NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 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 in July, 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, the Company has 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. The Company’s plan, in due
course, is to replace revenue from third party app development
services with revenue from its own Friendable and Fan Pass apps,
which have various revenue streams currently being tested for long
term and/or recurring monthly viability.
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 September 30, 2020, the Company has a working capital deficiency
of $4,015,966, an accumulated deficit of $34,933,670 and has a
stockholder’s deficit of $4,015,966 and its operations
continue to be funded primarily from sales of its stock, the
issuance of convertible debentures and short-term loans. During the
nine months ended September 30, 2020 the Company had a net loss and
net cash used in operations of $2,489,787 and $ 260,931. 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 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 September 30, 2020 and 2019. 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, 2019 of the Company which were included in the Company’s
annual report on Form 10-K as filed with the Securities and
Exchange Commission June 29, 2020.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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
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 nine months ended
September 30, 2020, the Company derived revenues primarily from the
development of apps for a third party of $319,331, and such
revenues were recognized upon completion of services, and
secondarily revenue from the Friendable and Fan Pass apps totaling
$3,340.
Sales and Marketing Costs
The
Company’s policy regarding sales and marketing costs is to
expense such costs when incurred. During the nine months ended
September 30, 2020, the Company incurred $82,335 (September 30,
2019: $52,924) in sales and marketing 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 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 as part of gain or loss
on debt extinguishment.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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
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.
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, 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
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
We have
substantial client concentration, with one client accounting for a
substantial portion of our revenues.
In the
nine months ended September 30, 2020 and 2019 we derived 99% 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
September
30, 2020 and 2019
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
As of
September 30, 2020, there were approximately 1,180,528,592
potentially dilutive shares outstanding, as follows.
Potential dilutive shares
60,908
|
|
Warrants
outstanding
|
14,313,505
|
==
|
Common shares
issuable upon conversion of convertible debt
|
1,149,991,726
|
|
Total shares
issuable upon conversion of Preferred Series A shares
|
1,136,000
|
|
Total shares
issuable upon conversion of Preferred Series B shares
|
15,026,403
|
|
Total shares
issuable upon conversion of Preferred Series C shares
|
1,180,528,592
|
|
|
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
lessee’s 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 lessee’s 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 of September
30, 2020 the Company has no lease obligations.
3. RELATED PARTY TRANSACTIONS AND BALANCES
During
the nine months ended September 30, 2020, the Company incurred
$369,558 (2019: $344.434) in salaries and payroll taxes to
officers, directors, and other related employees with such costs
being recorded as general and administrative expenses.
During
the nine months ended September 30, 2020, the Company incurred
$33,000, $332,834, and $45,000 (2019: $18,068, $156,088, and
$43,883) 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
September 30, 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 September 30, 2020, accounts payable, related party includes
$141,803 (December 31, 2019: due from related party of $30,083) due
to a company with two officers and directors in common, and
$1,081,749 (December 31, 2019: $783,416) payable in salaries to
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 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 at that date. Subsequent to March 26, 2019 Alpha sold all
of its convertible debenture to Ellis International LP
(“Ellis”).
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 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 due 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 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 represented 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 fair 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.
The
Company adjusted this 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:
|
|
|
|
|
|
|
|
Volatility
|
617%
|
738.1%
|
293.6%
|
Risk Free
Rate
|
1.59%
|
1.6%
|
.13%
|
Expected
Term
|
0.66
|
0.5
|
0.01
|
Because
the second (and final) reset date of July 2, 2020 determined that
the total common shares issuable to fully settle this debt amounted
to 105,370,930 a derivative liability no longer exists and the
Company recognized a final gain on settlement on July 2, 2020 of
$257,316.
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
equity.
Subsequent
to September 30, 2020, on November 9, 2020, Coventry Enterprises
requested and was issued 915,000 common shares and on November 23,
2020 Barbara Mittman requested and was issued 1,262,783 against
their respective entitlement under the debt settlement agreement,
which was reclassified from issuable
shares.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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 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 for the nine months ended September 30,
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 September 30,
2020
|
$-
|
5. CONVERTIBLE PROMISSORY NOTES
The
following is a summary of Convertible Promissory Notes at September
30,2020:
|
Issuance:
|
|
|
|
|
Date
|
|
|
|
J.P.
Carey Inc.
|
March
30,2017
|
-
|
$48,228
|
$48,228
|
J.P.
Carey Inc
|
May
20,2020
|
$60,000
|
4,892
|
64,892
|
J.P.
Carey Inc
|
June
11,2020
|
10,000
|
-
|
10,000
|
Green
Coast Capital
|
|
|
|
|
International
|
April
6,2020
|
10,755
|
631
|
11,386
|
Green
Coast Capital
|
|
|
|
|
International
|
April
8,2020
|
35,000
|
2,853
|
37,853
|
Total
|
|
$115,755
|
$56,604
|
$172,359
|
Less:
Discount
|
|
(59,905)
|
|
|
Net
carrying value September 30, 2020
|
$55,850
|
|
|
The
derivative fair value of the above at September 30,2020 is
$209,000.
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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
5. PROMISSORY NOTE AND CONVERTIBLE PROMISSORY NOTE
(CONTINUED)
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.
During
the nine months ended September 30, 2020:
J.P.
Carey converted $30,929 of principal and $18,021 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 nine months ended September
30, 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 September 30, 2020 the assigned note had a principal balance of
$10,755 and an interest balance of $631.
At
September 30, 2020, the J.P. Carey note principal balance was $0
and accrued interest was $48,228.
The
accrued interest has been accounted for as a derivative liability
due to the variable conversion price.
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”) 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 20% pays out two times the initial investment and
continues at 5% for a period of five years.
On
April 8, 2020 the Company issued a 0% note to Green Coast under
this SPA 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.
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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
5. PROMISSORY NOTE AND CONVERTIBLE PROMISSORY NOTE
(CONTINUED)
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 $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.
The
Company defaulted by being late with filing the Form 10-K on May
29, 2020. The Company accrued interest at the default rate of 24%
for the period from May 29, 2020 to September 30, 2020. At
September 30, 2020, the Green Coast note principal balance was
$35,000 and accrued interest was $2,853.
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. At September 30,2020 no accrual for the
net revenue share was material.
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 $4,892 of interest at the default
rate of 24% for the period from May 29, 2020 to September 30,
2020.
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.
At
September 30, 2020, the JP Carey note principal balance was $10,000
and accrued interest was $0.
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,
2020, using Monte Carlo simulations and the following range of
assumptions:
Volatility
|
|
246.09%
– 259.77%
|
|
Risk
Free Rate
|
|
0.10%
|
|
Expected
Term
|
|
0.25
– 0.31
|
|
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
5. PROMISSORY NOTE AND CONVERTIBLE PROMISSORY NOTE
(CONTINUED)
The
following is a summary of activity related to the embedded
conversion options derivative liabilities for the nine months ended
September 30, 2020.
Balance, December
31, 2019
|
$-
|
Initial derivative
liabilities charged to operations
|
419,000
|
Initial derivative
liabilities recorded as debt discount
|
105,000
|
Change in fair
value loss (gain)
|
(315,000)
|
Balance, September
30, 2020
|
$209,000
|
6. SHORT TERM LOANS
During
the 3 months ended September 30, 2020 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.
7. COMMITMENTS AND CONTINGENCIES
The
following table summarizes the Company’s significant
contractual obligations as of September 30, 2020:
Employment
Agreements (1)
|
$300,000
|
Lawsuit
Contingency (2)
|
$988,375
|
|
(i)
|
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”) 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. 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 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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 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.
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, 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 six months ended June 30, 2020, the
Company:
Issued
2,574,040 shares of common stock to two convertible note holders
for partial conversion of an aggregate of $76,470 of the notes and
accrued interest at an average price of $0.03.
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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
8. COMMON AND PREFERRED STOCK (CONTINUED)
Granted
884,667 shares of common stock to consultants in exchange for
services valued at $117,608 based on the quoted trading price of
the Company’s common stock on the grant dates.
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).
Sold
1,750,000 shares of common stock in exchange for
$35,000.
During the three months ended September 30, 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).
Recorded
the obligation to issue 500,000 common shares under a third party
SPA at the sale price of $0.05 per share in exchange for cash of
$25,000.
Issued
a total of 4,983,333 common shares for services from music artists
and mangers at a value of $425,058 at date of agreements, based on
the quoted trading prices on those dates, to secure live
performances for the July 24, 2020 Fan Pass app
launch.
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.
Granted
a total of 75,000 common shares for services valued at $3,384 at
date of the agreement.
Issued
a total of 3,822,958 common shares on conversion of 62,500
Preferred Series C shares having a redemption value of $96,750
including accrued dividend, plus a premium of $38,293.
Issued
a total of 1,309,165 common shares against commitments for
previously issuable common shares.
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 Company’s 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.
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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
8. COMMON AND PREFERRED STOCK (CONTINUED)
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 amortized $29,450 as sales and marketing
expense as of September 30, 2020. 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.
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
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 $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).
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
8. 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.
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. Due to the
mandatory redemption feature, these shares were reflected as a
current liability at June 30, 2020 and September
30,2020.
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. Together with the 2019 issuances and adjustments,
the total amount was reflected at $407,590 at June 30,
2020.
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. At
September 30,2020 the remaining liability totals $285,329,
represented by a remaining balance of $187,200 in redeemable Series
C stock, together with the related premium of $76,463 and accrued
dividends of $21,667.
9. SHARE PURCHASE WARRANTS
Activity
in 2020 and 2019 is as follows:
|
|
Weighted Average
Exercise Price
$
|
Weighted Average
Remaining Life
(Years)
|
Balance, December
31, 2018
|
60,908
|
72.00
|
|
Balance, December
31, 2019
|
60,908
|
72.00
|
|
Balance, September
30, 2020
|
60,908
|
72.00
|
1.0
|
10. 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 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.
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.
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
10. STOCK-BASED COMPENSATION (CONTINUED)
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.
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.
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, 2020 there was a derivative measured at fair value on
a recurring basis (see note 4) presented on
the Company’s balance sheet, as follows:
Liabilities
at Fair Value
|
September
30, 2020
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion
of options derivative liabilities
|
-
|
-
|
$209,000
|
$209,000
|
|
|
|
|
|
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2020 and 2019
(Unaudited)
12. SUBSEQUENT EVENTS
Between
October 23 and November 13, 2020 the Company issued a total of
4,412,118 shares of common stock to the holder of the Preferred C
stock on conversion of 25,900 shares of Preferred C stock at a
price per common share of between $0.0083 and $0.0095. The
conversion price was determined based on the default stated value
of $1.50 plus accrued dividends and a discount to market price of
29%.
The
Company recorded the obligation to issue 915,000 common shares to
Coventry Enterprises and 1,262,783 common shares to Barbara Mittman
in November, 2020 as requested drawdowns against the
Company’s debt restructuring agreement (see Note
4).
On
October 9, 2020 the Company recorded the obligation to issue
300,000 common shares to music artist Remy Boy Monty in
consideration for the artist’s agreement to post his
exclusive music content on the Company’s Fan Pass platform on
a revenue share basis. The shares will be valued at the quoted
trade price on the October 9, 2020 grant date.
On
November 19, 2020 the Company issued 175,000 common shares to Green
Coast Capital International at $0.02 per share in settlement of its
$35,000 convertible note maturing October 8,
2020.