Friendable, Inc. - Quarter Report: 2016 September (Form 10-Q)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2016

 

OR

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to               

 

Commission File Number: 000-52917

 

FRIENDABLE, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		98-0546715
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

 

1821 S Bascom Ave., Suite 353, Campbell, California 95008

(Address of principal executive offices)   (zip code)

 

(855) 473-8473

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.		☒ Yes   ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).		☒ Yes   ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes   ☒ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

869,188,146 shares of common stock and 21,661 shares of preferred stock outstanding as of November 14, 2016

 

 

 

TABLE OF CONTENTS

 

 

 

PART I - FINANCIAL INFORMATION	1
ITEM 1.  FINANCIAL STATEMENTS	1
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
ITEM 4.  CONTROLS AND PROCEDURES	18
PART II - OTHER INFORMATION	20
ITEM 1.  LEGAL PROCEEDINGS	20
ITEM 1A.  RISK FACTORS	20
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES	20
ITEM 4.  MINE SAFETY DISCLOSURES	20
ITEM 5.  OTHER INFORMATION	20
ITEM 6.  EXHIBITS	21
SIGNATURES	23

 

 

 

As used in this report, the term “the Company” means Friendable, Inc., formerly known as iHookup Social, Inc., and its subsidiary, unless the context clearly indicates otherwise.

 

Special Note Regarding Forward-Looking Information

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: the Company’s future financial performance, the Company’s business prospects and strategy, anticipated trends and prospects in the industries in which the Company’s businesses operate and other similar matters. These forward-looking statements are based on the Company’s management's expectations and assumptions about future events as of the date of this quarterly report, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

 

Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect the Company’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward-looking statements discussed in this quarterly report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of the Company’s management as of the date of this quarterly report. The Company does not undertake to update these forward-looking statements

 

In this quarterly report on Form 10-Q, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in the Company’s capital stock.

 

An investment in the Company’s common stock involves a number of very significant risks.  You should carefully consider the following risks and uncertainties in addition to other information in this quarterly report on Form 10-Q in evaluating the Company and its business before purchasing shares of the Company’s common stock.  The Company’s business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks.  You could lose all or part of your investment due to any of these risks. You should invest in the Company’s common stock only if you can afford to lose your entire investment.

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

ITEM 1.  FINANCIAL STATEMENTS.

 

 

 

FRIENDABLE, INC.

(FORMERLY IHOOKUP SOCIAL, INC.)

 

CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

September 30, 2016

 

(Unaudited)

 

 

Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015		2
Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015		3
Consolidated Statements of Stockholders’ Deficiency for the period from December 31, 2014 to September 30, 2016		4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015		5
Notes to the Consolidated Financial Statements		6-14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 FRIENDABLE, INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in US dollars)

 

ASSETS	September 30, 2016 (Unaudited)	December 31, 2015
Current assets
Cash	$21,329	$15,880
Accounts receivable	1,203	3,848
Prepaid expenses	6,963	1,897
Debt issue costs (Note 10)	346,343	200,855
Total current assets	375,838	222,480
Intangible assets (Note 3)	35,000	35,000
TOTAL ASSETS	$410,838	$257,480
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current liabilities
Accounts payable (Note 8)	1,613,477	1,183,169
Current portion of convertible debentures (Note 10)	1,921,742	493,742
Deferred revenue	6,323	6,323
	3,541,542	1,683,234
Convertible debentures (Note 10)	-	74,263
Total liabilities	3,541,542	1,757,497
Going concern (Note 1)
Commitments (Note 7)
Subsequent events (Note 11)
STOCKHOLDERS' DEFICIENCY
Preferred stock, 50,000,000 shares authorized at par value of $0.0001, 21,770 (December 31, 2015 – 22,165) shares issued and outstanding (Note 4)	2	2
Common stock, 10,000,000,000 shares authorized at par value of $0.0001, 775,541,236 (December 31, 2015 – 218,977,542) shares issued and outstanding (Note 4)	77,554	21,898
Additional paid-in capital	8,487,643	5,947,584
Common stock subscriptions receivable (Note 8)	(4,500)	(4,500)
Deficit	(11,691,403)	(7,465,001)
Total Stockholders' Deficiency	(3,130,704)	(1,500,017)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$410,838	$257,480

  

 

The accompanying notes are an integral part of these consolidated financial statements.

  

 

 

 FRIENDABLE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in US dollars)

(Unaudited)

 

 

	Three Months Ended September 30, 2016 $	Three Months Ended September 30, 2015 $	Nine Months Ended September 30, 2016 $	Nine Months Ended September 30, 2015 $
REVENUES	5,915	34,770	24,495	120,028
OPERATING EXPENSES
Accretion and interest expense	335,468	349,306	1,514,264	996,696
App hosting (Note 8)	89,652	100,161	318,204	276,221
Commissions	1,774	10,431	7,318	36,008
Financing costs	38,067	17,031	113,525	95,245
General and administrative (Note 8)	218,127	197,641	678,850	684,100
Product development	80,386	32,927	239,620	77,622
Sales and marketing	606,515	38,799	1,379,116	187,833
TOTAL OPERATING EXPENSES	1,369,989	746,296	4,250,897	2,353,725
LOSS FROM OPERATIONS	(1,364,074)	(711,526)	(4,226,402)	(2,233,697)
OTHER INCOME
Gain on extinguishment of debt	-	-	-	5,096
NET LOSS AND COMPREHENSIVE LOSS	(1,364,074)	(711,526)	(4,226,402)	(2,228,601)
BASIC AND DILUTED LOSS PER SHARE	(0.00)	(0.01)	(0.01)	(0.03)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING	678,909,446	130,123,048	454,287,515	76,690,053

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

FRIENDABLE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

FOR THE PERIOD FROM DECEMBER 31, 2014 TO SEPTEMBER 30, 2016

(Expressed in US dollars)

(Unaudited)

 

 

	Common Stock #	Common Stock Amount	Preferred #	Preferred Stock Amount	Additional Paid-in Capital	Common Stock Subscriptions	Deficit	Total
Balance December 31, 2014	8,802,940	$881	22,807	$2	$3,340,495	$(4,500)	$(4,310,032)	$(973,154)
Shares issued for services (Note 4)	1,150,000	115	—	—	6,325	—	—	6,440
Conversion of convertible notes (Note 4)	190,385,736	19,038	—	—	269,629	—	—	288,667
Conversion of preferred shares (Note 4)	18,638,866	1,864	(642)	—	(1,864)	—	—	—
Issuance of convertible notes (net) (Note 10)	—	—	—	—	2,332,999	—	—	2,332,999
Net loss for the year	—	—	—	—	—	—	(3,154,969)	(3,154,969)
Balance December 31, 2015	218,977,542	$21,898	22,165	$2	$5,947,584	$(4,500)	$(7,465,001)	$(1,500,017)

 

Shares issued for services (Note 4)	43,785,714	4,379	—	—	177,721	—	—	182,100
Conversion of convertible notes (Note 4)	423,669,721	42,367	—	—	170,888	—	—	213,255
Conversion of preferred shares (Note 4)	62,114,357	6,211	(395)	—	(6,211)	—	—	—
Issuance of convertible notes (net) (Note 10)	—	—	—	—	2,122,464	—	—	2,122,464
Warrants	26,993,902	2,699	—	—	75,197	—	—	77,896
Net loss for the period	—	—	—	—	—	—	(4,226,402)	(4,226,402)
Balance September 30, 2016	775,541,236	$77,554	21,770	$2	$8,487,643	$(4,500)	$(11,691,403)	$(3,130,704)

 

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

 

FRIENDABLE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Expressed in US dollars)

(Unaudited)

 

 

	Nine months ended  September 30, 2016	Nine months ended  September 30, 2015
Cash Flows from Operating Activities:
Net loss	$(4,226,402)	$(2,228,601)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Interest on promissory note	182,064	22,965
Accretion expense	1,342,434	837,244
Gain on extinguishment of debt	-	(5,096)
Shares issued for services	177,034	47,893
Changes in Operating Assets and Liabilities
Decrease (increase) in accounts receivable	2,645	300)
Decrease in prepaid expenses	-	(442
Increase in accounts payable	276,166	370,979
Net Cash Used in Operating Activities	(2,246,059)	(954,758)
Cash Flows from Investing Activities:
Acquisition of intangible assets	-	(35,000)
Net Cash Used in Investing Activities	-	(35,000)
Cash Flows from Financing Activities:
Proceeds from convertible debentures (net)	2,251,508	1,311,395
Net Cash Provided by Financing Activities	2,251,508	1,311,395
Net Increase in Cash	5,449	321,637
Cash (checks issued in excess of cash on hand) – Beginning	15,880	(945)
Cash – Ending	$21,329	$320,692
Supplemental Cash Flow Information:
Cash paid for interest	$—	$—
Cash paid for income taxes	$—	$—
Non-cash Investing and Financing Items:
Shares issued for conversion of debt (net)	$213,255	$240,031
Convertible debentures issued to extinguish promissory notes	$-	$261,425

  

The accompanying notes are an integral part of these consolidated financial statements.

 

 

FRIENDABLE, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE PERIOD SEPTEMBER 30, 2016

(Expressed in US dollars)

 

1.  NATURE OF BUSINESS AND GOING CONCERN

 

Friendable, Inc., a Nevada corporation (the “Company”), was incorporated in the State of Nevada with a plan to produce user-friendly software that creates interactive digital yearbook software for schools.

 

Effective June 15, 2011, the Company completed a merger with its subsidiary, Titan Iron Ore Corp., a Nevada corporation, which was incorporated solely to effect a change in the Company’s name from “Digital Yearbook Inc.” to “Titan Iron Ore Corp.” The Company then began to pursue business in the area of mining exploration.

 

On February 3, 2014, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger”) with iHookup Operations Corp., a wholly-owned Delaware subsidiary of the Company (“Acquisition Sub”) and iHookup-DE, whereby iHookup-DE was the surviving entity and became the wholly-owned subsidiary of the Company. iHookup-DE’s former stockholders exchanged all of their 6,000 shares of outstanding common stock for 25,000 shares of the Company’s designated Series A Preferred Stock.

 

The Merger was regarded as a reverse recapitalization whereby iHookup-DE was considered to be the accounting acquirer as its stockholders retained control of the Company after the Merger. During the year ended December 31, 2014, the Merger was completed and as a result, iHookup-DE acquired the net liabilities of the Company.

 

As a result of the Merger, the Company ceased its prior operations and its business became the development and dissemination of a “proximity based” mobile-social media application that facilitates connections between people, utilizing the intelligence of global positioning system and localized recommendations.

On September 28, 2015 the Company filed a Certificate of Amendment to its Articles of Incorporation changing the name of the Company from “iHookup Social, Inc.” to “Friendable, Inc.”. On October 27, 2015 the Company’s trading symbol on the OTC Pink marketplace was changed from “HKUP” to “FDBL”. This change was made in conjunction with the re-branding of the Company’s app from "iHookup Social" to "Friendable".

 

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. The Company has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. As of September 30, 2016, the Company has a working capital deficiency of $3,165,704 and has an accumulated deficit of $11,691,403 since inception and its operations continue to be funded primarily from sales of its stock and issuance of convertible debentures. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain the necessary financing from sales of its stock financings. 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 raise financing through the issuance of convertible notes. No assurance can be given that any such additional financing will be available, or that it can be obtained on terms acceptable to the Company and its stockholders.

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

These consolidated financial statements include the accounts of Friendable, Inc., from the date of acquisition, and its wholly owned subsidiary, iHookup-DE from inception.

 

Interim financial statements

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim consolidated financial information and with the instructions for Securities and Exchange Commission (“SEC”) Form 10-Q and they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto for the year ended December 31, 2015, included in the Company’s Annual Report on Form 10-K filed on April 15, 2016, with the SEC.

 

In the opinion of management, all adjustments (consisting of normal and recurring accruals) considered necessary for fair presentation of the Company’s financial position, results of operations and cash flows have been included. Operating results for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for future quarters or the year ending December 31, 2016.

 

 

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 the useful life and recoverability of long-lived assets, valuation of convertible debenture conversion options, 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

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The Company derives revenues from the sale of application software, unlimited messaging subscriptions for periods varying from one to twelve months, and arrangements for virtual gifts and access to special features referred to as coin packs. Revenue from the sale of application software is recognized upon download. Revenue from messaging subscriptions is recognized as revenue ratably over the subscription period beginning on the date the service is made available to customers. Revenue from coin packs is recognized on a consumption basis commensurate with the customer utilization of such resources.

 

Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred. During the nine months ended September 30, 2016, the Company incurred $1,379,116 (September 30, 2015: $187,833) in advertising costs.

 

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

 

Intangible Assets

The Company accounts for intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. The Company assesses potential impairments to intangible assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered.

 

Intangible assets with estimated lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with estimated lives and other long-lived assets is measured by comparing the carrying amount of the asset to its fair value. If the future value of the asset is lower than its carrying value, the Company recognizes an impairment loss for the amount by which the carrying value of the asset exceeds the related estimated fair value.

 

Intangible assets with indefinite lives are tested for impairment annually or more frequently are tested for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the intangible asset is impaired.

 

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.

 

 

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees and directors, including stock options.

 

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 comprehensive loss 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.

 

Allowance for Doubtful Accounts

The Company receives revenues from sales of its software application. The Company monitors its outstanding receivables for timely payments and potential collection issues. During the nine months ended September 30, 2016, the Company did not have any allowance for doubtful accounts.

  

Financial Instruments

Financial assets and financial liabilities are recognized in the balance sheet when the Company has become party to the contractual provisions of the instruments.

 

The Company’s financial instruments consist of accounts receivable, accounts payable, promissory notes, and convertible debentures. 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 comprehensive loss. 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 September 30, 2016, there were approximately 11,286,943,725 potentially dilutive shares outstanding.

 

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.

 

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40). Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosure. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company is evaluating the impact the revised guidance will have on its consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, Revenue Recognition -Construction-Type and Production-Type Contracts”.  2014-09 requires the disclosure of sufficient information to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company will also be required to disclose information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. Early adoption is not allowed. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on its consolidated financial statements.

 

3.  INTANGIBLE ASSETS

 

On June 24, 2015, the Company completed the acquisition of the Friendable Properties which includes domain names, logos, icons, and registered trademarks for cash consideration of $35,000.

 

4.  COMMON AND PREFERRED STOCK

 

Common Stock:

 

During the nine months ended September 30, 2016, the Company issued 423,669,721 shares of common stock to various convertible note holders for full and partial conversion of the notes (Note 10).

 

During the nine months ended September 30, 2016, the Company issued 43,785,714 shares of common stock to consultants in exchange for investor relations and advertising services.

 

During the nine months ended September 30, 2016, the Company issued 62,114,357 shares of common stock to various Series A preferred stockholders on conversion of 395 preferred shares.

 

During the nine months ended September 30, 2016, the Company issued 26,993,902 shares of common stock to various warrant holders for exercise of the warrants.

 

Preferred Stock:

 

The Series A Preferred Stock is convertible into nine (9) times the number of common stock outstanding until the closing of a Qualified Financing (i.e. the sale and issuance of the Company’s equity securities that results in gross proceeds in excess of $2,500,000).  The number of shares of common stock issued on conversion of preferred stock is based on the ratio of the number of shares of 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.

 

 

 

 

5.  SHARE PURCHASE WARRANTS

 

	Number of Warrants	Weighted Average Exercise Price $
Balance, December 31, 2015	119,471,154	0.014
Warrants exercised	(27,609,756)	0.004
Warrants issued	464,474,359	0.003
Balance, September 30, 2016	556,335,757	0.006

 

6.  STOCK-BASED COMPENSATION

 

On November 22, 2011, the Board of Directors of Titan Iron Ore Corp. (see Note 1) approved a stock option plan (“2011 Stock Option Plan”), the purpose of which is to enhance the Company’s stockholder value and financial performance by attracting, retaining and motivating the Company’s officers, directors, key employees, consultants and its affiliates and to encourage stock ownership by such individuals by providing them with a means to acquire a proprietary interest in the Company’s success through stock ownership. Under the 2011 Stock Option Plan, officers, directors, employees and consultants who provide services to the Company may be granted options to acquire common shares of the Company.   The aggregate number of options authorized by the plan shall not exceed 4,974 shares of common stock of the Company. 

 

The following table summarizes the options outstanding and exercisable under the 2011 Stock Option Plan as of September 30, 2016:

 

	Option Price
Expiry Date	Per Share($)	Number
December 21, 2021	1,680	1,725
June 21, 2022	400	500
June 25, 2023	134	850
	$1,044	3,075

  

The Board of Directors and the stockholders holding a majority of the voting power approved a 2014 Equity Incentive Plan (the “2014 Plan”) on February 28, 2014, with a to be determined effective date. The purpose of the 2014 Plan is to assist the Company and its affiliates in attracting, retaining and providing incentives to employees, directors, consultants and independent contractors who serve the Company and its affiliates by offering them the opportunity to acquire or increase their proprietary interest in the Company and to promote the identification of their interests with those of the stockholders of the Company. The 2014 Plan will also be used to make grants to further reward and incentivize current employees and others.

 

There are 120,679 shares of common stock reserved for issuance under the 2014 Plan. The Board shall have the power and authority to make grants of stock options to employees, directors, consultants and independent contractors who serve the Company and its affiliates. Any stock options granted under the 2014 Plan shall have an exercise price equal to or greater than the fair market value of the Company’s shares of common stock. Unless otherwise determined by the Board of Directors, stock options shall vest over a four-year period with 25% being vested after the end of one (1) year of service and the remainder vesting equally over a 36-month period.  The Board may award options that may vest based upon the achievement of certain performance milestones. As of September 30, 2016, no options have been awarded under the 2014 Plan.

 

The following table summarizes the Company’s stock options outstanding and exercisable:

 

	Number of Options	Weighted Average Exercise Price	Weighted- Average Remaining Contractual Term (years) $	Aggregate Intrinsic Value $
Outstanding and exercisable, December 31, 2015	3,075	1,044	7.57	-
Outstanding and exercisable, September 30, 2016	3,075	1,044	6.82	-

 

 

 
7.  COMMITMENTS

The following table summarizes the Company’s significant contractual obligations as of September 30, 2016:

	$
Employment Agreements (1)	375,000
	375,000

 

 (1) Employment agreements with related parties.

 

8.  RELATED PARTY TRANSACTIONS AND BALANCES

 

During the nine months ended September 30, 2016, the Company incurred $332,667 (2015: $334,853) in salaries to officers and directors with such costs being recorded as general and administrative expenses.

 

During the nine months ended September 30, 2016, the Company incurred $588,204 (2015: $352,811) in app hosting, app development, office expenses, and rent to a company with two officers and directors in common with such costs being recorded as general and administrative and product development expenses.

  

As of September 30, 2016, the Company had a stock subscription receivable totaling $4,500 (December 31, 2015: $4,500) from an officer and director and from a company with an officer and director in common.

 

As of September 30, 2016, accounts payable includes $246,775 (December 31, 2015: $236,571) payable to a company with two officers and directors in common, and $400,000 (December 31, 2015: $175,000) payable in salaries to directors and officers of the Company. The amounts are unsecured, non-interest bearing and are due on demand.

 

The above transactions were recorded at their exchange amounts, being the amounts agreed by the related parties.

 

9.  FAIR VALUE MEASUREMENTS

 

ASC 820, Fair Value Measurements and Disclosures, require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.

 

Level 2

Level 2 applies to assets or liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and determining whether a market is considered active requires management judgment.

 

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

 

Pursuant to ASC 825, cash is based on Level 1 inputs. The Company believes that the recorded values of accounts receivable and accounts payable approximate their current fair values because of their nature or respective relatively short durations. The fair value of the Company’s promissory notes and convertible debentures approximates their carrying values as the underlying imputed interest rates approximates the estimated current market rate for similar instruments.

 

As of September 30, 2016, there were no assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet, other than cash. 

 

 

 

10.  CONVERTIBLE DEBENTURES

 

Short-term Convertible Debentures:

 

Conversion Feature	Issuance	Principal ($)	Discount ($)	Carrying Value ($)	Interest Rate	Maturity Date
a )	02-Apr-13	5,054	-	5,054	0%	02-Jan-14
b )	05-Aug-15	750,000	401,515	348,485	7%	05-Feb-17
b )	05-Aug-15	18,750	10,039	8,711	7%	05-Feb-17
d )	07-Oct-14	15,000	-	15,000	8%	07-Oct-15
d )	15-Jan-15	40,000	-	40,000	8%	15-Jan-16
d )	15-Feb-15	35,000	-	35,000	8%	15-Feb-16
d )	17-Feb-15	102,135	-	102,135	8%	17-Feb-16
d )	17-Feb-15	5,000	-	5,000	8%	17-Feb-16
c )	27-Feb-15	37,500	-	37,500	8%	27-Feb-16
c )	12-Mar-15	37,500	-	37,500	8%	11-Mar-16
d )	19-Mar-15	53,551	-	53,551	8%	19-Mar-16
d )	19-Mar-15	8,000	-	8,000	8%	19-Mar-16
c )	27-Mar-15	50,000	-	50,000	8%	26-Mar-16
c )	11-May-15	50,000	-	50,000	8%	10-May-16
d )	02-Jun-15	29,500	-	29,500	8%	01-Jun-16
d )	02-Jun-15	45,966	-	45,966	8%	01-Jun-16
d )	02-Jun-15	10,000	-	10,000	8%	01-Jun-16
d )	02-Jun-15	58,540	-	58,540	8%	01-Jun-16
d )	02-Jun-15	35,408	-	35,408	8%	01-Jun-16
d )	02-Jun-15	20,757	-	20,757	8%	01-Jun-16
c )	11-Jun-15	50,000	-	50,000	8%	10-Jun-16
d )	16-Jun-15	30,464	-	30,464	8%	15-Jun-16
d )	19-Jun-15	30,000	-	30,000	8%	18-Jun-16
d )	19-Jun-15	35,408	-	35,408	8%	18-Jun-16
c )	24-Jun-15	37,500	-	37,500	8%	23-Jun-16
d )	24-Jun-15	35,000	-	35,000	8%	23-Jun-16
c )	24-Jun-15	37,500	-	37,500	8%	23-Jun-16
d )	07-Jul-15	75,000	-	75,000	8%	07-Oct-15
d )	17-Jul-15	27,000	-	27,000	8%	17-Jul-16
d )	01-Aug-15	17,408	-	17,408	8%	04-Aug-16
d )	01-Aug-15	30,000	-	30,000	8%	01-Aug-16
d )	01-Aug-15	35,408	-	35,408	8%	01-Aug-16
d )	21-Sep-15	64,744	-	64,744	8%	21-Sep-16
b )	03-May-16	50,000	46,654	3,346	8%	03-May-17
c )	03-May-16	50,000	-	50,000	8%	03-May-17
d )	03-May-16	29,500	-	29,500	8%	03-May-17
d )	03-May-15	45,966	-	45,966	8%	03-May-17
b )	24-May-16	61,571	58,692	2,879	8%	24-May-17
d )	24-May-16	30,464	-	30,464	8%	24-May-17
b )	26-May-16	157,500	153,511	3,989	8%	26-May-17
d )	15-Jun-16	50,000	47,968	2,032	8%	15-Jun-17
c )	07-Apr-16	106,500	100,021	6,479	8%	07-Apr-17
b )	02-Jun-16	160,000	157,614	2,386	7%	02-Jun-17
b )	02-Jun-16	4,000	3,839	161	7%	02-Jun-17
b )	15-Jun-16	50,000	48,453	1,547	7%	15-Jun-17
b )	15-Jun-16	1,250	1,141	109	7%	15-Jun-17
b )	17-May-16	100,000	97,611	2,389	7%	08-Sep-17
b )	17-May-16	2,500	2,343	157	7%	08-Sep-17
b )	19-May-16	110,000	107,593	2,407	7%	08-Sep-17
b )	19-May-16	2,750	2,591	159	7%	08-Sep-17
b )	27-Jan-16	250,000	50,618	199,382	7%	27-Jul-17
b )	08-Mar-16	110,000	106,112	3,888	7%	08-Sep-17

b )	27-Jan-16	18,750	-	18,750	7%	27-Jul-17
b )	08-Mar-16	5,000	3,809	1,191	7%	08-Sep-17
b )	08-Mar-16	90,000	86,403	3,597	7%	08-Sep-17
b )	07-Jul-16	50,000	48,754	1,246	7%	08-Sep-17
b )	04-Aug-16	110,000	108,801	1,199	7%	08-Sep-17
b )	15-Aug-16	157,000	155,849	1,151	7%	08-Sep-17
b )	12-Sep-16	83,000	82,262	738	7%	08-Sep-17
b )	07-Jul-16	1,250	1,155	95	7%	08-Sep-17
b )	04-Aug-16	2,750	2,656	94	7%	08-Sep-17
b )	15-Aug-16	3,925	3,833	92	7%	08-Sep-17
b )	12-Sep-16	2,075	2,010	65	7%	08-Sep-17
b )	07-Jul-16	50,000	48,528	1,472	7%	07-Jul-17
b )	04-Aug-16	110,000	108,712	1,288	7%	04-Aug-17
b )	15-Aug-16	157,500	156,296	1,204	7%	15-Aug-17
b )	08-Sep-16	80,000	79,219	781	7%	08-Sep-17
		4,206,344	2,284,602	1,921,742

 

 

 

 

 

During the nine months ended September 30, 2016, the Company received net proceeds from convertible debentures of $2,251,508.

 

During the nine months ended September 30, 2016, $213,255 of convertible debentures were settled by issuing 423,669,721 shares of common stock of the Company.

 

During the nine months ended September 30, 2016, the Company incurred $129,830 in transaction costs in connection with the issuance of the convertible debentures.

 

As of September 30, 2016, the Company had debt issuance costs of $346,343 (December 31, 2015: $200,855).

 

At September 30, 2016, convertible debentures with the principal amount of $4,206,344 have a General Security Agreement covering substantially all of the Company’s assets.

 

The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at September 30, 2016 the conversion features and non-standard anti-dilutions provisions would not meet derivative classification.

 

 

 

 

 

 

11.  SUBSEQUENT EVENTS

 

a)

Subsequent to September 30, 2016 the Company issued 56,000,000 shares of common stock in connection with conversion of convertible notes in the amount of $55,150, issued 12,240,000 shares of common stock for placement agent fees, and issued 25,406,910 shares of common stock in connection with conversion of 110 shares of Series A preferred stock.

 

b)

The Company entered into a Securities Purchase Agreement, dated October 7, 2016 (the “Alpha SPA”) with Alpha Capital Anstalt (“Alpha Capital”), to issue and sell up to, in principal amount, $1,615,000 of convertible notes, payable in four tranches (the “Alpha Notes”). The first tranche of $465,000 was funded on October 7, 2016 (the “Initial Closing Date”) and the second, third, and fourth tranches of $375,000 each will be funded, respectively, during the first week of each of November 2016, December 2016, and January 2017 (the subsequent closing dates and, with the Initial Closing Date, each a “Closing”).   Pursuant to the Alpha SPA, the Company also issued warrants to Alpha Capital to purchase up to a number of shares of the Company’s common stock (“Common Stock”) equal to the purchase price of the Alpha Notes divided by the conversion price in effect as of the date of Closing (the “Alpha Warrant”). The conversion price as of the Initial Closing Date was $0.0025, and therefore warrants to purchase 186,000,000 shares of the Company’s common stock were issued to Alpha Capital. The Alpha Warrants’ per share exercise price of $0.0030 is equivalent to 120% of the conversion price. The Alpha Notes have a beneficial ownership limitation such that Alpha Capital can never own more than 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Alpha Notes.   For its services as a placement agent for this transaction, Palladium Capital Advisors, LLC (“Palladium”) shall receive compensation of 4% of the aggregate purchase price paid in each Closing, payable in shares of Common Stock equal to 4% of the Alpha Warrant, or 7,440,000 shares of Common Stock.   The Company is using a portion of the proceeds of each Closing to purchase Series A Convertible Participating Preferred Stock of a private entity named Hang With, Inc. (“Hang With”). Alpha Capital is currently Hang With’s majority owner. On October 7, 2016, the Company entered into a Securities Purchase Agreement with Hang With (the “Hang With SPA”) to buy up to 330,397 shares of Hang With’s Series A Convertible Participating Preferred Stock (the “Preferred Stock”) for $750,000. On the Initial Closing Date, the Company paid $225,000 and received 99,118 shares of Preferred Stock. The Company will pay Hang With $175,000 on each of the subsequent three Closings. In connection with entering into the Hang With SPA, the Company and Hang With entered into a Software License Agreement (the “License Agreement”) in which Hang With is licensing the intellectual property of its apps to the Company. As part of the Hang With SPA and as compensation for the Company entering into the License Agreement and the future development agreement, Hang With, in addition to issuing 154,185 shares of Preferred Stock on the Initial Closing Date, issued 100,000 shares of its common stock to the Company.