NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(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 has 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 Companys most recent
or second app/brand, scheduled for release in 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 artists
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.
On August 27, 2019, a 1 for 18,000 reverse
stock split of our common stock became effective. All share and per share information in the accompanying unaudited consolidated
financial statements and footnotes has been retroactively adjusted for the effects of the reverse split for all periods presented.
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 March 31, 2020, the Company
has a working capital deficiency of $8,989,333, an accumulated deficit of $33,991,499 and has a stockholders deficit of
$33,991,499 and its operations continue to be funded primarily from sales of its stock and issuance of convertible debentures.
During the three months ended March 31, 2020 the Company had a net loss and net cash used in operations of $1,547,616 and $13,177. These
factors raise substantial doubt about the Companys 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 Companys
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 raise financing through
the issuance of convertible notes and equity sales. 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.
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 as of March 31, 2020 and 2019. All material intercompany
accounts and transactions have been eliminated in consolidation. The Companys 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, 2019 of the Company which were included in the Companys annual report on Form
10-K as filed with the Securities and Exchange Commission on June 30, 2020
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain balances in 2019 have been reclassified
to conform with the 2020 presentation. Specifically, accrued interest on convertible notes has been reclassified into Accounts
payable and accrued expenses and accretion and interest expense has been reclassified to other expenses.
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 Companys 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 months ended March 31, 2020, the Company derived revenues primarily from
the development of apps for a third party, and such revenues were recognized upon completion of services.
Advertising Costs
The Companys policy regarding advertising
is to expense advertising when incurred. During the three months ended March 31, 2020, the Company incurred $0 (March 31, 2019:
$4,426) in advertising costs.
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. 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 Entitys 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 as part of gain or loss on debt extinguishment.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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
During 2018 the Company recorded stock-based
compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based
Payments to Non-Employees, which requires the measurement and recognition of compensation expense based on estimated fair values
for all share-based awards made to employees and directors, including stock options. In 2019 the Company adopted ASU 2018-07 which
expands the measurement requirements to non employees.
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 Companys stock price as well as assumptions
regarding a number of subjective variables. These subjective variables include, but are not limited to the Companys 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.
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 March 31, 2020 and December 31, 2019, 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 Companys 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 Companys 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
We have substantial client concentration,
with one client accounting for a substantial portion of our revenues.
In the three months ended March 31, 2020
we derived 99.6% (2019: 0%) of our revenue from one client. There are inherent risks whenever a large percentage of total revenues
are concentrated with a limited number of clients. 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 the products and services of other similar clients. A loss of this
client or the failure to retain similar clients could 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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of March 31, 2020, there were approximately
510,586,539 potentially dilutive shares outstanding. Potential dilutive shares:
|
60,908
|
|
|
Warrants outstanding
|
|
4,649,702
|
|
|
Common shares issuable upon conversion of convertible debt
|
|
451,117,962
|
|
|
Total shares issuable upon conversion of Preferred Series A shares
|
|
1,136,000
|
|
|
Total shares issuable upon conversion of Preferred Series B shares
|
|
2,975,352
|
|
|
Total shares issuable upon conversion of Preferred Series C shares
|
|
459,939,924
|
|
|
|
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 February 2016, the FASB issued ASU No.
2016-02, Leases (ASC Topic 842) (ASU 2016-02), which requires lessees to recognize at the commencement date for all
leases, with the exception of short-term leases, (i) a lease liability, which is a lessees obligation to make lease payments
arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessees
right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 will take effect for public companies for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The ASU requires adoption using
a modified retrospective transition approach with either (a) periods prior to the adoption date being recast or (b) a cumulative-effect
adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. As at March
31, 2020 the Company has no lease obligations.
3. RELATED PARTY TRANSACTIONS AND BALANCES
During the three months ended March 31,
2020, the Company incurred $114,800 (2019: $114,800) in salaries and payroll taxes to officers and directors with such costs being
recorded as general and administrative expenses.
During the three months ended March 31,
2020, the Company incurred $9,000, $150,000, and $15,000 (2019: $15,000, $30,588, and $15,000) in app hosting, app development
and rent to a company with two officers and directors in common with such costs being recorded as app hosting, product development
and general and administrative expenses.
As of March 31, 2020, the Company had a
stock subscription receivable totaling $4,500 (December 31, 2019: $4,500) from an officer and director and from a company with
an officer and director in common.
As of March 31, 2020, accounts payable
includes $51,412 (December 31, 2019: receivable of $30,083) due to a company with two officers and directors in common, and $885,916
(December 31, 2019: $783,416) payable in salaries to directors and officers of the Company. 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 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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
4. CONVERTIBLE DEBENTURES (CONTINUED)
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 companys
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.
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 Companys 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
issue an additional 36,193,098 shares of common stock and on July 2, 2020 it became obligated to issue an additional 63,275,243
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 as an extinguishment
of debt for consideration equal to the $2,384,646 fair value of the 5,902,589 common shares issuable, based on the $0.404 quoted
trading price of the Companys 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.
The Company adjusts 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,
|
|
|
December
|
|
|
March
|
|
|
|
2019
|
|
|
31, 2019
|
|
|
31, 2020
|
|
Volatility
|
|
|
617
|
%
|
|
|
738.1
|
%
|
|
|
277.3
|
%
|
Risk Free Rate
|
|
|
1.59
|
%
|
|
|
1.6
|
%
|
|
|
.15
|
%
|
Expected Term
|
|
|
0.66
|
|
|
|
0.5
|
|
|
|
0.25
|
|
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
4. CONVERTIBLE DEBENTURES (CONTINUED)
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 Companys 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 Companys 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. As of March 31, 2020,
the fair value of the Companys potential obligation to issue common stock was $5,554,000.
The following is a summary of activity related to the derivative
liability for the three months ended March 31, 2020:
Balance, December 31, 2019
|
|
$
|
12,778,000
|
|
Record obligation to issue additional shares
|
|
|
(7,521,000
|
)
|
Change in fair value
|
|
|
297,000
|
|
Balance, March 31, 2020
|
|
$
|
5,554,000
|
|
5. PROMISSORY NOTE AND CONVERTIBLE PROMISSORY
NOTE
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 Companys 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 Inc., 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, 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:
The Company incurred $51,980 in interest
related to the note.
J.P. Carey converted $1,002 of principal
into 120,000 shares of the Companys common stock at a price of $0.0084.
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 Companys
common stock at a price of $0.05. Anvil converted $6,000 of principal into 120,000 shares of the Companys 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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
5. PROMISSORY NOTE AND CONVERTIBLE PROMISSORY
NOTE (CONTINUED)
During the three months ended March 31,
2020:
The Company incurred $7,308 in interest
related to the note through March 31, 2020.
J.P. Carey converted $15,950 of principal
into 290,000 shares of the Companys common stock at a price of $0.055.
World Market Ventures converted the remaining
balance of $4,000 of principal into 72,595 shares of the Companys common stock at a price of $0.0551.
At March 31, 2020, the J.P. Carey note
principal balance was $49,979 and accrued interest was $59,289.
6. COMMITMENTS AND CONTINGENCIES
The following table summarizes the Companys significant
contractual obligations as of March 31, 2020:
|
|
$
|
|
Employment Agreements (1)
|
|
|
400,000
|
|
Lawsuit Contingency (2)
|
|
|
1,005,000
|
|
|
(1)
|
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 companys Fan Pass mobile app or website, and the Company achieving various
levels if subscribers, the officers will receive additional bonuses and salary increases.
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 Companys answers. The court did not strike the answers but 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 Companys 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 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 in exchange for 275 of the Companys preferred shares held by Integrity and
the cash payment of $30,000 for costs. Robert Rositano, the Companys CEO, has also personally guaranteed the Companys
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. As of the date of filing of this report the cash amount has not been paid and the preferred shares have not been returned.
Additionally, Integrity will be entitled to additional shares if (i) the price of the Companys common stock is below $1.34
at either the 120 day or 240 day reset dates set forth in the Companys Debt Restructure Agreement as amended entered into
with various debt holders on March 26, 2019 effective November 5, 2019. The Company has 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 shares
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 issuance
of additional common shares on the issuance date should the share price of the Companys common stock on the issuance date
be below $1. The true-up shares will adjust the value of the aggregate shares issued to be $750,000 on the date of issuance. As
of March 31, 2020, no shares have been issued nor cash paid as the shares due are reflected as the $1,005,000 liability until the
final July 2, 2020 reset date. As of March 31, 2020, the Company has a provision for settlement of lawsuit balance of $1,035,000
with $1,005,000 ($750,000 plus a premium of $255,000) recorded as a liability payable in common stock in accordance with ASC 480
and $30,000 as an accrued liability.
COVID-19 Disclosure
The coronavirus pandemic could adversely
impact our operations, supply chains and distribution systems and demand for our products and services. The coronavirus pandemic
could adversely impact our ability to raise capital.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
7. COMMON AND PREFERRED STOCK
Common Stock:
During the year ended December 31, 2019,
the Company:
Issued 393,418 shares of common stock to
two convertible note holders for partial conversion of an aggregate of $21,356 of the notes at the contractual conversion rates.
120,000 of the shares remained issuable as of December 31, 2019.
Issued 534,000 shares of common stock to various
subscribers of common stock under security purchase agreements at $0.25 per share for a total of $133,500. Certain of these agreements
contained a provision whereby the founders of the Company were to issue to the subscribers (a) an aggregate of 47,000 shares of
common stock from their personal holdings and (b) another amount of common shares (43,811) by converting their held Series A preferred
shares as measured on the date one year from the closing of the offering. There is no accounting effect for these transfers. In
addition, other agreements contained a provision whereby the Company would set aside 10% of future net revenue from a specific
product and share ratably with the investors. The Company has reviewed ASC 470-10-25, “Sales of Future Revenues or Various
other Measures of Income.” and determined that no debt provision is needed. The investors who received this benefit did not
pay additional consideration compared to those who did not receive it. Therefore the additional feature is a detachable unit with
$0 value. 477,000 shares remained issuable as of December 31, 2019. In March 2020, the Founder converted 3 Series A Preferred Shares
to meet their personal commitment to transfer their common shares to the investors.
Issued 600,000 shares of common stock to
a consultant in exchange for future services valued at $90,000 of which $30,000 remained in prepaid expense at December 31, 2019.
Issued 2,150,000 shares of common stock
to settle a promissory note and accrued interest of $102,500 and recognized a loss on debt extinguishment of $435,000 based on
the $537,500 value based on recent sales.
Issued 1,002,970 and had 2,018,746 issuable
shares of common stock to related parties on conversion of 1,478 shares of Series A preferred stock.
Agreed to issue 5,902,589 shares as a preliminary
settlement of approximately $6.3 million of convertible debt (See note 4)
During the three months ended March
31, 2020, the Company:
Issued 362,595 shares of common stock to
two convertible note holders for partial conversion of an aggregate of $19,950 of the notes at an average price of $0.055.
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 600,000 shares of common stock to
a consultant in exchange for services valued at $90,000.
Recorded the obligation to issue 36,193,098
additional shares of common stock based on the first reset date of March 4, 2020 in accordance with the debt restructuring agreement.
(See note 4)
The two directors converted 3 shares of Series
A Preferred Stock into 54,076 shares of common stock to transfer 43,811 of these shares to investors who were owed shares of common
stock under a “founders match” provision in security purchase agreements. (see above)
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 (i.e. the sale and issuance of the Companys equity securities that results in gross proceeds in
excess of $2,500,000). 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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
7. COMMON AND PREFERRED STOCK (CONTINUED)
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 three months ended March
31, 2020.
During the three months ended March 31,
2020 two directors converted 3 shares of Series A Preferred Stock into 54,076 shares of common stock.
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.
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 Companys 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
Companys 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 $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 Companys
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 Companys
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. Companys 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).
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
7. COMMON AND PREFERRED STOCK (CONTINUED)
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.
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. Due to the mandatory redemption feature, these shares are reflected
as a current liability at March 31, 2020. 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 $13,479 recorded and
charged to interest expense. In addition, the Company recorded a cumulative dividend payable of $3,682 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. Together with the 2019 issuances the total amount is reflected at $241,710 at March 31,
2020.
8. SHARE PURCHASE WARRANTS
Activity in 2020 and 2019 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise
Price
$
|
|
|
Weighted Average
Remaining
Life
|
|
Balance, December 31, 2018
|
|
|
60,908
|
|
|
|
72.00
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
60,908
|
|
|
|
72.00
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
60,908
|
|
|
|
72.00
|
|
|
|
1.3
|
|
9. STOCK-BASED COMPENSATION
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 Companys
stockholder value and financial performance by attracting, retaining and motivating the Companys 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 Companys 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.
The Board of Directors and the stockholders
holding a majority of the voting power approved a 2014 Equity Incentive Plan (the 2014 Plan) on February 28, 2014,
with a to be determined effective date. The date never became effective. The purpose of the 2014 Plan is to assist the Company
and its affiliates in attracting, retaining and providing incentives to employees, directors, consultants and independent contractors
who serve the Company and its affiliates by offering them the opportunity to acquire or increase their proprietary interest in
the Company and to promote the identification of their interests with those of the stockholders of the Company. The 2014 Plan will
also be used to make grants to further reward and incentivize current employees and others.
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 Companys 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 March 31, 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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
10. 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 instruments 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.
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 Companys 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 March 31, 2020 there was a derivative
measured at fair value on a recurring basis (see note 4) presented on the Companys balance sheet, as follows:
Liabilities at Fair Value
March 31, 2020
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative Liability
|
|
|
|
|
|
|
|
|
|
|
5,554,000
|
|
|
|
5,554,000
|
|
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
11. SUBSEQUENT EVENTS
Subsequent to March 31, 2020, the Company
issued 78,000 shares of common stock to a consultant valued at $0.13 based on the quoted trading price per share for services valued
at $10,608.
Subsequent to March 31, 2020, the Company
issued 2,211,495 shares of common stock on conversion of principal of $56,520 on convertible notes at an average contractual price
of $0.0256.
Subsequent to March 31, 2020, the Company
raised $95,000 in financing by issuing new convertible notes. Interest accrues at 12% per annum and the notes are convertible,
subject to rule 144, at a 50% discount to the lowest trading price in the preceding 25 days prior to conversion.
Subsequent to March 31, 2020, the Company
recorded the obligation to issue 63,275,243 additional shares of common stock based on the second reset date of July 2, 2020 in
accordance with the debt restructuring agreement. (See note 4)
Subsequent to March 31, 2020, with respect
to the Settlement Agreement with Integrity Media, the Company has 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 shares 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 shares price of
$0.08 on that date for a total common shares due to Integrity including the initial 750,000 common shares of 12,562,500 shares.
(See note 6)
On May 29, 2020 the Company defaulted on
the outstanding Series C preferred stock previously issued by being late with the Form 10-K filing on the extended date. Under
the default provision of the Series A preferred stock the interest rate increases from 8% to 22% and the stated price increases
from $1.00 to $1.50. The Company has recorded a penalty of $84,500 to increase the liability to its increased redemption value.
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. 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 initially calculated at 118 shares valued at $131,119. 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, will return an aggregate
of 118 Series A Preferred shares to the Company’s treasury.