NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
1.
NATURE OF BUSINESS AND GOING CONCERN
Nature
of Business
Friendable,
Inc., a Nevada corporation (the Company), was incorporated in the State of Nevada.
Friendable,
Inc. is a mobile-focused technology and marketing company, connecting and engaging users through two distinctly branded applications.
The Company initially released its flagship product Friendable, as a social application where users can create one-on-one or group-style
meetups. In 2019 the Company moved the Friendable app closer to a traditional dating application with its focus on building revenue,
as well as reintroducing the brand as a non-threatening, all-inclusive place where Everything starts with Friendship…meet,
chat & date.
On
June 28, 2017, the Company formed a wholly owned Nevada subsidiary called Fan Pass, Inc.
Fan
Pass is the Companys 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 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.
Presently,
until our apps gain greater adoption from paying subscribers through increased awareness, coupled with additional compelling and
exclusive digital content to produce higher revenue levels, though December 31, 2020 the Company had largely supported its operations
through the sale of its software services, and specifically its app development services, under a contractual relationship since
inception with a third party. This services contract ended in 2020 and has not yet been replaced with any other similar software
services with another customer. Presently, the Companys only revenue is from its own Friendable and Fan Pass apps, which
have various revenue streams currently being tested for long term and/or recurring monthly viability. The Company is actively
developing an enhanced version of its Fan Pass application for release in the second half of 2021.
On
August 8, 2019 the Company filed a Designation of Series B convertible Preferred Stock with the state of Nevada, designating 1,000,000
shares of the Series B Preferred Stock with a stated value of $1.00 per share. A holder of Series
B Preferred Stock has the right to convert their Series B Preferred Stock into fully paid and non-assessable shares of Common
Stock. Initially, the conversion price for the Series B Preferred Stock is $0.25 per share, subject to standard anti-dilution
adjustments. Additionally, each share of Series B Preferred Stock shall be entitled to, as a dividend, a pro rata portion of an
amount equal to 10% (Ten Percent) of the Net Revenues (Net Revenues being Gross Sales minus Cost
of Goods Sold as defined in the agreements) derived from the subscriptions and other sales, but excluding and net of Vimeo
fees, processing fees and up sells, generated by Fan Pass Inc., the wholly-owned subsidiary of the Corporation. The Series B Dividend
shall be calculated and paid on a monthly basis in arrears starting on the day 30 days following the first day of the month following
the initial issuance of the Series B Preferred and continuing for a period of 60 (Sixty) months. The holders of Series B Preferred
stock shall have no voting rights. The holders of Series B Preferred stock shall not be entitled to receive any dividends. In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the
holders of shares of Series B Preferred Stock shall be entitled to be paid the liquidation amount, as defined out of the assets
of the Company available for distribution to its shareholders, after distributions to holders of the Series A Preferred Stock
and before distributions to holders of Common Stock.
On
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 consolidated financial statements and footnotes has been retroactively adjusted for the effects of the reverse
split for all periods presented.
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
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
1.
NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)
(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 the event that a default event occurs where the Company fails
to issue shares upon conversion, the stated price will be $2.00. The holder shall have the right six months following the issuance
date, to convert all or any part of the outstanding Series C Preferred Stock into shares of common stock of the Company. The conversion
price shall equal the Variable Conversion Price.
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).
In
conjunction with the Companys intention to raise future financing of up to $5 million through an offering of up to 500,000
Series D convertible Preferred Stock at the offering price of $10.00 per share, on March 29, 2021 the Company received a Notice
of Qualification from the Securities and Exchange Commission indicating approval from the Company to proceed with the offering
pursuant to Tier 2 of Regulation A of the Securities Act, which provides exemption from registration of such securities. Each
Series D preferred share is convertible, at the option of the holder, at any time, into nonassessable common shares at 80% of
the average closing price reported on OTCMarkets for the 20 trading days preceding conversion. On April 5, 2021 the Company filed
the necessary Certificate of Designation with the state of Nevada to designate 500,000 shares of Series D Preferred stock from
the Companys total authorized and unissued Preferred Stock.
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, 2021, the Company has a working capital deficiency of $7,216,163, an accumulated deficit of $39,054,202 and has
a stockholders deficit of $7,216,163 and its operations continue to be funded primarily from sales of its stock, the issuance
of convertible debentures and short-term loans. During the three months ended March 31, 2021 the Company had a net loss and net
cash used in operations of $2,484,956 and $ 486,299, respectively. 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. All material intercompany accounts and transactions have been eliminated in consolidation. The Companys
fiscal year end is December 31.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America (the U.S. GAAP) for interim financial information. Operating results
for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. These unaudited
consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the
consolidated financial statements for the year ended December 31, 2020 of the Company which were included in the Companys
annual report on Form 10-K as filed with the Securities and Exchange Commission April 28, 2021.
Use
of Estimates
The
preparation of these statements in accordance with United States generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions
related to valuation of convertible debenture conversion options, derivative instruments, deferred income tax asset valuations,
financial instrument valuations, share-based payments, other equity-based payments, and loss contingencies. The Company bases
its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the 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,
2021 the Company derived its only revenue of $1,305 from subscription fees and merchandising sales from its Friendable and Fan
Pass apps, which revenues were recognized when received. During the three months ended March 31, 2020 the Company derived revenue
primarily from the development of apps for a third party of $117,972, which was recognized upon completion of services, and secondarily
from subscription fees from the Friendable Pass app totaling $416, which was recognized when received.
Subsequent
to the launch of the Fan Pass app in July, 2020 and pursuant to various agreements between Fan Pass, Inc. and music artists, managers,
talent agencies, partners and/or record labels and certain round one investors and convertible noteholders (collectively, Revenue
Share Participants) such individuals and/or entities are eligible to receive a share of net proceeds derived by the Company
from subscription receipts from the Fan Pass app and from merchandise sales. The Company has established an Artist Pool
equal to 40% of net Fan Pass Fan Subscriptions received, in which the pool is paid out to individual
artists based on fan activity or Content Views within an artists channel on the Fan Pass app. Additionally,
a standard 50% of net merchandise sales (created by Fan Pass for each artist) received or sold by each artist is shared with each
artist. In some instances, the Company may adjust the sharing percentage for special situation artists or Mega Stars
who may command a different merchandise split. Certain investors, along with Series B Preferred stockholders, are entitled to
proportionately participate in an Investor Pool equal to approximately 4% of net subscription and net merchandising
sales receipts. In addition, as compensation for bringing music artists to perform for the initial Fan Pass app launch, Eclectic
Artists is eligible receive 5% of Fan Pass net revenue, and the holder of a convertible note is entitled to receive a prorated
share of 20% of Fan Pass net revenue up to $70,000 and, thereafter, a prorated share of 5% of Fan Pass net revenue for 5 years.
Net revenue is defined as gross receipts, minus source commissions and other cost of goods sold as defined in the agreements,
including deduction for the cost of merchandise, hosting, streaming and other platform and processing fees. During the three months
ended March 31, 2021 the Company incurred a revenue sharing expense of
$861, and had a cumulative revenue share liability of $1,507 at March 31, 2021, which is included
in accounts payable and accrued expenses.
Sales
and Marketing Costs
The
Companys policy regarding sales and marketing costs is to expense such costs when incurred. During the three months ended
March 31, 2021, the Company incurred $55,633 (March 31, 2020: $0) in sales and marketing costs, primarily for social media promotion
programs and $22,273 amortization of deferred expense (see Eclectic Artists Series A Preferred stock).
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 partly as part of gain or loss on debt extinguishment and partly included in the gain or loss on change in fair value
of derivatives.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The guidance was adopted as of January 1, 2019 and the adoption did not have any impact on its consolidated financial statement
and there was no cumulative effect adjustment.
Stock-based
Compensation
The Company records stock-based compensation in accordance
with ASC 718, Compensation – Stock Based Compensation.
ASC
718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The
Company uses the Black-Scholes option pricing model as its method in determining fair value. This model is affected by the 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.
During
January, 2021 the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2 years
and 10 million common shares vesting quarterly over 3 years, both sets of option are exercisable at a price of $0.014 per share. In
addition, during January, 2021 stock options on a further 1.5 million common shares, vesting quarterly over 3 years, were issued to
a prospective employee, at the exercise price of $0.015 per share. Applying the Black-Scholes valuation method, the total cost of
these options is $194,700 and $24,750 respectively, which is being amortized to general and administrative expense over their
lifetime. Of this total, the Company incurred a stock option expense of $20,988 for the three months ended March 31, 2021 (2020:
$0).
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2021 and December
31, 2020, the Company did not have any allowance for doubtful accounts.
Financial
Instruments
Financial
assets and financial liabilities are recognized in the balance sheet when the Company has become party to the contractual provisions
of the instruments.
The
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
In
each of the two years in the period ended December 31, 2020 we derived approximately 99% of our revenue from one client by providing
certain project based software development services. That project was completed by the end of 2020. Since January 1, 2021 the
Companys sole source of revenue has been minimal receipts from subscribers to the Friendable and Fan Pass apps and from
Fan Pass related merchandising sales. There are inherent risks whenever a large percentage of total revenues are concentrated
with one primary client. It is not possible for us to predict the future level of demand for our services that will be generated
by this client or the future demand for technology and software products and services from other similar clients. Until revenues
generated from the Friendable and Fan Pass apps increase significantly the loss of this primary client, or the failure to retain
similar clients, will negatively affect our revenues and results of operations and/or trading price of our common stock.
Basic
and Diluted Loss Per Share
The
Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic
and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income
(loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury
stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
As
of March 31, 2021, there were approximately 2,004,862,631 potentially dilutive shares outstanding, as follows.
Potential
dilutive shares
|
|
|
|
|
|
|
|
|
|
81,802,908
|
|
|
Warrants and Stock Options outstanding
|
|
120,899,936
|
|
|
Common shares issuable upon conversion of convertible debt
|
|
1,761,715,791
|
|
|
Total shares issuable upon conversion of Preferred Series A shares
|
|
1,136,000
|
|
|
Total shares issuable upon conversion of Preferred Series B shares
|
|
39,607,996
|
|
|
Total shares issuable upon conversion of Preferred Series C shares
|
|
2,004,862,631
|
|
|
|
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 of March 31, 2021 the Company has no lease obligations.
3.
RELATED PARTY TRANSACTIONS AND BALANCES
During
the three months ended March 31, 2021, the Company incurred $110,489 (March 31, 2020: $114,800) in salaries and payroll taxes
to officers, directors, and other related family employees with such costs being recorded as general and administrative expenses.
During
the three months ended March 31, 2021, the Company incurred $7,500, $97,500, and $15,000 (March 31, 2020: $9,000, $150,000, and
$15,000) in app hosting, software development and support and office rent to a company with two officers and directors in common
with such costs being recorded as app hosting, software development and support and general and administrative expenses.
As
of December 31, 2020, the Company had a stock subscription receivable totaling $4,500 from an officer and director and from a
company with an officer and director in common. This receivable was settled during the 3 months ended March 31, 2021 against the
amount payable in accrued salaries to current directors and officers of the Company (see below).
As
of March 31, 2021 accounts payable, related party includes $75,321 (December 31, 2020: $190,320) due to a company with two officers
and directors in common, and $988,908 (December 31, 2020: $918,408) payable in salaries to current directors and officers of the
Company, which is included in accounts payable and accrued expenses. The amounts are unsecured, non-interest bearing and are due
on demand.
4.
CONVERTIBLE DEBENTURES
On
March 26, 2019 the Company entered into a Debt Restructuring Agreement (the Agreement) with Robert A. Rositano Jr.
(Robert Rositano), Dean Rositano (Dean Rositano), Frank Garcia (Garcia), Checkmate Mobile,
Inc. (Checkmate), Alpha 019 Capital Anstalt (Alpha), Coventry Enterprises, LLC (Coventry),
Palladium Capital Advisors, LLC (Palladium), EMA Financial, LLC (EMA), Michael Finkelstein (Finkelstein),
and Barbara R. Mittman (Mittman), each being a debt holder of the Company. Subsequent to March 26, 2019 Alpha sold
all of its convertible debentures to Ellis International LP (Ellis).
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(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. Accordingly, the 5,902,589 common shares were recorded as issuable in equity. On December 26, 2019, all
parties signed an amendment to the Agreement which set forth, among other things, the following:
Company
Principals have given Holders notice that it has satisfied all conditions of closing.
The
Agreement is considered Closed as of November 5, 2019 (Settlement Date) and any conditions of closing not satisfied
are waived.
Reset
Dates. The Reset Dates as set forth in Section 1(h) of the Agreement shall be as follows: March 4, 2020 and July
2, 2020. As of the reset dates the holders can convert all or part of the settled note amounts at the lower of (i) 75% of the
closing bid price for the Common Stock on such respective Reset Date, or (ii) the VWAP for the 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 to issue an additional 36,193,098 shares of common stock and on July 2,2020 it became
obligated to issue an additional 63,275,242 shares, for a total amount of shares due of 105,370,930.
The
Company determined that the reset provision represents a standalone derivative liability. Accordingly, this debt restructure transaction
was accounted for in 2019 as an extinguishment of debt for consideration equal to the $2,384,646 value of the 5,902,589 common
shares issuable, based on the $0.404 quoted trading price of the 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.
Through the final reset date discussed
below the Company adjusted its derivative liability to fair value at each reporting and settlement date, with changes in fair value reported
in the statement of operations. The Company estimated the fair value of the obligations to issue common stock pursuant to the Debt Restructuring
Agreement, as amended, using Monte Carlo simulations and the following assumptions:
|
November 5, 2019
|
December 31, 2019
|
June 30, 2020
|
Volatility
|
617%
|
738.1%
|
293.6%
|
Risk Free Rate
|
1.59%
|
1.6%
|
.13%
|
Expected Term
|
0.66
|
0.5
|
0.01
|
On
the second (and final) reset date of July 2, 2020 the Company determined that the total common shares issuable to fully settle
this debt amounted to 105,370,930 and a derivative liability no longer exists. The Company recognized a final loss on settlement
of $640,821 which represents the difference between the fair value of the 105,370,936 common shares due and the fair value of
the derivatives settled.
On
September 21, 2020, Ellis International LP (as successor to Alpha Capital Anstalt) submitted a request to drawdown and, on September
29, 2020, was issued 687,355 common shares against its entitlement above and reclassified from issuable shares in the accompanying
balance sheet and statement of changes in stockholder equity.
On
November 9, 2020 and on December 9, 2020 Coventry Enterprises requested and was issued 915,000 and 1,262,000 common shares respectively,
and on November 23, 2020 Barbara Mittman requested and was issued 1,134,353 (net) common shares against their respective entitlement
under the debt settlement agreement, which was reclassified from issuable shares.
During
the three months ended March 31, 2021 Ellis International LP requested and was issued a total of 28,211,310 common shares, Coventry
Enterprises requested and was issued a total of 9,375,000 common shares, and Barbara Mittman requested and was issued a 3,180,000
common shares, all against their respective entitlements under the debt settlement agreement, which were reclassified from issuable
shares.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(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.
The
following is a summary of activity related to the reset provision derivative liability through the final reset date of July 2, 2020:
Balance, Derivative Liability at December 31, 2019
|
|
$
|
12,778,000
|
|
Record obligation to issue additional shares
|
|
|
(13,474,821
|
)
|
Loss on settlement of derivative
|
|
|
640,821
|
|
Loss on change in fair value of derivative
|
|
|
56,000
|
|
Balance, Reset provision derivative liability at December 31,2020 and March 31, 2021
|
|
$
|
-
|
|
5.
CONVERTIBLE PROMISSORY NOTES
The
following is a summary of Convertible Promissory Notes at March 31, 2021:
|
|
Issuance
|
|
Principal
|
|
|
Accrued
|
|
|
Principal and
|
|
|
|
Date
|
|
Outstanding
|
|
|
Interest
|
|
|
Accrued interest
|
|
J.P.Carey Inc.
|
|
May 20, 2020
|
|
$
|
60,000
|
|
|
$
|
12,547
|
|
|
$
|
72,547
|
|
J.P.Carey Inc.
|
|
June 11, 2020
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
J.P.Carey Inc.
|
|
March 3, 2021
|
|
|
150,000
|
|
|
|
1,151
|
|
|
|
151,151
|
|
Green Coast Capital International
|
|
April 6, 2020
|
|
|
10,755
|
|
|
|
1,061
|
|
|
|
11,816
|
|
Ellis International LP
|
|
October 13, 2020
|
|
|
100,000
|
|
|
|
4,656
|
|
|
|
104,656
|
|
Trillium Partners LP
|
|
December 8, 2020
|
|
|
6,500
|
|
|
|
981
|
|
|
|
7,481
|
|
Trillium Partners LP
|
|
January 22, 2021
|
|
|
27,500
|
|
|
|
410
|
|
|
|
27,910
|
|
Trillium Partners LP
|
|
March 3, 2021
|
|
|
150,000
|
|
|
|
1,151
|
|
|
|
151,151
|
|
Anvil Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management LLC
|
|
January 1, 2021
|
|
|
9,200
|
|
|
|
181
|
|
|
|
9,381
|
|
FirstFire Global
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opportunities Fund LLC
|
|
March 9, 2021
|
|
|
110,000
|
|
|
|
663
|
|
|
|
110,663
|
|
Total
|
|
|
|
|
633,955
|
|
|
$
|
22,801
|
|
|
$
|
656,756
|
|
Less: J.P.Carey Inc excess debt conversions to be allocated against other outstanding notes
|
|
|
(80,129
|
)
|
|
|
|
|
|
|
|
|
Less: Discounts
|
|
|
(438,806
|
)
|
|
|
|
|
|
|
|
|
Net carrying value March 31, 2021
|
|
$
|
115,020
|
|
|
|
|
|
|
|
|
|
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
The
following is a summary of Convertible Promissory Notes at December 31, 2020:
|
|
Issuance:
|
|
Principal
|
|
|
Accrued
|
|
|
Principal and
|
|
|
|
Date
|
|
Outstanding
|
|
|
Interest
|
|
|
Accrued Interest
|
|
J.P. Carey Inc.
|
|
March 30, 2017
|
|
|
-
|
|
|
$
|
20,029
|
|
|
$
|
20,029
|
|
J.P. Carey Inc
|
|
May 20, 2020
|
|
$
|
60,000
|
|
|
|
8,996
|
|
|
|
68,996
|
|
J.P. Carey Inc
|
|
June 11, 2020
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
Green Coast Capital International
|
|
April 6, 2020
|
|
|
10,755
|
|
|
|
848
|
|
|
|
11,603
|
|
Ellis International LP
|
|
October 13, 2020
|
|
|
100,000
|
|
|
|
2,190
|
|
|
|
102,190
|
|
Trillium Partners LP
|
|
December 3, 2020
|
|
|
21,436
|
|
|
|
258
|
|
|
|
21,694
|
|
Trillium Partners LP
|
|
December 8, 2020
|
|
|
27,500
|
|
|
|
145
|
|
|
|
27,645
|
|
Total
|
|
|
|
$
|
229,691
|
|
|
$
|
32,466
|
|
|
$
|
262,157
|
|
Less: Discount
|
|
|
|
|
(85,734
|
)
|
|
|
|
|
|
|
|
|
Net carrying value December 31, 2020
|
|
$
|
143,957
|
|
|
|
|
|
|
|
|
|
The
derivative fair value of the above at March 31, 2021 and at December 31, 2020 is $3,053,000 and $1,320,000,
respectively.
Further
information concerning the above Notes is as follows:
JP
Carey Convertible Note dated March 30, 2017 and assignments.
On
April 7, 2017, the Company entered into a Settlement Agreement with Joseph Canouse (the Agreement). The Company
and Mr. Canouse had been in a dispute regarding what amount, if any, was owed pursuant to a consulting agreement between the parties
signed in April 2014. In December 2016, Mr. Canouse obtained a judgment in state court in Georgia and the right to garnish the
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 LLC an entity controlled by Mr. Canouse.
Although the Note is dated March 30, 2017, it was issued on April 7, 2017. The note maturity date was September 30, 2017. In return
for the issuance of the Note, Mr. Canouse filed a Consent Motion to Withdraw Judgment, dismiss all garnishments, and cease all
collection activities.
The
Note is convertible into common stock, subject to Rule 144, at any time after the issue date at the lower of (i) the closing sale
price of the common stock on the trading day immediately preceding the closing date, which was $20.00 per share, and (ii) 50%
of the lowest sale price for the common stock during the twenty-five (25) consecutive trading days immediately preceding the conversion
date or the closing bid price, whichever is lower. Mr. Canouse does not have the right to convert the Note, to the extent that
he would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute
default including failure to pay principal and interest by the maturity date of September 30, 2017 and failure to comply with
the exchange act. In the event of default, the amount of principal and interest not paid when due bear default interest at the
rate of 24% per annum and the Note becomes immediately due and payable. The Company defaulted by not paying the principal and
interest on September 30, 2017 and has been recording interest at the 24% default rate. The Company also defaulted by being late
with filing the Form 10-K on May 29, 2020.
During
the year ended December 31, 2019, J.P. Carey converted $1,002 of principal into 120,000 shares of the Companys 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 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, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
During
the year ended December 31, 2020:
J.P.
Carey converted $30,930 of principal and $18,020 of interest into 1,642,162 shares of the Companys 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 Companys common stock
at a price of $0.0551.
On
April 6, 2020 JP Carey assigned $35,000 of the note to Green Coast Capital International. The assignment carries the same conversion
rights as the original note. During the year ended December 31,2020 Green Coast converted $24,245 of principal into 859,283 shares
of common stock of the Company at an average price of $0.029 and the Company incurred $414 of interest on the assigned note. As
of December 31, 2020 and March 31,2021 the assigned note had a principal balance of $10,755 and an accrued interest balance of
$848 and $1,061, respectively, which has been accounted for as having a derivative liability due to the variable conversion price.
On
December 3, 2020 JP Carey assigned $25,000 of the accrued interest balance to Trillium Partners LP. The assignment carried the
same conversion rights as the original note. On December 23, 2020 Trillium converted $3,564 of principal, $ 214 of interest and
$1,025 conversion fee into 1,372,200 common stock at an average price of $0.0035. As of December 31, 2020 the assigned note had
a principal balance of $21,436 and an accrued interest balance of $258. On January 18, 2021 Trillium converted $8,317 of principal,
$310 of interest and $1,025 conversion fee into 2,413,023 common stock at an average price of $0.004 and on January 27, 2021 Trillium
converted the remaining balance of $13,119 of principal, $95 of interest and $1,025 conversion fee into 2,819,582 common stock
at an average price of $0.00505. As of March 31, 2021 therefore, this assigned note has been fully converted to common shares
by Trillium.
As
of December 31, 2020 the remaining accrued interest on the original JP Carey note was $20,029.
During
the three months ended March 31, 2021 JPCarey claimed a total of six additional conversions to common stock totaling $120,580,
represented $116,080 in accrued interest and $4,500 in conversion fees, and receive a total of 22,115,058 common shares at an
average price of $0.0545 to fully convert the remaining balance on the note. Adjusting for additional interest expense, the Company
believes that a cumulative amount of $80,129 has been received by JPCarey in excess of the remaining balance due. The Company
is presently in negotiation with JPCarey to apply this excess to additionally retire the two outstanding JP Carey notes of $ 60,000
and $10,000, together with all accrued interest thereon, described on page 14.
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 pro rata 20% pays out two times the initial investment and continues at 5% for a period of five years.
On
April 8, 2020, pursuant to the Securities Purchase Agreement, the Company issued a 0% note to Green Coast with a maturity date
of October 8, 2020 and received $35,000 in cash. The Note is convertible into common stock, subject to Rule 144, at any time after
the issue date at $0.02 per share. On the date of issuance, the Company recorded a derivative liability of $228,000, resulting
in derivative expense of #193,000 and a discount against the note of $35,000 to be amortized into interest expense through the
maturity date of October 8, 2020.
Green
Coast exercised its conversion right on November 17, 2020 and received 175,000 common shares in full settlement of the outstanding
principal.
JP
Carey Securities Purchase Agreement and Convertible Note dated May 20, 2020
On
May 20, 2020, the Company entered into a Securities Purchase Agreement (the SPA) whereby the Company agreed to sell
to the holder convertible notes in amounts up to $60,000. The note holder shall be entitled to a pro rata share of 20% of the
net revenues (excluding Brightcove) derived from subscriptions and other sales of Fan Pass, Inc., a wholly owned subsidiary of
the Company. The 20% pays out two times the initial investment and continues at 5% for a period of five years.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
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 $12,547 of interest at the default
rate of 24% for the period from May 29, 2020 to March 31, 2021.
JP
Carey Convertible Note dated June 11, 2020.
On
June 11, 2020, the issued a 0% note to JP Carey with a maturity date of January 15, 2021 and received $10,000 in cash. The Note
is convertible into common stock, subject to Rule 144, at any time after the issue date at $0.01 per share. The holder does not
have the right to convert the note, to the extent that the holder would beneficially own in excess of 9.9% of our outstanding
common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity
date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when
due bear default interest at the rate of 24% per annum and the note becomes immediately due and payable. Under certain default
events the Company may incur a penalty of 20% to 50% of the note principal. Further, if the Company fails to comply with the exchange
act the conversion price is the lowest price quoted on the trade exchange during the delinquency period.
Upon
certain default events the conversion price may change. Therefore, the embedded conversion option is bifurcated and treated as
a derivative liability. On the date of issuance, the Company recorded a derivative liability of $63,000, resulting in derivative
expense of $53,000 and a discount against the note of $10,000 to be amortized into interest expense through the maturity date.
Ellis
International LP Convertible Note dated October 13, 2020.
On
October 13, 2020, the Company issued a 10% convertible note in the principal amount of $100,000 to Ellis International LP with
a maturity date of October 13, 2022 and received cash of $95,000 (net of $5,000 deducted for the noteholders legal fees).
The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall
be 75% of the 3 day VWAP as reported by Bloomberg LP for the 3 trading days preceding conversion. The holder does not have
the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common
stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity
date and failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when
due bear default interest at the rate of 18% per annum and the note becomes immediately due and payable.
At
March 31,2021 and at December 31, 2020 the outstanding balance on the note was $100,000 principal and $4,656 and $2,190 accrued
interest, respectively.
Trillium
Partners LP Convertible Note dated December 8, 2020
On
December 8, 2020, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity
date of December 8, 2021 and received cash of $25,000 (net of $2,500 deducted for the noteholders legal fees). The Note
is convertible into common stock, subject to Rule 144, at any time after the issue date The Conversion Price shall be equal
to the lower of: (i) the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading
price for the common stock during the 30 trading day period prior to conversion. The holder does not have the right to convert
the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines
several events that constitute default
including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event
of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum and the
note becomes immediately due and payable.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
On
February 4, 2021 and March 10, 2021 Trillium exercised its right of conversion on a total of $21,000 principal, $222 accrued interest
and $2,050 conversion fees, and received a total of 3,784,052 of the Companys common shares, at an average of $0.00615
per share.
At
March 31, 2021 the outstanding balance on the note was $6,500 principal and $981 accrued interest.
Anvil
Financial Management, LLC Convertible Note dated January 1, 2021
On
January 1, 2021 Company issued a 8% convertible note in the principal amount of $9,200 to Anvil Financial Management, LLC with
a maturity date of July 1,2021 in payment of introducing financing to the Company. The Note was recorded as a discount to be amortized
over the debt term. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion
Price shall be equal to the lower of: (i) the Fixed Price of $0.10 per share; and (ii) the Variable Conversion Price, being 60%
of the average of the two lowest bid closing trading prices for the common stock during the 10 trading day period prior to conversion. The
holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 9.99% of
our outstanding common stock.
As
additional compensation, Anvil was issued a 5 year warrant to purchase 92,000 of the Companys common stock at a price of
$0.25 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $2,015, but
the relative fair value was recorded as a discount as discussed below.
At
March 31, 2021 the outstanding balance on the note was $9,200 principal and $181 accrued interest.
Trillium
Partners LP Convertible Note dated January 22, 2021
On
January 22, 2021, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity
date of January 22, 2022 and received cash of $25,000 (net of $2,500 expense deducted for the noteholders legal fees).
The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall
be equal to the lower of: (i) the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest
trading price for the common stock during the 30 trading day period prior to conversion. The holder does not have the right
to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock.
The note defines several events that constitute default including failure to pay principal and interest by the maturity date and
failure to comply with the exchange act. In the event of default, the amount of principal and interest not paid when due bear
default interest at the rate of 18% per annum and the note becomes immediately due and payable.
At
March 31, 2021 the outstanding balance on the note was $27,500 principal and $410 accrued interest.
Trillium
Partners LP Secured Convertible Note dated March 3, 2021
On
March 3, 2021, the Company issued a 10% convertible note in the principal amount of $150,000 to Trillium Partners LP with a maturity
date of March 3, 2022 and received cash of $122,500 (net of Original Issue Discount of $15,000 and $12,500 expense deducted for
the noteholders legal fees). The $15,000 was recorded as debt discount to be amortized over the debt term. The Note is
convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal
to the Fixed Price of $0.005 per share. The holder does not have the right to convert the note, to the extent that the holder
would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default
including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event
of default, the Conversion Price becomes the lower of $0.005 per share or 50% of the lowest trading price during the trading day
immediately preceding the Conversion Date. In addition, in the event of default where the amount of principal and interest is
not paid when due shall bear default interest at the rate of 22% per annum until paid.
The
note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue
Discount of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.
The
principal amount and interest is defined under the note agreement as being Senior with priority in right of payment
over all other indebtedness of the Company outstanding as of March 3,2021. In addition, the obligations under the note are secured
by a first lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.
As
further inducement for Trillium to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock
Purchase Warrant to Trillium for 30,000,000 fully paid and nonassessable shares of the Companys common stock at an exercise
price of
$ 0.005 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000,
but the relative fair value was recorded as a debt discount, as discussed below.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
At
March 31, 2021 the outstanding balance on the note was $150,000 principal and $1,151 accrued interest.
JP
Carey Secured Convertible Note dated March 3, 2021
On
March 3, 2021, the Company issued a 10% convertible note in the principal amount of $150,000 to JP Carey Enterprises, Inc. with
a maturity date of March 3, 2022 and received cash of $122,500 (net of Original Issue Discount of $15,000 and $12,500 expense
deducted for the noteholders legal fees). The Note is convertible into common stock, subject to Rule 144, at any time after
the issue date. The Conversion Price shall be equal to the Fixed Price of $0.005 per share. The holder does not have
the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common
stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity
date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes the lower of $0.005 per
share or 50% of the lowest trading price during the trading day immediately preceding the Conversion Date. In addition, in the
event of default where the amount of principal and interest is not paid when due shall bear default interest at the rate of 22%
per annum until paid.
The
note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue
Discount of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.
The
principal amount and interest is defined under the note agreement as being Senior with priority in right of payment
over all other indebtedness of the Company outstanding as of March 3,2021. In addition, the obligations under the note are secured
by a first lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.
As
further inducement for JP Carey to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock Purchase
Warrant to JP Carey for 30,000,000 fully paid and nonassessable shares of the Companys common stock at an exercise price
of $ 0.005 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000,
but the relative fair value was recorded as a debt discount, as discussed below.
At
March 31, 2021 the outstanding balance on the note was $150,000 principal and $1,151 accrued interest.
FirstFire
Global Opportunities Fund LLC note dated March 9, 2021
On
March 9, 2021, the Company issued a 10% convertible note in the principal amount of $110,000 to FirstFire Global Opportunities Fund
LLC with a maturity date of March 9, 2022 and received cash of $88,500 (net of Original Issue Discount of $10,000, a finders
fee of $10,000 to Primary Capital LLC and $1,500 expense deducted for the noteholders legal fees). The Company recorded
$20,000 of the fees as discounts and expensed $1,500. The Note is convertible into common stock, subject to Rule 144, at any time
after 180 days from the issue date. The Conversion Price shall be equal to the Fixed Price of $0.01 per share. The holder
does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our
outstanding common stock. The note defines several events that constitute default including failure to pay principal and interest by
the maturity date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes $0.005 per
share. In addition, in the event of default where the amount of principal and interest is not paid when due shall bear default
interest at the rate of 20% per annum until paid. The note, together with accrued interest, may be prepaid prior to maturity at a
premium of 115%.
As further inducement for FirstFire to agree to the
terms of the note, on March 10, 2021 the Company issued 3,500,000 common shares to FirstFire as payment for a commitment fee, which had
a fair value of $62,300 at time of issuance, but the relative fair value was recorded as debt discount as discussed below. In addition,
on March 9, 2021 the Company issued a 3-year Common Stock Purchase Warrant to FirstFire on 3,500,000 fully paid and nonassessable shares
of the Company’s common stock at an exercise price of $ 0.025 per share. . In accordance with Black Scholes valuation requirements,
this Purchase Warrant has a fair value of $66,500, but the relative fair value was recorded as debt discount as discussed below.
On
March 11, 2021, in addition to the above mentioned finders fee, Primary Capital LLC was also issued a 3 year Common Stock
Purchase Warrant for 1,000,000 fully paid and nonassessable shares of the Companys common stock at an exercise price of
$ 0.01 per share and a 3 year Common Stock Purchase Warrant on 350,000 fully paid and nonassessable shares of the Companys
common stock at an exercise price of $ 0.025 per share. In accordance with Black Scholes valuation requirements, the fair value
of these Purchase Warrants was $18,000 and $6,300 respectively, but the relative fair value was recorded as debt discount as discussed
below.
At
March 31, 2021 the outstanding balance on the note was $110,000 principal and $663 accrued interest
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 March 31,
2021, using Monte Carlo simulations and the following range of assumptions:
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
Volatility
|
|
286.87% – 439.02%
|
Risk Free Rate
|
|
0.03%-0.12%
|
Expected Term
|
|
0.25 – 1.54
|
Warrants
Issued Related to Notes
The
Company recorded a relative fair value of $301,411 for all the warrants issued with Notes or issued as finders fees relating
to Notes issued in the three months ended March 31, 2021. The discounts are being amortized over the respective Note terms.
The
following is a summary of activity related to the embedded conversion options derivative liabilities for the three months ended
March 31, 2021.
Balance, December 31, 2020
|
|
$
|
1,320,000
|
|
Initial derivative liabilities charged to operations
|
|
|
1,796,835
|
|
Initial derivative liabilities recorded as debt discount
|
|
|
74,165
|
|
Change in fair value loss (gain)
|
|
|
(138,000
|
)
|
Balance, March 31, 2021
|
|
$
|
3,053,000
|
|
6.
SHORT TERM LOANS
The
Company received short term, interest free, loans of $10,000, $16,000, $15,000 and $20,000 (total $61,000) on July 9, 2020, August
13, 2020, September 2, 2020 and September 28, 2020 respectively, from Joseph Canouse, the provider of the J.P. Carey Inc. convertible
promissory notes.
7.
COMMITMENTS AND CONTINGENCIES
The
following summarizes the Companys commitments and contingencies as of March 31, 2021:
(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 Companys Fan Pass mobile app
or website, and the Company achieving various levels of subscribers, the officers are eligible to receive additional bonuses and
salary increases. With mutual agreement with the Company, effective August 31, 2020 one of the officers chose early termination
of his employment, which reduced the annual commitment for the remaining officers to $300,000.
(ii)
Lawsuit Contingency-Integrity Media, Inc.
Integrity
Media, Inc. (Integrity) had previously filed a lawsuit against the Company and the CEO of the Company for $500,000
alleging breach of contract alleging the Company failed to deliver marketable securities in exchange for services. The Company
answered the allegations in court and Integrity filed a motion attacking the Companys 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 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, 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 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. On April 12, 2021 the cash amount was paid by cashiers check. However, at the date of this filing the preferred
shares have not been returned.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
7.
COMMITMENTS AND CONTINGENCIES (CONTINUED
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 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 Companys common stock on the issuance date
be below $1.00. It was determined by the Company that its liability was $1,005,000 ($750,000 plus a premium of $255,000), in accordance
with ASC 480.
On
August 28, 2020 Integrity requested and was issued 750,000 common shares, which Integrity advised the Company realized $16,625
when sold. Accordingly, at December 31, 2020 and at March 31, 2021 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 Integritys
future ability to convert additional shares based on Stock Market Manipulation designed to harm the Companys 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 Companys thinly traded securities and caused
a potential third party capital investment of $150,000 to be rescinded. The court agreed with the Companys 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 Integritys application to enter judgment.
(iii)
Lawsuit Contingency- Infinity Global Consulting Group Inc
Infinity
Global Consulting Group Inc. had previously filed a default judgement on May 29, 2018 in the 11th Judicial Circuit, Miami-Dade
County, Florida court alleging that it was owed a services fee of $97,000, plus an entitlement to a warrant to purchase 5 million
of the Companys common shares at $0.03 per share. The Company believes that this claim is without merit since service on
the Company was defective and the Company never received an actual notice of the lawsuit. Accordingly, on November 16, 2020 the
Company filed a motion to set aside the default judgement. At the date of this filing, the motion still awaits a hearing and no
accrued expense at March 31,2021 has been established.
(iv)
Claim asserted by StockVest
On
March 11, 2021 the Company received claims asserted by StockVest for (a) the issuance of 1,054,820 common shares (market value
of approximately $19,000) representing anti-dilution stock as additional compensation for services provided to the Company pursuant
to a certain Consulting, Public Relations and Marketing Letter Agreement dated July 6, 2017, and (b) because said additional stock
had not been issued by the Company, StockVest asserted an additional claim for liquidated damages of $155,000. The Company believes
that these asserted claims are without merit. Accordingly, no accrued expense at March 31, 2021 has been established for these
claims.
COVID-19
Disclosure
The
coronavirus pandemic has at times adversely affected the Companys
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 Companys financial condition and operating results cannot be reasonably estimated at this
time, since the extent of such impact is dependent
on future developments, which are highly uncertain and cannot be predicted.
8.
COMMON AND PREFERRED STOCK
Common
Stock:
During
the year ended December 31, 2020, the Company:
Cancelled
2,000 shares of common stock valued at $500 previously issued to an investor under a securities purchase agreement and returned
the $500 to the investor.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
Issued
7,005,855 shares of common stock on conversion of $127,524 of convertible notes, and accrued interest, at a fair value of the
shares of $215,015, based on the quoted trading price on the conversion dates resulting in a loss on extinguishment of $87,491.
Issued
5,736,333 shares of common stock and recorded the obligation to issue a further 506,667 common shares, collectively valued at
$552,050 based on the quoted price on the grant dates, in payment for services primarily to music artists providing live performances
for the July 24, 2020 launch of the Fan Pass app.
Recorded
the obligation to issue 36,193,098 and 63,275,243 additional shares of common stock based on the first and second reset dates
in accordance with the debt restructuring agreement (See note 5).
Issued
750,000 common shares to Integrity Media pursuant to the Companys settlement agreement, which Integrity Media advised had
a realized value of $16,625.
Issued
7,196,264 common shares to parties where the original liability required the obligation to record such shares as issuable.
Issued
54,076 common shares to the Companys founder upon conversion of 3 Series A Preferred Shares to meet their personal commitment
to transfer certain common shares to the investors.
Recorded
the obligation to issue 2,250,000 common shares in consideration for $ 60,000 received in cash.
Issued
26,527,179 common shares upon conversion of Series C preferred stock having a value of $353,678.
During
the three months ended March 31, 2021, the Company:
Issued
31,532,405 shares of common stock to two convertible note holders for partial conversion of an aggregate of $167,743 of the notes
and accrued interest at an average price of approximately $0.0053.
Granted
3,500,000 shares of common stock to a noteholder as a commitment fee valued at its relative fair value of $ $11,574.
Issued,
from issuable, an additional 40,766,310 shares of common stock based on the second reset date of July 2, 2020 in accordance with
the debt restructuring agreement (See Note 5).
Issued
a total of 5,500,894 common shares on conversion of 23,500 Preferred Series C shares having a redemption value of $36,190, including
accrued dividend, plus a premium of $14,399, for an aggregate of $50,589.
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.
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.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
During
the six months ended June 30, 2020 two directors converted 3 shares of Series A Preferred Stock into 54,076 shares of common stock.
On
June 3, 2020 the Company and Eclectic Artists LLC (E Artists) entered into a Partner Agreement and Stock Subscription
Agreement, pursuant to which E Artists will engage musical artists and other talent to engage on the Companys 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 Companys common stock of $0.0605 on the agreement date and 2,241,596
equivalent common shares. The Company recorded a prepaid expense of $135,617 and has amortized a total of $74,491 as sales and
marketing expense for the period through March 31, 2021. Concurrent with the issuance of the Series A Shares to E Artists, Robert
Rositano, Jr., the Companys CEO and Dean Rositano, the Companys president, returned an aggregate of 118 Series A
Preferred shares to the Companys 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 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
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
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).
During
the year ended December 31, 2019, 149,300 shares of Series C convertible preferred stock were issued to an investor under preferred
stock purchase agreements at a price of approximately $0.91 per share for a total of $136,000. Due to the mandatory redemption
feature, these shares are reflected as a current liability at December 31, 2019. Furthermore, because these shares are convertible
at 71% of the common shares market price around the time of the conversion date, they are treated as a stock settled debt under
ASC 480 with a premium of $55,549 recorded and charged to interest expense. The total amount is reflected at $191,549 at December
31, 2019.
As
of June 30, 2020, the Company has revalued the shares and premiums at the stated value of $1.50 per share in accordance with the
events discussed below. On May 29, 2020 the Company defaulted on the shares by being late with the filing of the Form 10-K, thereby
increasing the dividend rate to 22% and the stated value to $1.50 per share. During the three months ended March 31, 2020, 38,000
shares of Series C convertible preferred stock were issued to an investor under preferred stock purchase agreements at a price
of approximately $0.87 per share for a total of $33,000.
Because
Series C preferred shares are convertible at 71% of the common shares market price around the time of the conversion date, they
are treated as a stock settled debt under ASC 480 with a total premium of $114,755 recorded as of June 30, 2020. In addition,
the Company recorded a cumulative dividend payable of $11,885 as of June 30,2020 to the mandatorily redeemable Series C convertible
preferred stock liability with this amount being recorded as interest expense since the Series C liability must be reflected at
redemption value.
During
the three months ended September 30, 2020 the holder of the Series C converted 62,500 Series C shares to 3,822,958 common shares
for a redemption value of $96,750 including accrued dividends plus premium of $38,292, which totaled $135,042 recorded into equity.
During
the three months ended December 31, 2020 a holder of the Series C converted 101,300 Series C shares to 22,704,221 common shares for a
redemption value of $218,655 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended
December 31,2020 a total of 149,600 shares of Series C convertible preferred stock were issued to two investors under preferred stock
purchase agreements, at a price of approximately $0.91 per share, for a total of $136,000 cash and premiums totaling $60,302 were recorded
during this period with respect to these issuances. At December 31, 2020 the remaining liability totals $285,605, represented by a remaining
balance of $184,850 in redeemable Series C stock, together with the related premium of $74,701 and accrued dividends of $26,054.
During
the three months ended March 31, 2021 a holder of the Series C converted 23,500 Series C shares to 5,500,894 common shares for a redemption
value of $50,589 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended March 31,2021
a total of 296,450 shares of Series C convertible preferred stock were issued to two investors under preferred stock purchase agreements,
at a price of approximately $0.91 per share, for a total of $269,350 cash and premiums totaling $121,084 were recorded during this period
with respect to these issuances. At March 31, 2021 the remaining liability totals $634,143 represented by a remaining balance of $446,050
in redeemable Series C stock, together with the related premium of $181,385 and accrued dividends of $6,708.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
Series
D
In
conjunction with the Companys intention to raise future financing of up to $5 million through an offering of up to 500,000 Series
D convertible Preferred Stock at the offering price of $10.00 per share, on March 29,2021 the Company received a Notice of Qualification
from the Securities and Exchange Commission indicating approval from the Company to proceed with the offering pursuant to Tier 2 of Regulation
A of the Securities Act, which provides exemption from registration of such securities. Each Series D preferred share is convertible,
at the option of the holder, at any time, into nonassessable common shares at 80% of the average closing price reported on OTCMarkets
for the 20 trading days preceding conversion. On April 5, 2021 the Company filed the necessary Certificate of Designation with the state
of Nevada to designate 500,000 shares of Series D Preferred stock from the Companys total authorized and unissued Preferred Stock.
Subsequent
to March 31, 2021 the Company received a total of $550,000 from the sale of 55,000 Series D Convertible Preferred Stock and executed
acceptance to a subscription agreement for the sale of an additional 10,000 Series D Convertible Stock at $10.00 per share.
On
May 12, 2021 the Company issued of 3,000,000 common shares on the conversion of 4,470 Series D Preferred Stock at a price of $0.0149
per share. On May 13, 2021 the Company issued 9,242,144 common shares on the conversion of 15,000 Series D Preferred Stock at a price
of $0.01623 per share. On May 13, 2021 the Company issued 7,127,341 common shares on the conversion of 10,500 Series D Preferred Stock
at a price of $0.01473 per share.
9.
SHARE PURCHASE WARRANTS
Activity
in 2021 is as follows:
|
|
Number of
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Life
|
|
|
|
Warrants
|
|
|
$
|
|
|
(Years)
|
|
Balance outstanding, December 31, 2020
|
|
|
60,908
|
|
|
$
|
72.00
|
|
|
|
0.3
|
|
Granted
|
|
|
64,942,000
|
|
|
$
|
0.0066
|
|
|
|
2.92
|
|
Balance outstanding, March 31, 2021
|
|
|
65,002,908
|
|
|
$
|
0.0741
|
|
|
|
2.6
|
|
On
January 1, 2021 the Company issued warrants to Anvil Financial Management LLC to purchase up to 92,000 shares of the Companys
common stock (the Warrants) in part consideration for providing financing advice. The warrants are exercisable at
any time on or after the date of issuance at the price of $0.25 per share and entitles Anvil to purchase the Companys common
stock for a period of up to 5 years from January 1, 2021. On the initial measurement date, applying the applicable Black Scholes
valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note
5 Warrants Issued Related to Notes.
On
March 9, 2021 the Company issued warrants to First Fire Global Opportunities Fund LLC to purchase up to 3,500,000 shares of the
Companys common stock (the Warrants) in connection with providing the Company with financing through a Convertible
Promissory Note with the principal value of $110,000. The warrants are exercisable at any time on or after the date of issuance
at the price of $0.025 per share and entitles First Fire to purchase the Companys common stock for a period of up to 3
years from March 9, 2021.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
9.
SHARE PURCHASE WARRANTS (CONTINUED)
On
the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded
as a debt discount and an increase to paid-in capital. See Note 5 Warrants issued related to Notes.
On
March 11, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 1,350,000 shares of the Companys
common stock (the Warrants) in part consideration as a finders fee in introducing First Fire to the Company.
Warrants on 350,000 common shares are exercisable at any time on or after the date of issuance at the price of $0.025 per share
and entitles the holder to purchase the Companys common stock for a period of up to 3 years from March 11, 2021. Warrants
on 1,000,000 common shares are exercisable at any time on or after the date of issuance at the price of $0.01 per share and also
entitles the holder to purchase the Companys common stock for a period of up to 3 years from March 11, 2021. On the initial
measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as a debt
discount and an increase to paid-in capital. See Note 5 Warrants Issued Related to Notes.
On
March 3, 2021 the Company issued warrants to JP Carey Enterprises, Inc. to purchase up to 30,000,000 shares of the Companys
common stock (the Warrants) in connection with providing the Company with financing through a Convertible Promissory
Note with the principal value of $150,000. The warrants are exercisable at any time on or after the date of issuance at the price
of $0.005 per share and entitles JPCarey to purchase the Companys common stock for a period of up to 5 years from March
3, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants
was recorded as a debt discount and an increase to paid-in capital. See Note 5 Warrants issued related to Notes.
On
March 3, 2021 the Company issued warrants to Trillium Partners LP to purchase up to 30,000,000 shares of the Companys common
stock (the Warrants) in connection with providing the Company with financing through a Convertible Promissory Note
with the principal value of $150,000. The warrants are exercisable at any time on or after the date of issuance at the price of
$0.005 per share and entitles Trillium to purchase the Companys common stock for a period of up to 5 years from March 3,
2021. On the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants
was recorded as a debt discount and an increase to paid-in capital. See Note 5 Warrants issued related to Notes.
10.
STOCK-BASED COMPENSATION
|
|
Number of Stock
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Life
|
|
|
|
Options
|
|
|
$
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
16,500,000
|
|
|
$
|
0.0141
|
|
|
|
2.6
|
|
Balance outstanding, March 31, 2021
|
|
|
16,500,000
|
|
|
$
|
0.0141
|
|
|
|
2.6
|
|
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.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
10.
STOCK-BASED COMPENSATION (CONTINUED)
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 September 30, 2020, no options
have been awarded under the 2014 Plan. Effective August 27, 2019, the Company effected a reverse split of the common stock of
1 for 18,000 (Note 1) which eliminated all the options which were previously outstanding.
During
January, 2021 the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2 years
and 10 million common shares vesting quarterly over 3 years, both sets of option are exercisable at a price of $0.014 per share. In
addition, during January, 2021 stock options on a further 1.5 million common shares, vesting quarterly over 3 years at the exercise
price of $0.015 per share. Applying the Black-Scholes valuation method, the total cost of these options is $194,700 and $24,750
respectively, which is being amortized to general and administrative expense over their lifetime. Of this total, the Company
incurred a stock option expense of $20,988 for the three months ended March 31, 2021 (2020: $0).
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 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.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2021 and 2020
(Unaudited)
11.
FAIR VALUE MEASUREMENTS (CONTINUED)
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, 2021 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, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Embedded conversion options derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,053,000
|
|
|
$
|
3,053,000
|
|
12.
SUBSEQUENT EVENTS
Subsequent
to March 31,2021 the Company issued a total of 21,522,600 common shares to the holders of convertible debentures, which were recorded
as reclassifications from issuable to issued common shares.
On
March 29, 2021 the Company received Notice of Qualification from the Securities and Exchange Commission indicating approval for
the Company to proceed to raise financing of up to $5 million through an offering of up to 500,000 Series D Convertible Preferred
Stock at the offering price of $10.00 per share, pursuant to Tier 2 of Regulation A of the Securities Act. On April 5, 2021 the
Certificate of Designation of 500,000 Series D Preferred Stock was filed with the state of Nevada. Subsequent to March 31,2021
the Company received a total of $550,000 from the sale of 55,000 Series D Convertible Preferred Stock and executed acceptance
to a subscription agreement for the sale of an additional 10,000 Series D Convertible Stock at $10.00 per share.
On
May 12, 2021 the Company issued of 3,000,000 common shares on the conversion of 4,470 Series D Preferred Stock at a price of $0.0149
per share. On May 13, 2021 the Company issued 9,242,144 common shares on the conversion of 15,000 Series D Preferred Stock at
a price of $0.01623 per share. On May 13, 2021 the Company issued 7,127,341 common shares on the conversion of 10,500 Series D
Preferred Stock at a price of $0.01473 per share.
Subsequent
to March 31, 2021 the Company issued a 3year warrant for the holder to purchase 2,500 Series D Convertible Preferred Stock at
the offering price of $10.00 per share and remitted a payment of $25,000 to that holder, both transactions in settlement of a
financing fee.
Subsequent
to March 31, 2021 to Company remitted $30,000 to Integrity Media, Inc. in payment of certain costs pursuant to the Companys
Settlement Agreement dated as of September 19, 2019.
Subsequent
to March 31, 2021 the Company raised $35,000 by issuing 42,625 shares of Series C preferred stock, net of legal and due diligence
fees totaling $ 3,350 deducted by the purchaser.
Subsequent
to March 31,2021 the Company remitted a total of $50,938 at the redemption rate of 135% to the holder of 36,300 Series C preferred
stock and accrued dividend of $ 1,432.
Subsequent
to March 31,2021 the Company issued 2,555,738 common shares on conversion of 50 Series A preferred stock.
Subsequent
to March 31,2021, the Company received an additional short-term advance of $150,000 from Joseph Canouse.