NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(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. During 2021 management decided that the Friendable app should no longer be supported and that the Company’s resources
would be better focused on the development of its second app, the FanPass app (see below).
On
June 28, 2017, the Company formed a wholly owned Nevada subsidiary called Fan Pass, Inc.
Fan Pass is the Company’s most recent and 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 the Fan Pass
as its premier brand and mobile platform that is dedicated to connecting and engaging users from anywhere around the World.
While
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, presently the Company’s primary revenue is from music services provided to music artists through the acquisition
on January 5, 2022 of the intellectual property assets, customer lists, websites and supporting computer programs associated with the
music services business of Artist Republik, Inc. Starting its business in 2020, Artist Republik is an innovative, decentralized music
business that allows independent music artists from around the world to take more control of their own careers through networking, centralized
resources, and AI-based management tools. The acquisition is aimed to solidify
the Company’s now all-encompassing suite of products and music services, positioning the Company as an all-inclusive “360”
music offering to both music fans and music artists.
With
a suite of artist-centric services that extend livestreaming capabilities and virtual performance options, this powerful combination
of support and services offered by Fan Pass and Artist Republik will now include music distribution for all artists, while fans can enjoy
access to a variety of artist channels across different genres, exclusive live events, behind-the-scenes content, artist merchandising
and more. The offering also provides artists more autonomy and freedom over their own music, ticketing streams, blog/social promotion,
custom merchandise development, beats/samples sales and more, all without being signed to a record label or giving up their creative
rights.
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. On March 18, 2022 the Company further increased its authorized common shares from 2 billion (2,000,000,000) to 3 billion
(3,000,000,000) of $0.0001 par value each. On April 7, 2022 the Company again increased its authorized common shares, this time from
3 billion (3,000,000,000) to 5 billion (5,000,000,000) of $0.0001 par value each. The latter increase has been reflected retroactively
in the accompanying consolidated balance sheet.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
Going
Concern
The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern, which implies that the Company would continue to realize its
assets and discharge its liabilities in the normal course of business. As of March 31, 2022, the Company has a working capital deficiency
of $5,135,307, an accumulated deficit of $40,506,622 and has a stockholder’s deficit of $4,112,253 and its operations continue
to be funded primarily from sales of its stock. During the three months ended March 31, 2022 the Company had a net loss of $708,197 and
net cash used in operations of $474,561. 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 continued issuance of equity instruments. The 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 to continue to expand its revenue from its FanPass app and from its new
Artist Republik music services business, together with seeking the acquisition of additional compatible businesses that will be beneficial
to the Company. No assurance can be given that any such additional financing will be available, or that it can be obtained on terms acceptable
to the Company and its stockholders.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principles of Consolidation
The
consolidated financial statements include all the accounts of the Company and all of its wholly owned subsidiaries as of March 31, 2022
and as of December 31, 2021. All material intercompany accounts and transactions have been eliminated in the accompanying consolidated
financial statements. 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 and include all material adjustments consisting of normal recurring adjustments and non-recurring adjustments
which in the opinion of management are necessary for a fair presentation of interim results. 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, 2021 of the Company which were included in the Company’s annual report on Form 10-K as filed with the
Securities and Exchange Commission.
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 fair value valuation of assets acquired and liabilities assumed in business combinations, fair value of consideration
issued in business combinations, valuation of intangible assets and goodwill, 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 months ended March 31, 2022 the Company derived
its revenue from monthly subscription fees and merchandising sales from its Fan Pass app, which revenues were recognized when
performance obligations were met; and from annual subscriptions and music services provided through Artist Republik, which revenues
were recognized proportionately for annual subscriptions, and when performance obligations were met for music services.. At March
31, 2022 the Company recorded deferred income of $1,785 attributable to the unused portion of annual subscription fees within
current liabilities on the balance sheet. During the three months ended March 31, 2021 the Company’s sole revenue source was
from subscription fees from its Fan Pass app and from merchandising sales which were recognized when received.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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 months ended March 31, 2022 and March
31, 2021 the Company incurred a revenue sharing expense relating to Fan Pass of $418 and $861, respectively, and had a revenue share
liability of $2,736 at March 31, 2022, which is included in accounts payable and accrued expenses.
The Company’s newly acquired Artist
Republik business also provides music artists, who have paid their annual subscription fee, revenue sharing opportunities ranging
from 100% of all music royalties received 90% of Featured X revenues and a blended average of 17.5% of all other types of music
revenues received. During the three months ended March 31, 2022 the Company incurred a revenue sharing expense on its Artist
Republik business segment of $48,624 (on revenues of $64,040) or an average share rate of approximately 76%, which is included in
“revenue shares” expense in the consolidated statement of operations., At March 31, 2022 the Company had a revenue share
liability relating to Artist Republik of $32,496, which is included in accounts payable and accrued expenses.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
Advertising,
Promotion and Marketing Costs
The
Company’s policy regarding advertising, promotion and marketing costs is to expense such costs when incurred. During the three
months ended March 31, 2022, the Company incurred $134,854 (2021: $55,633) in advertising, promotion and marketing costs, primarily for
social media promotion programs and amortization of deferred expense.
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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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.
All
transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based
on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company monitors its outstanding receivables for timely payments and potential collection issues. At March 31, 2022 and December 31,
2021, the Company had no accounts receivable and therefore 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.
Basic
and Diluted Loss Per Share
The
Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted
earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to
common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred
stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number
of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares
if their effect is anti-dilutive.
As
of March 31, 2022, there were approximately 14,968,279,332 potentially dilutive common shares, as follows.
Schedule
of Antidilutive Securities
Potential
dilutive shares
| |
334,317,000 |
|
|
Warrants
and Stock Options outstanding |
| |
151,478,090 |
|
|
Common
shares issuable upon conversion of convertible debt |
| |
12,924,358,884 |
|
|
Common
shares issuable upon conversion of Preferred Series A shares |
| |
1,136,000 |
|
|
Common
shares issuable upon conversion of Preferred Series B shares |
| |
524,189,358 |
|
|
Common
shares issuable upon conversion of Preferred Series C shares |
| |
1,102,800,000 |
|
|
Common
shares issuable upon conversion of Preferred Series D shares |
| |
14,968,279,332 |
|
|
|
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
As
of December 31, 2021, there were approximately 4,978,285,856 potentially dilutive common shares, as follows.
Potential
dilutive shares
| |
100,464,436 |
|
|
Warrants
and Stock Options outstanding |
| |
90,152,420 |
|
|
Common
shares issuable upon conversion of convertible debt |
| |
4,361,985,540 |
|
|
Common
shares issuable upon conversion of Preferred Series A shares |
| |
1,136,000 |
|
|
Common
shares issuable upon conversion of Preferred Series B shares |
| |
252,440,793 |
|
|
Common
shares issuable upon conversion of Preferred Series C shares |
| |
172,106,667 |
|
|
Common
shares issuable upon conversion of Preferred Series D shares |
| |
4,978,285,856 |
|
|
|
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.
Reclassifications
Certain
amounts in the 2021 statement of operations were reclassified within operating expenses between software development, hosting and support
and other software and support fees to conform to the 2022 presentation.
Recent
Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently,
more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion
features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception,
which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation
in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within
those fiscal years, and early adoption is permitted for fiscal years beginning after December 15, 2020. The Company is currently evaluating
the impact of the adoption of the standard on the consolidated financial statements.
3.
RELATED PARTY TRANSACTIONS AND BALANCES
During
the three months ended March 31, 2022, the Company incurred $173,594 (March 31, 2021: $110,489) in salaries, stock options and payroll
taxes to officers, directors, and other related family employees with such costs being recorded as general and administrative expenses.
During
the three ended March 31, 2022, the Company incurred $180,000 and $15,000 (March 31, 2021: $105,000 and $15,000) in software development,
app hosting and support and office rent to a company with two officers and directors in common with such costs being recorded as software
development, hosting 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 three months ended March 31, 2021 against the amount payable
in accrued salaries to current directors and officers of the Company (see below).
As
of March 31, 2022 accounts payable, related party includes $120,000 (December 31, 2021 $100,000) due to a company with two officers and
directors in common, and $1,288,908 (December 31, 2021: $1,213,908) 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
March 31, 2022 and 2021
(Unaudited)
4.
CONVERTIBLE DEBENTURES
The Company had an obligation to issue a total of
105,370,929 common shares to certain convertible debenture holders relating to a 2019 convertible debentures settlement agreement.
During 2020 a total of 4,411,851 common shares were issued, leaving a total of 100,959,078 issuable at December 31, 2020. During 2021
the Company issued a total of 97,222,626 common shares, leaving a total of 3,736,452 issuable at December 31, 2021 and March 31, 2022.
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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
5.
CONVERTIBLE PROMISSORY NOTES
The
following is a summary of Convertible Promissory Notes at March 31, 2022:
Schedule
of Convertible Promissory Notes
| |
|
Issuance |
|
Principal |
|
|
Accrued |
|
|
Principal
and |
|
| |
|
Date |
|
Outstanding |
|
|
Interest |
|
|
Accrued
interest |
|
| J.P.
Carey Inc. |
|
May 20, 2020 |
|
$ |
60,000 |
|
|
$ |
26,947 |
|
|
$ |
86,947 |
|
| J.P.
Carey Inc. |
|
June 11, 2020 |
|
|
10,000 |
|
|
|
- |
|
|
|
10,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ellis
International LP |
|
October 13, 2020 |
|
|
100,000 |
|
|
|
14,656 |
|
|
|
114,656 |
|
| Anvil
Financial Management LLC |
|
January 1, 2021 |
|
|
9,200 |
|
|
|
917 |
|
|
|
10,117 |
|
| Total |
|
|
|
|
179,200 |
|
|
$ |
42,520 |
|
|
$ |
221,720 |
|
| Less:
J.P. Carey Inc excess debt conversions to be allocated against other outstanding notes |
|
|
|
|
(80,129 |
) |
|
|
|
|
|
|
|
|
| Less:
Ellis International LP excess common stock drawdown to be offset against Ellis convertible note |
|
|
|
|
(91,130 |
) |
|
|
|
|
|
|
|
|
| Less:
Unamortized discounts |
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
| Net
carrying value: December 31, 2021 |
|
|
|
$ |
7,941 |
|
|
|
|
|
|
|
|
|
The
following is a summary of Convertible Promissory Notes at December 31, 2021:
| | |
Issuance | |
Principal | | |
Accrued | | |
Principal and | |
| | |
Date | |
Outstanding | | |
Interest | | |
Accrued interest | |
| J.P.Carey Inc. | |
May 20, 2020 | |
$ | 60,000 | | |
$ | 23,396 | | |
$ | 83,396 | |
| J.P.Carey Inc. | |
June 11, 2020 | |
| 10,000 | | |
| - | | |
| 10,000 | |
| J.P.Carey Inc. | |
March 3, 2021 | |
| 150,000 | | |
| 12,452 | | |
| 162,452 | |
| Ellis International LP | |
October 13, 2020 | |
| 100,000 | | |
| 12,190 | | |
| 112,190 | |
| Anvil Financial Management LLC | |
January 1, 2021 | |
| 9,200 | | |
| 736 | | |
| 9,936 | |
| Total | |
| |
| 329,200 | | |
$ | 48,774 | | |
$ | 377,974 | |
| Less: J.P.Carey Inc excess debt conversions to be allocated against other outstanding notes | |
| |
| (80,129 | ) | |
| | | |
| | |
| Less: Ellis International LP excess common stock drawdown to be offset against Ellis convertible note | |
| |
| (91,130 | ) | |
| | | |
| | |
| Less:
Unamortized discounts | |
| |
| (25,993 | ) | |
| | | |
| | |
| Net carrying value: December 31, 2021 | |
| |
$ | 131,948 | | |
| | | |
| | |
The
Company defaulted on two of the J.P. Carey Inc. convertible notes by being late with the December 31, 2019 Form 10-K filing on the extended
date. One dated May 20, 2020 in the amount of $60,000 and another one dated June 11, 2020 of $10,000, causing the interest rate to increase
to 24%.
The
derivative fair value of the above at March 31, 2022 and at December 31, 2021 is $50,300 and $123,300, 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 December 31, 2017. In return for the issuance of the Note, Mr. Canouse
filed a Consent Motion to Withdraw Judgment, dismiss all garnishments, and cease all collection activities.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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 December 31, 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 December 31, 2017 and has been recording interest
at the 24% default rate. The Company also defaulted by being late with filing the Form 10-K on May 29, 2020.
During
the year ended December 31, 2019, J.P. Carey converted $1,002 of principal into 120,000 shares of the Company’s common stock at
a price of $0.0084 and J.P. Carey assigned $10,000 of the note to World Market Ventures, LLC and assigned $6,000 of the note to Anvil
Financial Management Ltd LLC. The assignments carry the same conversion rights as the original note. World Market Ventures converted
$6,000 of principal into 120,000 shares of the Company’s common stock at a price of $0.05. Anvil converted $6,000 of principal
into 120,000 shares of the Company’s common stock at a price of $0.05.
At
December 31, 2019, the J.P. Carey note balance including accrued interest of $51,980 was $121,910, including the portion assigned to
World Market Ventures of $4,000.
During
the 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 the assigned note had a principal balance of $10,755 and an accrued interest balance of $848 and $1,275, respectively, which
has been accounted for as having a derivative liability due to the variable conversion price. On August 10, 2021 Green Coast exercised
its right to convert the principal balance of $10,755 and accrued interest of $1,389 into 3,238,544 common shares in full settlement.
On
December 3, 2020 JP Carey assigned $25,000 of the accrued interest balance to Trillium Partners LP. The assignment carried the same conversion
rights as the original note. On December 23, 2020 Trillium converted $3,564 of principal, $214 of interest and $1,025 conversion fee
into 1,372,200 common stock at an average price of $0.0035. As of December 31, 2020 the assigned note had a principal balance of $21,436
and an accrued interest balance of $258. On January 18, 2021 Trillium converted $8,317 of principal, $310 of interest and $1,025 conversion
fee into 2,413,023 common stock at an average price of $0.004 and on January 27, 2021 Trillium converted the remaining balance of $13,119
of principal, $95 of interest and $1,025 conversion fee into 2,819,582 common stock at an average price of $0.00505. As of March 31,
2021 therefore, this assigned note has been fully converted to common shares by Trillium.
As
of December 31, 2020 the remaining accrued interest on the original JP Carey note was $20,029.
During
the three months ended March 31, 2021 JP Carey claimed a total of six additional conversions to common stock totaling $120,580,
represented by $116,080 in accrued interest and $4,500 in conversion fees, and received a total of 22,515,059 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 JP Carey in excess of the remaining balance due. The Company is
presently in negotiation with JP Carey to apply this excess to additionally retire the two outstanding JP Carey notes of $60,000 and
$10,000, together with all or a substantial portion of accrued interest thereon.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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.
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 amortized into interest expense through the maturity date of May 20, 2021
The
Company defaulted by being late with filing the Form 10-K on May 29, 2020. The Company accrued $26,947 of interest at the default rate
of 24% for the period from May 29, 2020 to March 31, 2022, and the principal balance was $60,000 at March 31, 2022 and December
31, 201.
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 amortized into interest expense through the maturity date of June 11, 2021. The principal balance was $10,000 at March 31, 2022 and December 31, 2021.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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
March 31, 2022 and at December 31, 2021 the outstanding balance on the note was $100,000 principal and $14,656 and $12,190 accrued interest,
respectively.
During
the three months ended December 31, 2021 Ellis International LP requested and was issued a total of 16,000,000 common shares against
its Convertible Debenture settlement (see Note 4). However, Ellis was only entitled to drawdown a total of 8,709,641 common shares to
reach its maximum common shares allocation from its settlement. The excess balance of 7,290,359 common shares, which carried a fair value
of $91,130 at the drawdown date based on the Company’s trading price of $0.0125 on that date, has been applied as an offset against
the outstanding principal of $100,000 on the Ellis convertible note pending resolution of this issue with Ellis.
Trillium
Partners LP Convertible Note dated December 8, 2020
On
December 8, 2020, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity
date of December 8, 2021 and received cash of $25,000 (net of $2,500 deducted for the noteholder’s legal fees). The Note is convertible
into common stock, subject to Rule 144, at any time after the issue date The Conversion Price shall be equal to the lower of: (i)
the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading price for the common stock
during the 30 trading day period prior to conversion. The holder does not have the right to convert the note, to the extent that
the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events that constitute
default including failure to pay principal and interest by the maturity date and failure to comply with the exchange act. In the event
of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum and the note becomes
immediately due and payable.
On
February 4, 2021 and March 10, 2021 Trillium exercised its right of conversion on a total of $21,000 principal, $222 accrued interest
and $2,050 conversion fees, and received a total of 3,784,052 of the Company’s common shares, at an average of $0.00615 per share,
leaving an outstanding principal balance of $6,500 and accrued interest of $1,111 at June 30, 2021.
On
September 15, 2021 the Company paid off in cash the remaining note liability of $6,500 principal and accrued interest, together with
a prepayment penalty of $3,477.
Anvil
Financial Management, LLC Convertible Note dated January 1, 2021
On
January 1, 2021 Company issued a 8% convertible note in the principal amount of $9,200 to Anvil Financial Management, LLC with a maturity
date of July 1, 2021 in payment of introducing financing to the Company. The Note was recorded as a discount to be amortized over the
debt term. The Note is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall
be equal to the lower of: (i) the Fixed Price of $0.10 per share; and (ii) the Variable Conversion Price, being 60% of the average of
the two lowest bid closing trading prices for the common stock during the 10 trading day period prior to conversion. The holder
does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 9.99% of our outstanding
common stock.
As
additional compensation, Anvil was issued a 5 year warrant to purchase 92,000 of the Company’s common stock at a price of $0.25
per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $2,015, but the relative
fair value was recorded as a discount as discussed below.
At March 31, 2022 and December 31, 2021 the outstanding
balance on the note was $9,200 principal, and accrued interest was $917 and $ 736, respectively.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
Trillium
Partners LP Convertible Note dated January 22, 2021
On
January 22, 2021, the Company issued a 8% convertible note in the principal amount of $27,500 to Trillium Partners LP with a maturity
date of January 22, 2022 and received cash of $25,000 (net of $2,500 expense deducted for the noteholder’s legal fees). The Note
is convertible into common stock, subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to
the lower of: (i) the Fixed Price of $0.001 per share; and (ii) the Variable Conversion Price, being 50% of the lowest trading price
for the common stock during the 30 trading day period prior to conversion. The holder does not have the right to convert the note,
to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note defines several events
that constitute default including failure to pay principal and interest by the maturity date and failure to comply with the exchange
act. In the event of default, the amount of principal and interest not paid when due bear default interest at the rate of 18% per annum
and the note becomes immediately due and payable.
On
August 16, 2021 Trillium exercised its right of conversion on the $27,500 principal and $1,218 accrued interest, and received a total
of 7,557,245 of the Company’s common shares at an average of $0.0038 per share, in full settlement of the note.
Trillium
Partners LP Secured Convertible Note dated March 3, 2021
On
March 3, 2021, the Company issued a 10% convertible note in the principal amount of $150,000 to Trillium Partners LP with a maturity
date of March 3, 2022 and received cash of $122,500 (net of Original Issue Discount of $15,000 and $12,500 expense deducted for the noteholder’s
legal fees). The $15,000 was recorded as debt discount to be amortized over the debt term. The Note is convertible into common stock,
subject to Rule 144, at any time after the issue date. The Conversion Price shall be equal to the Fixed Price of $0.005 per share. The
holder does not have the right to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding
common stock. The note defines several events that constitute default including failure to pay principal and interest by the maturity
date and failure to comply with the exchange act. In the event of default, the Conversion Price becomes the lower of $0.005 per share
or 50% of the lowest trading price during the trading day immediately preceding the Conversion Date. In addition, in the event of default
where the amount of principal and interest is not paid when due shall bear default interest at the rate of 22% per annum until paid.
The
note, together with accrued interest, may be prepaid prior to maturity at premiums of between 110% and 135%. The Original Issue Discount
of $15,000, deducted from note proceeds, is being amortized to interest expense over the 12 month term of the note.
The
principal amount and interest is defined under the note agreement as being “Senior ” with priority in right of payment over
all other indebtedness of the Company outstanding as of March 3, 2021. In addition, the obligations under the note are secured by a first
lien and security interest in all of the assets of the Company pursuant to the terms of a Security Agreement.
As
further inducement for Trillium to agree to the terms of the note, on March 3, 2021 the Company issued a 5 year Common Stock Purchase
Warrant to Trillium for 30,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.005
per share. In accordance with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $741,000, but the relative
fair value was recorded as a debt discount, as discussed below.
On
September 10, 2021 and September 23, 2021 Trillium exercised its right of conversion on the $150,000 principal and $7,562 accrued interest,
and received a total of 31,551,205 of the Company’s common shares, at the rate of $0.005 per share in full settlement of the note.
JP
Carey
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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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
December 31, 2021 the outstanding balance on the note was $150,000 principal and $12,452 accrued interest.
On
February 16, 2022 the Company entered into an Exchange Agreement with JP Carey whereby this Note and all accrued interest, security interest
and warrants were fully cancelled and exchanged for 15,000 Series D preferred shares. (See Note 8).
FirstFire
Global Opportunities Fund LLC note dated March 9, 2021
On
March 9, 2021, the Company issued a 10% convertible note in the principal amount of $110,000 to FirstFire Global Opportunities Fund LLC
with a maturity date of March 9, 2022 and received cash of $88,500 (net of Original Issue Discount of $10,000, a finder’s fee of
$10,000 to Primary Capital LLC and $1,500 expense deducted for the noteholder’s legal fees). The Company recorded $20,000 of the
fees as discounts and expensed $1,500. The Note is convertible into common stock, subject to Rule 144, at any time after 180 days from
the issue date. The Conversion Price shall be equal to the Fixed Price of $0.01 per share. The holder does not have the right
to convert the note, to the extent that the holder would beneficially own in excess of 4.99% of our outstanding common stock. The note
defines several events that constitute default including failure to pay principal and interest by the maturity date and failure to comply
with the exchange act. In the event of default, the Conversion Price becomes $0.005 per share. In addition, in the event of default where
the amount of principal and interest is not paid when due shall bear default interest at the rate of 20% per annum until paid. The note,
together with accrued interest, may be prepaid prior to maturity at a premium of 115%.
As
further inducement for FirstFire to agree to the terms of the note, on March 10, 2021 the Company issued 3,500,000 common shares to FirstFire
as payment for a commitment fee, which had a fair value of $62,300 at time of issuance, but the relative fair value was recorded as debt
discount as discussed below. In addition, on March 9, 2021 the Company issued a 3-year Common Stock Purchase Warrant to FirstFire on
3,500,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.025 per share. In accordance
with Black Scholes valuation requirements, this Purchase Warrant has a fair value of $66,500, but the relative fair value was recorded
as debt discount as discussed below.
On
March 11, 2021, in addition to the above mentioned finder’s fee, Primary Capital LLC was also issued a 3 year Common Stock Purchase
Warrant for 1,000,000 fully paid and nonassessable shares of the Company’s common stock at an exercise price of $0.01 per share
and a 3 year Common Stock Purchase Warrant on 350,000 fully paid and nonassessable shares of the Company’s common stock at an exercise
price of $0.025 per share. In accordance with Black Scholes valuation requirements, the fair value of these Purchase Warrants was $18,000
and $6,300 respectively, but the relative fair value was recorded as debt discount as discussed below.
On
September 20, 2021 the Company exercised its right to prepay the note and remitted cash totaling $130,000 to FirstFire, representing
the prepayment of $110,000 principal, accrued interest of $5,816 and prepayment penalty of $14,184.
As
discussed above, the Company determined that the conversion options embedded in certain convertible debt meet the definition of a derivative
liability. The Company estimated the fair value of the conversion options at the date of issuance, and at March 31, 2022, using Monte
Carlo simulations and the following range of assumptions:
Schedule
of Fair Value of Assumptions
| Volatility |
163.05%
– 172.75% |
| Risk
Free Rate |
0.52%
– 1.06% |
| Expected
Term |
0.25
– 0.54 |
Warrants
Issued Related to Notes
The
Company recorded a relative fair value of $301,411 for all the warrants issued with Notes or issued as finder’s fees relating to
Notes issued in 2021. The discounts are being amortized over the respective Note terms.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
Derivative
liabilities
At
March 31, 2022 and December 31, 2012 derivative liabilities are summarized as follows:.
Schedule
of Activity of Derivative Liabilities
| |
| | |
| Balance , December 31, 2021 | |
$ | 123,300 | |
| Extinguishment of derivative liability on exchange of convertible note for Series D preferred stock | |
| (74,000 | ) |
| Change in fair value of remaining derivatives | |
| 1,000 | |
| Balance, March 31, 2022 | |
$ | 50,300 | |
| | |
| | |
| Balance,
December 31, 2020 |
|
$ |
1,320,000 |
|
| Initial
derivative liabilities charged to operations |
|
|
1,796,835 |
|
| Initial
derivative liabilities recorded as debt discount |
|
|
74,165 |
|
| Gain
on settlement of derivatives upon conversion |
|
|
(134,802 |
) |
| Change
in fair value of derivatives |
|
|
(2,932,898 |
) |
| Balance,
December 31, 2021 |
|
$ |
123,300 |
|
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 March 31, 2022 and December 31, 2021.
7.
COMMITMENTS AND CONTINGENCIES
The
following summarizes the Company’s commitments and contingencies as of March 31, 2022:
(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 has not been made and the preferred shares have not been returned.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
Additionally,
Integrity will be entitled to additional shares if (i) the price of the Company’s common stock is below $1.34 at either the 120
day or 240 day reset dates set forth in the Company’s Debt Restructure Agreement as amended entered into with various debt holders
on March 26, 2019 effective November 5, 2019. The Company determined that a total of 4,275,000 additional shares would be issuable on
the first “reset” date of March 4, 2020 based on a share price of $0.20 on that date and a total of 7,537,500 additional
shares would be issuable on the second “reset” date of July 2, 2020 based on a share price of $0.08 on that date, for a total
of 12,562,500 shares. Integrity will also be entitled to a “true-up” by the issuance of additional common shares on the issuance
date should the share price of the Company’s common stock on the issuance date be below $1.00. It was determined by the Company
that its liability was $1,005,000 ($750,000 plus a premium of $255,000), in accordance with ASC 480.
On
August 28, 2020 Integrity requested and was issued 750,000 common shares, which Integrity advised the Company realized $16,625 when sold.
Accordingly, at December 31, 2020 the Company reduced its liability payable in common stock from $1,005,000 to $988,375.
On
October 14, 2020 the Company filed a “Declaration” with the Santa Clara County Courts challenging Integrity’s future
ability to convert additional shares based on “Stock Market Manipulation” designed to harm the Company’s share price,
valuation and number of shares issuable to Integrity following its sales. Additionally, the Company contended that Integrity disregarded
the volume limitation set forth in its settlement for the Company’s thinly traded securities and caused a potential third party
capital investment of $150,000 to be rescinded. The court agreed with the Company’s declaration that Integrity should have
filed a motion so the Company would have the opportunity to present all arguments and evidence in opposition to deny Integrity’s
application to enter judgment. On June 29, 2021 Integrity Media’s attempt to again obtain a motion for entry and enforcement
of the judgement was denied in favor of an entirely separate lawsuit, if any, to be brought to try to resolve any disputes with either
the original settlement agreement or with the entry of stipulated judgement itself. The matter therefore continues, unresolved.
(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. An accrued expense of $97,000 at March 31, 2022
and at December 31, 2021 has been established.
(iv)
Claim asserted by StockVest
On
March 11, 2021 the Company received claims asserted by StockVest for (a) the issuance of 1,054,820 common shares (market value of approximately
$19,000) representing anti-dilution stock as additional compensation for services provided to the Company pursuant to a certain Consulting,
Public Relations and Marketing Letter Agreement dated July 6, 2017, and (b) because said additional stock had not been issued by the
Company, StockVest asserted an additional claim for liquidated damages of $155,000. The Company believes that these asserted claims are
without merit. Accordingly, no accrued expense at either March 31, 2022 or December 31, 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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
8.
PREFERRED AND COMMON 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 to 19,736.
On
September 2, 2021 52 Series A Preferred shares held by a third party were converted to 4,928,511 common shares. After this conversion
the total issued and outstanding Series A Preferred shares were further reduced to 19,684.
On
October 11, 2021 50 Series A Preferred shares held by a third party were converted to 7,519,927 common shares. After this conversion
the total issued and outstanding Series A Preferred shares were further reduced to 19,634.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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 $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. 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 the event that a default event occurs where the Company fails to issue shares
upon conversion, the stated price will be $2.00. The holder shall have the right six months following the issuance date, to convert all
or any part of the outstanding Series C Preferred Stock into shares of common stock of the Company. The conversion price shall equal
the Variable Conversion Price. The “Variable Conversion Price” shall mean 71% multiplied by the market price, representing
a discount rate of 29%. Market price means the average of the two lowest trading prices for the 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).
Due
to the mandatory redemption feature, Series C convertible preferred shares are reflected as a current liability. 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 recorded and charged to interest expense for each issuance. In addition, the Company records a cumulative dividend to the mandatorily redeemable Series C preferred liability
with a charge to interest expense since this liability must be reflected at redemption value.
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.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
During
the three months ended March 31, 2021 a holder of the Series C converted 23,500 Series C shares to 5,500,894 common shares for a redemption
value of $50,589 including accrued dividends, plus premium, recorded into equity. In addition, during the three months ended March 31,
2021 a total of 296,450 shares of Series C convertible preferred stock were issued to two investors under preferred stock purchase agreements,
at a price of approximately $0.91 per share, for a total of $269,350 cash and premiums totaling $121,084 were recorded during this period
with respect to these issuances. At March 31, 2021 the remaining liability totals $634,143 represented by a remaining balance of $446,050
in redeemable Series C stock, together with the related premium of $181,385 and accrued dividends of $6,708.
During
the three months ended June 30, 2021 the Company elected to redeem and cancelled 36,300 Series C shares through the payment of $50,938,
which represented 135% of the outstanding principal of $36,300 and accrued dividend of $1,432. A holder of the Series C converted 84,700
Series C shares to 11,496,360 common shares for a redemption value of $137,553 including accrued dividends, plus premium, recorded into
equity. In addition, during the three months ended June 30, 2021 a total of 92,125 shares of Series C convertible preferred stock were
issued to an investors under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $83,750
cash and premiums totaling $37,629 were recorded during this period with respect to these issuances. At June 30, 2021 the remaining liability
totals $597,490 represented by a remaining balance of $417,175 in redeemable Series C stock, together with the related premium of $169,550
and accrued dividends of $10,765.
During
the three months ended September 30, 2021 the Company elected to redeem and cancelled 58,850 Series C shares through the payment of $82,408,
which represented 135% of the outstanding principal of $58,850 and accrued dividend of $2,192. A holder of the Series C converted 95,700
Series C shares to 17,799,687 common shares for a redemption value of $162,654 including accrued dividends, plus premium, recorded into
equity. In addition, during the three months ended September 30, 2021 a total of 178,750 shares of Series C convertible preferred stock
were issued to an investor under preferred stock purchase agreements, at a price of approximately $0.91 per share, for a total of $162,500
cash and premiums totaling $73,011 were recorded during this period with respect to these issuances.
During
the three months ended December 31, 2021 86,625 shares of Series C convertible preferred stock were issued to an investor under a preferred
stock purchase agreement, at a price of approximately $0.91 per share. Cash of $78,750, a discount of $7,875 and a premium expense of
$35,382 were recorded during this period with respect to this issuance. A holder of the Series C converted 62,625 Series C shares to
21,248,239 common shares for a redemption value of $90,709 including accrued dividends, plus premium, recorded into equity.
During
the three months ended March 31, 2022 59,125 shares of Series C convertible preferred stock were issued to an investor under a preferred
stock purchase agreement, at a price of approximately $0.91 per share. Cash of $53,750, a discount of $5,375 and a premium expense of
$24,150 were recorded during this period with respect to this issuance. A holder of the Series C converted a total of 208,250 Series
C shares to 207,382,158 common shares for a redemption value of $301,640 including accrued dividends, plus premium, recorded into equity
At
March 31, 2022 the remaining liability totals $463,284 represented by a remaining balance of $316,250 in redeemable Series C stock, together
with the related premium of $128,328 and accrued dividends of $18,706.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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. 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.
Each
Series D preferred share is convertible, at the option of the holder, at any time, into nonassessable common shares (a) at 80% of
the average closing price reported on OTC Markets for the 20 trading days preceding conversion through June 30, 2021, (b) as
amended, at 80% of the average closing price reported on OTC Markets for the 10 trading days preceding conversion effective July 1,
2021,and (c) as amended as amended, at 50% of the lowest closing price reported on OTC Markets for the 10 trading days preceding
conversion effective March 3, 2022
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.
During
the three months ended September 30, 2021 the Company received a total of $760,000 from the sale of 76,000 Series D Convertible Preferred
Stock. In addition, during that period 75,506 Series D Preferred shares were subsequently converted to 114,102,488 common shares at an
average conversion rate of $0.00662 per common share, resulting in a remaining balance at September 30, 2021 of 40,524 Series D Preferred.
During
the three months ended December 31, 2021 the Company received a total of $250,000 from the sale of 25,000 Series D Convertible Preferred
Stock. In addition, during that period 13,892 Series D Preferred shares were subsequently converted to 26,574,626 common shares at an
average conversion rate of $0.00523 per common share, resulting in a remaining balance at December 31, 2021 of 51,632 Series D Preferred.
During the three months ended March 31, 2022 the
Company received a total of $246,200 from the sale of 24,620 Series D Convertible Preferred Stock. In addition, during that period
the Company issued 15,000 Series D Convertible Preferred Stock to a holder of a convertible note with principal outstanding of
$150,000 in exchange for the cancellation of that note and accrued note interest. The Company recognized a gain on this exchange
equal to $81,707, which consists of the settlement of accrued interest of $14,384 and settlement of the derivative liability of
$74,000, offset by interest expense of $6,667 incurred in 2022 up to the exchange date of February 16, 2022. Further, during that
period 41,626 Series D Preferred shares were subsequently converted to 517,006,635 common shares at an average conversion rate of
$0.000805 per common share, resulting in a remaining balance at March 31, 2022 of 49,626 Series D Preferred.
COMMON
STOCK:
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. On March 18, 2022 the Company further increased its authorized common shares from 2 billion (2,000,000,000) to 3 billion
(3,000,000,000) of $0.0001 par value each. On April 7, 2022 the Company again increased its authorized common shares, this time from
3 billion (3,000,000,000) to 5 billion (5,000,000,000) of $0.0001 par value each. The latter increase has been reflected retroactively
in the accompanying consolidated balance sheet.
During
the year ended December 31, 2021, the Company:
Issued
73,885,399 shares of common stock to convertible note holders for the conversion of an aggregate of $718,954 of the notes and accrued
interest at an average price of approximately $0.0097 per share.
Granted
3,500,000 shares of common stock to a noteholder as a commitment fee valued at its relative fair value of $11,924.
Issued
a total of 97,222,628 common shares to the holders of convertible debentures, which were recorded as reclassifications from issuable
to issued common shares.
Issued
7,290,359 common shares to a convertible debenture holder in excess of their entitlement valued at $91,129, which will be offset against
a separate convertible note also issued to that holder.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
Issued
a total of 56,045,180 common shares on conversion of 314,575 Preferred Series C shares, accrued dividend of $12,093 plus a premium of
$114,839, for an aggregate of $441,507 at an average price of approximately $0.0079 per share.
Settled
the common stock subscription receivable of $4,500 against the amount payable in accrued salaries to current directors and officers of
the Company.
Issued
15,004,178 common shares upon conversion of 152 Series A preferred stock
Issued
171,707,042 common shares upon conversion of 134,368 Series D preferred stock.
Issued
2,000,000 common shares in payment of services valued at a total of $17,400 based on the quoted trade price of $0.0087 on the grant date.
Recorded
the issuance of 20,000 common shares not previously recognized
During
the three months ended March 31, 2022, the Company:
Issued
176,986,025 common shares, valued at $ 637,150, to certain third parties as initial consideration to acquire the underlying Artist Republik
business and related technology, trademarks and customer lists from Artist Republik, Inc.
Issued
207,382,158 common shares on conversion of 208,259 Series C preferred stock plus accrued dividends, valued $301,640.
Issued
517,006,635 shares of common stock on conversion of 41,626 Series D preferred stock at a conversion value of $416,260.
Issued 50,000,000 shares of common stock on the cashless
exercise of 100,000,000 warrants related to a convertible note, which had a Black Scholes valuation of $332,999 recorded as a deemed dividend.
9.
SHARE PURCHASE WARRANTS
Activity
in the three month ended March 31, 2022 is as follows:
Schedule
of Warrant Activity
Common
stock warrants
| | |
Number of | | |
Weighted Average | | |
Weighted Average | |
| | |
Warrants | | |
Exercise Price $ | | |
Remaining Life (Years) | |
| Balance outstanding, December 31, 2021 | |
| 66,817,000 | | |
| 0.0067 | | |
| 3.74 | |
| Granted | |
| 1,000,000 | | |
| 0.01 | | |
| 4.93 | |
Cancelled warrants | |
| (30,000,000 | ) | |
| | | |
| | |
| Rachet adjustment | |
| 270,000,000 | | |
| | | |
| | |
| Warrants exercised | |
| (100,000,000 | ) | |
| | | |
| | |
| Balance outstanding, March 31, 2022 | |
| 207,817,000 | | |
| | | |
| | |
Series
D warrants
| | |
Number of | | |
Weighted Average | | |
Weighted Average | |
| | |
Warrants | | |
Exercise Price $ | | |
Remaining Life (years) | |
| Balance outstanding, December 31,2020 | |
| - | | |
| - | | |
| - | |
| Granted | |
| 3,500 | | |
| 10.00 | | |
| 4.43 | |
| Balance outstanding, December 31,2021 | |
| 3,500 | | |
| 10.00 | | |
| 4.43 | |
| Balance outstanding, March 31, 2022 | |
| 3,500 | | |
| 10,00 | | |
| 4.13 | |
The
Preferred Series D warrants, when exercised at the price of $10.00 per share, as amended, are then convertible to common shares at 50%
of the Company’s lowest closing stock price over 10 trading days prior to conversion.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
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 February 16, 2022 the Company entered
into an Exchange Agreement with JP Carey whereby this Note and all accrued interest, security interest and warrants were fully cancelled
and exchanged for 15,000 Series D preferred shares (see subsequent events footnote)..
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, subject to full ratchet price protection, and entitles
Trillium to purchase the Company’s common stock for a period of up to 5 years from March 3, 2021. On the initial measurement date,
applying the applicable Black Scholes valuation, the fair value of the warrants was recorded as a debt discount and an increase to paid-in
capital. See Note 5 “Warrants issued related to Notes”.
On
May 6, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 2,500 shares of the Company’s Series
D Preferred stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire
of 25,000 Series D Preferred stock. Warrants on 2,500 Series D Preferred stock common shares are exercisable at any time on or after
the date of issuance at the price of $10.00 per share and entitles the holder to purchase the Company’s Series D Preferred stock
for a period of up to 5 years from May 6, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of the warrants was $25,000. However, there is no accounting entry since the cost of these warrants was treated as
an offering cost against the proceeds of the Series D Preferred stock offering.
On August 9, 2021 the Company issued warrants
to Robert Nathan/Primary Capital, LLC to purchase up to 1,000
shares of the Company’s Series D Preferred stock (the “Warrants”) in part consideration as a finder’s fee
in connection with the purchase by FirstFire of 10,000 Series D Preferred stock on July 23, 2021. Warrants on 1,000 Series D Preferred
stock common shares are exercisable at any time on or after the date of issuance at the price of $10.00
per share and entitles the holder to purchase the Company’s Series D Preferred stock for a period of up to 5
years from August 9, 2021. On the initial measurement date, applying the applicable Black Scholes valuation, the fair value of
the warrants was $10,000. However,
there is no accounting entry since the cost of these warrants was treated as an offering cost against the proceeds of the Series D Preferred
stock offering.
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
On
September 10, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 625,000 shares of the Company’s
common stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire
of 12,500 Series D Preferred stock on August 31, 2021. Warrants on 1,000 Series D Preferred stock common shares are exercisable
at any time on or after the date of issuance at the price of $10.00 per share and entitles the holder to purchase the Company’s
Series D Preferred stock for a period of up to 5 years from September 10, 2021. On the initial measurement date, applying the
applicable Black Scholes valuation, the fair value of the warrants was $6,250. However, there is no accounting entry since the
cost of these warrants was treated as an offering cost against the proceeds of the Series D Preferred stock offering.
On
October 7, 2021 and November 1, 2021 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up to 625,000
and 625,000
shares, respectively, of the Company’s common
stock (the “Warrants”) in part consideration as a finder’s fee in connection with the purchase by FirstFire of a total
of 25,000 Series D Preferred stock, at an exercise price of $0.01 per share. On the initial measurement date, applying the applicable
Black Scholes valuation, the fair value of the warrants was $4,288
and $2,813
respectively. However, there is no accounting
entry since the cost of these warrants was treated as an offering cost against the proceeds of the Series D Preferred stock offering.
On
January 10, 2022, March 22, 2022 and March 31, 2022 the Company issued warrants to Robert Nathan/Primary Capital, LLC to purchase up
to 500,000, 250,000 and 250,000 shares, respectively, of the Company’s common stock (the “Warrants”) in part consideration
as finder’s fees in connection with the purchase of Series D Preferred stock, at an exercise price of $0.01 per share. However,
there is no accounting entry to record the Black Scholes valuations since the cost of these warrants was treated as an offering cost
against the proceeds of the Series D Preferred stock offering.
On March 22, 2022 Trillium Partners LP exercised the
full ratchet price protection provisions available under its original March 3, 2021 30 million common stock warrant, such that the warrant
escalated to a total of 300 million common shares, of which 150 million common shares could be exercised on a cashless basis. On March
28, 2022 Trillium Partners LP submitted an exercise notice on 100 million of the 300 million reset warrants, and claimed 50 million cashless
common shares, which were issued by the Company on March 30, 2022. The Black-Scholes valuation of the difference between the warrant before
and after the rachet was $323,999, which was recorded as a deemed dividend.
10.
STOCK-BASED COMPENSATION
Schedule
of Stock Based Compensation
| | |
Number of Stock | | |
Weighted Average
Exercise Price | | |
Weighted Average
Remaining Life | |
| | |
Options | | |
$ | | |
(Years) | |
| Balance outstanding, December 31, 2020 | |
| - | | |
| - | | |
| - | |
| Granted | |
| 16,500,000 | | |
$ | 0.0141 | | |
| 1.65 | |
| Balance outstanding, December 31, 2021 | |
| 16,500,000 | | |
$ | 0.0141 | | |
| 1.65 | |
| Granted | |
| 40,000,000 | | |
| 0.0150 | | |
| 2.00 | |
| Balance outstanding, March 31, 2022 | |
| 56,500,000 | | |
| 0.0142 | | |
| 1.84 | |
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 December 31, 2020, no options have been awarded under
the 2014 Plan. Effective August 27, 2019, the Company effected a reverse split of the common stock of 1 for 18,000 (Note 1) which eliminated
all the options which were previously outstanding.
During
January, 2021 the Company awarded stock options to its 5 employees totaling 5 million common shares vesting quarterly over 2 years and
10 million common shares vesting quarterly over 3 years, both sets of option are exercisable at a price of $0.014 per share. In addition,
during January, 2021 stock options on a further 1.5 million common shares were granted, 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 vesting periods. Of this total, the Company incurred a stock
option expense of $87,042 for the year ended December 31, 2021 (2020: $0).
FRIENDABLE,
INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022 and 2021
(Unaudited)
On
March 3, 2022 the Company granted stock options to 2 music consultants of 20 million common shares each vesting quarterly over 2
years, exercisable at a price of $0.015 per share. Applying the Black-Scholes valuation method, the total cost of these options is
$58,000 which is being amortized to general and administrative expense over their vesting periods. Of this total, the Company
incurred a stock option expense of $2,417 for the three months ended March 31, 2022 (2021: $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 subjective.
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 March 31, 2022 and December 31, 2021 there were derivatives measured at fair value on a recurring basis (see note 5) presented on
the Company’s balance sheet, as follows:
Liabilities
at Fair Value:
March
31, 2022
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| Embedded conversion options derivative liabilities | |
| - | | |
| - | | |
$ | 50,300 | | |
$ | 50,300 | |
| | |
| | | |
| | | |
| | | |
| | |
December
31, 2021
| | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| Embedded conversion options derivative liabilities | |
| - | | |
| - | | |
$ | 123,300 | | |
$ | 123,300 | |
FRIENDABLE,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2022 and 2021
(Unaudited)
12.
BUSINESS ACQUISITION
On January 5, 2022, the Company
completed its acquisition of substantially all of the assets of Artist Republik, Inc. (“Artist Republik”). Artist Republik
is a subscription service specifically created for music artists to obtain music distribution on certain digital platforms (such as Spotify
and Apple Music) and receipt of royalties from those platforms, together with providing a marketplace to purchase beats, obtain enhanced
audio production and purchase access to playlists. Its decentralized platform allows independent music artists from around the world to
take control of their own careers through networking, centralized resources, and AI-based management tools. Artist Republik has attracted
approximately 100,000 artists to its offerings and has operating revenues from the sales of services. The acquisition substantially adds
to the range of music services available and offered to music artists by Fan Pass.
At closing, the Company issued
176,986,025 shares of the Company’s common stock to Artist Republik and certain creditors of Artist Republik. At the end of 12 months
following the Closing, in the event the number of shares issued to Seller at the Closing has been diluted below 25% of the total outstanding
common shares as of such date, the Company shall issue to the Seller that additional number of shares necessary so that the number of
shares issued to Seller is not less than 25% of the then-total issued and outstanding shares of the Company. For a period of 12 months
from the Closing Date, the holders of the shares issued pursuant to the Acquisition Agreement shall be limited to selling not more than
10% of the average daily trading volume, in the aggregate, on any given trading day.
The Company acquired all
of Artist Republik’s customer lists, customers, back-end processes, name, trademarks, internet domains and other things necessary
to carry on the business of Artist Republik.
The Company’s preliminary
estimate of the fair value of the purchase consideration was $1,047,150, consisting of $637,150 for the initial shares, based on the closing
price of the Company’s common stock on the acquisition date, and $410,000 for the contingent consideration for the future maintenance
of the 25% minimum equity threshold referred to above, calculated using a Monte Carlo Simulation. The preliminary allocation of the purchase
consideration to the acquired assets is summarized as follows:
Schedule
of Assets Acquired
|
|
|
|
|
| Customer Relationships |
|
$ |
14,001 |
|
| Cash |
|
|
9,500 |
|
| Tradename |
|
|
32,230 |
|
| Technology Platform |
|
|
161,151 |
|
| Goodwill |
|
|
830,268 |
|
| Total Purchase Consideration |
|
$ |
1,047,150 |
|
The qualitative factors that
make up the goodwill recognized consist of a work-force in place, and operational processes not recognizable as separate intangible assets.
The above allocation is preliminary subject to change based on completion of fair value estimates during the measurement period, which
may be up to one year.
The following represents
unaudited pro-forma revenue and earnings of the consolidated Company as though the business combination had occurred as of the beginning
of the earliest reporting period presented.
Schedule
of Unaudited Pro-Forma Revenue and Earnings
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| Revenues |
|
$ |
500,629 |
|
|
$ |
451,027 |
|
| Operating Expenses |
|
|
4,707,319 |
|
|
|
2,813,052 |
|
| Operating Loss |
|
|
(4,206,690 |
) |
|
|
(2,362,025 |
) |
| Other Expenses, net |
|
|
(73,293 |
) |
|
|
(2,344,310 |
) |
| Net Loss |
|
$ |
(4,374,832 |
) |
|
$ |
(4,706,335 |
) |
Amortizable intangible assets acquired totaling
$172,152, consisting of customer relationships $14,001 and technology platform $161,151, are being amortized to operating expense on
a straight-line basis over a three year life from date of acquisition. Amortization expense for the three months ended March 31,
2022 totaled $14,596. The tradename has an indefinite life and therefore is not amortized but subject to impairment testing
periodically, but at least annually. Goodwill is subject to periodic impairment testing at least annually and is expected to be
amortized over 15 years for tax purposes.
13. SUBSEQUENT
EVENTS
Subsequent to March 31, 2022 the Company issued a
total of 741,170,939 common shares on conversion of 21,500 Series D Preferred Stock, an at average conversion of $0.00029 per share.
Subsequent
to March 31, 2022 the Company received $151,000 from the sale of 15,100 Series D Convertible Preferred Stock at $10.00 per share. In
connection with these sales, the Company paid Primary Capital finder’s fees totaling $5,000 and issued 5 year Warrants on 500,000
common shares at an exercise price of $0.01 per share.
Subsequent
to March 31, 2022 the Company received cash of $43,500 from a convertible promissory note with a principal value of $55,000, less OID
of $5,000, less legal fees of $4,000 and less a finder’s fee of $2,500. .The note carries interest at the rate of 12% per annum
and has a maturity date of November 30, 2022. The note also carries a right of conversion to the Company common shares at the fixed rate
of $0.00025 per share.
