgement itself. The matter therefore continues, unresolved.

 

(ii) Infinity Global Consulting Group Inc.

 

Infinity Global Consulting Group Inc. had previously filed a default judgement on May 29, 2018 in the 11th Judicial Circuit, Miami-Dade County, Florida court alleging that it was owed a services fee of $97,000, plus an entitlement to a warrant to purchase 5 million of the Company’s common shares at $0.03 per share. The Company believes that this claim is without merit since service on the Company was defective and the Company never received an actual notice of the lawsuit. Accordingly, on November 16, 2020 the Company filed a motion to set aside the default judgement. At the date of this filing, the motion still awaits a hearing and no accrued expense at September 30, 2021 or at December 31, 2020 has been established.

 

ITEM 1A. RISK FACTORS.

 

There are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the SEC on April 28, 2021.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

During the three months ended March 31, 2021:

 

Issued 5,500,894 common shares on conversion of 23,500 Series C preferred stock plus accrued dividend, valued $50,589.

 

Issued 31,532,405 shares of common stock on conversion of $158,516 of convertible notes, accrued interest and conversion fees, at a conversion value of $167,743.

 

Issued 3,500,000 common shares as payment of a commitment fee to a convertible debtholder valued at $62,300.

 

Issued 40,766,310 additional shares of common stock based on first and second reset dates in accordance with the debt restructuring agreement (See note 5).

 

During the three months ended June 30, 2021:

 

Issued 11,496,360 common shares on conversion of 84,700 Series C preferred stock plus accrued dividend, valued $137,553.

 

Issued 31,029,932 shares of common stock on conversion of 44,970 Series D preferred stock at a conversion value of $449,700.

 

Issued 2,555,738 common shares to a third party on conversion of 50 Series A preferred stock.

 

Issued 42,522,600 additional shares of common stock based on first and second reset dates in accordance with the debt restructuring agreement (See note 5).

 

During the three months ended September 30, 2021:

 

Issued 17,799,687 common shares on conversion of 95,700 Series C preferred stock plus accrued dividend with a book value of $162,654.

 

Issued 114,102,488 shares of common stock on conversion of 75,506 Series D preferred stock at a conversion value of $755,060.

 

Issued 4,928,511 common shares to a third party on conversion of 52 Series A preferred stock.

 

Issued 8,709,641 additional shares of common stock based on first and second reset dates in accordance with the debt restructuring agreement.

 

Issued 7,290,359 common shares to a convertible debenture holder for offset against the holder’s convertible note, valued at $91,129.

 

Issued 42,352,994 common shares on conversion of convertible notes and accrued interest, at a fair value of $333,451.

 

Issued 2,000,000 common shares for services provided, valued at a fair value of $17,400.

 

The shares above were issued pursuant to an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Act”).

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

On May 29, 2020 the Company defaulted on the outstanding Series C preferred stock previously issued by being late with the December 31, 2019 Form 10-K filing on the extended date. Under the default provision of the Series C preferred stock the dividend rate increases from 8% to 22% and the stated price increases from $1.00 to $1.50. The Company also defaulted on four convertible notes, one dated March 30, 2017 having no principal outstanding and accrued interest of $48,228, one dated April 8, 2020 in the amount of $35,000, one dated May 20, 2020 in the amount of $60,000 and another one dated June 11, 2020 of $10,000, causing the interest rate to increase to 24%.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

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ITEM 6. EXHIBITS

 

The exhibits listed on the Exhibit Index immediately preceding such exhibits, which is incorporated herein by reference, are filed or furnished as part of this Quarterly Report on Form 10-Q.

 

Exhibit NumberDescription
(31)Rule 13a-14(a)/15d-14(a) Certification
31.1*Certification of the Principal Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*Certification of the Principal Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)Section 1350 Certification
32.1+Certification of the Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(101)Interactive Data File
101.INS*Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document)
101.SCH*Inline XBRL Taxonomy Extension Schema
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase
104*Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 *Filed herewith.

 

 +In accordance with SEC Release 33-8238, Exhibits 32.1 is being furnished and not filed.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 FRIENDABLE, INC.
   
Date: November 10, 2021By :/s/ Robert Rositano, Jr.
  Name: Robert Rositano, Jr.
  Title: CEO, Secretary, and Director
(Principal Executive Officer)
   
Date: November 10, 2021By:/s/ Robert Rositano, Jr
  Name: Robert Rositano, Jr
  

Title: Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

40