NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
1.
NATURE OF BUSINESS AND GOING CONCERN
Nature
of Business
Friendable,
Inc., a Nevada corporation (the “Company”), was incorporated in the State of Nevada.
Friendable,
Inc. is a mobile-focused technology and marketing company, connecting and engaging users through two distinctly branded applications.
The Company initially released its flagship product Friendable, as a social application where users can create one-on-one or group-style
meetups. In 2019 the Company moved the Friendable app closer to a traditional dating application with its focus on building revenue,
as well as reintroducing the brand as a non-threatening, all-inclusive place where “Everything starts with Friendship”…meet,
chat & date.
On
June 28, 2017, the Company formed a wholly owned Nevada subsidiary called Fan Pass, Inc.
Fan
Pass is the Company’s most recent or second app/brand, released on July 24, 2020. Fan Pass believes in connecting Fans of their
favorite celebrity or artist, to an exclusive VIP or Backstage experience, right from their smartphone or other connected devices. Fan
Pass allows an artist’s fanbase to experience something they would otherwise never have the opportunity to afford or geographically
attend. The Company aims to establish both Friendable and Fan Pass as premier brands and mobile platforms that are dedicated to connecting
and engaging users from anywhere around the World.
Presently,
until our apps gain greater adoption from paying subscribers through increased awareness, coupled with additional compelling and exclusive
digital content to produce higher revenue levels, though December 31, 2020 the Company had largely supported its operations through the
sale of its software services, and specifically its app development services, under a contractual relationship since inception with a
third party. This services contract ended in 2020 and has not yet been replaced with any other similar software services with another
customer. Presently, the Company’s only revenue is from its own Fan Pass and Friendable apps, which have various revenue streams
tested for long term and/or recurring monthly viability. The Company has developed an enhanced version of its Fan Pass application (v2.0)
with improved features and attributes which it released on July 24, 2021. This upgrade includes all new UI/UX attributes, upgraded feature
sets for artists and fans, an accelerated artist onboarding process and enhanced dashboard features. On August 5, 2021 the Company announced
the approval of the Fan Pass v2.0 livestream artist platform by both the Apple App and Google Play Stores. The mobile applications can
now be downloaded by users worldwide, and Fan Pass v2.0 is also now accessible via desktop and web applications.
On
August 8, 2019 the Company filed a Designation of Series B convertible Preferred Stock with the state of Nevada, designating 1,000,000
shares of the Series B Preferred Stock with a stated value of $1.00 per share. A holder of Series B Preferred Stock has the right to
convert their Series B Preferred Stock into fully paid and non-assessable shares of Common Stock. Initially, the conversion price for
the Series B Preferred Stock is $0.25 per share, subject to standard anti-dilution adjustments. Additionally, each share of Series B
Preferred Stock shall be entitled to, as a dividend, a pro rata portion of an amount equal to 10% (Ten Percent) of the Net Revenues (“Net
Revenues” being “Gross Sales” minus “Cost of Goods Sold” as defined in the agreements) derived from the
subscriptions and other sales, but excluding and net of Vimeo fees, processing fees and up sells, generated by Fan Pass Inc., the wholly-owned
subsidiary of the Corporation. The Series B Dividend shall be calculated and paid on a monthly basis in arrears starting on the day 30
days following the first day of the month following the initial issuance of the Series B Preferred and continuing for a period of 60
(Sixty) months. The holders of Series B Preferred stock shall have no voting rights. The holders of Series B Preferred stock shall not
be entitled to receive any dividends. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company
or deemed liquidation event, the holders of shares of Series B Preferred Stock shall be entitled to be paid the liquidation amount, as
defined out of the assets of the Company available for distribution to its shareholders, after distributions to holders of the Series
A Preferred Stock and before distributions to holders of Common Stock.
On
November 25, 2019 the Company filed a Designation of Series C convertible Preferred Stock with the state of Nevada, designating 1,000,000
shares of the Series C Preferred Stock with a stated value of $1.00 per share. The Series C Preferred Stock will, with respect to dividend
rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends with the Company’s common
stock, par value $0.0001 per share (“Common Stock”)(the Series C Preferred Stock will convert into common stock immediately
upon liquidation and be pari passu with the common stock in the event of litigation), and (b) junior with respect to dividends and right
of liquidation to all existing and future indebtedness of the Company. The Series C Preferred Stock does not have any voting rights.
Each share of Series C Preferred Stock will carry an annual dividend in the amount of eight percent (8%) of the Stated Value of $1.00 (the
“Divided Rate”), which shall be cumulative and compounded daily, payable solely upon redemption, liquidation or conversion
and increase to 22% upon an event of default as defined. In the event of any default other than the Company’s failure to issue
shares upon conversion, the stated price will be $1.50. In the event that a default event occurs where the Company fails to issue shares
upon conversion, the stated price will be $2.00. The holder shall have the right six months following the issuance date, to convert all
or any part of the outstanding Series C Preferred Stock into shares of common stock of the Company. The conversion price shall equal
the Variable Conversion Price.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
1.
NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)
The
“Variable Conversion Price” shall mean 71% multiplied by the market price, representing a discount rate of 29%. Market price
means the average of the two lowest trading prices for the Company’s common stock during the twenty trading day period ending on
the latest complete trading day prior to the conversion date. Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, or upon any deemed liquidation event, after payment or provision for payment of debts and other liabilities
of the Company, and after payment or provision for any liquidation preference payable to the holders of any Preferred Stock ranking senior
upon liquidation to the Series C Preferred Stock, if any, but prior to any distribution or payment made to the holders of Common Stock
or the holders of any Preferred Stock ranking junior upon liquidation to the Series C Preferred Stock by reason of their ownership thereof,
the Holders will be entitled to be paid out of the assets of the Company available for distribution to its stockholders. The Company
will have the right, at the Company’s option, to redeem all or any portion of the shares of Series C Preferred Stock, exercisable
on not more than three trading days prior written notice to the Holders, in full, in accordance with Section 6 of the designations at
a premium of up to 35% for up to six months. Company’s mandatory redemption: On the earlier to occur of (i) the date which is twenty-four
(24) months following the Issuance Date and (ii) the occurrence of an Event of Default (the “Mandatory Redemption Date”),
the Company shall redeem all of the shares of Series C Preferred Stock of the Holders (which have not been previously redeemed or converted).
In
conjunction with the Company’s intention to raise financing of up to $5 million through an offering of up to 500,000 Series D convertible
Preferred Stock at the offering price of $10.00 per share, on March 29, 2021 the Company received a Notice of Qualification from the
Securities and Exchange Commission indicating approval from the Company to proceed with the offering pursuant to Tier 2 of Regulation
A of the Securities Act, which provides exemption from registration of such securities. Each Series D preferred share is convertible,
at the option of the holder, at any time, into nonassessable common shares. The conversion right, of 80% of the average closing price
reported on OTCMarkets, was initially based through June 30, 2021 on the average closing price of the Company’s common stock for
the 20 trading days preceding conversion. Effective July 1, 2021 this basis was amended to the average closing price of the Company’s
common stock for the 10 trading days preceding conversion. On April 5, 2021 the Company filed the necessary Certificate of Designation
with the state of Nevada to designate 500,000 shares of Series D Preferred stock from the Company’s total authorized and unissued
Preferred Stock. Though June 30, 2021, the Company sold 85,000 Series D convertible Preferred Stock and received cash of $850,000. Of
these stock sales, 44,970 Series D Preferred shares were subsequently converted to 31,029,932 common shares at an average conversion
rate of $0.01449 per common share, resulting in a remaining balance at June 30, 2021 of 40,030 Series D Preferred.
Effective
July 1, 2021 the Company increased its authorized common shares from 1 billion (1,000,000,000) to 2 billion (2,000,000,000) of $0.0001
par value each.
Going
Concern
The
accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
implies that the Company would continue to realize its assets and discharge its liabilities in the normal course of business. As of June
30, 2021, the Company has a working capital deficiency of $5,404,352, an accumulated deficit of $38,220,653 and has a stockholder’s
deficit of $5,404,352 and its operations continue to be funded primarily from sales of its stock, the issuance of convertible debentures
and short-term loans. During the three and six months ended June 30, 2021 the Company had a net income of $833,549 and a net loss of
$1,651,407, respectively and net cash used in operations for the six months ended June 30, 2021 and June 30, 2020 of $1,168,303 and $176,554,
respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of
twelve months from the issuance of this report. The ability of the Company to continue as a going concern is dependent on the Company’s
ability to obtain the necessary financing through the issuance of convertible notes and equity instruments. The unaudited consolidated
financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management
plans to continue to raise financing through equity sales and the issuance of convertible notes. 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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
unaudited consolidated financial statements include all the accounts of the Company and all of its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation. The Company’s fiscal year end is December 31.
The
accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (the “U.S. GAAP”) for interim financial information. Operating results for interim
periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. These unaudited consolidated financial
statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial
statements for the year ended December 31, 2020 of the Company which were included in the Company’s annual report on Form 10-K
as filed with the Securities and Exchange Commission April 28, 2021.
Use
of Estimates
The
preparation of these statements in accordance with United States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to
valuation of convertible debenture conversion options, derivative instruments, deferred income tax asset valuations, financial instrument
valuations, share-based payments, other equity-based payments, and loss contingencies. The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses
that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from
the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results
of operations will be affected.
Revenue
Recognition
In
accordance with ASC 606, revenue is recognized when the following criteria have been met; valid contracts are identified with specific
customers, performance obligations have been identified, price is determinable, price is allocated to performance obligations, and the
Company has satisfied the performance obligations. Revenue generally is recognized net of allowances for returns and any taxes collected
from customers and subsequently remitted to governmental authorities. During the three and six months ended June 30, 2021 the Company
derived its only revenue of $1,609 and $2,914, respectively, from subscription fees and merchandising sales from its Friendable and Fan
Pass apps, which revenues were recognized when received. During the three and six months ended June 30, 2020 the Company derived revenue
primarily from the development of apps for a third party of $ 91,860 and $209,831, respectively, which was recognized upon completion
of services, and secondarily from subscription fees from the Friendable Pass app totaling $1,031 and $1,448, respectively, which was
recognized when received.
Subsequent
to the launch of the Fan Pass app in July, 2020 and pursuant to various agreements between Fan Pass, Inc. and music artists, managers,
talent agencies, partners and/or record labels and certain round one investors and convertible noteholders (collectively, “Revenue
Share Participants”) such individuals and/or entities are eligible to receive a share of net proceeds derived by the Company from
subscription receipts from the Fan Pass app and from merchandise sales. The Company has established an “Artist Pool” equal
to 40% of net Fan Pass “Fan Subscriptions” received, in which the “pool” is paid out to individual artists based
on fan activity or “Content Views” within an artist’s channel on the Fan Pass app. Additionally, a standard 50% of
net merchandise sales (created by Fan Pass for each artist) received or sold by each artist is shared with each artist. In some instances,
the Company may adjust the sharing percentage for special situation artists or “Mega Stars” who may command a different merchandise
split. Certain investors, along with Series B Preferred stockholders, are entitled to proportionately participate in an “Investor
Pool” equal to approximately 4% of net subscription and net merchandising sales receipts. In addition, as compensation for bringing
music artists to perform for the initial Fan Pass app launch, Eclectic Artists is eligible receive 5% of Fan Pass net revenue, and the
holder of a convertible note is entitled to receive a prorated share of 20% of Fan Pass net revenue up to $70,000 and, thereafter, a
prorated share of 5% of Fan Pass net revenue for 5 years. Net revenue is defined as gross receipts, minus source commissions and other
cost of goods sold as defined in the agreements, including deduction for the cost of merchandise, hosting, streaming and other platform
and processing fees. During the three and six months ended June 30, 2021 the Company incurred a revenue sharing expense of $343 and $1,204,
respectively, and had a revenue share liability of $1,403 at June 30, 2021, which is included in accounts payable and accrued expenses.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales
and Marketing Costs
The
Company’s policy regarding sales and marketing costs is to expense such costs when incurred. During the six months ended June 30,
2021, the Company incurred $266,052 (2020: $52,254) in sales and marketing costs, primarily for social media promotion programs and amortization
of deferred expense (see Page 23, Eclectic Artists Series A Preferred stock).
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
Impairment
of Long-Lived Assets
The
Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be
recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.
If
the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based
on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or the fair value less costs to sell.
Derivative
liabilities
The
Company has a financial instrument associated with a debt restructuring agreement and conversion options embedded in convertible debt.
The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts
qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract
in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair
value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is
the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion,
exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and
then the related fair value amount is reclassified to other income or expense partly as part of gain or loss on debt extinguishment and
partly included in the gain or loss on change in fair value of derivatives.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the
accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature
when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The
guidance was adopted as of January 1, 2019 and the adoption did not have any impact on its consolidated financial statement and there
was no cumulative effect adjustment.
Stock-based
Compensation
The
Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation.
ASC
718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company
uses the Black-Scholes option pricing model as its method in determining fair value. This model is affected by the Company’s stock
price as well as assumptions regarding a number of subjective variables. These subjective variables include but are not limited to the
Company’s expected stock price volatility over the terms of the awards, and actual and projected employee stock option exercise
behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of
operations over the requisite service period.
During
January 2021, the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2 years and
10 million common shares vesting quarterly over 3 years, both sets of options are exercisable at a price of $0.014 per share. In addition,
during January 2021, stock options on 1.5 million common shares, vesting quarterly over 3 years, were issued to a prospective employee,
at the exercise price of $0.015 per share. Applying the Black-Scholes valuation method, the total cost of these options is $194,700 and
$24,750 respectively, which is being amortized to general and administrative expense over their lifetime. Of this total, the Company
incurred a stock option expense of $43,006 for the six months ended June 30, 2021 (2020: $0).
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 2021 and December 31, 2020,
the Company did not have any allowance for doubtful accounts.
Financial
Instruments
Financial
assets and financial liabilities are recognized in the balance sheet when the Company has become party to the contractual provisions
of the instruments.
The
Company’s financial instruments consist of accounts receivable, accounts payable, convertible debentures, stock settled debt, derivatives,
mandatorily redeemable Series C Preferred stock and promissory notes. The fair values of these financial instruments approximate their
carrying value, due to their short-term nature, and current market rates for similar financial instruments. Fair value of a financial
instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Company’s financial instruments recorded at fair value in the balance
sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
Concentrations
In
each of the two years in the period ended December 31, 2020 the Company derived approximately 99% of its revenue from one client by providing
certain project based software development services. That project was completed by the end of 2020. Since January 1, 2021 the Company’s
sole source of revenue has been minimal receipts from subscribers to the Friendable and Fan Pass apps and from Fan Pass related merchandising
sales. There are inherent risks whenever a large percentage of total revenues are concentrated with one primary client. It is not possible
for us to predict the future level of demand for our services that will be generated by this client or the future demand for technology
and software products and services from other similar clients. Until revenues generated from the Friendable and Fan Pass apps increase
significantly the loss of this primary client, or the failure to retain similar clients, will negatively affect our revenues and results
of operations and/or trading price of our common stock.
Basic
and Diluted Loss Per Share
The
Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted
earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to
common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred
stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number
of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares
if their effect is anti-dilutive.
As
of June 30, 2021, there were approximately 2,306,131,906 potentially dilutive common shares outstanding, as follows.
Potential
dilutive shares
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The diluted loss per share for the three months ended June 30,2021 is computed as follows:
Schedule of Diluted Gain (loss) per share
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability
method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely
than not to be realized.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (ASC Topic 842) (“ASU 2016-02”), which requires lessees to recognize
at the commencement date for all leases, with the exception of short-term leases, (i) a lease liability, which is a lessee’s obligation
to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents
the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 will take effect for public
companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The ASU requires adoption
using a modified retrospective transition approach with either (a) periods prior to the adoption date being recast or (b) a cumulative-effect
adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. As of June 30,
2021 the Company has no lease obligations.
3.
RELATED PARTY TRANSACTIONS AND BALANCES
During
the six months ended June 30, 2021, the Company incurred $264,685 (June 30, 2020: $210,625) 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 six months ended June 30, 2021, the Company incurred $15,000, $322,500, and $30,000 (June 30, 2020: $21,000, $330,000, and $30,000)
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 June 30, 2021 accounts payable, related party includes $81,321 (December 31, 2020: $190,320) due to a company with two officers and
directors in common, and $1,063,908 (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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
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”).
The
debt holders agreed to convert their debt of approximately $6.3 million and accrued interest of approximately $1.8 million into an initial
5,902,589 shares of common stock as set forth in the Agreement upon the Company meeting certain milestones including but not limited
to: the Company effecting a reverse stock split and maintaining a stock price of $1.00 per share; being current with its periodic report
filings pursuant to the Securities Exchange Act; certain vendors and Company employees forgiving an aggregate of $1,000,000 in amounts
owed to them; the Company raising not less than $400,000 in common stock at a post-split price of not less than $.20 per share; and certain
other things as further set forth in the Agreement. The debt holders will be subject to certain lock up and leak out provisions as contained
in the Agreement. As part of the Agreement the parties signed a Rights to Shares Agreement. Whereas the Agreement called for all the
shares to be delivered at closing, the holders are generally restricted to beneficial ownership of up to 4.99% of the company’s
common shares outstanding. The Rights to Shares Agreement allows for the Company to issue shares to each holder up the 4.99% limitation
while preserving the holders’ rights to the total shares in schedule A of the Agreement. Accordingly, the 5,902,589 common shares
were recorded as issuable in equity. On December 26, 2019, all parties signed an amendment to the Agreement which set forth, among other
things, the following:
Company
Principals have given Holders notice that it has satisfied all conditions of closing.
The
Agreement is considered Closed as of November 5, 2019 (“Settlement Date”) and any conditions of closing not satisfied are
waived.
Reset
Dates. The “Reset Dates” as set forth in Section 1(h) of the Agreement shall be as follows: March 4, 2020 and July 2, 2020.
As of the reset dates the holders can convert all or part of the settled note amounts at the lower of (i) 75% of the closing bid price
for the Common Stock on such respective Reset Date, or (ii) the VWAP for the Company’s Common Stock for the 7 trading days immediately
preceding and including such respective Reset Dates. This reset provision provides for the issuance of additional shares above the initial
5,902,589 shares for no additional consideration as measured at each of the two reset dates.
On
March 4, 2020 the Company became obligated to issue an additional 36,193,098 shares of common stock and on July 2, 2020 it became
obligated to issue an additional 63,275,242 shares, for a total amount of shares due of 105,370,930.
The
Company determined that the reset provision represents a standalone derivative liability. Accordingly, this debt restructure transaction
was accounted for in 2019 as an extinguishment of debt for consideration equal to the $2,384,646 value of the 5,902,589 common shares
issuable, based on the $0.404 quoted trading price of the Company’s common stock price on the settlement date, and the initial
fair value of the derivative liability of $12,653,000, resulting in a loss on debt extinguishment of $6,954,920.
Through
the final reset date discussed below the Company adjusted its derivative liability to fair value at each reporting and settlement date,
with changes in fair value reported in the statement of operations. The Company estimated the fair value of the obligations to issue
common stock pursuant to the Debt Restructuring Agreement, as amended, using Monte Carlo simulations and the following assumptions:
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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
4.
CONVERTIBLE DEBENTURES (CONTINUED)
During
the three months ended March 31, 2021 Ellis International LP requested and was issued a total of 28,211,310 common shares, Coventry Enterprises
requested and was issued a total of 9,375,000 common shares, and Barbara Mittman requested and was issued a 3,180,000 common shares,
all against their respective entitlements under the debt settlement agreement, which were reclassified from issuable shares.
During
the three months ended June 30, 2021 Ellis International LP requested and was issued a total of 21,000,000 common shares, Coventry Enterprises
requested and was issued a total of 15,500,000 common shares, and Barbara Mittman requested and was issued 6,022,600 common shares, all
against their respective entitlements under the debt settlement agreement, which were reclassified from issuable shares.
Derivative
Liabilities
The
Company accounts for its obligation to issue common stock (“Reset Provision”) as derivative instruments in accordance with
ASC Topic 815, “Derivatives and Hedging” which are reflected as liabilities at fair value on the consolidated balance sheet,
with changes in fair value reported in the consolidated statement of operations. Fair value is defined as the price to sell an asset
or transfer a liability in an orderly transaction between willing and able market participants. The number of shares of common stock
the Company could be obligated to issue, is based on future trading prices of the Company’s common stock. To reflect this uncertainty
in estimating the fair value of the potential obligation to issue common stock, the Company uses a Monte Carlo model that considers the
reporting date trading price, historical volatility of the Company’s common stock, and risk free rate in estimating the fair value
of the potential obligation to issue common stock. The results of the Monte Carlo simulation model are most sensitive to inputs for expected
volatility. Depending on the availability of observable inputs and prices, different valuation models could produce materially different
fair value estimates. The estimated fair values may not represent future fair values and may not be realizable. We categorize our fair
value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency
utilized in measuring financial instruments at fair value as discussed above.
The
following is a summary of activity related to the reset provision derivative liability through the final reset date of July 2, 2020:
5.
CONVERTIBLE PROMISSORY NOTES
The
following is a summary of Convertible Promissory Notes at June 30, 2021:
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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: Discounts
|
|
|
|
|
(85,734
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying value December 31, 2020
|
|
|
|
$
|
143,957
|
|
|
|
|
|
|
|
|
|
The
derivative fair value of the above at June 30, 2021 and at December 31, 2020 is $1,240,000 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 Company’s
bank accounts. Pursuant to the Settlement Agreement, the Company agreed to issue an 8% Convertible Note in the principal amount of $82,931
(the “Note”). The Note was issued to J.P. Carey LLC an entity controlled by Mr. Canouse. Although the Note is dated March
30, 2017, it was issued on April 7, 2017. The note maturity date was September 30, 2017. In return for the issuance of the Note, Mr.
Canouse filed a Consent Motion to Withdraw Judgment, dismiss all garnishments, and cease all collection activities.
The
Note is convertible into common stock, subject to Rule 144, at any time after the issue date at the lower of (i) the closing sale price
of the common stock on the trading day immediately preceding the closing date, which was $20.00 per share, and (ii) 50% of the lowest
sale price for the common stock during the twenty-five (25) consecutive trading days immediately preceding the conversion date or the
closing bid price, whichever is lower. Mr. Canouse does not have the right to convert the Note, to the extent that he would beneficially
own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute default including failure to
pay principal and interest by the maturity date of September 30, 2017 and failure to comply with the exchange act. In the event of default,
the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum and the Note becomes immediately
due and payable. The Company defaulted by not paying the principal and interest on September 30, 2017 and has been recording interest
at the 24% default rate. The Company also defaulted by being late with filing the Form 10-K on May 29, 2020.
During
the year ended December 31, 2019, J.P. Carey converted $1,002 of principal into 120,000 shares of the Company’s common stock at
a price of $0.0084 and J.P. Carey assigned $10,000 of the note to World Market Ventures, LLC and assigned $6,000 of the note to Anvil
Financial Management Ltd LLC. The assignments carry the same conversion rights as the original note. World Market Ventures converted
$6,000 of principal into 120,000 shares of the Company’s common stock at a price of $0.05. Anvil converted $6,000 of principal
into 120,000 shares of the Company’s common stock at a price of $0.05.
At
December 31, 2019, the J.P. Carey note balance including accrued interest of $51,980 was $121,910, including the portion assigned to
World Market Ventures of $4,000.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 Company’s common stock at a price of
$0.029.
World
Market Ventures converted the remaining balance of $4,000 of principal into 72,595 shares of the Company’s common stock at a price
of $0.0551.
On
April 6, 2020 JP Carey assigned $35,000 of the note to Green Coast Capital International. The assignment carries the same conversion
rights as the original note. During the year ended December 31,2020 Green Coast converted $24,245 of principal into 859,283 shares of
common stock of the Company at an average price of $0.029 and the Company incurred $414 of interest on the assigned note. As of December
31, 2020 and March 31, 2021 the assigned note had a principal balance of $10,755 and an accrued interest balance of $848 and $1,275,
respectively, which has been accounted for as having a derivative liability due to the variable conversion price.
On
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
June 30, 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 $16,137 of interest at the default rate
of 24% for the period from May 29, 2020 to June 30, 2021.
JP
Carey Convertible Note dated June 11, 2020.
On
June 11, 2020, the issued a 0% note to JP Carey with a maturity date of January 15, 2021 and received $10,000 in cash. The Note is convertible
into common stock, subject to Rule 144, at any time after the issue date at $0.01 per share. The holder does not have the right to convert
the note, to the extent that the holder would beneficially own in excess of 9.9% of our outstanding common stock. The note defines several
events that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange
act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 24% per annum
and the note becomes immediately due and payable. Under certain default events the Company may incur a penalty of 20% to 50% of the note
principal. Further, if the Company fails to comply with the exchange act the conversion price is the lowest price quoted on the trade
exchange during the delinquency period.
Upon
certain default events the conversion price may change. Therefore, the embedded conversion option is bifurcated and treated as a derivative
liability. On the date of issuance, the Company recorded a derivative liability of $63,000, resulting in derivative expense of $53,000
and a discount against the note of $10,000 to be amortized into interest expense through the maturity date.
Ellis
International LP Convertible Note dated October 13, 2020.
On
October 13, 2020, the Company issued a 10% convertible note in the principal amount of $100,000 to Ellis International LP with a maturity
date of October 13, 2022 and received cash of $95,000 (net of $5,000 deducted for the noteholder’s legal fees). The Note is convertible
into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be 75% of the 3 day VWAP as
reported by Bloomberg LP for the 3 trading days preceding conversion. The holder does not have the right to convert the note, to
the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events
that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange
act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum
and the note becomes immediately due and payable.
At
June 30, 2021 and at December 31, 2020 the outstanding balance on the note was $100,000 principal and $7,149 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 noteholder’s legal fees). The Note is convertible
into common stock, subject to Rule 144, at any time after the issue date The Conversion Price shall be equal to the lower of: (i)
the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading price for the common stock
during the 30 trading day period prior to conversion. The holder does not have the right to convert the note, to the extent that
the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute
default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event
of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum and the note becomes
immediately due and payable.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 Company’s common shares, at an average of $0.00615 per share.
At
June 30, 2021 the outstanding balance on the note was $6,500 principal and $1,111 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 Company’s common stock at a price of $0.25
per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $2,015, but the relative
fair value was recorded as a discount as discussed below.
At
June 30, 2021 the outstanding balance on the note was $9,200 principal and $365 accrued interest.
Trillium
Partners LP Convertible Note dated January 22, 2021
On
January 22, 2021, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity
date of January 22, 2022 and received cash of $25,000 (net of $2,500 expense deducted for the noteholder’s legal fees). The Note
is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to
the lower of: (i) the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading price
for the common stock during the 30 trading day period prior to conversion. The holder does not have the right to convert the note,
to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events
that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange
act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum
and the note becomes immediately due and payable.
At
June 30, 2021 the outstanding balance on the note was $27,500 principal and $958 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 noteholder’s
legal fees). The $15,000 was recorded as debt discount to be amortized over the debt term. The Note is convertible into common stock,
subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to the Fixed Price of $0.005 per share. The
holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding
common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity
date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes the lower of $0.005 per share
or 50% of the lowest trading price during the trading day immediately preceding the Conversion Date. In addition, in the event of default
where the amount of principal and interest is not paid when due shall bear default interest at the rate of 22% per annum until paid.
The
note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue Discount
of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.
The
principal amount and interest is defined under the note agreement as being “Senior ” with priority in right of payment over
all other indebtedness of the Company outstanding as of March 3, 2021. In addition, the obligations under the note are secured by a first
lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.
As
further inducement for Trillium to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock Purchase
Warrant to Trillium for 30,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $
0.005 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000, but the
relative fair value was recorded as a debt discount, as discussed below.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
At
June 30, 2021 the outstanding balance on the note was $150,000 principal and $4,890 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 noteholder’s
legal fees). The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price
shall be equal to the Fixed Price of $0.005 per share. The holder does not have the right to convert the note, to the extent that
the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute
default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event
of default, the Conversion Price becomes the lower of $0.005 per share or 50% of the lowest trading price during the trading day immediately
preceding the Conversion Date. In addition, in the event of default where the amount of principal and interest is not paid when due shall
bear default interest at the rate of 22% per annum until paid.
The
note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue Discount
of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.
The
principal amount and interest is defined under the note agreement as being “Senior ” with priority in right of payment over
all other indebtedness of the Company outstanding as of March 3, 2021. In addition, the obligations under the note are secured by a first
lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.
As
further inducement for JP Carey to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock Purchase
Warrant to JP Carey for 30,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $
0.005 per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000, but the
relative fair value was recorded as a debt discount, as discussed below.
At
June 30, 2021 the outstanding balance on the note was $150,000 principal and $4,890 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 finder’s fee of
$10,000 to Primary Capital LLC and $1,500 expense deducted for the noteholder’s legal fees). The Company recorded $20,000 of the
fees as discounts and expensed $1,500. The Note is convertible into common stock, subject to Rule 144, at any time after 180 days from
the issue date. The Conversion Price shall be equal to the Fixed Price of $0.01 per share. The holder does not have the right
to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note
defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply
with the exchange act. In the event of default, the Conversion Price becomes $0.005 per share. In addition, in the event of default where
the amount of principal and interest is not paid when due shall bear default interest at the rate of 20% per annum until paid. The note,
together with accrued interest, may be prepaid prior to maturity at a premium of 115%.
As
further inducement for FirstFire to agree to the terms of the note, on March 10, 2021 the Company issued 3,500,000 common shares to FirstFire
as payment for a commitment fee, which had a fair value of $62,300 at time of issuance, but the relative fair value was recorded as debt
discount as discussed below. In addition, on March 9, 2021 the Company issued a 3-year Common Stock Purchase Warrant to FirstFire on
3,500,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $ 0.025 per share. . In accordance
with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $66,500, but the relative fair value was recorded
as debt discount as discussed below.
On
March 11, 2021, in addition to the above mentioned finder’s fee, Primary Capital LLC was also issued a 3 year Common Stock Purchase
Warrant for 1,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $ 0.01 per share
and a 3 year Common Stock Purchase Warrant on 350,000 fully paid and nonassessable shares of the Company’s common stock at an exercise
price of $ 0.025 per share. In accordance with Black Scholes valuation requirements, the fair value of these Purchase Warrants was $18,000
and $6,300 respectively, but the relative fair value was recorded as debt discount as discussed below.
At
June 30, 2021 the outstanding balance on the note was $110,000 principal and $3,405 accrued interest
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES (CONTINUED)
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 June 30, 2021, using Monte
Carlo simulations and the following range of assumptions:
Warrants
Issued Related to Notes
The
Company recorded a relative fair value of $301,411 for all the warrants issued with Notes or issued as finder’s fees relating to
Notes issued in the three months ended March 31, 2021. The discounts are being amortized over the respective Note terms.
The
following is a summary of activity related to the embedded conversion options derivative liabilities for the six months ended June 30,
2021.
6.
SHORT TERM LOANS
The
Company received short term, interest free, loans of $10,000, $16,000, $15,000 and $20,000 (total $61,000) on July 9, 2020, August 13,
2020, September 2, 2020 and September 28, 2020 respectively, from Joseph Canouse, the provider of the J.P. Carey Inc. convertible promissory
notes. The balance was $61,000 at June 30, 2021.
7.
COMMITMENTS AND CONTINGENCIES
The
following summarizes the Company’s commitments and contingencies as of June 30, 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 Company’s Fan Pass mobile app or website,
and the Company achieving various levels of subscribers, the officers are eligible to receive additional bonuses and salary increases.
With mutual agreement with the Company, effective August 31, 2020 one of the officers chose early termination of his employment, which
reduced the annual commitment for the remaining officers to $300,000.
(ii)
Lawsuit Contingency-Integrity Media, Inc.
Integrity
Media, Inc. (“Integrity”) had previously filed a lawsuit against the Company and the CEO of the Company for $500,000 alleging
breach of contract alleging the Company failed to deliver marketable securities in exchange for services. The Company answered the allegations
in court and Integrity filed a motion attacking the Company’s answers. While the court did not strike those responses, the clerk
of the court entered a default judgment against the Company in the amount of $1,192,875 plus 10% interest. On May 8, 2019, the Company
received a tentative ruling on the Company’s motion to vacate the default judgement whereby the previously entered default judgement
was voided and a trial date of August 26, 2019 was set.
On
September 19, 2019, the Company entered into a Settlement Agreement, as Amended, with Integrity Media settling the civil action known
as Integrity Media, Inc. vs. Friendable, Inc. et al., Orange County Case No. 30-2016-00867956-CU-CO-CJC. Pursuant to the Settlement Agreement,
the Company agreed to issue to Integrity 750,000 shares of its common stock to be issued in tranches every 30 days or according to the
instructions of Integrity, in exchange for 275 of the Company’s preferred shares held by Integrity and the cash payment of $30,000
for costs. Robert Rositano, the Company’s CEO, has also personally guaranteed the Company’s compliance with the terms of
the Settlement Agreement. The cash payment is to be made within 6 months of the date of the Settlement Agreement. However, at the date
of this filing both the $30,000 cash payment and the preferred shares have not been returned.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021 and 2020
(Unaudited)
7.
COMMITMENTS AND CONTINGENCIES (CONTINUED)
Additionally,
Integrity will be entitled to additional shares if (i) the price of the Company’s common stock is below $1.34 at either the 120
day or 240 day reset dates set forth in the Company’s Debt Restructure Agreement as amended entered into with various debt holders
on March 26, 2019 effective November 5, 2019. The Company determined that a total of 4,275,000 additional shares would be issuable on
the first “reset” date of March 4, 2020 based on a share price of $0.20 on that date and a total of 7,537,500 additional
shares would be issuable on the second “reset” date of July 2, 2020 based on a share price of $0.08 on that date, for a total
of 12,562,500 shares. Integrity will also be entitled to a “true-up” by the issuance of additional common shares on the issuance
date should the share price of the Company’s common stock on the issuance date be below $1.00. It was determined by the Company
that its liability was $1,005,000 ($750,000 plus a premium of $255,000), in accordance with ASC 480.
On
August 28, 2020 Integrity requested and was issued 750,000 common shares, which Integrity advised the Company realized $16,625 when sold.
Accordingly, at December 31, 2020 and at June 30, 2021 the Company reduced its liability payable in common stock from $1,005,000 to $988,375.
On
October 14, 2020 the Company filed a “Declaration” with the Santa Clara County Courts challenging Integrity’s future
ability to convert additional shares based on “Stock Market Manipulation” designed to harm the Company’s share price,
valuation and number of shares issuable to Integrity following its sales. Additionally, the Company contended that Integrity disregarded
the volume limitation set forth in its settlement for the Company’s thinly traded securities and caused a potential third party
capital investment of $150,000 to be rescinded. The court agreed with the Company’s declaration that Integrity should have
filed a motion so the Company would have the opportunity to present all arguments and evidence in opposition to deny Integrity’s
application to enter judgment. On June 29, 2021 Integrity Media’s attempt to again obtain a motion for entry and enforcement
of the judgement was denied in favor of an entirely separate lawsuit, if any, to be brought to try to resolve any disputes with either
the original settlement agreement or with the entry of stipulated judgement itself. The matter therefore continues, unresolved.
(iii)
Lawsuit Contingency- Infinity Global Consulting Group Inc
Infinity
Global Consulting Group Inc. had previously filed a default judgement on May 29, 2018 in the 11th Judicial Circuit, Miami-Dade County,
Florida court alleging that it was owed a services fee of $97,000, plus an entitlement to a warrant to purchase 5 million of the Company’s
common shares at $0.03 per share. The Company believes that this claim is without merit since service on the Company was defective and
the Company never received an actual notice of the lawsuit. Accordingly, on November 16, 2020 the Company filed a motion to set aside
the default judgement. At the date of this filing, the motion still awaits a hearing and no accrued expense at June 30, 2021 has been
established.
(iv)
Claim asserted by StockVest
On
March 11, 2021 the Company received claims asserted by StockVest for (a) the issuance of 1,054,820 common shares (market value of approximately
$19,000) representing anti-dilution stock as additional compensation for services provided to the Company pursuant to a certain Consulting,
Public Relations and Marketing Letter Agreement dated July 6, 2017, and (b) because said additional stock had not been issued by the
Company, StockVest asserted an additional claim for liquidated damages of $155,000. The Company believes that these asserted claims are
without merit. Accordingly, no accrued expense at June 30, 2021 has been established for these claims.
COVID-19
Disclosure
The
coronavirus pandemic has at times adversely affected the Company’s
business and is expected to continue to adversely affect certain aspects of our merchandise
offerings and custom artist collections of merchandise specifically. This impact
on our operations, supply chains and distribution systems may also impair our ability to raise capital. There is uncertainty around
the duration and breadth of the COVID-19 pandemic and, as a result, uncertainty on the ultimate impact on our business. Such impact on
the Company’s financial condition and operating results cannot be reasonably estimated at this time, since the extent
of such impact is dependent on
future developments, which are highly uncertain and cannot be predicted.
8.
COMMON AND PREFERRED STOCK
Common
Stock:
During
the year ended December 31, 2020, the Company:
Cancelled
2,000 shares of common stock valued at $500 previously issued to an investor under a securities purchase agreement and returned the $500
to the investor.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 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 Company’s settlement agreement, which Integrity Media advised had a realized
value of $16,625.
Issued
7,196,264 common shares to parties where the original liability required the obligation to record such shares as issuable.
Issued
54,076 common shares to the Company’s founder upon conversion of 3 Series A Preferred Shares to meet their personal commitment
to transfer certain common shares to the investors.
Recorded
the obligation to issue 2,250,000 common shares in consideration for $ 60,000 received in cash.
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.
Settled the common stock subscription receivable of $4,500 against the
amount payable in accrued salaries to current directors and officers of the Company.
During
the three months ended June 30, 2021, the Company:
Issued
a total of 42,522,600 common shares to the holders of convertible debentures, which were recorded as reclassifications from issuable
to issued common shares.
Issued
11,496,360 common shares upon conversion of Series C preferred stock having a value of $137,553.
Issued
2,555,738 common shares upon conversion of 50 Series A preferred stock
Issued
31,029,932 common shares upon conversion of 44,970 Series D preferred stock
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
Preferred
Stock:
Series
A:
The
Series A Preferred Stock was authorized in 2014 and is convertible into nine (9) times the number of common stock outstanding at time
of conversion until the closing of a Qualified Financing (Through June 30, 2021 “Qualified Financing” was defined as the
sale and issuance of the Company’s equity securities that results in gross proceeds in excess of $2,500,000. Effective July 1,
2021 this was amended so that “Qualified Financing” is now defined as the sale and issuance of the Company’s equity
securities that results in gross proceeds in excess of $10,000,000.). The number of shares of common stock issued on conversion of Series
A preferred stock is based on the ratio of the number of shares of Series A preferred stock converted to the total number of shares of
preferred stock outstanding at the date of conversion multiplied by nine (9) times the number of common stock outstanding at the date
of conversion. After the qualified financing the conversion shares issuable shall be the original issue price of the Series A preferred
stock divided by $0.002. The holders of Series A Preferred stock are entitled to receive non-cumulative dividends when and if declared
at a rate of 6% per year. On all matters presented to the stockholders for action the holders of Series A Preferred stock shall be entitled
to cast votes equal to the number of shares the holder would be entitled to if the Series A Preferred stock were converted at the date
of record.
During
the year ended December 31, 2019, 588 shares of Series A preferred stock were converted to common stock by two related parties who donated
them to the Diocese of Monterey. In addition, 890 Series A shares were converted into 2,018,746 common shares by parties related to the
two directors. The 2,018,746 common shares were issuable as of December 31, 2019 and were subsequently issued during the six months ended
June 30, 2020.
During
the six months ended June 30, 2020 two directors converted 3 shares of Series A Preferred Stock into 54,076 shares of common stock.
On
June 3, 2020 the Company and Eclectic Artists LLC (“E Artists”) entered into a Partner Agreement and Stock Subscription
Agreement, pursuant to which E Artists will engage musical artists and other talent to engage on the Company’s FanPass
platform, providing live streaming events available through the FanPass mobile application for a term of 18 months. As compensation
for bringing the artists to the FanPass platform, E Artists will receive 5% of net revenue attributable to the Fan Pass platform,
initially for a period of 18 months. In addition, E Artists will receive Series A preferred stock such that when converted would be
equal to 5% of the outstanding common stock. The number of Series A preferred shares was calculated at 118 shares valued at $135,617
based on the quoted trading price of the Company’s common stock of $0.0605 on the agreement date and 2,241,596 equivalent
common shares. The Company recorded a prepaid expense of $135,617 and has amortized a total of $97,010 as sales and marketing
expense for the period through June 30, 2021, which includes amortization of $44,793 for the six months ended June 30, 2021 (2020
$6,682). Concurrent with the issuance of the Series A Shares to E Artists, Robert Rositano, Jr., the Company’s CEO and Dean
Rositano, the Company’s president, returned an aggregate of 118 Series A Preferred shares to the Company’s
treasury.
On
May 6, 2021 50 Series A Preferred shares held by a third party were converted to 2,555,738 common shares. After this conversion the total
issued and outstanding Series A Preferred shares were reduced from 19,786 to 19,736.
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.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
During
the year ended December 31, 2019, the Company entered into Security Purchase Agreements with various investors for the purchase of 205,000
shares Series B convertible Preferred stock and received $205,000 in cash. Each Series B Preferred share is convertible into 4 shares
of common stock valued at $0.25.
During
the year ended December 31, 2019, The Company entered into a Security Purchase Agreements with a related party for the purchase of 79,000
shares Series B Preferred stock. The $79,000 was settled against accounts payable owed to the related party. Each Series B Preferred
share is convertible into 4 shares of common stock valued at $0.25.
Series
C:
On
November 25, 2019 the Company filed a Designation of Series C convertible Preferred Stock with the state of Nevada, designating 1,000,000
shares of the Series C Preferred Stock with a stated value of $1.00 per share. The Series C Preferred Stock will, with respect to dividend
rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends with the Company’s common
stock, par value 0.0001 per share (“Common Stock”) (the Series C Preferred Stock will convert into common stock immediately
upon liquidation and be pari passu with the common stock in the event of litigation), and (b) junior with respect to dividends and right
of liquidation to all existing and future indebtedness of the Company. The Series C Preferred Stock does not have any voting rights.
Each share of Series C Preferred Stock will carry an annual dividend in the amount of eight percent (8%) of the Stated Value of $1.00
(the “Divided Rate”), which shall be cumulative and compounded daily, payable solely upon redemption, liquidation or conversion
and increase to 22% upon an event of default as defined. In the event of any default other than the Company’s failure to issue
shares upon conversion, the stated price will be $1.50. In a default event where the Company fails to issue shares upon conversion, the
stated price will be $2.00. The holder shall have the right six months following the issuance date, to convert all or any part of the
outstanding Series C Preferred Stock into shares of common stock of the Company. The conversion price shall equal the Variable Conversion
Price. The “Variable Conversion Price” shall mean 71% multiplied by the market price, representing a discount rate of 29%.
Market price means the average of the two lowest trading prices for the Company’s common stock during the twenty trading day period
ending on the latest complete trading day prior to the conversion date. Upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, or upon any deemed liquidation event, after payment or provision for payment of debts and other liabilities
of the Company, and after payment or provision for any liquidation preference payable to the holders of any Preferred Stock ranking senior
upon liquidation to the Series C Preferred Stock, if any, but prior to any distribution or payment made to the holders of Common Stock
or the holders of any Preferred Stock ranking junior upon liquidation to the Series C Preferred Stock by reason of their ownership thereof,
the Holders will be entitled to be paid out of the assets of the Company available for distribution to its stockholders. The Company
will have the right, at the Company’s option, to redeem all or any portion of the shares of Series C Preferred Stock, exercisable
on not more than three trading days prior written notice to the Holders, in full, in accordance with Section 6 of the designations at
a premium of up to 35% for up to six months. Company’s mandatory redemption: On the earlier to occur of (i) the date which is twenty-four
(24) months following the Issuance Date and (ii) the occurrence of an Event of Default (the “Mandatory Redemption Date”),
the Company shall redeem all of the shares of Series C Preferred Stock of the Holders (which have not been previously redeemed or converted).
During
the year ended December 31, 2019, 149,300 shares of Series C convertible preferred stock were issued to an investor under preferred stock
purchase agreements at a price of approximately $0.91 per share for a total of $136,000. Due to the mandatory redemption feature, these
shares are reflected as a current liability at December 31, 2019. Furthermore, because these shares are convertible at 71% of the common
shares market price around the time of the conversion date, they are treated as a stock settled debt under ASC 480 with a premium of
$55,549 recorded and charged to interest expense. The total amount is reflected at $191,549 at December 31, 2019.
As
of June 30, 2020, the Company has revalued the shares and premiums at the stated value of $1.50 per share in accordance with the events
discussed below. On May 29, 2020 the Company defaulted on the shares by being late with the filing of the Form 10-K, thereby increasing
the dividend rate to 22% and the stated value to $1.50 per share. During the three months ended March 31, 2020, 38,000 shares of Series
C convertible preferred stock were issued to an investor under preferred stock purchase agreements at a price of approximately $0.87
per share for a total of $33,000.
Because
Series C preferred shares are convertible at 71% of the common shares market price around the time of the conversion date, they are
treated as a stock settled debt under ASC 480 with a total premium of $114,755 recorded as of June 30, 2020. In addition, the
Company recorded a cumulative dividend payable of $11,885 as of June 30,2020 to the mandatorily redeemable Series C convertible
preferred stock liability with this amount being recorded as interest expense since the Series C liability must be reflected at
redemption value.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021 and 2020
(Unaudited)
8.
COMMON AND PREFERRED STOCK (CONTINUED)
During
the three months ended September 30, 2020 the holder of the Series C converted 62,500 Series C shares to 3,822,958 common shares for
a redemption value of $96,750 including accrued dividends plus premium of $38,292, which totaled $135,042 recorded into equity.
During
the three months ended December 31, 2020 a holder of the Series C converted 101,300 Series C shares to 22,704,221 common shares for a
redemption value of $218,655 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended
December 31,2020 a total of 149,600 shares of Series C convertible preferred stock were issued to two investors under preferred stock
purchase agreements, at a price of approximately $0.91 per share, for a total of $136,000 cash and premiums totaling $60,302 were recorded
during this period with respect to these issuances. At December 31, 2020 the remaining liability totals $285,605, represented by a remaining
balance of $184,850 in redeemable Series C stock, together with the related premium of $74,701 and accrued dividends of $26,054.
During
the three months ended March 31, 2021 a holder of the Series C converted 23,500 Series C shares to 5,500,894 common shares for a redemption
value of $50,589 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended March 31,
2021 a total of 296,450 shares of Series C convertible preferred stock were issued to two investors under preferred stock purchase agreements,
at a price of approximately $0.91 per share, for a total of $269,350 cash and premiums totaling $121,084 were recorded during this period
with respect to these issuances. At March 31, 2021 the remaining liability totals $634,143 represented by a remaining balance of $446,050
in redeemable Series C stock, together with the related premium of $181,385 and accrued dividends of $6,708.
During
the three months ended June 30, 2021 the Company elected to redeem and cancelled 36,300 Series C shares through the payment of $50,938,
which represented 135% of the outstanding principal of $36,300 and accrued dividend of $1,432. A holder of the Series C converted 84,700
Series C shares to 11,496,360 common shares for a redemption value of $137,553 including accrued dividends, plus premium, recorded into
equity. In addition, during the three months ended June 30, 2021 a total of 92,125 shares of Series C convertible preferred stock were
issued to an investors under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $83,750
cash and premiums totaling $37,629 were recorded during this period with respect to these issuances. At June 30, 2021 the remaining liability
totals $597,490 represented by a remaining balance of $417,175 in redeemable Series C stock, together with the related premium of $169,550
and accrued dividends of $10,765.
Series
D
In
conjunction with the Company’s intention to raise future financing of up to $5 million through an offering of up to 500,000 Series
D convertible Preferred Stock at the offering price of $10.00 per share, on March 29, 2021 the Company received a Notice of Qualification
from the Securities and Exchange Commission indicating approval from the Company to proceed with the offering pursuant to Tier 2 of Regulation
A of the Securities Act, which provides exemption from registration of such securities. Each Series D preferred share is convertible,
at the option of the holder, at any time, into nonassessable common shares at 80% of the average closing price reported on OTCMarkets
(a) for the 20 trading days preceding conversion through June 30, 2021 and (b) for the 10 trading days preceding conversion effective
July 1, 2021. On April 5, 2021 the Company filed the necessary Certificate of Designation with the state of Nevada to designate 500,000
shares of Series D Preferred stock from the Company’s total authorized and unissued Preferred Stock.
During
the three months ended June 30, 2021 the Company received a total of $850,000 from the sale of 85,000 Series D Convertible Preferred
Stock, and incurred offering costs of $31,309. In addition, during that period 44,970 Series D Preferred shares were
subsequently converted to 31,029,932 common shares at an average conversion rate of $0.01449 per common share, resulting in a
remaining balance at June 30, 2021 of 40,030 Series D Preferred.
9.
SHARE PURCHASE WARRANTS
Activity
in 2021 is as follows:
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021 and 2020
(Unaudited)
9.
SHARE PURCHASE WARRANTS (CONTINUED)
On
January 1, 2021 the Company issued warrants to Anvil Financial Management LLC to purchase up to 92,000 shares of the Company’s
common stock (the “Warrants”) in part consideration for providing financing advice. The warrants are exercisable at any
time on or after the date of issuance at the price of $0.25 per share and entitles Anvil to purchase the Company’s common stock
for a period of up to 5 years from January 1, 2021. On the initial measurement date, applying the applicable Black Scholes
valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital. See Note 5
“Warrants Issued Related to Notes”.
On
March 9, 2021 the Company issued warrants to First Fire Global Opportunities Fund LLC to purchase up to 3,500,000 shares of the Company’s
common stock (the “Warrants”) in connection with providing the Company with financing through a Convertible Promissory Note
with the principal value of $110,000. The warrants are exercisable at any time on or after the date of issuance at the price of $0.025
per share and entitles First Fire to purchase the Company’s common stock for a period of up to 3 years from March 9, 2021.
On
the initial measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as
a debt discount and an increase to paid-in capital. See Note 5 “Warrants issued related to Notes”.
On
March 11, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 1,350,000 shares of the Company’s
common stock (the “Warrants”) in part consideration as a finder’s fee in introducing First Fire to the Company. Warrants
on 350,000 common shares are exercisable at any time on or after the date of issuance at the price of $0.025 per share and entitles the
holder to purchase the Company’s common stock for a period of up to 3 years from March 11, 2021. Warrants on 1,000,000 common shares
are exercisable at any time on or after the date of issuance at the price of $0.01 per share and also entitles the holder to purchase
the Company’s common stock for a period of up to 3 years from March 11, 2021. On the initial measurement date, applying the applicable
Black Scholes valuation, the relative fair value of the warrants was recorded as a debt discount and an increase to paid-in capital.
See Note 5 “Warrants Issued Related to Notes”.
On
March 3, 2021 the Company issued warrants to JP Carey Enterprises, Inc. to purchase up to 30,000,000 shares of the Company’s common
stock (the “Warrants”) in connection with providing the Company with financing through a Convertible Promissory Note with
the principal value of $150,000. The warrants are exercisable at any time on or after the date of issuance at the price of $0.005 per
share and entitles JPCarey to purchase the Company’s common stock for a period of up to 5 years from March 3, 2021. On the initial
measurement date, applying the applicable Black Scholes valuation, the relative fair value of the warrants was recorded as a debt discount
and an increase to paid-in capital. See Note 5 “Warrants issued related to Notes”.
On
March 3, 2021 the Company issued warrants to Trillium Partners LP to purchase up to 30,000,000 shares of the Company’s common stock
(the “Warrants”) in connection with providing the Company with financing through a Convertible Promissory Note with the principal
value of $150,000. The warrants are exercisable at any time on or after the date of issuance at the price of $0.005 per share and entitles
Trillium to purchase the Company’s common stock for a period of up to 5 years from March 3, 2021. On the initial measurement date,
applying the applicable Black Scholes valuation, the fair value of the warrants was recorded as a debt discount and an increase
to paid-in capital. See Note 5 “Warrants issued related to Notes”.
On
May 6, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 2,500 shares of the Company’s Series
D Preferred stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire
of 25,000 Series D Preferred stock. Warrants on 2,500 Series D Preferred stock common shares are exercisable at any time on or after
the date of issuance at the price of $10.00 per share and entitles the holder to purchase the Company’s Series D Preferred stock
for a period of up to 5 years from May 6, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of the warrants was $25,000. However, there is no accounting entry since the cost of these warrants was treated as
an offering cost against the proceeds of the Series D Preferred stock offering.
10.
STOCK-BASED COMPENSATION
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2021 and 2020
(Unaudited)
10.
STOCK-BASED COMPENSATION (CONTINUED)
On
November 22, 2011, the Board of Directors of the Company approved a stock option plan (“2011 Stock Option Plan”), the purpose
of which is to enhance the Company’s stockholder value and financial performance by attracting, retaining and motivating the Company’s
officers, directors, key employees, consultants and its affiliates and to encourage stock ownership by such individuals by providing
them with a means to acquire a proprietary interest in the Company’s success through stock ownership. Under the 2011 Stock Option
Plan, officers, directors, employees and consultants who provide services to the Company may be granted options to acquire common shares
of the Company. The aggregate number of options authorized by the plan shall not exceed 4,974 shares
of common stock of the Company.
There
are 7 shares of common stock reserved for issuance under the 2014 Plan. The Board shall have the power and authority to make grants of
stock options to employees, directors, consultants and independent contractors who serve the Company and its affiliates. Any stock options
granted under the 2014 Plan shall have an exercise price equal to or greater than the fair market value of the Company’s shares
of common stock. Unless otherwise determined by the Board of Directors, stock options shall vest over a four-year
period with 25% being vested after the end of one (1) year of service and the remainder vesting equally over a 36-month period. The Board
may award options that may vest based upon the achievement of certain performance milestones. As of September 30, 2020, no options have
been awarded under the 2014 Plan. Effective August 27, 2019, the Company effected a reverse split of the common stock of 1
for 18,000 (Note 1) which eliminated all the options
which were previously outstanding.
During
January 2021, the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2
years and 10
million common shares vesting quarterly over 3
years, both sets of options 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 $43,006 for the six months
ended June 30, 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 instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be
used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations
are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.
Level
2
Level
2 applies to assets or liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level
2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments
are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates,
maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed
most similar to the security being priced; and determining whether a market is considered active requires management judgment.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management
judgment and subjectivity.
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 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 Company’s
convertible debentures and promissory note approximates their carrying values as the underlying imputed interest rates approximates the
estimated current market rate for similar instruments.
As
of June 30, 2021 there was a derivative measured at fair value on a recurring basis (see note 4) presented on the Company’s
balance sheet, as follows:
Liabilities
at Fair Value
June
30, 2021
12.
SUBSEQUENT EVENTS
Subsequent
to June 30, 2021 the Company issued a total of 16,000,000 common shares to the holder of convertible debentures, which were recorded
as reclassifications from issuable to issued common shares.
Subsequent
to June 30, 2021 the Company received $100,000 from the sale of 10,000 Series D Convertible Preferred Stock at $10.00 per share.
Subsequent
to June 30, 2021 the Company issued a total of 36,117,816 common shares on the conversion of 25,244 Series D Preferred Stock at an average
conversion of $0.0070 per share.
Subsequent
to March 31, 2021 the Company raised $41,250 by issuing 49,500 shares of Series C preferred stock at approximately $0.91 per share, net
of legal and due diligence fees totaling $ 3,750 deducted by the purchaser.
Subsequent
to June 30, 2021 the Company issued a total of 7,067,291 common shares on conversion of 47,850 Series C Preferred Stock and payment of
accrued dividend of $ 1,914, an at average conversion of $0.007 per share.
Subsequent to June 30, 2021 the Company
received a conversion notice requiring the conversion of 52 Series A preferred stock in exchange for4,928,511 common shares. At the date
of this filing, the common stock was still to be issued.
Subsequent
to June 30, 2021 the Company entered into a one month consulting agreement with the provider of investor relations services and paid
a fee of $12,500 and issued 2,000,000 common shares (valued at $17,400 at the quoted price of the common stock at the date of the agreement)
to that consultant.
Subsequent
to June 30, 2021 the Company remitted a total of $82,408 at the redemption rate of 135% to the holder of 58,850 Series C preferred stock
and accrued dividend of $2,193.