Friendable, Inc. - Annual Report: 2020 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended: December 31,
2020
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
|
|
(I.R.S.
Employer
|
|
incorporation
or organization
|
|
Identification
No.)
|
|
1821 S Bascom Ave., Suite 353, Campbell, California
95008
|
|
(Address
of principal executive offices and Zip Code)
|
Registrant’s
telephone number, including area
code (855)
473-7473
Securities
registered pursuant to Section 12(b) of the Act
|
Title
of each class
|
|
Name of
each exchange on which registered
|
|
None
|
|
N/A
|
|
|
|
|
Securities
registered pursuant to Section 12(g) of the Act
|
Common Stock, par value $0.0001 per share
|
|
(Title
of Class)
|
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
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 Act).
Yes ☐ No
☒
As of June 30, 2020, the last business day of the
registrant’s most recently completed second fiscal quarter
the aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant was approximately
$770,848, based on the closing price (last sale of the day) for the
registrant’s common stock on the OTC Pink marketplace on June
30, 2020 of $0.075 per share.
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date. As of
April 26, 2021, there were 141,965,430 shares of the
registrant’s common stock issued and
outstanding.
Documents
Incorporated by Reference: None
1
TABLE OF CONTENTS
|
|
4
|
||
|
|
4
|
||
|
|
6
|
||
|
|
19
|
||
|
|
19
|
||
|
|
19
|
||
|
|
19
|
||
|
|
|
|
|
|
|
20
|
||
|
|
20
|
||
|
|
21
|
||
|
|
21
|
||
|
|
26
|
||
|
|
27
|
||
|
|
28
|
||
|
|
28
|
||
|
|
29
|
||
|
|
|
|
|
|
|
29
|
||
|
|
29
|
||
|
|
32
|
||
|
|
34
|
||
|
|
35
|
||
|
|
37
|
||
|
|
|
|
|
|
|
38
|
||
|
|
38
|
||
|
|
|
|
|
|
|
|
39
|
|
2
Cautionary Statement Regarding Forward-looking
Information
This
annual report on Form 10-K 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 annual
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
annual 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 annual report. The Company does not undertake to
update these forward-looking statements.
In this
annual report on Form 10-K, unless otherwise specified, all dollar
amounts are expressed in United States dollars and all references
to “common shares” refer to the common shares in our
capital stock.
An
investment in our 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
annual report on Form 10-K in evaluating our company and our
business before purchasing shares of our common stock. Our
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 our common stock only
if you can afford to lose your entire investment.
As used
in this report, the terms “we”, “us”,
“our”, “our company,”
“Friendable” and “the Company” mean
Friendable, Inc. unless the context clearly indicates
otherwise.
3
PART I
ITEM 1. BUSINESS
Corporate History
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 has moved
the Friendable app closer to a traditional dating application with
its focus on building revenue, as well as reintroducing the brand
as a non-threatening, all-inclusive place where “Everything
starts with Friendship”…meet, chat &
date.
On June
28, 2017, the Company formed a wholly owned Nevada subsidiary
called Fan Pass, Inc.
Fan Pass is the Company’s most recent or second app/brand
which was released in July, 2020. Fan Pass believes in connecting
Fans of their favorite celebrity or artist, to an exclusive VIP or
Backstage experience, right from their smartphone or other
connected devices. Fan Pass allows an artist’s fanbase to
experience something they would otherwise never have the
opportunity to afford or geographically attend. The Company aims to
establish both Friendable and Fan Pass as premier brands and mobile
platforms that are dedicated to connecting and engaging users from
anywhere around the World.
Presently, until our apps gain greater adoption from paying
subscribers through increased awareness, coupled with additional
compelling and exclusive digital content to produce higher revenue
levels, the Company has largely supported its operations through
the sale of its software services, and specifically its app
development services, under a contractual relationship since
inception with a third party. The Company’s plan, in due
course, is to replace revenue from third party app development
services with revenue from its own Friendable and Fan Pass apps,
which have various revenue streams currently being tested for long
term and/or recurring monthly viability.
On
August 8, 2019 the Company filed a Designation of Series B
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series B Preferred Stock with a stated
value of $1.00 per share. A holder of Series B Preferred Stock has
the right to convert their Series B Preferred Stock into fully paid
and non-assessable shares of Common Stock. Initially, the
conversion price for the Series B Preferred Stock is $.25 per
share, subject to standard anti-dilution adjustments. Additionally,
each share of Series B Preferred Stock shall be entitled to, as a
dividend, a pro rata portion of an amount equal to 10% (Ten
Percent) of the Net Revenues (“Net Revenues” being
Gross Sales minus Cost of Goods Sold, as defined in the agreements)
derived from the subscriptions and other sales, but excluding and
net of Vimeo fees, processing fees and up sells, generated by Fan
Pass Inc., the wholly-owned subsidiary of the Corporation. The
Series B Dividend shall be calculated and paid on a monthly basis
in arrears starting on the day 30 days following the first day of
the month following the initial issuance of the Series B Preferred
and continuing for a period of 60 (Sixty) months. The holders of
Series B Preferred stock shall have no voting rights. The holders
of Series B Preferred stock shall not be entitled to receive any
dividends. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company or deemed
liquidation event, the holders of shares of Series B Preferred
Stock shall be entitled to be paid the liquidation amount, as
defined out of the assets of the Company available for distribution
to its shareholders, after distributions to holders of the Series A
Preferred Stock and before distributions to holders of Common
Stock.
On
August 27, 2019, a 1 for 18,000 reverse stock split of our common
stock became effective. All share and per share information in the
accompanying consolidated financial statements and footnotes, and
throughout this annual report on Form 10-K, has been retroactively
adjusted for the effects of the reverse split.
On
November 25, 2019 the Company filed a Designation of Series C
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series C Preferred Stock with a stated
value of $1.00 per share. The Series C Preferred Stock will, with
respect to dividend rights and rights upon liquidation, winding-up
or dissolution, rank: (a) senior with respect to dividends with the
Company’s common stock, par value 0.0001 per share
(“Common Stock”)(the Series C Preferred Stock will
convert into common stock immediately upon liquidation and be pari
passu with the common stock in the event of litigation), and (b)
junior with respect to dividends and right of liquidation to all
existing and future indebtedness of the Company. The Series C
Preferred Stock does not have any voting rights. Each share of
Series C Preferred Stock will carry an annual dividend in the
amount of eight percent (8%) of the Stated Value of $1.00 (the
“Divided Rate”), which shall be cumulative and
compounded daily, payable solely upon redemption, liquidation or
conversion and increase to 22% upon an event of default as defined.
In the event of any default other than the Company’s failure
to issue shares upon conversion, the stated price will be $1.50. In
a default event where the Company fails to issue shares upon
conversion, the stated price will $2.00. The holder shall have the
right six months following the issuance date, to convert all or any
part of the outstanding Series C Preferred Stock into shares of
common stock of the Company. The conversion price shall equal the
Variable Conversion Price. The “Variable Conversion
Price” shall mean 71% multiplied by the market price,
representing a discount rate of 29%. Market price means the average
of the two lowest trading prices for the Company’s common
stock during the twenty trading day period ending on the latest
complete trading day prior to the conversion date. Upon any
liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, or upon any deemed liquidation event,
after payment orprovision 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.
4
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).
On
March 29, 2021 the Company received Notice of Qualification from
the Securities and Exchange Commission indicating approval for the
Company to proceed to raise financing of up to $5 million through
an offering of up to 500,000 Series D Convertible Preferred Stock
at the offering price of $10.00 per share, pursuant to Tier 2 of
Regulation A of the Securities Act. On April 5, 2021 the Company
filed a Certificate of Designation with the state of Nevada to
designate 500,000 of its authorized preferred stock as Series D
Convertible Preferred. Each share of Series D Preferred Stock shall
be convertible, at the option of the holder thereof, at any time
and from time to time, and without the payment of additional
consideration by the holder thereof, into that number of fully paid
and nonassessable shares of Common Stock (whether whole or
fractional) that have a Fair Market Value, in the aggregate, equal
to the Series D Conversion Price. The “Series D Conversion
Price” shall initially be equal to $10.00 and may be
converted into shares of Common Stock at “Fair Market
Value” Fair Market Value shall mean, as of any date of determination, 80% of
the average closing price of a share of Common Stock on the
principal exchange or market on which such shares are then trading
for the 20 trading days immediately preceding such
date.
On
April 15, 2021 the Company executed a Stock Subscription Agreement
for the first sale of 15,000 Series D Preferred stock at the
offering price of $10.00 per share and received $150,000 on April
19, 2021. A second Stock
Subscription Agreement was also executed on April 15, 2021 for
25,000 Series D Preferred stock at the offering price of $10.00 per
share, with the subscription payment of $250,000 being receivable
at the date of this filing
Friendable, Inc. – About Us:
Company Overview
About Friendable, Inc.
Friendable, Inc. is a mobile-focused technology and marketing
company, connecting and engaging users through two distinctly
branded subscription accessible applications. The Company initially
released its flagship product Friendable, as a social application
where users can create one-on-one or group-style meetups. In 2019
the Company moved the Friendable app closer to a traditional dating
application with its focus on building revenue, as well as
reintroducing the brand as a non-threatening, all-inclusive place
where “Everything starts with Friendship”…meet,
chat & date.
On June 28, 2017, the Company formed a wholly owned Nevada
subsidiary called Fan Pass, Inc.
Fan Pass is the Company’s most recent or second app/brand,
released in July, 2020. Fan Pass believes in connecting Fans of
their favorite celebrity or artist, to an exclusive VIP or
Backstage experience, right from their smartphone or other
connected devices. Fan Pass allows an artist’s fanbase to
experience something they would otherwise never have the
opportunity to afford or geographically attend. The Company aims to
establish both Friendable and Fan Pass as premier brands and mobile
platforms that are dedicated to connecting and engaging users from
anywhere around the World. More than 2,000 music artists have
signed-up to be onboarded on the Fan Pass app, of which more than
350 have content “channels” available and
“broadcasting” on the app and available for their fans
to enjoy after payment of the $3.99 monthly subscription. Various
merchandise products featuring key art of their favorite Fan Pass
music artist can also be purchased through the app.
Presently, until our apps gain greater adoption from paying
subscribers through increased awareness, coupled with additional
compelling and exclusive digital content to produce higher revenue
levels, the Company has largely supported its operations through
the sale of its software and technology services, and specifically
its app development services, under a contractual relationship
since inception with a third party. The Company’s plan, in
due course, is to replace revenue from third party app development
services with revenue from its own Friendable and Fan Pass apps,
which have various revenue streams currently being tested for long
term and/or recurring monthly viability.
The
Company has five full time employees and a variety of partners
that serve in various consulting capacities based on the
Company’s specific needs.
Available information
Our
website address is www.friendable.com. We do not intend
our website address to be an active link or to otherwise
incorporate by reference the contents of the website into this
Report. The public may read and copy any materials the Company
files with the U.S. Securities and Exchange Commission (the
“SEC”) at the SEC’s Public Reference Room at 100
F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet
website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers that
file electronically with the SEC.
5
ITEM 1A. RISK FACTORS
You
should carefully consider the risks described below, together with
all of the other information included in this annual report in
considering our business and prospects. The risks and uncertainties
below may not be the only ones the Company faces. Additional risks
and uncertainties not presently known to us or that we currently
deem immaterial also may impair our business operations. If any of
these risks actually occur, or others not specified below, the
business, financial condition, operating results and prospects of
the Company could be materially and adversely
affected.
Risks Related to Our Business and Industry
Our success depends upon the continued growth and acceptance of
paid subscription based access to our online/mobile applications,
together with acceptance by sponsors and advertisers to
online/mobile platforms, particularly paid listings, as an
effective alternative to traditional, offline advertising and the
continued commercial use of the internet.
Many
online/mobile applications are access free to audiences. In
addition, many sponsors and advertisers still have limited
experience with mobile advertising and may continue to devote
significant portions of their advertising budgets to traditional
offline advertising media. Accordingly, we continue to compete with
access free platforms (such as YouTube) and with traditional
advertising media, including television, radio and print, in
addition to a multitude of websites with high levels of traffic and
mobile advertising networks, for a share of available advertising
expenditures and expect to face continued competition as more
emerging media and traditional offline media companies enter the
online and mobile advertising markets. We believe that the
continued growth and continued acceptance of paid subscription
platforms and mobile advertising generally will depend, to a large
extent, on its perceived effectiveness and the acceptance of paid
exclusive and/or live streaming digital content , as well as
related advertising models (particularly in the case of models that
incorporate user targeting and/or utilize mobile devices), the
continued growth in commercial use of the internet (particularly
abroad) and smart devices, the extent to which web/mobile browsers,
software programs and/or mobile applications that limit or prevent
advertising from being displayed become commonplace and the extent
to which the industry is able to effectively manage click fraud.
Any lack of growth in the market for mobile advertising,
particularly for paid listings, or any decrease in the
effectiveness and value of mobile advertising (whether due to the
passage of laws requiring additional disclosure and/or opt-in
policies for advertising that incorporates user targeting or other
developments) would have an adverse effect on our business,
financial condition and results of operations.
We
had substantial client concentration with one technology services
client, on a per contract basis, accounting for approximately 99%
of our revenues through 2020 and, although we may continue to work with
this client in the future, we do not anticipate doing so and thus
face an inherent risk of not being able to sustain operations from
our remaining Fan Pass business segment alone.
To
date, the Company’s revenue has been almost entirely
dependent on technology services contracts with one client,
Answering Legal, to support operations until the Fan Pass
subscription and merchandising segment of our business gained
traction. At this time, our Fan Pass subscription and merchandising
segment of our business is growing, and we are reducing our
dependance on Answering Legal. While we anticipate being able to
gain new technology services contracts from clients to offset our
operating expenses, we may need to obtain additional debt and/or
equity financing in the interim and may continue to incur
substantial operating losses, depending on the traction our Fan
Pass subscription and merchandising segment gains in 2021. There
are inherent risks whenever a large percentage of total revenues
are concentrated with one primary client and when that client is no
longer anticipated to be the primary source of revenue for a
company. Nonetheless, we are hopeful about the Fan Pass
subscription and merchandising segment of our business in 2021. As
a general matter, it is not possible for us to predict the future
level of demand for our services that will be generated by any
clients, including Answering Legal, or the future demand for the
products and services of other similar clients. The loss of
Answering Legal as a primary source of revenue or the failure to
retain similar clients generally could negatively affect our
revenues and results of operations and/or the trading price of our
common stock
We depend, in part, upon arrangements with third parties to drive
traffic to our various websites and distribute our products and
services.
We
engage in a variety of activities, such as search engine
optimization and application search optimization, designed to
attract traffic to our application and convert visitors into repeat
users and customers. How successful we are in these efforts
depends, in part, upon our continued ability to enter into
arrangements with third parties to drive traffic to our
application, as well as the continued introduction of new and
enhanced features, products and services that resonate with users
and customers generally.
In
addition, we have entered into a number of arrangements with third
parties to promote and deliver mobile advertising to various social
networks or mobile channels. Pursuant to these arrangements, third
parties generally promote our application on various mobile
applications, their websites or through e-mail campaigns and we
either pay on a cost per impression basis (i.e. cost per view) or a
fixed fee when visitors to these websites click through to or
download our application. These arrangements are generally not
exclusive, are short-term in nature and are generally terminable by
either party given notice. If existing arrangements with third
parties are terminated (or are not renewed upon their expiration)
and we fail to replace this traffic and related revenues, or if we
are unable to enter into new arrangements with existing and/or new
third parties in response to industry trends, our business,
financial condition and results of operations could be adversely
affected.
Even if
we succeed in driving traffic to our application, we may not be
able to convert this traffic or otherwise retain users unless we
continue to provide quality products and services. We may not be
able to adapt quickly and/or in cost-effective manner to frequent
changes in user and customer preferences, which can be difficult to
predict, or appropriately time the introduction of enhancements
and/or new products or services to the market. Our inability to
provide quality products and services would adversely affect user
and customer experiences, which would result in decreases in users,
customers and revenues, which would adversely affect our business,
financial condition and results of operations.
As
discussed below, our traffic building and conversion initiatives
also involve the expenditure of considerable sums for marketing, as
well as for the development and introduction of new products,
services and enhancements, infrastructure and other related
efforts.
6
Marketing efforts designed to drive traffic to our various websites
may not be successful or cost-effective.
Traffic
building and conversion initiatives involve considerable
expenditures for online, mobile and offline advertising and
marketing. We plan to make significant expenditures for online and
mobile display advertising, event-based marketing and traditional
offline advertising in connection with these initiatives, which may
not be successful or cost-effective. In the case of paid
advertising generally, the policies of sellers and publishers of
advertising may limit our ability to purchase certain types of
advertising or advertise some of our products and services, which
could affect our ability to compete effectively and, in turn,
adversely affect our business, financial condition and results of
operations.
In
addition, search engines have increasingly expanded their offerings
into other, non-search related categories, and have in certain
instances displayed their own integrated or related product and
service offerings in a more prominent manner than those of third
parties within their search engine results. Continued expansion and
competition from search engines could result in a substantial
decrease in traffic to our various websites, as well as increased
costs if we were to replace free traffic with paid traffic, which
would adversely affect our business, financial condition and
results of operations.
Lastly,
as discussed above, we also have and will enter into various
arrangements with third parties in an effort to increase traffic,
which arrangements are generally more cost-effective than
traditional marketing efforts. If we are unable to renew existing
(and enter into new) arrangements of this nature, sales and
marketing costs as a percentage of revenue would increase over the
long-term.
Any
failure to attract and acquire new, and retain existing, traffic,
users and customers in a cost-effective manner could adversely
affect our business, financial condition and results of
operations.
We rely in part on application marketplaces and Internet search
engines to drive traffic to our products and services, and if we
fail to appear high up in the search results or rankings, traffic
to our platform could decline and our business and operating
results could be adversely affected.
We rely
on application marketplaces, such as Apple’s App Store, to
drive downloads of our mobile applications. In the future, Apple or
other operators of application marketplaces may make changes to
their marketplaces which may make access to our products and
services more difficult. Our rankings in Apple’s App Store
may also drop based on the following factors:
|
|
●
|
the
size and diversity of our registered member and subscriber bases
relative to those of our competitors;
|
|
|
●
|
the
functionality of our application and the attractiveness of their
features and our services and offerings generally to consumers
relative to those of our competitors;
|
|
|
●
|
how
quickly we can enhance our existing technology and services and/or
develop new features and localized opportunities and venue-based
monetization opportunities in response to:
|
|
|
●
|
new,
emerging and rapidly changing technologies;
|
|
|
●
|
the
introduction of product and service offerings by our
competitors;
|
|
|
●
|
changes
in consumer requirements and trends in the single community
relative to our competitors; and
|
|
|
●
|
our
ability to engage in cost-effective marketing efforts, including by
way of maintaining relationships with third parties with which we
have entered into alliances, and the recognition and strength of
our various brands relative to those of our
competitors.
|
Our estimated income taxes could be materially different from
income taxes that we ultimately pay.
We are
subject to income taxes in the United States. Significant judgment
and estimation is required in determining our provision for income
taxes and related matters. In the ordinary course of our business,
there are many transactions and calculations where the ultimate tax
determinations are uncertain or otherwise subject to
interpretation. Our determination of our income tax liability is
always subject to review by applicable tax authorities and we are
currently subject to audits in a number of jurisdictions. Although
we believe our income tax estimates and related determinations are
reasonable and appropriate, relevant taxing authorities may
disagree. The ultimate outcome of any such audits and reviews could
be materially different from estimates and determinations reflected
in our historical income tax provisions and accruals. Any adverse
outcome of any such audit or review could have an adverse effect on
our financial condition and results of operations.
7
A variety of new laws, or new interpretations of existing laws,
could subject us to claims or otherwise harm our
business.
We are
subject to a variety of laws in the U.S. and abroad that are costly
to comply with, can result in negative publicity and diversion of
management time and effort and can subject us to claims or other
remedies. Some of these laws, such as income, sales, use,
value-added and other tax laws and consumer protection laws, are
applicable to businesses generally and others are unique to the
various types of businesses in which we are engaged. Many of these
laws were adopted prior to the advent of the internet and related
technologies and, as a result, do not contemplate or address the
unique issues of the internet and related technologies. Laws
that do reference the internet are being interpreted by the courts,
but their applicability and scope remain uncertain.
For
example, through our various businesses we post and link to third
party content, including third party advertisements, links and
websites, as well as content submitted by users, such as comments,
photographs and videos. We could be subject to liability for
posting or linking to third party content, and while we generally
require third parties to indemnify us for related claims, we may
not be able to enforce our indemnification rights. Some laws,
including the Communications Decency Act, or CDA, and the Digital
Millennium Copyright Act, or DMCA, limit our liability for posting
or linking to third party content. For example, the DMCA generally
protects online service providers from claims of copyright
infringement based on use of third-party content, so long as
certain statutory requirements are satisfied. However, the scope
and applicability of the DMCA are subject to judicial
interpretation and, as such, remain uncertain, and the U.S.
Congress may enact legislation limiting the protections afforded by
the DMCA to online service providers. Moreover, similar protections
may not exist in other jurisdictions in which our products are
used. As a result, claims could be threatened and filed under both
U.S. and foreign laws based upon use of third-party content
asserting, among other things, defamation, invasion of privacy or
right or publicity, copyright infringement or trademark
infringement.
Any
failure on our part to comply with applicable laws may subject us
to additional liabilities, which could adversely affect our
business, financial condition and results of operations. In
addition, if the laws to which we are currently subject are amended
or interpreted adversely to ourinterests, or if new adverse laws
are adopted, our products and services might need to be modified to
comply with such laws, which would increase our costs and could
result in decreased demand for our products and services to the
extent that we pass on such costs to our customers. Specifically,
in the case of tax laws, positions that we have taken or will take
are subject to interpretation by the relevant taxing authorities.
While we believe that the positions we have taken to date comply
with applicable law, there can be no assurances that the relevant
taxing authorities will not take a contrary position, and if so,
that such positions will not adversely affect us. Any events of
this nature could adversely affect our business, financial
condition and results of operations.
We may fail to adequately protect our intellectual property rights
or may be accused of infringing the intellectual property rights of
third parties.
We
regard our intellectual property rights, including trademarks,
domain names, trade secrets, copyrights and other similar
intellectual property, as critical to our success. For example, we
currently rely heavily on the trademark “Fan Pass” and
“Fan Pass Live” to market our products and seek to
build and maintain brand loyalty and recognition. We intend, in due
course, subject to legal advice, to apply for trademark,
copyright and/or patent protection in the United States and other
jurisdictions. We regard our intellectual property, including our
software and trademark, as valuable assets and intend to vigorously
defend them against infringement. Effective trademark protection
may not be available or may not be sought in every country in which
products and services are made available and contractual disputes
may affect the use of marks governed by private contract. We have
reserved and registered certain domain names, however not every
variation of a domain name may be available or be registered, even
if available.
While
there can be no assurance that registered trademarks and copyrights
will protect our proprietary information, we intend to assert our
intellectual property rights against any infringer. Although any
assertion of our rights can result in a substantial cost to, and
diversion of effort by, our Company, management believes that the
protection of our intellectual property rights is a key component
of our operating strategy.
Our application also relies upon trade secrets and certain
copyrightable and patentable proprietary technologies relating to
its software and related features, products and
services.
We will
rely on a combination of laws and contractual restrictions with
employees, customers, suppliers, affiliates and others to establish
and protect our various intellectual property rights. For example,
we plan to apply to register and renew, or secure by contract where
appropriate, trademarks and service marks as they are developed and
used, and continue to reserve, register and renew domain names as
we deem appropriate.
We also
plan to apply for copyrights and patents or for other similar
statutory protections as we deem appropriate, based on then current
facts and circumstances. No assurances can be given that any
copyright or patent application we file will result in a copyright
or patent being issued, or that any future copyright or patent will
afford adequate protection against competitors and similar
technologies. In addition, no assurances can be given that third
parties will not create new products or methods that achieve
similar results without infringing upon copyrights or patents we
may own in the future.
8
Despite
these measures, our intellectual property rights may still not be
protected in a meaningful manner, challenges to contractual rights
could arise or third parties could copy or otherwise obtain and use
our intellectual property without authorization. The occurrence of
any of these events could result in the erosion of our brands and
limitations on our ability to control marketing on or through the
internet using our various domain names, as well as impede our
ability to effectively compete against competitors with similar
technologies, any of which could adversely affect our business,
financial conditions and results of operations.
From
time to time, we may be subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged
infringement of trademarks, copyrights, patents and other
intellectual property rights held by third parties. In addition,
litigation may be necessary in the future to enforce our
intellectual property rights, protect our trade secrets or
todetermine the validity and scope of proprietary rights claimed by
others. Any litigation of this nature, regardless of outcome or
merit, could result in substantial costs and diversion of
management and technical resources, any of which could adversely
affect our business, financial condition and results of operations.
Patent litigation tends to be particularly protracted and
expensive.
If we fail to grow our user base, or if user engagement or ad
engagement on the platform declines, the revenue, business and
operating results may be harmed.
The
size of the user base and the users’ level of engagement are
critical to our success. The financial performance has been and
will continue to be significantly determined by success in growing
the number of users and increasing their overall level of
engagement on the platform as well as the number of ad engagements.
We generate a substantial majority of our revenue based upon the
number of downloads, migration to subscription accounts and
engagement by the users with the ads that we display. If people do
not perceive the services to be useful, reliable and trustworthy,
we may not be able to attract users or increase the frequency of
their engagement with the platform and the ads that we display.
There is no guarantee that we will be successful in attracting more
users or not suffer erosion of the user base or engagement levels.
A number of factors could potentially negatively affect user growth
and engagement, including if:
|
|
●
|
users
engage with other products, services or activities as an
alternative;
|
|
|
●
|
influential
users, such as celebrities, athletes, journalists and brands or
certain age demographics conclude that an alternative product or
service is more relevant;
|
|
|
●
|
we are
unable to convince potential new users of the value and usefulness
of its products and services;
|
|
|
●
|
there
is a decrease in the perceived quality of the content generated by
our platform;
|
|
|
●
|
we fail
to introduce new and improved products or services or if we
introduce new or improved products or services that are not
favorably received or that negatively affect user
engagement;
|
|
|
●
|
technical
or other problems prevent us from delivering our products or
services in a rapid and reliable manner or otherwise affect the
user experience;
|
|
|
●
|
we are
unable to present users with content that is interesting, useful
and relevant to them;
|
|
|
●
|
users
believe that their experience is diminished as a result of the
decisions we make with respect to the frequency, relevance and
prominence of ads that we display;
|
|
|
●
|
there
are user concerns related to privacy and communication, safety,
security or other factors;
|
|
|
●
|
we
become subject to hostile or inappropriate usage on our
platform;
|
|
|
●
|
there
are adverse changes in our products or services that are mandated
by, or that we elect to make to address, legislation, regulatory
authorities or litigation, including settlements or consent
decrees;
|
|
|
●
|
we fail
to provide adequate customer service to users; or
|
|
|
●
|
we do
not maintain our brand image or its reputation is
damaged.
|
9
If users do not continue to download and use our application and
their engagement is not valuable to other users, we may experience
a decline in the number of users accessing the products and
services and user engagement, which could result in the loss of
advertisers and revenue.
Our
success depends on our ability to provide users with valuable
content, which in turn depends on the profile descriptions and use
of the app by others. We believe that one of our competitive
advantages is the quality, quantity and real-time nature of the
content on our apps, and that access to unique or real-time content
is one of the main reasons users visit us. We seek to foster a
broad and engaged user community, and we encourage celebrities,
athletes, and others to use our products and services to meet
people and form relationships. If users do not continue to
contribute profiles and we are unable to provide users with
valuable and timely content or other people to engage with, our
user base and user engagement may decline. Additionally, if we are
not able to address user concerns regarding the safety and security
of our products and services or if we are unable to successfully
prevent abusive or other hostile behavior on the platform, the size
of the user base and user engagement may decline.
If we are unable to compete effectively for users and advertiser
spend, the business and operating results could be
harmed.
Competition
for users of its products and services is intense. Although we have
developed a new platform for public self-expression and meeting
people in real time, we face strong competition in this business.
We compete against many companies to attract and engage users,
including companies which have greater financial resources and
substantially larger user bases, such as eHarmony, Match.com and
others which offer a variety of Internet and mobile device-based
products, services and content. As a result, competitors may
acquire and engage users at the expense of the growth or engagement
of our user base, which would negatively affect the
business.
We
believe that our ability to compete effectively for users depends
upon many factors both within and beyond our control,
including:
|
|
●
|
the
popularity, usefulness, ease of use, performance and reliability of
our products and services compared to those of our
competitors;
|
|
|
●
|
the
amount, quality and timeliness of content generated by our
users;
|
|
|
●
|
the
timing and market acceptance of our products and
services;
|
|
|
●
|
the
adoption of our products and services internationally;
|
|
|
●
|
its
ability, and the ability of our competitors, to develop new
products and services and enhancements to existing products and
services;
|
|
|
●
|
the
frequency and relative prominence of the ads displayed by us or our
competitors;
|
|
|
●
|
our
ability to establish and maintain relationships with platform
partners that integrate with our platform;
|
|
|
●
|
changes
mandated by, or that we elect to make to address, legislation,
regulatory authorities or litigation, including settlements and
consent decrees, some of which may have a disproportionate effect
on us;
|
|
|
●
|
government
action regulating competition;
|
|
|
●
|
our
ability to attract, retain and motivate talented employees,
particularly engineers, designers and product
managers;
|
|
|
●
|
acquisitions
or consolidation within our industry, which may result in more
formidable competitors; and
|
|
|
●
|
our
reputation and the brand strength relative to our
competitors.
|
We also
face significant competition for advertiser spend. We compete
against online and mobile businesses, including those referenced
above, and traditional media outlets, such as television, radio and
print, for advertising budgets. In order to grow our revenue and
improve our operating results, we must increase our share of
spending on advertising relative to our competitors, many of which
are larger companies that offer more traditional and widely
accepted advertising products. In addition, some of our larger
competitors have substantially broader product or service offerings
and leverage their relationships based on other products or
services to gain additional share of advertising
budgets.
10
We
believe that our ability to compete effectively for advertiser
spend depends upon many factors both within and beyond our control,
including:
|
|
●
|
the
size and composition of our user base relative to those of our
competitors;
|
|
|
●
|
our ad
targeting capabilities, and those of our competitors;
|
|
|
●
|
the
timing and market acceptance of our advertising services, and those
of our competitors;
|
|
|
●
|
our
marketing and selling efforts, and those of our
competitors;
|
|
|
●
|
the
pricing for our products relative to the advertising products and
services of our competitors;
|
|
|
●
|
the
return our advertisers receive from their advertising services,
compared to those of our competitors; and
|
|
|
●
|
our
reputation and the strength of our brand relative to our
competitors.
|
If we
are not able to compete effectively for users and advertiser spend
our business and operating results would be materially and
adversely affected.
User growth and engagement depend upon effective interoperation
with operating systems, networks, and devices, that we do not
control.
Currently,
our application is available only on Apple’s iOS. We are
dependent on the interoperability of our products and services with
popular devices, and mobile operating systems that we do not
control. Any changes in such systems or devices that degrade the
functionality of our products and services or give preferential
treatment to competitive products or services could adversely
affect usage of our products and services. Further, if the number
of platforms for which we develop our product expands, it will
result in an increase in our operating expenses. In order to
deliver high quality products and services, it is important that
our products and services work with a range of operating systems
and devices that we do not control. In addition, because our users
access our products and services through mobile devices, we are
particularly dependent on the interoperability of our products and
services with mobile devices and operating systems. We may not be
successful in developing or maintaining relationships with key
participants in the mobile industry or in developing products or
services that operate effectively with these operating systems and
devices. In the event that it is difficult for our users to access
and use our products and services on their mobile devices, our user
growth and engagement could be harmed, and our business and
operating results could be adversely affected.
We have
a limited operating history in a new and unproven market for our
platform, which makes it difficult to evaluate our future prospects
and may increase the risk that we will not be
successful.
We have
developed a mobile app for public self-expression and meeting
people in real time, and the market for our products and services
is relatively new and may not develop as expected, if at all.
People who are not our users may not understand the value of our
products and services and new users may initially find our products
confusing. Convincing potential new users of the value of our
products and services is critical to increasing our user base and
to the success of our business
We have
a limited operating history which makes it difficult to effectively
assess our future prospects or forecast future results. We
encounter or may encounter many risks in this developing and
rapidly evolving market. These risks and challenges include its
ability to, among other things:
|
|
●
|
increase
its number of users and user engagement;
|
|
|
●
|
successfully
expand our business;
|
|
|
●
|
develop
a reliable, scalable, secure, high-performance technology
infrastructure that can efficiently handle increased
usage;
|
11
|
|
●
|
convince
advertisers of the benefits of our products compared to alternative
forms of advertising;
|
|
|
●
|
develop
and deploy new features, products and services;
|
|
|
●
|
successfully
compete with other companies, some of which have substantially
greater resources and market power than us, that are currently in,
or may in the future enter, its industry, or duplicate the features
of our products and services;
|
|
|
●
|
attract,
retain and motivate talented employees, particularly engineers,
designers and product managers;
|
|
|
●
|
process,
store, protect and use personal data in compliance with
governmental regulations, contractual obligations and other
obligations related to privacy and security;
|
|
|
●
|
continue
to earn and preserve its users’ trust, including with respect
to their private personal information; and
|
|
|
●
|
defending
ourselves against litigation, regulatory, intellectual property,
privacy or other claims.
|
If we
fail to educate potential users and potential advertisers about the
value of our products and services, if the market for our platform
does not develop as we expect or if we fail to address the needs of
this market, our business will be harmed. We may not be able to
successfully address these risks and challenges or other unforeseen
risks and challenges. Failure to adequately address these risks and
challenges could harm our business and cause our operating results
to suffer.
Our business depends on the continued and unimpeded access to our
products and services on mobile devices by our users and
advertisers. If we or our users experience disruptions in service
or if mobile service providers are able to block, degrade or charge
for access to our products and services, we could incur additional
expenses and the loss of users and advertisers.
We
depend on the ability of our users and advertisers to access mobile
devices. Currently, this access is provided by companies that have
significant market power in the broadband and telecommunications
access marketplace, including incumbent telephone companies, cable
companies, mobile communications companies,government-owned service
providers, device manufacturers and operating system providers, any
of whom could take actions that degrade, disrupt or increase the
cost of user access to our products or services, which would, in
turn, negatively impact our business. We also rely on other
companies to maintain reliable communications network systems that
provide adequate speed, data capacity and security to us and our
users. As the number of mobile device users continues to grow,
frequency of use and amount of data transmitted, the communications
infrastructure that we and our users rely on may be unable to
support the demands placed upon it. The failure of the mobile
communications infrastructure that we and/or our users rely on,
even for a short period of time, could undermine our operations and
harm our operating results.
Abusive activities by certain users could diminish the user
experience on our platform, which could damage our reputation and
deter our current and potential users from using our products and
services.
There
are a range of abusive activities that are prohibited by our terms
of service and are generally defined as unsolicited, repeated
actions that negatively impact other users with the general goal of
drawing user attention to a given person, account, site, product or
idea. This includes posting large numbers of unsolicited mentions
of a user, duplicate outlets, misleading links (e.g., to malware or
click-jacking pages) or other false or misleading content, and
aggressively following and un-following accounts, adding users to
lists, sending invitations to inappropriately attract attention.
Our terms of service also prohibit the creation of serial or bulk
accounts, both manually or using automation, for disruptive or
abusive purposes. Although we continue to invest resources to
reduce spam and other abusive behavior, we expect spammers and
abusers will continue to seek ways to act inappropriately on our
platform. We will continuously combat spam and other abusive
behaviors, including by suspending or terminating accounts we
believe to be spammers and launching algorithmic changes focused on
curbing abusive activities. Combatting spam and other abusive
behaviors require the diversion of significant time and focus of
our engineering team from improving our products and services. If
spam or abusive behavior increase, this could hurt our reputation
for delivering relevant content or reduce user growth and user
engagement and result in continuing operational cost to
us.
If we fail to effectively manage our growth, our business and
operating results could be harmed.
If we
experience rapid growth in our headcount and operations, it will
place significant demands on our management, operational and
financial infrastructure. We intend to continue to make substantial
investments to expand our operations, research and development,
sales and marketing and general and administrative organizations.
We face significant competition for employees, particularly
engineers, designers and product managers, from other Internet and
high-growth companies, which include both publicly-traded and
privately-held companies, and we may not be able to hire new
employees quickly enough to meet our needs. To attract highly
skilled personnel, we will need to continue to offer, highly
competitive compensation packages. As we continue to grow, we are
subject to the risks of over-hiring, over-compensating our
employees and over-expanding our operating infrastructure, and to
the challenges of integrating, developing and motivating a rapidly
growing employee base. If we fail to effectively manage our hiring
needs and successfully integrate new hires, our efficiency and
ability to meet our forecasts and our employee morale, productivity
and retention could suffer, and our business and operating results
could be adversely affected.
12
Our business and operating results may be harmed by a disruption in
our service, or by our failure to timely and effectively scale and
adapt our existing technology and infrastructure.
Some of
the reasons people use our platforms is for real-time information,
personal contact and live streaming of music content. We may, in
the future, experience service disruptions, outages and other
performance problems due to a variety of factors, including
infrastructure changes, humanor software errors, hardware failure,
capacity constraints due to an overwhelming number of people
accessing our products and services simultaneously, computer
viruses and denial of service or fraud or security attacks.
Although we are investing significantly to improve the capacity,
capability and reliability of our infrastructure, we are not
currently serving traffic equally through the data centers that
support our platforms. Accordingly, in the event of a significant
issue at the data center supportingmost of our network traffic,
some of our products and services may become inaccessible to the
public or the public may experience difficulties accessing our
products and services. Any disruption or failure in our
infrastructure could hinder our ability to handle existing or
increased traffic on our platform, which could significantly harm
our business.
As the
number of our users increases and our users generate more content,
including photos and videos hosted by us, we may be required to
expand and adapt our technology and infrastructure to continue to
reliably store, serve and analyze this content. It may become
increasingly difficult to maintain and improve the performance of
our products and services, especially during peak usage times, as
our productsand services become more complex and our user traffic
increases. This would negatively impact our ability to attract
users and advertisers and increase engagement of our users. We
expect to continue to make significant investments to maintain and
improve the capacity, capability and reliability of our
infrastructure. To the extent that we do not effectively address
capacity constraints, upgrade our systems as needed and continually
develop our technology and infrastructure to accommodate actual and
anticipated changes in technology, our business and operating
results may be harmed.
If we are unable to maintain and promote our brands, our business
and operating results may be harmed.
We
believe that maintaining and promoting our brands is critical to
expanding our base of users and advertisers. Maintaining and
promoting our brands will depend largely on our ability to continue
to provide useful, reliable and innovative products and services,
which we may not do successfully. We may introduce new features,
products, services or terms of service that users, platform
partners or advertisers do not like, which may negatively affect
our brand. Additionally, the actions of platform partners may
affect our brands if users do not have a positive experience using
third-party applications. Our brands may also be negatively
affected by the actions of users that are hostile or inappropriate
to other people, by users impersonating other people, by users
identified as spam, by users introducing excessive amounts of spam
on its platform or by third parties obtaining control over
users’ accounts. Maintaining and enhancing our brands may
require the Company to make substantial investments and these
investments may not achieve the desired goals. If we fail to
successfully promote and maintain our brand or if we incur
excessive expenses in this effort, our business and operating
results could be adversely affected.
Negative publicity could adversely affect our business and
operating results.
Negative
publicity about us, including about our product quality and
reliability, changes to our products and services, privacy and
security practices, litigation, regulatory activity, the actions of
our users or user experience with our products and services, even
if inaccurate, could adversely affect our reputation and the
confidence in and the use of our products and services. For
example, service outages could result in widespread media reports.
Such negative publicity could also have an adverse effect on the
size, engagement and loyalty of our user base and result in
decreased revenue, which could adversely affect our business and
operating results.
We focus on product innovation and user engagement rather than
short-term operating results.
We
encourage employees to quickly develop and help us launch new and
innovative features. We focus on improving the user experience for
our products and services and on developing new and improved
products and services for the advertisers on our platform. We
prioritize innovation and the experience for users and advertisers
on our platform over short-term operating results. We may make
product and service decisions that may reduce our short-term
operating results if we believe that the decisions are consistent
with its goals to improve theuser experience and performance for
advertisers, which we believe will improve our operating results
over the long term. These decisions may not be consistent with the
short-term expectations and may not produce the long-term benefits
that we expect, in which case our user growth and user engagement,
our relationships with advertisers and our business and operating
results could be harmed. In addition, our focus on the user
experience may negatively impact our relationships with existing or
prospective advertisers. This could result in a loss of
advertisers, which could harm our revenue and operating
results.
Our products and services may contain undetected software errors,
which could harm our business and operating results.
Our
products and services incorporate complex software and we encourage
our employees to quickly develop and help us launch new and
innovative features. Our software may now or in the future contain,
errors, bugs or vulnerabilities. Some errors in the software code
may only be discovered after the product or service has been
released. Any errors, bugs or vulnerabilities discovered in our
code after release could result in damage to our reputation, loss
of users, loss of platform partners, loss of advertisers or
advertising revenue or liability for damages, any of which could
adversely affect our business and operating results.
13
Our business is subject to complex and evolving U.S. laws and
regulations. These laws and regulations are subject to change and
uncertain interpretation, and could result in claims, changes to
its business practices, monetary penalties, increased cost of
operations or declines in user growth, user engagement or ad
engagement, or otherwise harm our business.
We are
subject to a variety of laws and regulations in the United States
that involve matters central to our business, including privacy,
rights of publicity, data protection, content regulation,
intellectual property, competition, protection of minors, consumer
protection and taxation. Many of these laws and regulations are
still evolving and being tested in courts and could be interpreted
or applied in ways that could harm our business, particularly in
the new and rapidly evolving industry in which we operate. The
introduction of new products or services may subject us to
additional laws and regulations. There have been a number of recent
legislative proposals in the United States, at both the federal and
state levels, that would impose new obligations in areas such as
privacy. The U.S. government, including the Federal Trade
Commission, or the FTC, and the Department of Commerce, has
announced that it is reviewing the need for greater regulation for
the collection of information concerning user behavior on the
Internet and over mobile devices, including regulation aimed at
restricting certain tracking and targeted advertising
practices.
Additionally,
recent amendments to U.S. patent laws may affect the ability of
companies to protect their innovations and defend against claims of
patent infringement. Having personal information may subject us to
additional regulation. Further, it is difficult to predict how
existing laws and regulations will be applied to its business and
the new laws and regulations to which we may become subject, and it
is possible that they may be interpreted and applied in a manner
that is inconsistent with our practices. These existing and
proposed laws and regulations can be costly to comply with and can
delay or impede the development of new products and services,
result in negative publicity, significantly increase our operating
costs, require significant time and attention of management and
technical personnel and subject us to inquiries or investigations,
claims or other remedies, including fines or demands that we modify
or cease existing business practices.
Even though our platform is for public self-expression conversation
and personal interaction, user trust regarding privacy is important
to the growth of users and the increase in user engagement on our
platform, and privacy concerns relating to our products and
services could damage our reputation and deter current and
potential users and advertisers from using our products and
services.
From
time to time, concerns have been expressed by governments,
regulators and others about whether mobile products, services or
practices compromise the privacy of users and others. Concerns
about, governmental or regulatory actions involving practices with
regard to the collection, use, disclosure or security of personal
information or other privacy-related matters, even if unfounded,
could damage our reputation, cause us to lose users and advertisers
and adversely affect our operating results. While we will strive to
comply with applicable data protection laws and regulations, as we
strive to comply with our own posted privacy policies and other
obligations we may have with respect to privacy and data
protection, the failure or perceived failure to comply may result,
in inquiries and other proceedings or actions against us by
governments, regulators or others. These inquiries could result in
negative publicity and damage to our reputation and brand, each of
which could cause us to lose users and advertisers, which could
have an adverse effect on our business.
Any
systems failure or compromise of our security that results in the
unauthorized access to or release of our users’ or
advertisers’ data could significantly limit the adoption of
our products and services and cause harm to our reputation and
brand and, therefore, our business. We expect to continue to expend
significant resources to protect against security breaches. The
risk that these types of events could seriously harm our business
is likely to increase as we expand the number of products and
services we offer, increase the size of our user base and operate
in other countries.
If our security measures are breached, or if our products and
services are subject to attacks that degrade or deny the ability of
users to access our products and services, our products and
services may be perceived as not being secure, users and
advertisers may curtail or stop using our products and services and
our business and operating results could be harmed.
Our
products and services involve the storage and transmission of
users’ and advertisers’ information, and security
breaches expose us to a risk of loss of this information,
litigation and potential liability. We may experience cyber-attacks
of varying degrees, and as a result, unauthorized parties may
obtain, and may in the future obtain, access to its data or its
users’ or advertisers’ data. Our security measures may
also be breached due to employee error, malfeasance or otherwise.
Additionally, outside parties may attempt to fraudulently induce
employees, users or advertisers to disclose sensitive information
in order to gain access to our data or our users’ or
advertisers’ data or accounts, or may otherwise obtain access
to such data or accounts. Since our users and advertisers may use
their accounts to establish and maintain online identities,
unauthorized communications from our accounts that have been
compromised may damage their reputations. Any such breach or
unauthorized access could result in significant legal and financial
exposure, damage to our reputation and a loss of confidence in
thesecurity of our products and services that could have an adverse
effect on our business and operating results. Because the
techniques used to obtain unauthorized access, disable or degrade
service or sabotage systems change frequently and often are not
recognized until launched against a target, we may be unable to
anticipate these techniques or to implement adequate preventative
measures. If an actual or perceived breach of security occurs, the
market perception of the effectiveness of our security measures
could be harmed, we could lose users and advertisers and we may
incur significant legal and financial exposure, including legal
claims and regulatory fines and penalties. Any of these actions
could have a material and adverse effect on our business,
reputation and operating results.
14
We depend on highly skilled personnel to grow and operate our
business, and if we are unable to hire, retain and motivate its
personnel, we may not be able to grow effectively.
Our
future success will depend upon our continued ability to identify,
hire, develop, motivate and retain highly skilled personnel,
including senior management, engineers, designers and product
managers. Our ability to execute efficiently is dependent upon
contributions from our employees, in particular our senior
management team. We do not maintain key person life insurance for
any employee. In addition, from time to time, there may be changes
in our senior management team that may be disruptive to our
business. If our senior management team, including any new hires
that we may make, fails to work together effectively and to execute
our plans and strategies on a timely basis, our business could be
harmed. Our growth strategy also depends on our ability to expand
our organization with highly skilled personnel. Identifying,
recruiting, training and integrating qualified individuals will
require significant time, expense and attention. Competition for
highly skilled personnel is intense, particularly in the
San Francisco Bay Area, where our headquarters is located. We
may need to invest significant amounts of cash and equity to
attract and retain new employees and we may never realize returns
on these investments. If we are not able to effectively add and
retain employees, our ability to achieve our strategic objectives
will be adversely impacted, and our business will be
harmed.
Our business is subject to the risks of earthquakes, fire, power
outages, floods and other catastrophic events, and to interruption
by man-made problems such as terrorism.
A
significant natural disaster, such as an earthquake, fire, flood or
significant power outage could have a material adverse impact on
our business, operating results, and financial condition. Our
headquarters is located in the San Francisco Bay Area, a region
known for seismic activity. Despite any precautions we may take,
the occurrence of a natural disaster or other unanticipated
problems at our data centers could result in lengthy interruptions
in our services.In addition, acts of terrorism and other
geo-political unrest could cause disruptions in our business. All
of the aforementioned risks may be further increased if our
disaster recovery plans prove to be inadequate. We have a disaster
recovery program, which allows us to move production to a back-up
data center in the event of a catastrophe. Although this program is
functional, we do not currently serve network traffic equally from
each data center, so if our primary data center shuts down, there
will be a period of time that our products or services, or certain
of our products or services, will remain inaccessible to our users
or our users may experience severe issues accessing our products
and services. We do not carry business interruption insurance
sufficient to compensate us for the potentially significant losses,
including the potential harm to our business that may result from
interruptions in our ability to provide our products and
services.
Risks Related to Our Company
Messrs. Dean and Robert Rositano, Jr., as our directors and
officers, own a significant percentage of the voting power of our
stock and will be able to exercise significant influence and
control over the matters subject to stockholder approval and our
operations.
Messrs.
Dean and Robert Rositano, Jr. may be deemed to own (directly
and/or beneficially) 56.24% of our Series A preferred stock. As of
December 31, 2020, the following entities and individuals own the
following shares of our Series A preferred stock:
|
|
●
|
Messrs.
Dean and Robert Rositano, Jr. each directly own 1,882 and 1,881
shares, respectively.
|
|
|
●
|
Copper
Creek Holdings, LLC, a Nevada limited liability company owned and
managed by Robert Rositano and his wife Stacy Rositano, owns 14,730
shares (74.45%), thus each may be deemed to beneficially own one
half;
|
The
holders of Series A preferred stock are entitled to cast votes
equal to the number of votes equal to the number of whole shares of
common stock into which the shares of Series A Preferred Stock held
by such holder are convertible. The total aggregate issued shares
of Series A Preferred Stockat any given time regardless of their
number shall be convertible into the number of shares of common
stock which equals nine (9) times the total number of shares of
common stock which are issued and outstanding at the time of any
conversion, at the option of the preferred holders or until the
closing of a Qualified Financing (i.e. the sale and issuance of our
equity securities that results in gross proceeds in excess of
$2,500,000) at one time or in the same round. As a result of the
Titan Iron Ore Corp. and iHookup merger transaction, the former
iHookup stockholders received a controlling interest in the Company
due to the voting rights of the Series A Preferred Stock being
connected to their super-majority conversion rights. As a
result of Messrs. Dean and Robert Rositano
Jr.’s ownership interests and voting power described
above, Messrs. Dean and Robert Rositano Jr. currently are in a
position to influence and control, subject to our organizational
documents and Nevada law, the composition of our Board of Directors
and the outcome of corporate actions requiring stockholder
approval, such as mergers, business combinations and dispositions
of assets, among other corporate transactions. In addition, this
concentration of voting power could discourage others from
initiating a potential merger, takeover or other change of control
transaction that may otherwise be beneficial to the Company, which
could adversely affect the market price of our
securities.
15
If we are unable to pay the convertible promissory notes owed by
the Company when obligations become due, the note holders may take
adverse proceedings under terms of default.
In the
event of default under terms in our convertible promissory notes,
the note holder may enforce remedies including acceleration of
payment in full plus interest and other charges, and an increase in
interest rates of up to 24% when allowable by law.
Our disclosure controls and procedures and internal control over
financial reporting are not effective, which may cause our
financial reporting to be unreliable and lead to misinformation
being disseminated to the public.
Our
management evaluated our disclosure controls and procedures as of
December 31, 2020 and concluded that as of that date, our
disclosure controls and procedures were not effective. The
ineffectiveness of our disclosure controls and procedures was due
to the following material weaknesses in our internal controls over
financial reporting (i) inadequate segregation of duties and
ineffective risk assessment; (ii) insufficient written
policies and procedures for accounting and financial reporting with
respect to the requirements and application of both US GAAP and SEC
guidelines and (iii) inadequate technical skills of accounting
personnel.
As of
the date of this annual report on Form 10-K, we believe that these
material weaknesses continue to exist and our disclosure controls
and procedures and internal control over financial reporting are
not effective. If such material weakness and ineffective controls
are not promptly corrected in the future, our ability to report
quarterly and annual financial results or other information
required to be disclosed on a timely and accurate basis may be
adversely affected. Also, such material weakness and ineffective
controls could cause our financial reporting to be unreliable and
lead to misinformation being disseminated to the public. Investors
relying upon this misinformation may make an uninformed investment
decision.
We have a limited operating history on which to base an evaluation
of our business and prospects.
We have
a short operating history, which limits our ability to forecast our
future operating results and subjects us to a number of
uncertainties, including our ability to plan for and model future
growth. We have encountered and will continue to encounter risks
and uncertainties frequently experienced by growing companies in
developing industries. If our assumptions regarding these
uncertainties, which we use to plan our business, are incorrect or
change in reaction to changes in our markets, or if we do not
address these risks successfully, our operating and financial
results could differ materially from our expectations and our
business could suffer.
If we issue additional shares in the future, it will result in the
dilution of our existing shareholders.
As of
December 31, 2020, our articles of incorporation authorize the
issuance of up to 1,000,000,000 shares of common stock with a par
value of $0.0001 per share and 50,000,000 shares of preferred stock
with a par value of $0.0001 per share. Our board of directors may
choose to issue some or all of such shares to acquire one or more
companies or properties and to fund our overhead and general
operating requirements and/or choose to increase the
Company’s authorized capital. The increase and issuance of
any such shares will reduce the book value per share and may
contribute to a reduction in the market price of the outstanding
shares of our common stock. If we issue any such additional shares,
such issuance will reduce the proportionate ownership and voting
power of all current shareholders. Further, such issuance may
result in a change of control of our corporation.
The
price of our common stock may be negatively impacted by factors
which are unrelated to our operations.
The
market price of our common stock could fluctuate substantially due
to a variety of factors, including market perception of our ability
to achieve our planned growth, quarterly operating results of our
competitors, trading volume in our common stock, changes in general
conditions in the economy and the financial markets or other
developments affecting our competitors or us. In addition, the
stock market is subject to extreme price and volume fluctuations.
This volatility has had a significant effect on the market price of
securities issued by many companies for reasons unrelated to their
operating performance and could have the same effect on our common
stock.
We do not intend to pay cash dividends on any investment in the
shares of stock of our company.
We have
never paid any cash dividends and currently do not intend to pay
any cash dividends for the foreseeable future. Because we do not
intend to declare cash dividends, any gain on an investment in our
company will need to come through an increase in the stock’s
price. This may never occur, and investors may lose all of their
investment in our company.
16
Trading of our stock is restricted by the Securities Exchange
Commission’s penny stock regulations, which may limit a
stockholder’s ability to buy and sell our common
stock.
The
Securities and Exchange Commission has adopted regulations which
generally define “penny stock” to be any equity
security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Our common stock securities are covered by the
penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than
established customers and “accredited investors”. The
term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals
with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the
Securities and Exchange Commission, which provides information
about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value
of each penny stock held in the customer’s account. The bid
and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or
in writing prior to effecting the transaction and must be given to
the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior
to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these
penny stock rules may affect the ability of broker-dealers to trade
our securities. We believe that the penny stock rules discourage
investor interest in and limit the marketability of our common
stock.
FINRA sales practice requirements may also limit a
stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority (known as
“FINRA”) has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative low-priced
securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and
have an adverse effect on the market for our shares.
Our common stock price has been volatile and your investment could
lose value.
The
trading price of our common stock has been volatile and could be
subject to wide fluctuations due to various factors. The timing of
announcements in the public market regarding new products, product
enhancements or technological advances by us or our competitors,
and any announcements by us or our competitors of acquisitions,
major transactions or management changes could also affect our
stock price. Our stock price is subject to speculation in the press
and the analyst community, changes in recommendations or earnings
estimates by financial analysts, changes in investors’ or
analysts’ valuation measures for our stock and market trends
unrelated to our performance. A significant drop in our stock price
could also expose us to the risk of securities class action
lawsuits, which could result in substantial costs and divert
management’s attention and resources, which could adversely
affect our business. Moreover, if the per share trading price of
our common stock declines significantly, you may be unable to
resell your shares at or above the public offering price. We cannot
assure you that the per share trading price of our common stock
will not fluctuate or decline significantly in the
future.
The trading price of our common stock has been low, and the sale of
a substantial number of shares in the public market could depress
the price of our common stock.
Our
common stock is traded on the OTC Markets Group marketplace
and historically has had a low average daily trading price relative
to many other stocks. Thinly traded stocks can have more price
volatility than stocks trading in an active public market, which
can lead to significant price swings even when a relatively small
number of shares are being traded, and can limit an
investor’s ability to quickly sell blocks of stock. If there
continues to be low average daily trading volume or price in our
common stock investors may be unable to quickly liquidate their
investments or at prices investors consider to be
adequate.
Because our common stock is quoted and traded on the OTC
Markets Group marketplace, short selling could increase the
volatility of our stock price.
Short
selling occurs when a person sells shares of stock which the person
does not yet own and promises to buy stock in the future to cover
the sale. The general objective of the person selling the shares
short is to make a profit by buying the shares later, at a lower
price, to cover the sale. Significant amounts of short selling, or
the perception that a significant amount of short sales could
occur, could depress the market price of our common stock. In
contrast, purchases to cover a short position may have the effect
of preventing or retarding a decline in the market price of our
common stock, and together with the imposition of the penalty bid,
may stabilize, maintain or otherwise affect the market price of our
common stock. As a result, the price of our common stock may be
higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued
at any time. These transactions may be effected on the OTC
Markets Group marketplace or any other available markets or
exchanges. Such short selling if it were to occur could impact the
value of our stock in an extreme and volatile manner to the
detriment of our shareholders.
17
Risks Relating to the Early Stage of our Company and Ability to
Raise Capital
We are at a very early stage and our success is subject to the
substantial risks inherent in the establishment of a new business
venture.
The
implementation of our business strategy is in a very early stage
and subject to all of the risks inherent in the establishment of a
new business venture. Accordingly, our intended business and
prospective operations may not prove to be successful in the near
future, if at all. Any future success that we might enjoy will
depend upon many factors, many of which are beyond our control, or
which cannot be predicted at this time, and which could have a
material adverse effect upon our financial condition, business
prospects and operations and the value of an investment in our
company.
We expect to suffer continued operating losses and we may not be
able to achieve profitability.
We
expect to continue to incur significant development and marketing
expenses in the foreseeable future related to the launch and
commercialization of our products and services. As a result, we
will be sustaining substantial operating and net losses, and it is
possible that we will never be able to achieve
profitability.
We may have difficulty raising additional capital, which could
deprive us of necessary resources.
In
order to support the initiatives envisioned in our business plan,
we will need to raise additional funds through public or private
debt or equity financing, collaborative relationships or other
arrangements. Our ability to raise additional financing depends on
many factors beyond our control, including the state of the capital
markets, the market price of our common stock, and the development
of competitive projects by others. Because our common stock is not
listed on a major stock market, many investors may not be willing
or allowed to purchase our common shares or may demand steep
discounts. Sufficient additional financing may not be available to
us or may be available only on terms that would result in further
dilution to the current owners of our common stock.
If we
are unsuccessful in raising additional capital, or the terms of
raising such capital are unacceptable, we may have to modify our
business plan and/or significantly curtail our planned activities.
If we are successful raising additional capital through the
issuance of additional equity, our investor’s interests will
be diluted.
There are substantial doubts about our ability to continue as a
going concern and if we are unable to continue our business, our
shares may have little or no value.
Our
ability to become a profitable operating company is dependent upon
our ability to generate revenues and/or obtain financing adequate
to implement our business plan. Achieving a level of revenues
adequate to support our cost structure, our continued operating
losses and our net cash used in operations has raised substantial
doubts about our ability to continue as a going concern. We plan to
attempt to raise additional equity capital by issuing shares and,
if necessary through one or more private placement or public
offerings, and via the securities purchase agreement/equity line
financing. However, the doubts raised relating to our ability to
continue as a going concern may make our shares an unattractive
investment for potential investors. These factors, among others,
may make it difficult to raise any additional capital.
Failure to effectively manage our growth could place additional
strains on our managerial, operational and financial resources and
could adversely affect our business and prospective operating
results.
Our
anticipated growth is expected to continue to place a strain on our
managerial, operational and financial resources. Further, as we
expand our user and advertiser base, we will be required to manage
multiple relationships. Any further growth by us, or an increase in
the number of our strategic relationships will increase this strain
on our managerial, operational and financial resources. This strain
may inhibit our ability to achieve the rapid execution necessary to
implement our business plan, and could have a material adverse
effect upon our financial condition, business prospects and
prospective operations and the value of an investment in our
company.
We may fail to raise sufficient
capital.
To the
extent that we fail to obtain sufficient operating capital, we may
be unable to deal with presently unforeseen contingencies in the
future or be able to fund our operations. In addition, we may have
more difficulty or find it impossible, to raise third party
financing from investors or financial institutions.
Our reserves may be
insufficient.
We
intend to establish a reserve fund, as determined in the
Board’s discretion, for normal working capital contingencies.
However, we have been unable to do so. If the reserves are not
available to the Company, it may be necessary to attempt to raise
additional capital or financing. In the event that such capital or
financing is not available on favorable terms, we may be forced to
raise additional capital on unfavorable terms. In fact, we have
been forced to issue several convertible notes at substantial
discounts and interest rates in order to raise the requisite
capital for operations.
18
ITEM 1B. UNRESOLVED STAFF
COMMENTS
Not
Applicable.
ITEM 2. PROPERTIES
Principal Office
Our
executive offices are located at 1821 S. Bascom Ave Ste 353,
Campbell, California 95008. We believe that our office space and
facilities are sufficient to meet our present needs and do not
anticipate any difficulty securing alternative or additional space,
as needed, on terms acceptable to us.
ITEM 3. LEGAL
PROCEEDINGS
Except
for the lawsuit contingency related to Infinity Global
Consulting Group Inc referred to in Note 8, page F-18, of the
consolidated Financial Statements, we are currently not
involved in any litigation that we believe could have a materially
adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge
of the executive officers of our Company or any of our
subsidiaries, threatened against or affecting our Company, our
common stock, any of our subsidiaries or of our Company’s or
our Company’s subsidiaries’ officers or directors in
their capacities as such, in which an adverse decision could have a
material adverse effect.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
19
PART II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
(a)
|
Market Information
|
Our
common stock is quoted on the OTC Pink marketplace under the symbol
“FDBL”.
Set
forth below are the range of high and low bid quotations for the
periods indicated as reported by the OTC Pink marketplace. The
market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
|
Quarter Ended
|
High Bid
|
Low Bid.
|
|
December
31,2020
|
$0.0400
|
$0.0078
|
|
September
30,2020
|
$0.1750
|
$0.0185
|
|
June
30,2020
|
$0.1659
|
$0.0494
|
|
March
31,2020
|
$0.3960
|
$0.0470
|
|
|
|
|
|
December 31,
2019
|
$0.6930
|
$0.1000
|
|
September 30,
2019
|
$0.3000
|
$0.0260
|
|
June 30,
2019
|
none
|
none
|
|
March 31,
2019
|
$0.0001
|
$0.0001
|
|
|
(b)
|
Holders of Our Common Stock
|
As of April 26, 2021, there were 87 registered holders of record of
our common stock. As of such date, 141,965,430 shares of our common
stock were issued and outstanding.
|
|
(c)
|
Dividends
|
The
payment of dividends, if any, in the future, rests within the sole
discretion of our board of directors. The payment of dividends will
depend upon our earnings, our capital requirements and our
financial condition, as well as other relevant factors. We have not
declared any cash dividends since our inception and have no present
intention of paying any cash dividends on our common stock in the
foreseeable future.
There
are no restrictions in our articles of incorporation or bylaws that
prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after
giving effect to the distribution of the dividend:
|
|
1.
|
We
would not be able to pay our debts as they become due in the usual
course of business; or
|
|
|
2.
|
Our
total assets would be less than the sum of our total liabilities
plus the amount that would be needed to satisfy the rights of
shareholders who have preferential rights superior to those
receiving the distribution.
|
|
|
(d)
|
Securities Authorized for Issuance under Equity Compensation
Plans
|
Effective
November 22, 2011 our board of directors adopted and approved our
stock option plan. The purpose of the stock option plan is to
enhance the long-term stockholder value of our company by offering
opportunities to directors, key employees, officers, independent
contractors and consultants of our company to acquire and maintain
stock ownership in our company in order to give these persons the
opportunity to participate in our company’s growth and
success, and to encourage them to remain in the service of our
company. Effective August 27, 2019, the Company effected a reverse
split of 1 for 18,000 which eliminated all the options which were
previously outstanding.
Effective
January 11, 2021 the Company’s directors approved the
adoption of Nonqualified Stock Option Award Plan for its employees,
whereby stock options on the Company’s common shares may be
issued from time to time recognizing, in part, the contributions
made by such employees to the Company’s operations. Also on
January 11, 2021 the Company granted options to its 5 employees to
acquire a total of 5,000,000 of the Company’s common shares
at an exercise price of $0.014 per share, vesting quarterly through
January 11, 2023, to acquire of further 10,000,000 of the
Company’s common stock also at an exercise price of $0.14 per
share, vesting quarterly through January 11, 2024.
20
Transfer Agent
Our
transfer agent is Nevada Agency and Transfer Company, 50 West
Liberty Street Suite 880, Reno, Nevada 89501, phone (775)
322-0626.
Recent Sales of Unregistered Securities
During the year ended December 31, 2020, the Company issued
5,736,333 shares of common stock and recorded the obligation to
issue a further 506,667 common shares, collectively valued at
$552,050 based on the quoted price on the grant dates, in payment
for services primarily to music artists providing live performances
for the July 24, 2020 launch of the Fan Pass app.
During the year ended December 31, 2020, the Company issued 750,000
common shares to Integrity Media pursuant to the Company’s
settlement agreement, which Integrity Media advised had a realized
value of $16,625.
During the year ended December 31, 2020, the Company issued
7,196,264 common shares to parties where the original liability
required the obligation to record such shares as
issuable.
During the year ended December 31, 2020, the Company issued 54,076
common shares to the Company’s founder upon conversion of 3
Series A Preferred Shares to meet their personal commitment to
transfer certain common shares to the investors.
During the year ended December 31, 2020, the Company Issued
26,527,179 common shares upon conversion of Series C preferred
stock having a value of $353,678.
We made
the foregoing stock issuances in reliance upon the exemption from
registration under Section 4(a)(2) of the Securities Act of 1933,
as amended.
Rule 10B-18 Transactions
During
the years ended December 31, 2020 and 2019, there were no
repurchases of the Company’s common stock by the
Company.
ITEM 6. SELECTED FINANCIAL
DATA
Not
applicable.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our management’s discussion and analysis provides a narrative
about our financial performance and condition that should be read
in conjunction with the audited and unaudited consolidated
financial statements and related notes thereto included in this
annual report on Form 10-K. This discussion contains forward
looking statements reflecting our current expectations and
estimates and assumptions about events and trends that may affect
our future operating results or financial position. Our actual
results and the timing of certain events could differ materially
from those discussed in these forward-looking statements due to a
number of factors, including, but not limited to, those set forth
in the sections of this annual report on Form 10-K titled
“Risk Factors” beginning at page 13 above and
“Forward-Looking Statements” beginning at page 4
above.
Results of Operations
Years Ended December 31, 2020 and 2019
Our cash as of December 31, 2020 was $52,702. As a result of our
minimal amount of revenues and ongoing expenditures in pursuit of
our business, we have incurred net losses since our inception. Our
accumulated deficit at December 31, 2020 was $36,569,246. For the
year ended December 31, 2020, our net loss was
$4,125,363.
21
Our
operating revenues and expenses for our fiscal years ended December
31, 2020 and 2019 and the changes between those periods for the
respective items are summarized as follows:
|
|
For the
Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
REVENUES
|
|
|
|
Technology
services
|
$397,333
|
$239,471
|
|
Subscription
and merchandising sales
|
4,572
|
3,225
|
|
|
401,905
|
242,696
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
App
hosting
|
47,500
|
24,068
|
|
Commissions
|
871
|
938
|
|
General
and administrative
|
834,090
|
814,053
|
|
Software
development and support
|
613,105
|
299,124
|
|
Artists'
performance fees
|
431,639
|
-
|
|
Revenue
shares
|
660
|
-
|
|
Investor
relations
|
140,119
|
98,264
|
|
Sales
and marketing
|
108,776
|
48,375
|
|
Total
operating expenses
|
2,176,760
|
1,284,822
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
(1,774,855)
|
(1,042,126)
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
Accretion
and interest expense
|
(450,275)
|
(621,149)
|
|
Provision
for settlement of lawsuit
|
-
|
(1,035,000)
|
|
Loss
on debt extinguishment
|
-
|
(7,384,866)
|
|
Gain
on foreign exchange
|
2,580
|
24,731
|
|
Loss
on extinguishment of convertible notes
|
(87,491)
|
-
|
|
Loss
on initial derivative expense
|
(1,106,500)
|
-
|
|
Loss
on settlement of derivatives
|
(640,822)
|
-
|
|
Loss
on change in fair value of derivatives
|
(68,000)
|
(125,000)
|
|
|
(2,350,508)
|
(9,141,284)
|
|
|
|
|
|
NET
LOSS
|
$(4,125,363)
|
$(10,183,410)
|
|
|
|
|
Revenues
Revenues
for the year ended December 31, 2020 increased to $401,905 as
compared to $242,696 for the year ended December 31, 2019. The
increase in revenue was primarily due to receiving additional
contracts to develop an app for a third party.
Operating Expenses
Operating
expenses for the year ended December 31, 2020 and the December 31,
2019 were $2,176,760 and $1,284,822 respectively, an increase of
69.4%. The increase in operating expenses was due primarily to
costs associated with the launch of the Fan Pass app on July 24,
2020, which entailed higher software development costs to complete
the app and artists’ fees for live streaming performances at
the app launch, coupled with increased expenditures on sales and
marketing and investor relations related to launch.
Net Loss
Our
operating results have recognized net loss in the amount of
$4,125,363 for the year ended December 31, 2020 as compared to a
net loss of $10,183,410 for the year ended December 31, 2019. The
decrease was primarily related to a loss on extinguishments of debt
and to a provision for settlement of a lawsuit in 2019, which did
not occur in 2020.
Liquidity and Capital Resources
Working Capital
|
|
December
31, 2020
|
December
31, 2019
|
|
Current
Assets
|
$148,601
|
$71,500
|
|
Current
Liabilities
|
$5,436,963
|
$16,041,805
|
|
Working Capital
Deficiency
|
$(5,288,362)
|
$(15,970,305)
|
22
Current liabilities as of December 31, 2020 and 2019 were
$5,436,963 and $16,041,805 respectively, a decrease of $10,604,842.
The primary reason for the decrease was a reduction in derivative
liabilities by $ 11,458,000 attributable to the conversion to
common stock of certain convertible debentures and promissory notes
during 2020, offset by an increase in accounts payable and accrued
expenses of $450,380.
We
currently do not have sufficient capital to fund our needs for the
next 12 months. We rely on financing from convertible debt,
promissory notes, and sale of stock to fund our
operations.
Cash Flows
|
|
Year
Ended
|
Year
Ended
|
|
|
December
31, 2020
|
December
31, 2019
|
|
Net Cash Used in
Operating Activities
|
$(492,080)
|
$(488,864)
|
|
Net Cash Provided
by Financing Activities
|
533,500
|
474,500
|
|
Net Increase
(Decrease) in Cash
|
$41,420
|
$(14,364)
|
Operating Activities
Cash provided by operating activities
The
Company used $492,080 in cash from operating activities for the
year ended December 31, 2020 as compared to a use of $488,864 for
the year ended December 31, 2019. The increase is due to
expenditures related to the launch of the Fan Pass
app.
Cash provided by financing activities
Financing activities for the year ended December 31, 2020 generated
cash of $533,500 as compared to generating $474,500 of cash for the
year ended December 31, 2019. The higher cash provided from
financing activities in the current year is primarily attributable
to proceeds from the issuance of convertible notes ,the receipt of
short-term loans and proceeds from sales of common stock and
convertible Series C preferred stock.
There
was no significant impact on the Company’s operations as a
result of inflation for the year ended December 31,
2020.
Series B Preferred Stock Purchase Agreements
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 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
B Preferred Stock into fully paid and non-assessable shares of
Common Stock. Initially, the conversion price for the Series B
Preferred Stock is $.25 per share, subject to standard
anti-dilution adjustments. Additionally, each share of Series B
Preferred Stock shall be entitled to, as a dividend, a pro rata
portion of an amount equal to 10% (Ten Percent) of the Net Revenues
(“Net Revenues” being Gross Sales minus Cost of Goods
Sold) derived from the subscriptions and other sales, but excluding
and net of Vimeo fees, processing fees and up sells, generated by
Fan Pass Inc., the wholly-owned subsidiary of the Corporation. The
Series B Dividend shall be calculated and paid on a monthly basis
in arrears starting on the day.
During
the year ended December 31, 2019, the Company entered into
subscription agreements with various investors whereby we sold
rights to 284,000 shares of Series B Preferred Stock for a total
purchase price of $284,000, of which $205,000 was received in cash
and $79,000 was settled against payables to a related
party.
23
Series C Preferred Stock Purchase Agreements
On
November 25, 2019 the Company filed a Designation of Series C
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series C Preferred Stock with a stated
value of $1.00 per share. The Series C Preferred Stock will, with
respect to dividend rights and rights upon liquidation, winding-up
or dissolution, rank: (a) senior with respect to dividends with the
Company’s common stock, par value 0.0001 per share
(“Common Stock”)(the Series C Preferred Stock will
convert into common stock immediately upon liquidation and be pari
passu with the common stock in the event of litigation), and (b)
junior with respect to dividends and right of liquidation to all
existing and future indebtedness of the Company. The Series C
Preferred Stock does not have any voting rights. Each share of
Series C Preferred Stock will carry an annual dividend in the
amount of eight percent (8%) of the Stated Value of $1.00 (the
“Divided Rate”), which shall be cumulative and
compounded daily, payable solely upon redemption, liquidation or
conversion and increase to 22% upon an event of default as defined.
In the event of any default other than the Company’s failure
to issue shares upon conversion, the stated price will be $1.50. In
a default event where the Company fails to issue shares upon
conversion, the stated price will $2.00. The holder shall have the
right six months following the issuance date, to convert all or any
part of the outstanding Series C Preferred Stock into shares of
common stock of the Company. The conversion price shall equal the
Variable Conversion Price. The “Variable Conversion
Price” shall mean 71% multiplied by the market price,
representing a discount rate of 29%. Market price means the average
of the two lowest trading prices for the Company’s common
stock during the twenty trading day period ending on the latest
complete trading day prior to the conversion date. Upon any
liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, or upon any deemed liquidation event,
after payment or provision for payment of debts and other
liabilities of the Company, and after payment or provision for any
liquidation preference payable to the holders of any Preferred
Stock ranking senior upon liquidation to the Series C Preferred
Stock, if any, but prior to any distribution or payment made to the
holders of Common Stock or the holders of any Preferred Stock
ranking junior upon liquidation to the Series C Preferred Stock by
reason of their ownership thereof, the Holders will be entitled to
be paid out of the assets of the Company available for distribution
to its stockholders. The Company will have the right, at the
Company’s option, to redeem all or any portion of the shares
of Series C Preferred Stock, exercisable on not more than three
trading days prior written notice to the Holders, in full, in
accordance with Section 6 of the designations at a premium of up to
35% for up to six months. Company’s mandatory redemption: On
the earlier to occur of (i) the date which is twenty-four (24)
months following the Issuance Date and (ii) the occurrence of an
Event of Default (the “Mandatory Redemption Date”), the
Company shall redeem all of the shares of Series C Preferred Stock
of the Holders (which have not been previously redeemed or
converted).
On May 29, 2020 the Company defaulted on the shares by being late
with the filing of the Form 10-K, thereby increasing the dividend
rate to 22% and the stated value to $1.50 per share. During the
three months ended March 31, 2020, 38,000 shares of Series C
convertible preferred stock were issued to an investor under
preferred stock purchase agreements at a price of approximately
$0.87 per share for a total of $33,000.
During the three months ended September 30, 2020 the holder of the
Series C converted 62,500 Series C shares to 3,822,958 common
shares for a redemption value of $96,750 including accrued
dividends plus premium of $38,292, which totaled $135,042 recorded
into equity.
During
the three months ended December 31, 2020 the holder of the Series C
converted 101,300 Series C shares to 22,704,221 common shares for a
redemption value of $218,655 including accrued dividends, plus
premium, recorded into equity. In addition, during the three months
ended December 31, 2020 a total of 149,600 shares of Series C
convertible preferred stock were issued to two investors under
preferred stock purchase agreements, at a price of approximately
$0.91 per share, for a total of $136,000 cash and premiums totaling
$60,302 were recorded during this period with respect to these
issuances. At December 31, 2020 the remaining liability totals
$285,605, represented by a remaining balance of $184,850 in
redeemable Series C stock, together with the related premium of
$74,701 and accrued dividends of $26,054.
Debt Restructure Agreement
On
March 26, 2019 three officers forgave debt totaling $400,000 and a
company controlled by two officers of the Company forgave debt
totaling $600,000. The debt forgiveness is considered a capital
transaction and therefore $1,000,000 was recorded as an increase in
additional paid-in capital for December 31, 2019.
On
March 26, 2019, the Company entered into a Debt Restructuring
Agreement with related parties Robert A. Rositano Jr., Dean
Rositano , Frank Garcia , and Checkmate Mobile, Inc. and Alpha
Capital Anstalt , Coventry Enterprises, LLC , Palladium Capital
Advisors, LLC, EMA Financial, LLC, Michael Finkelstein, and Barbara
R. Mittman, each being a debt holder of the Company.
The
debt holders agreed to convert their debt of approximately $6.3
million and accrued interest of approximately $1.8 million into an
initial 5,902,589 shares of common stock as set forth in the
Agreement upon the Company meeting certain milestones including but
not limited to: the Company effecting a reverse stock split and
maintaining a stock price of $1.00 per share; being current with
its periodic report filings pursuant to the Securities Exchange
Act; certain vendors and Company employees forgiving an aggregate
of $1,000,000 in amounts owed to them; the Company raising not less
than $400,000 in common stock at a post-split price of not less
than $.20 per share; and certain other things as further set forth
in the Agreement. The debt holders will be subject to certain lock
up and leak out provisions as contained in the Agreement. As part
of the Agreement the parties signed a Rights to Shares Agreement.
Whereas the Agreement called for all the shares to be delivered at
closing, the holders are generally restricted to beneficial
ownership of up to 4.99% of the company’s common shares
outstanding. The Rights to Shares Agreement allows for the Company
to issue shares to each holder up the 4.99% limitation while
preserving the holders’ rights to the total shares in
schedule A of the Agreement. Accordingly, the 5,902,589 common
shares were recorded as issuable in equity, On December 26, 2019,
all parties signed an amendment to the Agreement which set forth,
among other things, the following:
24
Company
Principals have given Holders notice that it has satisfied all
conditions of closing.
The
Agreement is considered Closed as of November 5, 2019
(“Settlement Date”) and any conditions of closing not
satisfied are waived.
Reset
Dates. The “Reset Dates” as set forth in Section 1(h)
of the Agreement shall be as follows: March 4, 2020 and July 2,
2020. As of the reset dates the holders can convert all or part of
the settled note amounts at the lower of (i) 75% of the closing bid
price for the Common Stock on such respective Reset Date, or (ii)
the VWAP for the Company’s Common Stock for the 7 trading
days immediately preceding and including such respective Reset
Dates. This reset provision provides for the issuance of additional
shares above the initial 5,902,589 shares for no additional
consideration as measured at each of the two reset
dates.
On
March 4, 2020 the Company became obligated to issue an additional
36,193,098 shares of common stock and on July 2, 2020 it became
obligated to issue an additional 63,275,242 shares, for a total
amount of shares due of 105,370,930.
On September 21, 2020, Ellis International LP (as successor to
Alpha Capital Anstalt) submitted a request to drawdown and, on
September 29, 2020, was issued 687,355 common shares against its
entitlement above and reclassified from issuable shares in the
accompanying balance sheet and statement of changes in stockholder
equity.
On November 9, 2020 and on December 9, 2020 Coventry Enterprises
requested and was issued 915,000 and 1,262,000 common shares
respectively, and on November 23, 2020 Barbara Mittman requested
and was issued 1,134,353 (net) common shares against their
respective entitlement under the debt settlement agreement, which
was reclassified from issuable shares.
Going Concern
At December 31, 2020, we had a working capital deficiency, an
accumulated deficit, and a stockholders’ deficit of
$5,288,362, $36,569,246 and $5,288,362 respectively and incurred a
net loss and cash used in operations of $3,949,156 and $492,080
respectively in 2020. We have generated minimal revenues and have
incurred losses since inception. Accordingly, we will be dependent
on future additional financing in order to seek other business
opportunities in the online entertainment industry or new business
opportunities. We are considered a development stage company in the
online entertainment industry. As of December 31, 2020, there is no
assurance that we will be able raise sufficient capital to sustain
our operations. We expect to incur further losses in the
development of our business, all of which casts substantial doubt
about our ability to continue as a going concern. Our ability to
continue as a going concern is dependent upon our ability to
generate future profitable operations and/or to obtain the
necessary financing to meet our obligations and repay our
liabilities arising from normal business operations when they come
due.
Application of Critical Accounting Policies
Use of Estimates
The
preparation of these statements in accordance with United States
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses in the reporting
period. The Company regularly evaluates estimates and assumptions
related to valuation of convertible debenture conversion options,
derivative instruments, deferred income tax asset valuations,
financial instrument valuations, share-based payments, other
equity-based payments, and loss contingencies. The Company bases
its estimates and assumptions on current facts, historical
experience and various other factors that it believes to
bereasonable 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 years
ended December 31, 2020 and December 31, 2019, the Company derived
revenues primarily from the development of apps for a third party
of $ 397,333 and $ 239,477 respectively, and such revenues were
recognized upon completion of services. Secondarily, the
Company’s other revenues from subscription fees and
merchandising sales from the Friendable and Fan Pass apps totaled
$4,572 for the year ended December 31,2020 (2019:$3,225) and were
recognized when received.
25
Impairment of Long-Lived Assets
We
continually monitor 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, we assess 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, we recognize 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.
Stock-based compensation
We
record stock-based compensation in accordance with ASC 718,
Compensation – Stock Based Compensation, which requires the
measurement and recognition of compensation expense based on
estimated fair values for all share-based awards made to employees
and directors, including stock options. In 2019 the Company adapted
ASU 2018-17 which expands the measurement requirements to non
employees.
ASC 718
requires companies to estimate the fair value of share-based awards
on the date of grant using an option-pricing model. We use the
Black-Scholes option pricing model as its method in determining
fair value. This model is affected by our stock price as well as
assumptions regarding a number of subjective variables. These
subjective variables include, but are not limited to our 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.
Financial Instruments
FASB
ASC 820, Fair Value Measurements and Disclosures, defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined as the price
that would be received to sell anasset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. Valuation techniques used to measure fair
value, as required by ASC 820, must maximize the use of observable
inputs and minimize the use of unobservable inputs.
Our
assessment of the significance of a particular input to the fair
value measurements requires judgment, and may affect the valuation
of the assets and liabilities being measured and their placement
within the fair value hierarchy. The carrying values of accounts
payable, convertible debentures and promissory note approximate
fair values because of the short-term maturity of these
instruments. Unless otherwise noted, it is management’s
opinion that we are not exposed to significant interest, currency
or credit risks arising from these financial
instruments.
Basic and Diluted Net Loss Per Share
We
compute 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 shareholders (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.
Recent Accounting Pronouncements
We have
implemented all other new accounting pronouncements that are in
effect and that may impact its financial statements and does not
believe that there are any other new accounting pronouncements that
have been issued that might have a material impact on its financial
position or results of operations.
Off-Balance Sheet Arrangements
We do
not have any off -balance sheet arrangements
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
Applicable
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
FRIENDABLE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Report of Independent
Registered Public Accounting Firm
To the
Stockholders and the Board of Directors of:
Friendable,
Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Friendable,
Inc. and Subsidiaries (the “Company”) as of December
31, 2020 and 2019, the related consolidated statements of
operations, changes in stockholders’ deficit and cash flows
for each of the two years in the period ended December 31, 2020,
and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the
Company as of December 31, 2020 and 2019, and the consolidated
results of its operations and its cash flows for each of the two
years in the period ended December 31, 2020, in conformity with
accounting principles generally accepted in the United States of
America.
Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has a net loss and cash used in
operations of $4,125,363 and $492,080, respectively, in 2020 and
has a working capital deficit, stockholders’ deficit and
accumulated deficit of $5,288,362, $5,288,362 and $36,569,246
respectively, at December 31, 2020. These matters raise substantial doubt about the
Company’s ability to continue as a going concern.
Management’s Plan in regard to these matters is also
described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated
financial statements are free
of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an
audit of internal control over financial reporting. As part of our
audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
2295
NW Corporate Blvd., Suite 240 ● Boca Raton, FL
33431-7328
Phone: (561) 995-8270 ● Toll
Free: (866) CPA-8500 ● Fax: (561)
995-1920
www.salbergco.com ●
info@salbergco.com
Member National Association of Certified
Valuation Analysts ● Registered with the
PCAOB
Member CPAConnect with Affiliated Offices
Worldwide ● Member
AICPA Center for Audit
Quality
F-1
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
Derivative
Liabilities
As
described in Footnote 2 “Derivative liabilities”,
Footnote 5, “Convertible Debentures”, Footnote 6
“Convertible Promissory Notes” and Footnote 12
“Fair Value Measurements” to the consolidated financial
statements, the Company recorded derivative activity during 2020
that resulted primarily in a net aggregate derivative related
expense of $1,815,322 and derivative liabilities of $1,320,000 at
December 31, 2020.
We
identified the evaluation of instruments and contracts to determine
whether there are derivatives to be recorded, the analysis of the
accounting treatment and presentation for derivative transactions
and the valuation of derivatives as critical audit matters.
Auditing management’s analysis of the above critical audit
matters was complex and involved a high degree of
subjectivity.
The
primary procedures we performed to address these critical audit
matters included (a) Reviewing and testing management’s
conclusions as to whether certain instruments or contracts
qualified for derivative treatment by comparing management’s
analysis and conclusions to authoritative and interpretive
literature, (b) Comparing the accounting treatment and presentation
to that described by the authoritative and interpretive literature,
(c) Testing management’s process for valuing derivatives by
comparing it to generally accepted methodologies for valuing
derivatives, (d) Testing management’s valuation of the
derivatives by testing assumptions and data used in the valuation
model including the term, volatility and interest rate, and (e)
Recomputing the derivative valuations. We agreed with
management’s final conclusions with regard to derivative
treatments, valuations and accounting treatment and
presentation.
/s/
Salberg & Company, P.A.
SALBERG
& COMPANY, P.A.
We have
served as the Company’s auditor since 2020.
Boca
Raton, Florida
April
27, 2021
F-2
|
FRIENDABLE,
INC.
|
||
|
CONSOLIDATED BALANCE SHEETS
|
||
|
|
|
|
|
|
December
31,
|
December
31,
|
|
|
2020
|
2019
|
|
ASSETS
|
||
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
$52,702
|
$11,282
|
|
Accounts
receivable
|
12,500
|
135
|
|
Prepaid
expenses
|
83,399
|
30,000
|
|
Due
from a related party
|
-
|
30,083
|
|
Total
Current Assets
|
148,601
|
71,500
|
|
|
|
|
|
Total
Assets
|
$148,601
|
$71,500
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
||
|
CURRENT
LIABILITIES:
|
|
|
|
Accounts
payable and accrued expenses
|
$2,447,706
|
$1,997,326
|
|
Accounts
payable - related party
|
190,320
|
-
|
|
Short
term loans
|
61,000
|
-
|
|
Convertible
debentures and convertible promissory notes, net of
discounts
|
143,957
|
69,930
|
|
Mandatorily
redeemable Series C convertible Preferred stock, 1,000,000
designated,
|
|
|
|
173,100
and 149,300 issued and outstanding at December 31,2020 and
2019,
|
|
|
|
including
a premium of $74,701 and $55,549 respectively (liquidation value
$210,905 at December 31, 2020)
|
285,605
|
191,549
|
|
Derivative
liabilities
|
1,320,000
|
12,778,000
|
|
Liability
to be settled in common stock
|
988,375
|
1,005,000
|
|
Total
Current Liabilities
|
5,436,963
|
16,041,805
|
|
|
|
|
|
Commitments
and contingencies (Note 8)
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT:
|
|
|
|
Preferred
stock, 50,000,000 authorized at par value $0.0001:
|
|
|
|
Series A convertible Preferred stock, 25,000 shares
designated at par value of $0.0001
|
||
|
19,786
and 19,789 shares issued and outstanding at December 31,2020 and
2019, respectively
|
2
|
2
|
|
Series
B convertible Preferred stock, 1,000,000 shares designated at par
value of $0.0001
|
|
|
|
284,000
and 284,000 shares issued and outstanding at December 31,2020 and
2019,
|
|
|
|
respectively.
(Liquidation value $284,000)
|
28
|
28
|
|
Common
stock, $0.0001 par value, 1,000,000,000 shares authorized,
51,665,821 and
|
|
|
|
4,398,114
shares issued and outstanding at December 31,2020 and 2019,
respectively
|
5,167
|
438
|
|
Common
stock issuable, $0.0001 par value, 103,547,079 and 8,518,335 shares
at
|
|
|
|
December
31,2020 and 2019, respectively.
|
10,354
|
852
|
|
Additional
paid-in capital
|
31,269,833
|
16,476,758
|
|
Common
stock subscription receivable
|
(4,500)
|
(4,500)
|
|
Accumulated
deficit
|
(36,569,246)
|
(32,443,883)
|
|
Total
Stockholders' Deficit
|
(5,288,362)
|
(15,970,305)
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
$148,601
|
$71,500
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
|
||
F-3
|
FRIENDABLE,
INC.
|
||
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||
|
|
|
|
|
|
For the
Years Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
REVENUES
|
|
|
|
Technology
services
|
$397,333
|
$239,471
|
|
Subscription
and merchandising sales
|
4,572
|
3,225
|
|
|
401,905
|
242,696
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
App
hosting
|
47,500
|
24,068
|
|
Commissions
|
871
|
938
|
|
General
and administrative
|
834,090
|
814,053
|
|
Software development and support
|
613,105
|
299,124
|
|
Artists'
performance fees
|
431,639
|
-
|
|
Revenue
shares
|
660
|
-
|
|
Investor
relations
|
140,119
|
98,264
|
|
Sales
and marketing
|
108,776
|
48,375
|
|
Total
operating expenses
|
2,176,760
|
1,284,822
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
(1,774,855)
|
(1,042,126)
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
Accretion
and interest expense
|
(450,275)
|
(621,149)
|
|
Provision
for settlement of lawsuit
|
-
|
(1,035,000)
|
|
Loss
on debt extinguishment
|
-
|
(7,384,866)
|
|
Gain
on foreign exchange
|
2,580
|
24,731
|
|
Loss
on extinguishment of convertible notes
|
(87,491)
|
-
|
|
Loss
on initial derivative expense
|
(1,106,500)
|
-
|
|
Loss
on settlement of derivatives
|
(640,822)
|
-
|
|
Loss
on change in fair value of derivatives
|
(68,000)
|
(125,000)
|
|
|
(2,350,508)
|
(9,141,284)
|
|
|
|
|
|
NET
LOSS
|
$ (4,125,363)
|
$ (10,183,410)
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE:
|
|
|
|
Basic
and Diluted
|
$(0.05)
|
$(2.56)
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
Basic
and Diluted
|
83,486,003
|
3,981,702
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
|
||
F-4
|
FRIENDABLE,
INC.
|
||||||||||||||
|
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT
|
||||||||||||||
|
For the Year Ended December 31, 2020
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred
|
Series B Preferred
|
Common Stock
|
Additional
|
Common Stock
|
|
Total
|
|||||||
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Paid In
|
Subscription
|
Accumulated
|
Stockholders'
|
|
|
Issued
|
Amount
|
Issuable
|
Amount
|
Issued
|
Amount
|
Issued
|
Amount
|
Issuable
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Deficit
|
|
Balance, December 31, 2019
|
19,789
|
$2
|
-
|
$-
|
284,000
|
$28
|
4,398,114
|
$438
|
8,518,335
|
$852
|
$16,476,758
|
$(4,500)
|
$(32,443,883)
|
$(15,970,305)
|
|
Common shares
cancelled
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,000)
|
-
|
-
|
-
|
(500)
|
-
|
-
|
(500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Convertible notes
|
-
|
-
|
-
|
-
|
-
|
-
|
7,005,855
|
701
|
-
|
-
|
214,314
|
-
|
-
|
215,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
issued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
5,736,333
|
574
|
506,667
|
51
|
551,425
|
-
|
-
|
552,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable under debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
36,193,098
|
3,620
|
8,415,518
|
-
|
-
|
8,419,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
previously
issuable
|
-
|
-
|
-
|
-
|
-
|
-
|
7,196,264
|
721
|
(7,196,264)
|
(721)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Series A preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into common
stock
|
(3)
|
-
|
-
|
-
|
-
|
-
|
54,076
|
5
|
-
|
-
|
(5)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
preferred shares issuable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to talent
agents in exchange for services
|
|
-
|
118
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
135,617
|
-
|
-
|
135,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of
Series A preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
treasury
|
(118)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
Series A preferred previously
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuable
|
118
|
-
|
(118)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable for cash received
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,250,000
|
225
|
59,775
|
-
|
-
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable under debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
63,275,243
|
6,327
|
5,049,356
|
-
|
-
|
5,055,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
issued towards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settlement of
lawsuit
|
-
|
-
|
-
|
-
|
-
|
-
|
750,000
|
75
|
-
|
-
|
16,550
|
-
|
-
|
16,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
issued on conversion of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
preferred
|
-
|
-
|
-
|
-
|
-
|
-
|
26,527,179
|
2,653
|
-
|
-
|
351,025
|
-
|
-
|
353,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,125,363)
|
(4,125,363)
|
|
Balance, December 31, 2020
|
19,786
|
$2
|
-
|
$-
|
284,000
|
$28
|
51,665,821
|
$5,167
|
103,547,079
|
$ 10,354
|
$31,269,833
|
$(4,500)
|
$(36,569,246)
|
$(5,288,362)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
|
||||||||||||||
F-5
|
FRIENDABLE, INC.
|
||||||||||||
|
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT
|
||||||||||||
|
For the Year Ended December 31, 2019
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Stock
|
Series B Preferred Stock
|
Common Stock
|
Additional
|
Common Stock
|
|
Total
|
|||||
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Shares
|
|
Paid In
|
Subscription
|
Accumulated
|
Stockholders'
|
|
|
Issued
|
Amount
|
Issued
|
Amount
|
Issued
|
Amount
|
Issuable
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Deficit
|
|
Balance, December 31,2018
|
21,267
|
$2
|
-
|
$-
|
308,518
|
$31
|
-
|
$-
|
$12,027,043
|
$(4,500)
|
$(22,260,473)
|
$(10,237,897)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
forgiveness - related parties
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,000,000
|
-
|
-
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
sold for cash
|
-
|
-
|
-
|
-
|
57,000
|
5
|
477,000
|
48
|
133,447
|
-
|
-
|
133,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
issuable under debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
5,902,589
|
590
|
2,384,056
|
-
|
-
|
2,384,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock Series B sold for cash
|
-
|
-
|
205,000
|
20
|
-
|
-
|
-
|
-
|
204,980
|
-
|
-
|
205,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock Series B issued to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settle AP -
Related Party
|
-
|
-
|
79,000
|
8
|
-
|
-
|
-
|
-
|
78,992
|
-
|
-
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
convertible notes
|
-
|
-
|
-
|
-
|
273,418
|
27
|
120,000
|
12
|
21,317
|
-
|
-
|
21,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
issued for services
|
-
|
-
|
-
|
-
|
600,000
|
60
|
-
|
-
|
89,940
|
-
|
-
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
issued for settlement of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
promissory
note
|
-
|
-
|
-
|
-
|
2,150,000
|
215
|
-
|
-
|
537,285
|
-
|
-
|
537,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Series A preferred shares
|
(1,478)
|
-
|
-
|
-
|
1,002,970
|
100
|
2,018,746
|
202
|
(302)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional
share issuance
|
-
|
-
|
-
|
-
|
6,208
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,183,410)
|
(10,183,410)
|
|
Balance, December 31, 2019
|
19,789
|
$2
|
284,000
|
$28
|
4,398,114
|
$438
|
8,518,335
|
$852
|
$16,476,758
|
$(4,500)
|
$(32,443,883)
|
$(15,970,305)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements
|
||||||||||||
F-6
|
FRIENDABLE, INC.
|
||
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
Loss
|
$(4,125,363)
|
$(10,183,410)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||
|
Loss
on debt extinguishment, net
|
-
|
7,384,867
|
|
Notes
issued for services
|
-
|
20,000
|
|
Amortization
of prepaid stock fees
|
52,218
|
60,000
|
|
Common
stock issued for services
|
552,050
|
-
|
|
Amortization
of debt discount
|
115,766
|
-
|
|
Loss
on settlement of derivative
|
640,822
|
-
|
|
Initial
derivative expense
|
1,106,500
|
-
|
|
Loss
on change in fair value of derivative
|
68,000
|
125,000
|
|
Loss
on debt conversion
|
87,491
|
-
|
|
Premiums
and penalties on stock settled debt
|
267,734
|
55,549
|
|
Change
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(12,365)
|
(135)
|
|
(Due
from related party) accounts payable - related party
|
220,403
|
(30,083)
|
|
Prepaid
expenses
|
30,000
|
-
|
|
Accounts
payable and accrued expenses
|
504,664
|
1,074,348
|
|
Liability
to be settled in common stock
|
-
|
1,005,000
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
(492,080)
|
(488,864)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from sale of convertible preferred Series B stock
|
-
|
205,000
|
|
Procceds
from sale of convertible preferred Series C stock
|
180,000
|
136,000
|
|
Proceeds
from issuance of convertible notes
|
232,500
|
-
|
|
Procceds
from short-term loans
|
61,000
|
-
|
|
Proceeds
from sale of common stock
|
60,000
|
133,500
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
533,500
|
474,500
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
41,420
|
(14,364)
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - beginning of year
|
11,282
|
25,646
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - end of year
|
$52,702
|
$11,282
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash
paid during the period for:
|
|
|
|
Interest
|
$-
|
$-
|
|
Income
taxes
|
$-
|
$-
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Common
shares issued as prepaid expenses
|
$-
|
$90,000
|
|
Series
A preferred stock issued as prepaid expenses
|
$135,617
|
$-
|
|
Conversion
of accrued interest into common stock
|
$30,851
|
$-
|
|
Conversion
of accrued interest into a note payable
|
$25,000
|
$-
|
|
Series B convertible preferred stock issued in exchange
for
|
|
|
|
accounts
payable, related party
|
$-
|
$79,000
|
|
Payables
forgiven by related parties treated as contributed
capital
|
$-
|
$1,000,000
|
|
Debt
and accrued interest settled with common stock
|
$-
|
$8,178,634
|
|
Conversion
of convertible notes to common stock
|
$97,739
|
$13,002
|
|
Conversion
of Series C redeemable preferred shares into common
stock
|
$353,678
|
$-
|
|
Reduction
of liability to be settled with common stock
|
$16,625
|
$-
|
|
Recording
of debt discount from derivatives on convertible debt
|
$201,500
|
$-
|
|
Derivative
liability
|
$-
|
$5,698,080
|
|
Reduction
of derivative liability based on reset common shares
issuable
|
$13,273,322
|
$-
|
|
|
|
|
|
Cash
consists of :
|
|
|
|
Cash
|
$52,702
|
$11,282
|
See
accompanying notes to consolidated financial
statements
F-7
FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
1. NATURE OF BUSINESS AND GOING CONCERN
Nature of Business
Friendable, Inc., a Nevada corporation (the “Company”),
was incorporated in the State of Nevada.
Friendable, Inc. is a mobile-focused technology and marketing
company, connecting and engaging users through two distinctly
branded applications. The Company initially released its flagship
product Friendable, as a social application where users can create
one-on-one or group-style meetups. In 2019 the Company moved the
Friendable app closer to a traditional dating application with its
focus on building revenue, as well as reintroducing the brand as a
non-threatening, all-inclusive place where “Everything starts
with Friendship”…meet, chat & date.
On June 28, 2017, the Company formed a wholly owned Nevada
subsidiary called Fan Pass, Inc.
Fan Pass is the Company’s most recent or second app/brand,
released in July, 2020. Fan Pass believes in connecting Fans of
their favorite celebrity or artist, to an exclusive VIP or
Backstage experience, right from their smartphone or other
connected devices. Fan Pass allows an artist’s fanbase to
experience something they would otherwise never have the
opportunity to afford or geographically attend. The Company aims to
establish Fan Pass as its premier brand and mobile platform
dedicated to connecting and engaging music fans and users from
anywhere around the World.
Presently, until our apps gain greater adoption from paying
subscribers through increased awareness, coupled with additional
compelling and exclusive digital content to produce higher revenue
levels, the Company has largely supported its operations through
the sale of its software services, and specifically its app
development services, under a contractual relationship since
inception with a third party. The Company’s plan, in due
course, is to replace revenue from third party app development
services with revenue from its own Friendable and Fan Pass apps,
which have various revenue streams currently being tested for long
term and/or recurring monthly viability.
On August 8, 2019 the Company filed a Designation of Series B
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series B Preferred Stock with a stated
value of $1.00 per share. A holder of Series B Preferred
Stock has the right to convert their Series B Preferred Stock into
fully paid and non-assessable shares of Common Stock. Initially,
the conversion price for the Series B Preferred Stock is $.25 per
share, subject to standard anti-dilution adjustments. Additionally,
each share of Series B Preferred Stock shall be entitled to, as a
dividend, a pro rata portion of an amount equal to 10% (Ten
Percent) of the Net Revenues (“Net Revenues” being
“Gross
Sales”
minus “Cost
of Goods Sold” as
defined in the agreements) derived from the subscriptions and other
sales, but excluding and net of Vimeo fees, processing fees and up
sells, generated by Fan Pass Inc., the wholly-owned subsidiary of
the Corporation. The Series B Dividend shall be calculated and paid
on a monthly basis in arrears starting on the day 30 days following
the first day of the month following the initial issuance of the
Series B Preferred and continuing for a period of 60 (Sixty)
months. The holders of Series B Preferred stock shall have no
voting rights. The holders of Series B Preferred stock shall not be
entitled to receive any dividends. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company
or deemed liquidation event, the holders of shares of Series B
Preferred Stock shall be entitled to be paid the liquidation
amount, as defined out of the assets of the Company available for
distribution to its shareholders, after distributions to holders of
the Series A Preferred Stock and before distributions to holders of
Common Stock
On August 27, 2019, a 1 for 18,000 reverse stock split of our
common stock became effective. All share and per share information
in the accompanying consolidated financial statements and footnotes
has been retroactively adjusted for the effects of the reverse
split for all periods presented.
On
November 25, 2019 the Company filed a Designation of Series C
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series C Preferred Stock with a stated
value of $1.00 per share. The Series C Preferred Stock will, with
respect to dividend rights and rights upon liquidation, winding-up
or dissolution, rank: (a) senior with respect to dividends with the
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.
F-8
1. NATURE OF BUSINESS AND GOING CONCERN (CONTINUED)
The
“Variable Conversion Price” shall mean 71% multiplied
by the market price, representing a discount rate of 29%. Market
price means the average of the two lowest trading prices for the
Company’s common stock during the twenty trading day period
ending on the latest complete trading day prior to the conversion
date. Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, or upon any deemed
liquidation event, after payment or provision for payment of debts
and other liabilities of the Company, and after payment or
provision for any liquidation preference payable to the holders of
any Preferred Stock ranking senior upon liquidation to the Series C
Preferred Stock, if any, but prior to any distribution or payment
made to the holders of Common Stock or the holders of any Preferred
Stock ranking junior upon liquidation to the Series C Preferred
Stock by reason of their ownership thereof, the Holders will be
entitled to be paid out of the assets of the Company available for
distribution to its stockholders. The Company will have the right,
at the Company’s option, to redeem all or any portion of the
shares of Series C Preferred Stock, exercisable on not more than
three trading days prior written notice to the Holders, in full, in
accordance with Section 6 of the designations at a premium of up to
35% for up to six months. Company’s mandatory redemption: On
the earlier to occur of (i) the date which is twenty-four (24)
months following the Issuance Date and (ii) the occurrence of an
Event of Default (the “Mandatory Redemption Date”), the
Company shall redeem all of the shares of Series C Preferred Stock
of the Holders (which have not been previously redeemed or
converted).
In
conjunction with the Company’s intention to raise future
financing of up to $5 million through an offering of up to 500,000
Series D convertible Preferred Stock at the offering price of
$10.00 per share, on March 29,2021 the Company received a Notice of
Qualification from the Securities and Exchange Commission
indicating approval from the Company to proceed with the offering
pursuant to Tier 2 of Regulation A of the Securities Act, which
provides exemption from registration of such securities. Each
Series D preferred share is convertible, at the option of the
holder, at any time, into nonassessable common shares at 80% of the
average closing price reported on OTCMarkets for the 20 trading
days preceding conversion. On April 5, 2021 the Company filed the
necessary Certificate of Designation with the state of Nevada to
designate 500,000 shares of Series D Preferred stock from the
Company’s total authorized and unissued Preferred
Stock.
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 December 31, 2020, the Company has
a working capital deficiency of $5,288,362, an accumulated deficit
of $36,569,246 and has a stockholder’s deficit of $5,288,362
and its operations continue to be funded primarily from sales of
its stock, the issuance of convertible debentures and short-term
loans. During the year ended December 31, 2020 the Company had a
net loss and net cash used in operations of $4,125,363 and
$492,080. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern for a period of twelve months from the issuance of
this report. The ability of the Company to continue as a going
concern is dependent on the Company’s ability to obtain the
necessary financing through the issuance of convertible notes and
equity instruments. The consolidated financial statements do not
include any adjustments to the recoverability and classification of
recorded asset amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
Management plans to raise financing through the issuance of
convertible notes and equity sales. No assurance can be given that
any such additional financing will be available, or that it can be
obtained on terms acceptable to the Company and its
stockholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The
consolidated financial statements include all the accounts of the
Company and all of its wholly owned subsidiaries as of December 31,
2020 and 2019. All material intercompany accounts and transactions
have been eliminated in the accompanying consolidated financial
statements. The Company’s fiscal year end is December
31.
Use of Estimates
The
preparation of these statements in accordance with United States
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses in the reporting
period. The Company regularly evaluates estimates and assumptions
related to valuation of convertible debenture conversion options,
derivative instruments, deferred income tax asset valuations,
financial instrument valuations, share-based payments, other
equity-based payments, and loss contingencies. The Company bases
its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced
by the Company may differ materially and adversely from the
Company’s estimates. To the extent there are material
differences between the estimates and the actual results, future
results of operations will be affected.
F-9
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 years ended
December 31, 2020 and December 31, 2019, the Company derived
revenues primarily from the development of apps for a third party
of $ 397,333 and $ 239,477 respectively, and such revenues were
recognized upon completion of services. Secondarily, the
Company’s other revenues from subscription fees and
merchandising sales from the Friendable and Fan Pass apps totaled
$4,572 for the year ended December 31,2020 (2019:$3,225) and were
recognized when received.
Pursuant to various agreements between Fan Pass, Inc. and music
artists, managers, talent agencies, partners and/or record labels
and certain round one investors (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 and the holder of a promissory
note, are entitled to proportionately participate in an
“Investor Pool” equal to approximately 8% 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. 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 year ended December 31,
2020 the Company incurred a revenue sharing expense of $660,
and
had a liability of $647 at December 31, 2020 which is included in
accounts payable and accrued expenses.
Advertising Costs
The
Company’s policy regarding advertising is to expense
advertising when incurred. During the year ended December 31, 2020,
the Company incurred $108,776 (December 31, 2019: $48,375) 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 finite lives 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 finite lives 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.
F-10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Derivative liabilities
The
Company had a financial instrument associated with a debt
restructuring agreement and also has convertible notes with
embedded conversion option derivatives. The Company evaluates all
its financial instruments to determine if those contracts or any
potential embedded components of those contracts qualify as
derivatives to be separately accounted for in accordance with ASC
815-10 – Derivative and
Hedging – Contract in Entity’s Own Equity. This
accounting treatment requires that the carrying amount of any
derivatives be recorded at fair value at issuance and
marked-to-market at each balance sheet date. In the event that the
fair value is recorded as a liability, as is the case with the
Company, the change in the fair value during the period is recorded
as either other income or expense. Upon conversion, exercise or
repayment, the respective derivative liability is marked to fair
value at the conversion, repayment or exercise date and then the
related fair value amount is reclassified to other income or
expense as part of gain or loss on debt
extinguishment.
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 and
ASC 505, Equity Based Payments to Non-Employees, which
requires the measurement and recognition of compensation expense
based on estimated fair values for all share-based awards made to
employees and directors, including stock options. In 2019 the
Company adopted ASU 2018-07 which expands the measurement
requirements to non-employees.
ASC 718
requires companies to estimate the fair value of share-based awards
on the date of grant using an option-pricing model. The Company
uses the Black-Scholes option pricing model as its method in
determining fair value. This model is affected by the
Company’s stock price as well as assumptions regarding a
number of subjective variables. These subjective variables include,
but are not limited to the Company’s expected stock price
volatility over the terms of the awards, and actual and projected
employee stock option exercise behaviors. The value of the portion
of the award that is ultimately expected to vest is recognized as
an expense in the statement of operations over the requisite
service period.
All
transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably
measurable.
Accounts Receivable and Allowance for Doubtful
Accounts
The
Company monitors its outstanding receivables for timely payments
and potential collection issues. At December 31, 2020 and 2019, the
Company did not have any allowance for doubtful
accounts.
Financial Instruments
Financial
assets and financial liabilities are recognized in the balance
sheet when the Company has become party to the contractual
provisions of the instruments.
The
Company’s financial instruments consist of accounts
receivable, accounts payable, convertible debentures, liability to
be settled with common stock, derivatives, mandatorily redeemable
Series C Preferred stock and promissory notes. The fair values of
these financial instruments approximate their carrying value, due
to their short term nature, and current market rates for similar
financial instruments. Fair value of a financial instrument is
defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Company’s
financial instruments recorded at fair value in the balance sheets
are categorized based upon the level of judgment associated with
the inputs used to measure their fair value.
Concentrations
The
Company has Substantial Client Concentration, with one Client
Accounting for a Substantial Portion of our Revenues.
In the
year ended December 31, 2020 we derived 98.9% (2019: 98.7%) of our
revenue from one client. There are inherent risks whenever a large
percentage of total revenues are concentrated with a limited number
of clients. It is not possible for us to predict the future level
of demand for our services that will be generated by this client or
the future demand for the products and services of other similar
clients. A loss of this client or the failure to retain similar
clients could negatively affect our revenues and results of
operations and/or trading price of our common stock. At December 31,
2020 the Company had an accounts receivable of $12,500, all due
from that one main client.
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.
F-11
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
As of
December 31, 2020, there were approximately 1,466,768,887
potentially dilutive shares outstanding. Potential dilutive
shares:
|
60,908
|
Warrants
outstanding
|
|
47,107,032
|
Common shares
issuable upon conversion of convertible debt
|
|
1,396,916,100
|
Total shares
issuable upon conversion of Preferred Series A shares
|
|
1,136,000
|
Total shares
issuable upon conversion of Preferred Series B shares
|
|
22,468,847
|
Total shares
issuable upon conversion of Preferred Series C shares
|
|
1,466,768,887
|
|
As of
December 31, 2019, there were approximately 122,051,838 potentially
dilutive shares outstanding. Potential dilutive
shares:
|
60,908
|
Warrants
outstanding
|
|
2,212,523
|
Common shares
issuable upon conversion of convertible debt
|
|
116,248,041
|
Total shares
issuable upon conversion of Preferred Series A shares
|
|
1,136,000
|
Total shares
issuable upon conversion of Preferred Series B shares
|
|
2,394,366
|
Total shares
issuable upon conversion of Preferred Series C shares
|
|
122,051,838
|
|
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
Accrued
interest of $ 51,980 was reclassified from convertible debentures
and convertible promissory notes to accounts payable and accrued
expenses at December 31, 2019 to conform to the December 31, 2020
presentation.
Recent Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (ASC Topic
842) (“ASU 2016-02”), which requires lessees to
recognize at the commencement date for all leases, with the
exception of short-term leases, (i) a lease liability, which is a
lessee’s obligation to make lease payments arising from a
lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right
to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 will take effect for public companies for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2018. The ASU requires adoption using a modified
retrospective transition approach with either (a) periods prior to
the adoption date being recast or (b) a cumulative-effect
adjustment recognized to the opening balance of retained earnings
on the adoption date with prior periods not recast. As of December
31, 2020 the Company has no lease obligations.
3. INTANGIBLE ASSETS
As of
December 31, 2020 and 2019, the Company owns the Friendable
Properties which includes domain names, logos, icons, and
registered trademarks for which it paid cash consideration of
$35,000. During 2018 an impairment provision for $35,000 was
recorded through the statement of operations to impair the
intangible assets to $nil. More recently, with
the launch of the Fan Pass app, the Company has continued to
protect and register new intellectual property when it is created,
with the cost expensed to general and administrative expense, when
incurred.
4. RELATED PARTY TRANSACTIONS AND BALANCES
During
the year ended December 31, 2020, the Company incurred $418,333
(2019: $459,200) in salaries and payroll taxes to officers and
directors with such costs being recorded as general and
administrative expenses.
During the year ended December 31, 2020, the Company incurred
$47,500, $485,037 and $60,000 (2019: $24,068, $299,124, and
$58,883) in app hosting, app development and rent to a company with
two officers and directors in common with such costs being recorded
as app hosting, software development and support and general and
administrative expenses.
F-12
4. RELATED PARTY TRANSACTIONS AND BALANCES
(CONTINUED)
During
the year ended December 31, 2019, the Company issued a Securities
Purchase agreement to a vendor company with two officers and
directors in common for the purchase of 79,000 Series B preferred
stock with the purchase price of $79,000 being applied to accounts
payable due to the vendor. The price was based on recent sales of
Series B shares for $1.00 per share.
During the year ended December 31, 2020 two directors converted 3
shares of Series A Preferred Stock into 54,076 shares of common
stock. In addition, concurrent with the issuance of 118 Series A
Shares to Eclectic Artists LLC, a talent agency, pursuant to the
terms of a Partner Agreement the same two directors returned 118
Series A Preferred shares to the Company’s
treasury.
As of
December 31, 2020, the Company had a stock subscription receivable
totaling $4,500 (December 31, 2019: $4,500) from an officer and
director and from a company with an officer and director in
common.
As of
December 31, 2020, accounts payable related party includes $190,320
(December 31, 2019: due from related party $30,083) representing
amounts due to/from a company with two officers and directors in
common for services provided by that company, and accounts payable
and accrued expenses includes $918,408 (December 31, 2019:
$783,416) payable in salaries to directors and officers of the
Company. The amounts are unsecured, non-interest bearing and are
due on demand.
During
the year ended December 31, 2019, two directors converted 588
shares of Series A preferred stock at the contractual conversion
rate into 1,002,970 shares of common stock and donated them to the
Diocese of Monterey and other parties related to the directors
converted 890 Series A preferred shares into 2,018,746 common
shares that are issuable at December 31, 2019.
During
the year ended December 31, 2019, three officers forgave debt
totaling $400,000 and a company controlled by two officers of the
Company forgave debt totaling $600,000. The total amount is
reflected as contributed capital.
5. CONVERTIBLE DEBENTURES.
On
March 26, 2019 the Company entered into a Debt Restructuring
Agreement (the “Agreement”) with Robert A. Rositano Jr.
(“Robert Rositano”), Dean Rositano (“Dean
Rositano”), Frank Garcia (“Garcia”), Checkmate
Mobile, Inc. (“Checkmate”), Alpha Capital Anstalt
(“Alpha”), Coventry Enterprises, LLC
(“Coventry”), Palladium Capital Advisors, LLC
(“Palladium”), EMA Financial, LLC (“EMA”),
Michael Finkelstein (“Finkelstein”), and Barbara R.
Mittman (“Mittman”), each being a debt holder of the
Company.
The
debt holders agreed to convert their debt of approximately $6.3
million and accrued interest of approximately $1.8 million into an
initial 5,902,589 shares of common stock as set forth in the
Agreement upon the Company meeting certain milestones including but
not limited to: the Company effecting a reverse stock split and
maintaining a stock price of $1.00 per share; being current with
its periodic report filings pursuant to the Securities Exchange
Act; certain vendors and Company employees forgiving an aggregate
of $1,000,000 in amounts owed to them; the Company raising not less
than $400,000 in common stock at a post-split price of not less
than $.20 per share; and certain other things as further set forth
in the Agreement. The debt holders will be subject to certain lock
up and leak out provisions as contained in the Agreement. As part
of the Agreement the parties signed a Rights to Shares Agreement.
Whereas the Agreement called for all the shares to be delivered at
closing, the holders are generally restricted to beneficial
ownership of up to 4.99% of the company’s common shares
outstanding. The Rights to Shares Agreement allows for the Company
to issue shares to each holder up the 4.99% limitation while
preserving the holders’ rights to the total shares in
schedule A of the Agreement. Accordingly, the 5,902,589 common
shares were recorded as issuable in equity,
December
26, 2019, all parties signed an amendment to the Agreement which
set forth, among other things, the following:
Company
Principals have given Holders notice that it has satisfied all
conditions of closing.
The
Agreement is considered Closed as of November 5, 2019
(“Settlement Date”) and any conditions of closing not
satisfied are waived.
Reset
Dates. The “Reset Dates” as set forth in Section 1(h)
of the Agreement shall be as follows: March 4, 2020 and July 2,
2020. As of the reset dates the holders can convert all or part of
the settled note amounts at the lower of (i) 75% of the closing bid
price for the Common Stock on such respective Reset Date, or (ii)
the VWAP for the Company’s Common Stock for the 7 trading
days immediately preceding and including such respective Reset
Dates. This reset provision provides for the issuance of additional
shares above the initial 5,902,589 shares for no additional
consideration as measured at each of the two reset
dates.
On
March 4, 2020 the Company became obligated to issue an additional
36,193,098 shares of common stock and on July 2,2020 it became
obligated to issue an additional 63,275,242 shares, for a total
amount of shares due of 105,370,930.
The
Company determined that the reset provision represents a standalone
derivative liability. Accordingly, this debt restructure
transaction was accounted for in 2019 as an extinguishment of debt
for consideration equal to the $2,384,646 value of the 5,902,589
common shares issuable, based on the $0.404 quoted trading price of
the Company’s common stock price on the settlement date, and
the initial fair value of the derivative liability of $12,653,000,
resulting in a loss on debt extinguishment of
$6,954,920.
F-13
5. CONVERTIBLE DEBENTURES
(CONTINUED)
The
Company adjusts its derivative liability to fair value at each
reporting and settlement date, with changes in fair value reported
in the statement of operations. The Company estimated the fair
value of the obligations to issue common stock pursuant to the Debt
Restructuring Agreement, as amended, using Monte Carlo simulations
and the following assumptions:
|
|
November
5, 2019
|
December
31, 2019
|
June
30, 2020
|
|
Volatility
|
617%
|
738.1%
|
293.6%
|
|
Risk
Free Rate
|
1.59%
|
1.6%
|
.13%
|
|
Expected
Term
|
0.66
|
0.5
|
0.01
|
On the second (and final) reset date of July 2, 2020 the Company
determined that the total common shares issuable to
fully settle this debt amounted to
105,370,930 and a derivative liability no longer exists. The
Company recognized a final loss on settlement of $640,821 which
represents the difference between the fair value of the 105,370,936
common shares due and the fair value of the derivatives
settled.
On September 21, 2020, Ellis International LP (as successor to
Alpha Capital Anstalt) submitted a request to drawdown and, on
September 29, 2020, was issued 687,355 common shares against its
entitlement above and reclassified from issuable shares in the
accompanying balance sheet and statement of changes in stockholder
equity.
On November 9, 2020 and on December 9, 2020 Coventry Enterprises
requested and was issued 915,000 and 1,262,000 common shares
respectively, and on November 23, 2020 Barbara Mittman requested
and was issued 1,134,353 (net) common shares against their
respective entitlement under the debt settlement agreement, which
was reclassified from issuable shares.
Subsequent to December 31, 2020 there were further drawdowns and
common stock issuances totaling 46,266,310 common
shares.
These issuances were reclassified from issuable to issued common
shares.
Derivative
Liabilities
The
Company accounts for its obligation to issue common stock
(“Reset Provision”) as derivative instruments in
accordance with ASC Topic 815, “Derivatives and
Hedging” which are reflected as liabilities at fair value on
the balance sheet, with changes in fair value reported in the
statement of operations. Fair value is defined as the price to sell
an asset or transfer a liability in an orderly transaction between
willing and able market participants. The number of shares of
common stock the Company could be obligated to issue, is based on
future trading prices of the Company’s common stock. To
reflect this uncertainty in estimating the fair value of the
potential obligation to issue common stock, the Company uses a
Monte Carlo model that considers the reporting date trading price,
historical volatility of the Company’s common stock, and risk
free rate in estimating the fair value of the potential obligation
to issue common stock. The results of the Monte Carlo simulation
model are most sensitive to inputs for expected volatility.
Depending on the availability of observable inputs and prices,
different valuation models could produce materially different fair
value estimates. The estimated fair values may not represent future
fair values and may not be realizable. We categorize our fair value
estimates in accordance with ASC 820 based on the hierarchical
framework associated with the three levels of price transparency
utilized in measuring financial instruments at fair value as
discussed above.
The following is a summary of activity related to the reset
provision derivative liability for the years ended December 31,
2020 and 2019:
|
Balance, December
31, 2018
|
$-
|
|
Reset
provision
|
12,653,000
|
|
Change in fair
value
|
125,000
|
|
Balance, December
31, 2019
|
$12,778,000
|
|
Balance,
Derivative Liability at December 31, 2019
|
$12,778,000
|
|
Record
obligation to issue additional shares
|
(13,474,821)
|
|
Loss
on settlement of derivative
|
640,821
|
|
Loss
on change in fair value of derivative
|
56,000
|
|
Balance,
Reset provision derivative liability at December 31,
2020
|
$-
|
F-14
6. CONVERTIBLE PROMISSORY
NOTES
The following is a summary of Convertible Promissory Notes at
December 31,2020:
|
|
Issuance:
|
Principal
|
Accrued
|
Principal and
|
|
|
Date
|
Outstanding
|
Interest
|
Accrued Interest
|
|
J.P. Carey
Inc.
|
March 30,
2017
|
-
|
$20,029
|
$20,029
|
|
J.P. Carey
Inc
|
May 20,
2020
|
$60,000
|
8,996
|
68,996
|
|
J.P. Carey
Inc
|
June 11,
2020
|
10,000
|
-
|
10,000
|
|
Green Coast
Capital
|
|
|
|
|
|
International
|
April 6,
2020
|
10,755
|
848
|
11,603
|
|
Ellis International
LP
|
October 13,
2020
|
100,000
|
2,190
|
102,190
|
|
Trillium Partners
LP
|
December 3,
2020
|
21,436
|
258
|
21,694
|
|
Trillium Partners
LP
|
December 8,
2020
|
27,500
|
145
|
27,645
|
|
Total
|
|
$229,691
|
$32,466
|
$262,157
|
|
Less:
Discount
|
|
(85,734)
|
|
|
|
Net carrying value
December 31, 2020
|
$143,957
|
|
|
|
The following is a summary of Convertible Promissory Notes at
December 31, 2019:
|
|
Issuance:
|
Principal
|
Accrued
|
Principal and
|
|
|
Date
|
Outstanding
|
Interest
|
Accrued Interest
|
|
J.P. Carey
Inc.
|
March 30,
2017
|
$65,930
|
$51,980
|
$117,910
|
|
World Market
Ventures
|
Assigned from
above
|
4,000
|
-
|
4,000
|
|
Carrying value December
31, 2019
|
$69,930
|
$51,980
|
$121,910
|
|
Further information concerning the above Notes is as
follows:
JP Carey Convertible Note dated March 30, 2017 and
assignments
On April 7, 2017, the Company entered into a Settlement Agreement
with Joseph Canouse (the “Agreement”). The Company and
Mr. Canouse had been in a dispute regarding what amount, if any,
was owed pursuant to a consulting agreement between the parties
signed in April 2014. In December 2016, Mr. Canouse obtained a
judgment in state court in Georgia and the right to garnish the
Company’s bank accounts. Pursuant to the Settlement
Agreement, the Company agreed to issue an 8% Convertible Note in
the principal amount of $82,931 (the “Note”). The Note
was issued to J.P. Carey LLC an entity controlled by Mr. Canouse.
Although the Note is dated March 30, 2017, it was issued on April
7, 2017. The note maturity date was September 30, 2017. In return
for the issuance of the Note, Mr. Canouse filed a Consent Motion to
Withdraw Judgment, dismiss all garnishments, and cease all
collection activities.
The Note is convertible into common stock, subject to Rule 144, at
any time after the issue date at the lower of (i) the closing sale
price of the common stock on the trading day immediately preceding
the closing date, which was $20.00 per share, and (ii) 50% of the
lowest sale price for the common stock during the twenty-five (25)
consecutive trading days immediately preceding the conversion date
or the closing bid price, whichever is lower. Mr. Canouse does not
have the right to convert the Note, to the extent that he would
beneficially own in excess of 4.99% of our outstanding common
stock. The note defines several events that constitute default
including failure to pay principal and interest by the maturity
date of September 30, 2017 and failure to comply with the exchange
act. In the event of default, the amount of principal and interest
not paid when due bear default interest at the rate of 24% per
annum and the Note becomes immediately due and payable. The Company
defaulted by not paying the principal and interest on September 30,
2017 and has been recording interest at the 24% default rate. The
Company also defaulted by being late with filing the Form 10-K on
May 29, 2020.
F-15
6. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
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 was $ 69,930 and,
including accrued interest of $51,981, totaled $121,910, including
the portion assigned to World Market Ventures of
$4,000.
During the year ended December 31, 2020:
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 balance to
Green Coast Capital International. The assignment carried the same
conversion rights as the original note. During the twelve months
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 30, 2020 the assigned note had a
principal balance of $10,755 and an interest balance of
$848.
J.P. Carey converted the remaining principal balance of $30,930 and
$18,020 of interest into 1,642,162 shares of the Company’s
common stock at a price of $0.029. On December 31,2020 JP Carey
assigned $25,000 of the outstanding accrued interest balance to
Trillium Partners LP. The assignment carried the same conversion
rights as the original note. On December 21,2020 JP Carey converted
$10,500 of the outstanding accrued interest balance to 2,884,615
common shares at a price of $0.0039. At December 31, 2020, the
remaining JP Carey accrued interest was $20,029, which has been
accounted for as having an embedded derivative liability due to the
variable conversion price.
Green Coast Capital International Securities Purchase Agreement and
Convertible Note dated April 8, 2020
On April 8, 2020, the Company entered into a Securities Purchase
Agreement (the “SPA”) whereby the Company agreed to
sell to the holder convertible notes in amounts up to $150,000. The
note holder shall be entitled to a pro rata share of 20% of the net
revenues (excluding Brightcove) derived from subscriptions and
other sales of Fan Pass, Inc., a wholly owned subsidiary of the
Company. The 20% pays out two times the initial investment and
continues at 5% for a period of five years.
On April 8, 2020 the Company issued a 0% note to Green Coast under
this SPA with a maturity date of October 8, 2020 and received
$35,000 in cash. The Note is convertible into common stock, subject
to Rule 144, at any time after the issue date at $0.20 per share.
On the date of issuance, the Company recorded a derivative
liability of $228,000, resulting in derivative expense of $193,000
and a discount against the note of $35,000 to be amortized into
interest expense through the maturity date of October 8, 2020.
Green Coast exercised its conversion right on November 17, 2020 and
received 175,000 common shares in full settlement of the
note.
JP Carey Securities Purchase Agreement and Convertible Note dated
May 20, 2020
On May 20, 2020, the Company entered into a Securities Purchase
Agreement (the “SPA”) whereby the Company agreed to
sell to the holder convertible notes in amounts up to $60,000. The
note holder shall be entitled to a pro rata share of 20% of the net
revenues (excluding Brightcove) derived from subscriptions and
other sales of Fan Pass, Inc., a wholly owned subsidiary of the
Company. The 20% pays out two times the initial investment and
continues at 5% for a period of five years. At September 30,2020 no
accrual for the net revenue share was material.
On May 20, 2020 the Company issued a 0% interest rate note to JP
Carey under this SPA with a maturity date of January 1, 2021 and
received $60,000 in cash in three closings; $30,000 on April 9,
2020, $15,000 on May 13, 2020, and $15,000 on May 20, 2020. The
Note is convertible into common stock, subject to Rule 144, at any
time after the issue date at $0.02 per share. The holder does not
have the right to convert the note, to the extent that the holder
would beneficially own in excess of 4.9% of our outstanding common
stock. The note defines several events that constitute default
including failure to pay principal and interest by the maturity
date and failure to comply with the exchange act. In the event of
default, the amount of principal and interest not paid when due
bear default interest at the rate of 24% per annum and the note
becomes immediately due and payable. Under certain default events
the Company may incur a penalty of 20% to 50% of the note
principal. Further, if the Company fails to comply with the
exchange act the conversion price is the lowest price quoted on the
trade exchange during the delinquency period.
Upon certain default events the conversion price may change.
Therefore, the embedded conversion option is bifurcated and treated
as a derivative liability. On the date of issuance, the Company
recorded a derivative liability of $233,000, resulting in
derivative expense of $173,000 and a discount against the note of
$60,000 to be amortized into interest expense through the maturity
date.
F-16
6. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
The Company defaulted by being late with filing the Form 10-K on
May 29, 2020. The Company accrued $8,996 of interest at the default
rate of 24% for the period from May 29, 2020 to December 31,
2020.
JP Carey Convertible Note dated June 11, 2020
On June 11, 2020, the Company issued a 0% note to JP Carey with a
maturity date of January 15, 2021 and received $10,000 in
cash. The Note is convertible
into common stock, subject to Rule 144, at any time after the issue
date at $0.01 per share. The holder does not have the right to
convert the note, to the extent that the holder would beneficially
own in excess of 9.9% of our outstanding common stock. The note
defines several events that constitute default including failure to
pay principal and interest by the maturity date and failure to
comply with the exchange act. In the event of default, the amount
of principal and interest not paid when due bear default interest
at the rate of 24% per annum and the note becomes immediately due
and payable. Under certain default events the Company may incur a
penalty of 20% to 50% of the note principal. Further, if the
Company fails to comply with the exchange act the conversion price
is the lowest price quoted on the trade exchange during the
delinquency period.
Upon certain default events the conversion price may change.
Therefore, the embedded conversion option is bifurcated and treated
as a derivative liability. On the date of issuance, the Company
recorded a derivative liability of $63,000, resulting in derivative
expense of $53,000 and a discount against the note of $10,000 to be
amortized into interest expense through the maturity
date.
Ellis
International LP Convertible Note dated October 13,
2020
On October 13, 2020, the Company issued a 10% convertible note in
the principal amount of $100,000 to Ellis International LP with a
maturity date of October 13, 2022 and received cash of $95,000 (net
of $5,000 deducted for the noteholder’s legal fees). The Note
is convertible into common stock, subject to Rule 144, at any time
after the issue date. The Conversion Price shall be 75% of
the 3 day VWAP as reported by Bloomberg LP for the 3 trading days
preceding conversion. The holder does
not have the right to convert the note, to the extent that the
holder would beneficially own in excess of 4.99% of our outstanding
common stock. The note defines several events that constitute
default including failure to pay principal and interest by the
maturity date and failure to comply with the exchange act. In the
event of default, the amount of principal and interest not paid
when due bear default interest at the rate of 18% per annum and the
note becomes immediately due and payable.
At
December 31, 2020 the outstanding balance on the note was $100,000
principal and $2,190 accrued interest.
Trillium Partners LP Convertible Note dated December 3,
2020
As discussed in the section describing the JP Carey Convertible
Note originally dated March 30, 2017, on December 3, 2020 JP Carey
assigned $25,000 of the outstanding interest balance to Trillium
Partners LP with the same conversion rights and the 24% default
interest rate as the original note. On December 23, 2020 Trillium
converted $3,564 of the outstanding balance, $214 of accrued
interest and $1,025 of conversion fees (total $ 4,803) to 1,372,200
common shares at a price of $ 0.0035 per share. At December 31,
2020 the remaining principal balance was $ 21,438 and accrued
interest was $ 258.
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.
At
December 31, 2020 the outstanding balance on the note was $27,500
principal and $145 accrued interest.
As discussed above, the Company determined that the conversion
options embedded in certain convertible debt meet the definition of
a derivative liability. The Company estimated the fair value of the
conversion options at the date of issuance, and at December 31,
2020, using Monte Carlo simulations and the following range of
assumptions:
|
Volatility
|
329%
– 610%
|
|
Risk
Free Rate
|
0.09%-
0.65%
|
|
Expected
Term
|
0.25
– 1.781
|
F-17
6. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
The following is a summary of activity related to the embedded
conversion options derivative liabilities for the twelve months
ended December 31, 2020.
|
Balance, December
31, 2019
|
$-
|
|
Initial derivative
liabilities charged to operations
|
1,106,500
|
|
Initial derivative
liabilities recorded as debt discount
|
201,500
|
|
Change in fair
value loss
|
12,000
|
|
Balance, December
31, 2020
|
$1,320,000
|
7. 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.
8. COMMITMENTS AND CONTINGENCIES
The following summarizes the Company’s commitments and
contingencies as of December 31, 2020:
|
|
(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. On April 12, 2021 the cash amount
was paid by cashier’s check. However, at the date of this
filing the preferred shares have not been returned.
Additionally, Integrity will be entitled to additional shares if
(i) the price of the Company’s common stock is below $1.34 at
either the 120 day or 240 day reset dates set forth in the
Company’s Debt Restructure Agreement as amended entered into
with various debt holders on March 26, 2019 effective November 5,
2019. The Company determined that a total of 4,275,000 additional
shares would be issuable on the first “reset” date of
March 4, 2020 based on a share price of $0.20 on that date and a
total of 7,537,500 additional shares would be issuable on the
second “reset” date of July 2, 2020 based on a share
price of $0.08 on that date, for a total of 12,562,500 shares.
Integrity will also be entitled to a “true-up” by the
issuance of additional common shares on the issuance date should
the share price of the Company’s common stock on the issuance
date be below $1.00. It was determined by the Company that its
liability was $1,005,000 ($750,000 plus a premium of $255,000), in
accordance with ASC 480.
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
and retained $30,000 as an accrued liability for
costs.
F-18
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
|
|
(iii)
|
Lawsuit
Contingency- Infinity Global Consulting Group
Inc
|
Infinity
Global Consulting Group Inc. had previously filed a default
judgement on May 29, 2018 in the 11th Judicial Circuit,
Miami-Dade County, Florida court alleging that it was owed a
services fee of $97,000, plus an entitlement to a warrant to
purchase 5 million of the Company’s common shares at $0.03
per share. The Company believes that this claim is without merit
since service on the Company was defective and the Company never
received an actual notice of the lawsuit. Accordingly, on November
16, 2020 the Company filed a motion to set aside the default
judgement. At the date of this filing, the motion still awaits a
hearing and no accrued expense at December 31,2020 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 December 31, 2020 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.
9. COMMON AND PREFERRED STOCK
Common Stock:
During the year ended December 31, 2019, the Company:
Issued 393,418 shares of common stock to two convertible note
holders for partial conversion of an aggregate of $21,356 of the
notes at the contractual conversion rates. 120,000 of the shares
remained issuable as of December 31, 2019.
Issued 534,000 shares of common stock to various subscribers of
common stock under security purchase agreements at $0.25 per share
for a total of $133,500. Certain of these agreements contained a
provision whereby the founders of the Company were to issue to the
subscribers (a) an aggregate of 47,000 shares of common stock from
their personal holdings and (b) another amount of common shares
(43,811) by converting their held Series A preferred shares as
measured on the date one year from the closing of the offering.
There is no accounting effect for these transfers. In addition,
other agreements contained a provision whereby the Company would
set aside 10% of future net revenue from a specific product and
share ratably with the investors. The Company has reviewed ASC
470-10-25, “Sales of Future Revenues or Various other
Measures of Income.” and determined that no debt provision is
needed. The investors who received this benefit did not pay
additional consideration compared to those who did not receive it.
Therefore, the additional feature is a detachable unit with $0
value. 477,000 shares remained issuable as of December 31, 2019. In
March 2020, the Founder converted 3 Series A Preferred Shares to
meet their personal commitment to transfer their common shares to
the investors.
Issued 600,000 shares of common stock to a consultant in exchange
for future services valued at $90,000 of which $30,000 remained in
prepaid expense at December 31, 2019.
Issued 2,150,000 shares of common stock to settle a promissory note
and accrued interest of $102,500 and recognized a loss on debt
extinguishment of $435,000 based on the $537,500 value based on
recent sales.
Issued 1,002,970 and had 2,018,746 issuable shares of common stock
to related parties on conversion of 1,478 shares of Series A
preferred stock.
Agreed to issue 5,902,589 shares as a preliminary settlement of
approximately $6.3 million of convertible debt (See note
4).
During the year ended December 31, 2020, the Company:
Cancelled 2,000 shares of common stock valued at $500 previously
issued to an investor under a securities purchase agreement and
returned the $500 to the investor.
Issued 7,005,855 shares of common stock on conversion of $127,524
of convertible notes, and accrued interest, at a fair value of the
shares of $215,015, based on the quoted trading price on the
conversion dates resulting in a loss on extinguishment of
$87.491.
Issued 5,736,333 shares of common stock and recorded the obligation
to issue a further 506,667 common shares, collectively valued at
$552,050 based on the quoted price on the grant dates, in payment
for services primarily to music artists providing live performances
for the July 24, 2020 launch of the Fan Pass app.
F-19
9. COMMON AND PREFERRED STOCK (CONTINUED)
Recorded the obligation to issue 36,193,098 and 63,275,243
additional shares of common stock based on the first and second
reset dates in accordance with the debt restructuring agreement
(See note 5).
Issued 750,000 common shares to Integrity Media pursuant to the
Company’s settlement agreement, which Integrity Media advised
had a realized value of $16,625.
Issued 7,196,264 common shares to parties where the original
liability required the obligation to record such shares as
issuable.
Issued 54,076 common shares to the Company’s founder upon
conversion of 3 Series A Preferred Shares to meet their personal
commitment to transfer certain common shares to the
investors.
Recorded the obligation to issue 2,250,000 common shares in
consideration for $ 60,000 received in cash.
Issued 26,527,179 common shares upon conversion of Series C
preferred stock having a value of $353,678.
Preferred Stock:
Series A:
The Series A Preferred Stock was authorized in 2014 and is
convertible into nine (9) times the number of common stock
outstanding at time of conversion until the closing of a Qualified
Financing (i.e. the sale and issuance of the Company’s equity
securities that results in gross proceeds in excess of $2,500,000).
The number of shares of common stock issued on conversion of Series
A preferred stock is based on the ratio of the number of shares of
Series A preferred stock converted to the total number of shares of
preferred stock outstanding at the date of conversion multiplied by
nine (9) times the number of common stock outstanding at the date
of conversion. After the qualified financing the conversion shares
issuable shall be the original issue price of the Series A
preferred stock divided by $0.002. The holders of Series A
Preferred stock are entitled to receive non-cumulative dividends
when and if declared at a rate of 6% per year. On all matters
presented to the stockholders for action the holders of Series A
Preferred stock shall be entitled to cast votes equal to the number
of shares the holder would be entitled to if the Series A Preferred
stock were converted at the date of record.
During the year ended December 31, 2019, 588 shares of Series A
preferred stock were converted to common stock by two related
parties who donated them to the Diocese of Monterey. In addition,
890 Series A shares were converted into 2,018,746 common shares by
parties related to the two directors. The 2,018,746 common shares
were issuable as of December 31, 2019 and were subsequently issued
during the six months ended June 30, 2020.
During the year ended December 31, 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 amortized $52,218 as sales and marketing
expense as of December 31, 2020, with $83,399 remaining as prepaid
expense. 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.
Series B:
On August 8, 2019 the Company filed a Designation of Series B
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series B Preferred Stock with a stated
value of $1.00 per share. A holder of Series B Preferred Stock has
the right to convert their Series B Preferred Stock into fully paid
and non-assessable shares of Common Stock. Initially, the
conversion price for the Series B Preferred Stock is $.25 per
share, subject to standard anti-dilution adjustments. Additionally,
each share of Series B Preferred Stock shall be entitled to, as a
dividend, a pro rata portion of an amount equal to 10% (Ten
Percent) of the Net Revenues (“Net Revenues” being
Gross Sales minus Cost of Goods Sold) derived from the
subscriptions and other sales, but excluding and net of Vimeo fees,
processing fees and up sells, generated by Fan Pass Inc., the
wholly-owned subsidiary of the Corporation. The Series B Dividend
shall be calculated and paid on a monthly basis in arrears starting
on the day 30 days following the first day of the month following
the initial issuance of the Series B Preferred and continuing for a
period of 60 (Sixty) months. The holders of Series B Preferred
stock shall have no voting rights. The holders of Series B
Preferred stock shall not be entitled to receive any dividends
other than noted above. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company
or deemed liquidation event, the holders of shares of Series B
Preferred Stock shall be entitled to be paid the liquidation
amount, as defined out of the assets of the Company available for
distribution to its shareholders, after distributions to holders of
the Series A Preferred Stock and before distributions to holders of
Common Stock.
F-20
9. COMMON AND PREFERRED STOCK (CONTINUED)
During the year ended December 31, 2019, the Company entered into
Security Purchase Agreements with various investors for the
purchase of 205,000 shares Series B convertible Preferred stock and
received $205,000 in cash. Each Series B Preferred share is
convertible into 4 shares of common stock valued at
$0.25.
During the year ended December 31, 2019, the Company entered into a
Security Purchase Agreements with a related party for the purchase
of 79,000 shares Series B Preferred stock. The $79,000 was settled
against accounts payable owed to the related party. Each Series B
Preferred share is convertible into 4 shares of common stock valued
at $0.25.
Series C:
On November 25, 2019 the Company filed a Designation of Series C
convertible Preferred Stock with the state of Nevada, designating
1,000,000 shares of the Series C Preferred Stock with a stated
value of $1.00 per share. The Series C Preferred Stock will, with
respect to dividend rights and rights upon liquidation, winding-up
or dissolution, rank: (a) senior with respect to dividends with the
Company’s common stock, par value 0.0001 per share
(“Common Stock”) (the Series C Preferred Stock will
convert into common stock immediately upon liquidation and be pari
passu with the common stock in the event of litigation), and (b)
junior with respect to dividends and right of liquidation to all
existing and future indebtedness of the Company. The Series C
Preferred Stock does not have any voting rights. Each share of
Series C Preferred Stock will carry an annual dividend in the
amount of eight percent (8%) of the Stated Value of $1.00 (the
“Divided Rate”), which shall be cumulative and
compounded daily, payable solely upon redemption, liquidation or
conversion and increase to 22% upon an event of default as defined.
In the event of any default other than the Company’s failure
to issue shares upon conversion, the stated price will be $1.50. In
a default event where the Company fails to issue shares upon
conversion, the stated price will $2.00. The holder shall have the
right six months following the issuance date, to convert all or any
part of the outstanding Series C Preferred Stock into shares of
common stock of the Company. The conversion price shall equal the
Variable Conversion Price. The “Variable Conversion
Price” shall mean 71% multiplied by the market price,
representing a discount rate of 29%. Market price means the average
of the two lowest trading prices for the Company’s common
stock during the twenty trading day period ending on the latest
complete trading day prior to the conversion date. Upon any
liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, or upon any deemed liquidation event,
after payment or provision for payment of debts and other
liabilities of the Company, and after payment or provision for any
liquidation preference payable to the holders of any Preferred
Stock ranking senior upon liquidation to the Series C Preferred
Stock, if any, but prior to any distribution or payment made to the
holders of Common Stock or the holders of any Preferred Stock
ranking junior upon liquidation to the Series C Preferred Stock by
reason of their ownership thereof, the Holders will be entitled to
be paid out of the assets of the Company available for distribution
to its stockholders. The Company will have the right, at the
Company’s option, to redeem all or any portion of the shares
of Series C Preferred Stock, exercisable on not more than three
trading days prior written notice to the Holders, in full, in
accordance with Section 6 of the designations at a premium of up to
35% for up to six months. Company’s mandatory redemption: On
the earlier to occur of (i) the date which is twenty-four (24)
months following the Issuance Date and (ii) the occurrence of an
Event of Default (the “Mandatory Redemption Date”), the
Company shall redeem all of the shares of Series C Preferred Stock
of the Holders (which have not been previously redeemed or
converted).
During the year ended December 31, 2019, 149,300 shares of Series C
convertible preferred stock were issued to an investor under
preferred stock purchase agreements at a price of approximately
$0.91 per share for a total of $136,000. Due to the mandatory
redemption feature,
these shares are reflected as a current liability at December 31,
2019. Furthermore, because these shares are convertible at 71% of
the common shares market price around the time of the conversion
date, they are treated as a stock settled debt under ASC 480 with a
premium of $55,549 recorded and charged to interest expense. The
total amount is reflected at $191,549 at December 31,
2019.
As of June 30, 2020, the Company has revalued the shares and
premiums at the stated value of $1.50 per share in accordance with
the events discussed below. On May 29, 2020 the Company defaulted
on the shares by being late with the filing of the Form 10-K,
thereby increasing the dividend rate to 22% and the stated value to
$1.50 per share. During the three months ended March 31, 2020,
38,000 shares of Series C convertible preferred stock were issued
to an investor under preferred stock purchase agreements at a price
of approximately $0.87 per share for a total of
$33,000.
Because Series C preferred shares are convertible at 71% of the
common shares market price around the time of the conversion date,
they are treated as a stock settled debt under ASC 480 with a total
premium of $114,755 recorded as of June 30, 2020. In addition, the
Company recorded a cumulative dividend payable of $11,885 as of
June 30, 2020 to the mandatorily redeemable Series C convertible
preferred stock liability with this amount being recorded as
interest expense since the Series C liability must be reflected at
redemption value.
During the three months ended September 30, 2020 the holder of the
Series C converted 62,500 Series C shares to 3,822,958 common
shares for a redemption value of $96,750 including accrued
dividends plus premium of $38,292, which totaled $135,042 recorded
into equity.
F-21
9. COMMON AND PREFERRED STOCK (CONTINUED)
During the three months ended December 31, 2020 the holder of the
Series C converted 101,300 Series C shares to 22,704,221 common
shares for a redemption value of $218,655 including accrued
dividends, plus premium, recorded into equity. In addition, during
the three months ended December 31,2020 a total of 149,600 shares
of Series C convertible preferred stock were issued to two
investors under preferred stock purchase agreements, at a price of
approximately $0.91 per share, for a total of $136,000 cash and
premiums totaling $60,302 were recorded during this period with
respect to these issuances. At December 31, 2020 the remaining
liability totals $285,605, represented by a remaining balance of
$184,850 in redeemable Series C stock, together with the related
premium of $74,701 and accrued dividends of
$26,054.
10. SHARE PURCHASE WARRANTS
Activity in 2020 and 2019 is as follows:
|
|
Number of
Warrants
|
Weighted Average
Exercise Price
$
|
Weighted Average
Remaining Life
(Years)
|
|
Balance, December
31, 2018
|
60,908
|
72.00
|
|
|
Balance, December
31, 2019
|
60,908
|
72.00
|
|
|
Balance, December
31, 2020
|
60,908
|
72.00
|
0.6
|
11. STOCK-BASED COMPENSATION
On November 22, 2011, the Board of Directors of the Company
approved a stock option plan (“2011 Stock Option
Plan”), the purpose of which is to enhance the
Company’s stockholder value and financial performance by
attracting, retaining and motivating the Company’s officers,
directors, key employees, consultants and its affiliates and to
encourage stock ownership by such individuals by providing them
with a means to acquire a proprietary interest in the
Company’s success through stock ownership. Under the 2011
Stock Option Plan, officers, directors, employees and consultants
who provide services to the Company may be granted options to
acquire common shares of the Company. The aggregate number of
options authorized by the plan shall not exceed 4,974 shares of
common stock of the Company.
The Board of Directors and the stockholders holding a majority of
the voting power approved a 2014 Equity Incentive Plan (the
“2014 Plan”) on February 28, 2014, with a to be
determined effective date. The date never became effective. The
purpose of the 2014 Plan is to assist the Company and its
affiliates in attracting, retaining and providing incentives to
employees, directors, consultants and independent contractors who
serve the Company and its affiliates by offering them the
opportunity to acquire or increase their proprietary interest in
the Company and to promote the identification of their interests
with those of the stockholders of the Company. The 2014 Plan will
also be used to make grants to further reward and incentivize
current employees and others.
There are 7 shares of common stock reserved for issuance under the
2014 Plan. The Board shall have the power and authority to make
grants of stock options to employees, directors, consultants and
independent contractors who serve the Company and its affiliates.
Any stock options granted under the 2014 Plan shall have an
exercise price equal to or greater than the fair market value of
the Company’s shares of common stock. Unless otherwise
determined by the Board of Directors, stock options shall vest over
a four-year period with 25% being vested after the end of one (1)
year of service and the remainder vesting equally over a 36-month
period. The Board may award options that may vest based upon the
achievement of certain performance milestones. As of September 30,
2020, no options have been awarded under the 2014 Plan. Effective
August 27, 2019, the Company effected a reverse split of the common
stock of 1 for 18,000 (Note 1) which eliminated all the options
which were previously outstanding.
12. 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:
F-22
12.
FAIR VALUE MEASUREMENTS (CONTINUED)
Level 1
Level 1 applies to assets or liabilities for which there are quoted
prices in active markets for identical assets or liabilities.
Valuations are based on quoted prices that are readily and
regularly available in an active market and do not entail a
significant degree of judgment.
Level 2
Level 2 applies to assets or liabilities for which there are other
than Level 1 observable inputs such as quoted prices for similar
assets or liabilities in active markets; quoted prices for
identical assets or liabilities in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived
valuations in which significant inputs are observable or can be
derived principally from, or corroborated by, observable market
data.
Level 2 instruments require more management judgment and
subjectivity as compared to Level 1 instruments. For instance:
determining which instruments are most similar to the instrument
being priced requires management to identify a sample of similar
securities based on the coupon rates, maturity, issuer, credit
rating and instrument type, and subjectively select an individual
security or multiple securities that are deemed most similar to the
security being priced; and determining whether a market is
considered active requires management judgment.
Level 3
Level 3 applies to assets or liabilities for which there are
unobservable inputs to the valuation methodology that are
significant to the measurement of the fair value of the assets or
liabilities. The determination of fair value for Level 3
instruments requires the most management judgment and
subjectivity.
Pursuant to ASC 825, cash is based on Level 1 inputs. The Company
believes that the recorded values of accounts receivable and
accounts payable approximate their current fair values because of
their nature or respective relatively short durations. The fair
value of the Company’s convertible debentures and promissory
note approximates their carrying values as the underlying imputed
interest rates approximates the estimated current market rate for
similar instruments.
As of December 31, 2020 there was a derivative measured at fair
value on a recurring basis presented on the Company’s
balance sheet, as follows:
|
Liabilities
at Fair Value
|
||||
|
December
31, 2020
|
||||
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
Derivative
Liability
|
-
|
-
|
$1,320,000
|
$1,320,000
|
As of
December 31, 2019 there was a derivative measured at fair value on
a recurring basis presented on the Company’s balance
sheet, as follows:
|
Liabilities at Fair
Value
December 31,
2019
|
||||
|
|
|
|
|
|
|
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|
Derivative
Liability
|
-
|
-
|
$12,778,000
|
$ 12,778,000
|
A reconciliation of the difference between the income tax benefit
computed at the federal statutory rate of 21%, and the provision
for income taxes for the years ended December 31, 2020 and 2019 are
as follows:
|
|
2020
|
2019
|
|
Computed
tax benefit
|
$(866,327)
|
$(2,138,516)
|
|
State
taxes
|
(152,872)
|
(394,200)
|
|
Permanent
differences
|
495,841
|
1,887,855
|
|
Change
in tax rate and other
|
-
|
1,143,792
|
|
Change
in valuation allowance
|
530,170
|
(498,931)
|
|
|
$-
|
$-
|
F-23
13. INCOME TAXES (CONTINUED)
The Company’s deferred tax assets and liabilities as of
December 31, 2020 and 2019 were as follows:
|
|
2020
|
2019
|
|
Deferred
Tax Assets:
|
|
|
|
Net
operating losses
|
$3,636,082
|
$3,187,626
|
|
Accrued
payroll
|
288,162
|
194,843
|
|
Reserve
contingency
|
245,819
|
257,415
|
|
Unrealized
loss on investment
|
186,533
|
186,533
|
|
|
4,356,596
|
3,826,417
|
|
Valuation
Allowance
|
(4,356,596)
|
(3,826,417)
|
|
|
$-
|
$-
|
The Company has net operating losses of $14,619,765$, of which
$10,457,080 expires through 2037 and $4,162,685 may be carried
forward indefinitely subject to annual usage limitations. The
Company has established a 100% valuation allowance against its net
deferred tax assets as it is more likely than not they will not be
able to utilize such deferred assets in the future. The change in
the valuation allowance for the year ended December 31, 2020 was an
increase of $530,179.
14. SUBSEQUENT EVENTS.
Subsequent
to December 31, 2020, the Company issued 4 new convertible notes
for Principal totaling $437,500 and received net proceeds totaling
$358,500, after deductions for the holders’ legal and due
diligence fees of $29,000, Original Issue Discounts of $40,000 and
a Finder’s Fee of $10,000, The Finder was also issued 3 year
warrants on 1,000,000 common shares exercisable at $0.01 per share
and on 350,000 common shares exercisable at $0.025 per share. The
Company also issued 3,500,000 common shares (valued at $62,500 at
time of issuance) to 1 of the convertible note holders in payment
of the holder’s commitment fee, plus the issuance of 3 year
warrants on 3,500,000 of the Company’s common stock at an
exercise price of $0.025 per share. In addition, 2 of the
convertible note holders were issued an aggregate of 60,000,000 5
year warrants exercisable at $0.005 per share and were granted a
security interest in substantially all of the Company’s
assets.
Subsequent
to December 31,2020 the Company issued 1 new 8% convertible note,
maturing July 1,2021, for Principal of $9,200 in settlement of a
financing fee. At any time prior to maturity the note is
convertible to the Company’s common shares at the lower of
(a) $0.10 per share or (b) at a discount of 40% from the average of
the lowest 2 closing prices in the 10 trading days prior to
conversion.
.
Subsequent
to December 31, 2020 the Company raised $255,000 by issuing 296,450
shares of Series C preferred stock, net of legal and due diligence
fees totaling $ 14,350 deducted by the purchasers.
Subsequent
to December 31, 2020 the Company issued 5,500,894 common shares on
the conversion of 23,500 shares of Series C preferred stock
including the payment of Series C preferred dividends totaling
$940.
Subsequent
to December 31, 2020 the Company issued 31,532,405 common shares on
conversion of convertible notes , at contractual rates,on Principal
of $158,516, accrued interest of $ 627 and payment of
holder’s legal and due diligence fees of $8,600, representing
an overall average conversion rate of approximately
$0.00532.
Subsequent
to December 31, 2020 the Company issued 49,766,310 common shares to
the holders of convertible debentures, which were recorded as
reclassifications from issuable to issued common
shares.
Subsequent to December 31, 2020, on March 29, 2021 the Company
received Notice of Qualification from the Securities and Exchange
Commission indicating approval for the Company to proceed to raise
financing of up to $5 million through an offering of up to 500,000
Series Convertible Preferred Stock at the offering price of $10.00
per share, pursuant to Tier 2 of Regulation A of the Securities
Act. On April 15, 2021 and April 23,2021 the Company executed 2
Stock Subscription Agreements , each for the sale of 15,000 Series
D Preferred stock at the offering price of $10.00 per share, and
received a total of $300,000 on April23, , 2021. A second Stock
Subscription Agreement was also executed on April 15, 2021 for
25,000 Series D Preferred stock at the offering price of $10.00 per
share, with the subscription payment of $250,000 being receivable
at the date of this filing.
Subsequent
to December 31, 2020, the Company issued 15,000,000 common stock
options at an exercise price of $0.014 to 5 of its employees, of
which 5,000,000 vest quarterly through January 11, 2023 and
10,000,000 vest quarterly through January 11, 2024. The valuation
of these stock options totaling pursuant to the requirements of
Black Scholes was calculated to amount to $194,700, which shall be
recognized as an expense $ 75,700 in 2021, $75,700 in 2022 and
$43,300 in 2023. In addition, the Company issued 1,500,000 common
stock options at an exercise price of $0.15 per share, vesting
quarterly through January 29, 2023. The valuation of this stock
option pursuant to the requirements of Black Scholes was calculated
to amount to $24,750, which shall be recognized as an expense
$11,344 in 2021, $12,375 in 2022 and $1,031 in 2023.
F-24
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in or disagreements with accountants on
accounting and financial disclosure.
|
|
(a)
|
Disclosure Controls and Procedures
|
We
maintain “disclosure controls and procedures”, as that
term is defined in Rule 13a-15(e), promulgated by the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended. Disclosure controls and procedures include controls and
procedures designed to ensure that information required to be
disclosed in our company’s reports filed under the
Securities Exchange Act of
1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is
accumulated and communicated to our management, including our
principal executive officer and our principal financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.
As
required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our
management, with the participation of our principal executive
officer and our principal financial officer, evaluated our
company’s disclosure controls and procedures as of the end of
the period covered by this annual report on Form 10-K. Based on
this evaluation, our management concluded that as of the end of the
period covered by this annual report on Form 10-K, our
disclosure controls and procedures were not effective.
|
|
(b)
|
Management’s Report on Internal Control over Financial
Reporting
|
Our
management, including our principal executive officer, principal
financial officer and our Board of Directors, is responsible for
establishing and maintaining a process to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting
principles.
Our
management, with the participation of our principal executive
officer and our principal financial officer, evaluated the
effectiveness of our internal control over financial reporting as
of December 31, 2020. Our management’s evaluation of our
internal control over financial reporting was based on the
framework in Internal Control—Integrated Framework, issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management concluded that
our internal control over financial reporting was not effective as
of December 31, 2020 due to the following material weaknesses which
are indicative of many small companies with small staff: (i)
inadequate segregation of duties and ineffective risk assessment;
(ii) insufficient written policies and procedures for
accounting and financial reporting with respect to the requirements
and application of both US GAAP and SEC guidelines; (iii) and
inadequate technical skills of accounting personnel. To remediate
such weaknesses, we believe we would need to implement the
following changes: (i) appoint additional qualified personnel to
address inadequate segregation of duties and ineffective risk
management; and (ii) adopt sufficient written policies and
procedures for accounting and financial reporting. The remediation
efforts set out in (i) and (ii) are largely dependent upon our
securing additional financing to cover the costs of implementing
the changes required. If we are unsuccessful in securing such
funds, remediation efforts may be adversely affected in a material
manner. Until we have the required funds, we do not anticipate
implementing these remediation steps.
A
material weakness is a deficiency or a combination of control
deficiencies in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of
our annual or interim financial statements will not be prevented or
detected on a timely basis.
Our
principal executive officer and our principal financial officer do
not expect that our disclosure controls or our internal control
over financial reporting will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within our company have been detected. These inherent limitations
include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of a simple error or
mistake. Additional controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls alsois based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
28
|
|
(c)
|
Changes in Internal Control over Financial Reporting
|
There
were no changes in our internal control over financial reporting
during the fiscal quarter ended December 31, 2020 that have
materially affected, or are reasonably likely to materially affect
our internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our
directors hold office until the next annual meeting or until their
successors have been elected and qualified, or until they resign or
are removed. Our board of directors appoints our officers, and our
officers hold office for such term as may be prescribed by our
board of directors and until their successors are chosen and
qualify, or until their death or resignation, or until their
removal.
Our
directors and executive officers, their ages, positions held, and
duration of such are as follows:
|
Name
|
|
Position Held with Our Company
|
|
Age
|
|
Date First Elected or Appointed
|
|
Robert
Rositano,Jr
|
|
CEO,CFO,
Secretary and Director
|
|
52
|
|
January
31, 2014
|
|
Dean
Rositano
|
|
President,
CTO and Director
|
|
49
|
|
January
31, 2014
|
Business Experience
The
following is a brief account of the education and business
experience during at least the past five years of each director and
executive officer of our company, indicating the person’s
principal occupation during that period, and the name and principal
business of the organization in which such occupation and
employment were carried out.
Robert Rositano Jr, CEO, CFO, Secretary and Director:
Prior
to founding iHookup, Robert Rositano was the third employee at
Netcom Online Communications, Inc., an internet service provider
which went public in 1993 and eventually merged into Earthlink and
AT&T Canada. From 2006-2010, Robert Rositano worked as Chief
Executive Officer of Zippi Networks, Inc. Zippi Networks, Inc.
created a home-based business system that allowed users to become
certified eBay sellers and earn commission by selling items on eBay
for others. Zippi Networks, Inc. supplied its users with everything
one would need to begin a home-based business as an eBay seller,
including but not limited to, certain training, materials,
uniforms, processes and software. Robert Rositano was responsible
for its day-to-day operations and overseeing the development of
eBay seller applications for the web, as well as mobile
applications for windows and iPhone devices. He was also in charge
of fundraising, and raised over $2 million for Zippi Networks, Inc.
In 2010, Robert Rositano became Chief Executive Officer of
Checkmate Mobile, Inc. (“CMI”), which developed mobile
applications on a work-for-hire basis as well as incubated creative
concepts conceived among a core group of product managers, graphic
designers and mobile developers. CMI has successfully developed
applications for the education market (e.g. released Cloud9
Learning to Brigham Young University with a pilot of over 7,000
students), cause-related or donation style applications, and
applications used by restaurants and bars. Robert Rositano has
continued in his role at CMI while serving as a director and
officer of the Company.
Dean Rositano, President, CTO and Director:
Prior
to Friendable, Inc., Dean Rositano co-founded CMI, Latitude Venture
Partners, LLC, Zippi Networks, Inc., America’s Biggest, Inc.,
and most notably, was the co-founder and president and CTO of
Silicon Valley-based Nettaxi.com, which went public in
1998.
From
2006-2010, Dean Rositano worked as President and Chief Technology
Officer of Zippi Networks, Inc. In 2010, Dean Rositano became
President and Chief Technology Officer of CMI. Dean Rositano has
continued in his role at CMI while serving as a director and
officer of the Company.
29
The
Company believes Messrs. Robert and Dean Rositano are well
qualified to serve as director and officers of the Company due to
each of them having twenty years of experience working with high
technology companies, many of which have been in the social media
or internet community space and directly relate to the Friendable
and Fan Pass apps. They have each had experience in successfully
raising capital, managing and growing teams of people in the areas
of product development, internet / mobile marketing, and IT, as
well as architecting, building, scaling and launching high volume
consumer products, from internet websites to mobile
applications.
Family Relationships
Robert
Rositano Jr, age 52, and Dean Rositano, age 49, are
brothers.
Board Composition and Committees and Director
Independence
Robert
Rositano Jr and Dean Rositano currently serve on our board of
directors. We are not required to have any independent members of
the Board of Directors. As we do not have any board committees, the
board carries out the functions of nominating and compensation
committees, and such “independent director”
determination has been made pursuant to the committee independence
standards.
Committees of the Board
Our
board of directors has the authority to appoint committees to
perform certain management and administration functions. Currently,
we do not have an audit committee, compensation committee or
nominating and corporate governance committee and do not have an
audit committee financial expert. Our board of directors currently
intends to appoint various committees in the future.
Nominating and Corporate Governance Committee
We do
not have a nominating and corporate governance committee. Our board
of directors performed the functions associated with a nominating
committee. Generally, nominees for directors are identified and
suggested by the members of our board of directors or management
using their business networks. Our board of directors has not
retained any executive search firms or other third parties to
identify or evaluate director candidates in the past and does not
intend to in the near future. We have elected not to have a
nominating committee because we are an exploration stage company
with limited operations and resources.
Our
board of directors does not have a written policy or charter
regarding how director candidates are evaluated or nominated for
our board of directors. Additionally, our board of directors has
not created particular qualifications or minimum standards that
candidates for our board of directors must meet. Instead, our board
of directors considers how a candidate could contribute to our
business and meet our needs and those of our board of directors. As
we are an exploration stage company, our board of directors will
not consider candidates for director recommended by our
stockholders, and we have received no such candidate
recommendations from our stockholders.
Compensation Committee
We
currently do not have a compensation committee. However, our board
of directors may establish a compensation committee once we are no
longer in the exploration stage, which would consist of inside
directors and independent members. Until a formal committee is
established, our board of directors will continue to review all
forms of compensation provided to our executive officers,
directors, consultants and employees including stock
compensation.
Audit Committee
We
currently do not have an audit committee. However, our board of
directors may establish an audit committee once we are no longer in
the exploration stage, which would consist of inside directors and
independent members.
Until a
formal committee is established, our board of directors will
continue to perform the functions of an audit
committee.
30
Audit Committee Financial Expert
Our
board of directors has determined that it does not have a member
that qualifies as an “audit committee financial expert”
as defined in Item 407(d)(5)(ii) of Regulation S-K issued by the
United States Securities and Exchange Commission.
We
believe that our entire board of directors is capable of analyzing
and evaluating financial statements that present a breadth and
level of complexity of accounting issues that are generally
comparable to the breadth and complexity of the issues reasonably
expected to be raised by our company. We believe that retaining an
independent director who would qualify as an “audit committee
financial expert” would be overly costly and burdensome and
is not warranted in our circumstances given the early stages of our
development and the fact that we have not generated revenues to
date.
Involvement in Certain Legal Proceedings
During
the past ten years, our directors and executive officers above have
not been involved in any of the following events:
|
|
●
|
a
bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that
time;
|
|
|
●
|
conviction
in a criminal proceeding or being subject to a pending criminal
proceeding, excluding traffic violations and other minor
offenses;
|
|
|
●
|
being
subject to any order, judgment or decree, not substantially
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently enjoining, barring, suspending or
otherwise limiting his involvement in any type of business,
securities or banking business;
|
|
|
●
|
being
found by a court of competent jurisdiction, in a civil action, the
SEC or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment
has not been reversed, suspended or vacated;
|
|
|
●
|
being
the subject of, or a party to, any federal or state judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of: (i) any federal or state securities or commodities
law or regulation; or (ii) any law or regulation respecting
financial institutions or insurance companies including, but not
limited to, a temporary or permanent injunction, order of
disgorgement or restitution, civil money penalty or temporary or
permanent cease-and-desist order, or removal or prohibition order;
or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
|
|
●
|
being
the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Securities
Exchange Act of 1934), any registered entity (as defined in Section
1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a
member.
|
Conflict of Interest
There
are several related party transactions reported within this annual
report. All conflicts of interests between such related parties
have been duly approved by the required board and/or shareholder
approvals. Please see below for further disclosure:
Dean
Rositano and Robert Rositano Jr are both directors and 7.5% and
7.5% stockholders respectively of Checkmate Mobile, Inc.
(“CMI”). At CMI, Dean Rositano also serves as President
and Chief Technology Officer, while Robert Rositano Jr serves as
Chief Executive Officer. They will both continue their respective
roles at CMI while serving as directors and officers of Friendable,
Inc.
During
the year ended December 31, 2020, the Company incurred $47,500,
$485,037 and $60,000 (2019: $24,068, $299,124, and $58,883) in app
hosting, software development and support, and rent to a company
with two officers and directors in common with such costs being
recorded as app hosting, software development and support, and
general and administrative expenses. As of December 31, 2020, due
to related party represents $190,320 due to CMI (December 31, 2019:
due from CMI $30,083).
Dean
Rositano and Robert Rositano Jr are both directors and stockholders
of Friendable, Inc. At Friendable, Inc., Dean Rositano also serves
as President and Chief Technology Officer, while Robert Rositano Jr
serves as Chief Executive Officer, Chief Financial Officer and
Secretary. The majority stockholder of Friendable, Inc. is Copper
Creek Holdings, LLC, a Nevada limited liability company owned and
managed by Robert Rositano Jr and his wife, Stacy
Rositano.
31
Section
16(a) of the Securities Exchange
Act of 1934 requires our executive officers and directors,
and persons who own more than 10% of our common stock, to file
initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership of our
common stock and other equity securities with the Securities and
Exchange Commission and to provide us with copies of those filings.
Based solely on our review of the copies of such forms received by
us, or written representations from certain reporting persons, we
believe that during year ended December 31, 2019 all filing
requirements applicable to our executive officers and directors,
and persons who own more than 10% of our common stock were complied
with, with the exception of the following:
|
Name
|
Number of Late
Reports
|
Number of Transactions Not Reported on a
Timely Basis
|
Failure to File
Requested Forms
|
|
Robert
Rositano
|
Nil
|
Nil
|
N/A
|
|
Dean
Rositano
|
Nil
|
Nil
|
N/A
|
|
Frank
Garcia
|
Nil
|
Nil
|
N/A
|
Code of Ethics
We have not yet adopted a Code of Ethics.
ITEM 11. EXECUTIVE
COMPENSATION
Summary Compensation
The
following table summarizes information regarding the compensation
awarded to, earned by or paid to, our Chief Executive Officer, and
our other most highly compensated executive officers who earned in
excess of $100,000 during the year ended December 31, 2020, 2019
and 2018:
|
Name
and
|
|
Salary
Incurred (1)(2)
|
Bonus
|
StockAwards
|
OptionAwards
|
Non-Equity
Incentive Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All other
Compensation
|
Total
|
|
Principal Position
|
Year
|
($)
|
($)
|
($) (1)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
Robert
Rositano, Jr.
|
2020
2019
|
150,000
150,000
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
150,000
150,000
|
|
CEO, CFO, Secretary, &
Director
|
2018
|
150,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Dean
Rositano
|
2020
2019
|
150,000
150,000
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
150,000
150,000
|
|
President and CTO
|
2018
|
150,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
Garcia*
|
2020
2019
|
73,333
100,000
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
73,333
100,000
|
|
CFO*
|
2018
|
100,000
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
100,000
|
(*resigned
August 31, 2020)
Notes:
|
|
(1)
|
The
above listed officers had accrued salaries of $783,416 at December
31, 2019 and $798,580 at December 31, 2018.
During the year ended December 31, 2019, three officers forgave
$400,000 in accrued salaries as part of the debt restructuring
agreement. At December 31,2020 the aggregate accrued compensation
to such officers totaled $1,156,749 (including $238,314
accrued for Frank Garcia through August 31,
2020).
|
|
|
|
|
|
|
(2)
|
The
officers’ salary incurred (and total compensation) for the
year ended December 31,2020 totaled $150,000 for Robert Rositano
Jr., $150,000 for Dean Rositano and $73,333 for Frank
Garcia.
|
32
Compensation for Executive Officers and Directors
Compensation
arrangements for our named executive officers and directors are
described below.
Employment Agreement – Robert Rositano Jr
Effective
January 19, 2014, the Company, entered into an employment agreement
with Robert Rositano to serve as Chief Executive Officer and
Secretary of Friendable, Inc. for a term of two years with
automatic renewals for similar two year periods pursuant to the
terms of the agreement. Robert Rositano’s duties shall
include the duties and responsibilities for the Company’s
corporate and administration offices and positions as set forth by
the Company and such other duties and responsibilities as the board
of directors may from time to time reasonably assign to Robert
Rositano. The employment agreement provides, among other things,
that Robert Rositano will be eligible for participation in any
employee benefit plan,retirement plan, and option plan maintained
by Friendable, Inc.; receive a base salary of $150,000 per year;
and receive reimbursement for ordinary and necessary business
expenses incurred by Robert Rositano in connection with the
performance of his duties as Chief Executive Officer and Secretary.
During the year, only a portion of the salary was paid and the
balance was accrued. Upon a successful launch of Friendable,
Inc.’s products and services and reaching the first 1,000,000
registered users, Robert Rositano will receive a bonus of $50,000
and his base salary will be increased to $200,000 annually. When
Friendable, Inc. reaches a cumulative 5,000,000 registered users or
more, Robert Rositano will receive a bonus of $75,000 and his base
salary will be increased to $250,000 annually. After the above
goals are achieved, his base salary will begin being increased
semi-annually at a minimum rate of 10% or higher, as determined by
the board of directors or a committee established by the board of
directors for compensation purposes. If Friendable, Inc. is unable
to pay executive salary or bonuses, the amounts owed will be
accrued as a convertible note. The note can be converted into
common stock, at Robert Rositano’s sole discretion. The
Company may terminate Robert Rositano’s employment prior to
the end of his employment period by a majority vote of the board of
directors, excluding Robert Rositano’s vote. If we terminate
Robert Rositano’s employment prior to the end of his
employment period without cause, which shall also include
termination in the event of a change in control, Robert Rositano
shall be entitled to his base salary in effect on the date of
his termination for a period of twenty-four (24) months following
the date of such termination, in one lump sum payment within
fourteen (14) days of termination or as otherwise agreed to in
writing. Furthermore, any unvested options granted to Robert
Rositano will immediately vest. If we terminate his employment with
cause, he will be entitled to his base salaryand commission
schedule in effect on the date of termination for a period of
twelve (12) months. If Robert Rositano, however, terminates his
employment prior to the end of the employment period without cause,
Robert Rositano shall not be entitled to any severance and the
Company shall have no further liability to Robert Rositano. He is
also permitted to pursue other business interests not in conflict
with the Company, including serving as officers and directors of
other public companies.
On
April 3, 2019, the Company entered into a new employment agreement
with Robert Rositano. Pursuant to that agreement, the Company shall
pay Rositano an aggregate annual salary at the rate of $150,000
(One Hundred Fifty Thousand Dollars) (the “Base
Salary”). Upon a successful launch of the company’s Fan
Pass mobile app or website, and reaching its first 50,000
subscribers, Rositano will receive a bonus of $50,000 and the Base
Salary will be increased to $200,000 annually. In addition, when
the Company reaches a cumulative 100,000 subscribers or more,
Rositano will receive a bonus of $75,000 and the Base Salary shall
be increased to $250,000 annually. After the above goals are
achieved, the Base Salary shall increase annually at a minimum rate
of ten percent (10%) as determined by the Board of Directors or a
Committee established by the Board of Directors for compensation
purposes (the “Compensation Committee”), based on
Rositano’s performance. Rositano shall be entitled to
participate in the Company’s stock option plan if and when it
is put in place. Details will be determined by the board of
directors or compensation committee at such time.
Employment Agreement – Dean Rositano
Effective
January 19, 2014, the Company, entered into an employment agreement
with Dean Rositano to serve as President and Chief Technology
Officer of Friendable, Inc. for a term of two years with automatic
renewals for similar two year periods pursuant to the terms of the
agreement. Dean Rositano’s duties shall include the duties
and responsibilities for the Company’s corporate and
administration offices and positions as set forth by the Company
and such other duties and responsibilities as the board of
directors may from time to time reasonably assign to Dean Rositano.
The employment agreement provides, among other things, that Dean
Rositano will be eligible for participation in any employee benefit
plan, retirement plan, and option plan maintained by Friendable,
Inc.; receive a base salary of $150,000 per year; and receive
reimbursement for ordinary and necessary business expenses incurred
by Dean Rositano in connection with the performance of his duties
as President and Chief Technology Officer. During the year, only a
portion of the salary was paid and the balance was accrued. Upon a
successful launch of Friendable, Inc.’s products and services
and reaching the first 1,000,000 registered users, Dean Rositano
will receive a bonus of $50,000 and his base salary will be
increased to $200,000 annually. When Friendable, Inc. reaches a
cumulative 5,000,000 registered users or more, Dean Rositano will
receive a bonus of $75,000 and his base salary will be increased to
$250,000 annually. After the above goals areachieved, his base
salary will begin being increased semi-annually at a minimum rate
of 10% or higher, as determined by the board of directors or a
committee established by the board of directors for compensation
purposes. If Friendable, Inc. is unable to pay executive salary or
bonuses, the amounts owed will be accrued as a convertible note.
The note can be converted into common stock, at Dean
Rositano’s sole discretion. The Company may terminate Dean
Rositano’s employment prior to the end of his employment
period by a majority vote of the board of directors, excluding Dean
Rositano’s vote. If we terminate Dean Rositano’s
employment prior to the end of his employment period without cause,
which shall also include termination in the event of a change in
control, Dean Rositano shall be entitled to his base salary in
effect on the date of his termination for a period of twenty-four
(24) months following the date of such termination, in one lump sum
payment within fourteen (14) days of termination or as otherwise
agreed to in writing. Furthermore, any unvested options granted to
Dean Rositano will immediately vest. If we terminate his employment
with cause, he will be entitled to his base salary and commission
schedule in effect on the date of termination for a period of
twelve (12) months. If Dean Rositano, however, terminates his
employment prior to the end of the employment period without cause,
Dean Rositano shall not be entitled to any severance and the
Company shall have no further liability to Dean Rositano. He is
also permitted to pursue other business interests not in conflict
with the Company, including serving as officers and directors of
other public companies.
On
April 3, 2019, the Company entered into a new employment agreement
with Dean Rositano. Pursuant to that agreement, the Company shall
pay Rositano an aggregate annual salary at the rate of $150,000
(One Hundred Fifty Thousand Dollars) (the “Base
Salary”). Upon a successful launch of the company’s Fan
Pass mobile app or website, and reaching its first 50,000
subscribers, Rositano will receive a bonus of $50,000 and the Base
Salary will be increased to $200,000 annually. In addition, when
the Company reaches a cumulative 100,000 subscribers or more,
Rositano will receive a bonus of $75,000 and theBase Salary shall
be increased to $250,000 annually. After the above goals are
achieved, the Base Salary shall increase annually at a minimum rate
of ten percent (10%) as determined by the Board of Directors or a
Committee established by the Board of Directors for compensation
purposes (the “Compensation Committee”), based on
Rositano’s performance. Rositano shall be entitled to
participate in the Company’s stock option plan if and when it
is put in place. Details will be determined by the board of
directors or compensation committee at such time.
33
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
number of shares beneficially owned is determined under the rules
promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
those rules, beneficial ownership includes any shares as to which a
person or entity has sole or shared voting power or investment
power plus any shares which
such person or entity has the right to acquire within sixty (60)
days of April 16, 2019 through the exercise or conversion of any
stock option, convertible security, warrant or other right. Unless
otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with
that person’s spouse) with respect to all shares of capital
stock listed as owned by that person or entity.
Each
share of common stock entitles its holder to one vote on each
matter submitted to the stockholders. The holders of preferred
stock are entitled to cast votes equal to the number of votes equal
to the number of whole shares of common stock into which the shares
of Series A Preferred Stock held by such holder are convertible.
Thetotal aggregate issued shares of Series A Preferred Stock at any
given time regardless of their number shall be convertible into the
number of shares of common stock which equals nine (9) times the
total number of shares of common stock which are issued and
outstanding at the time of any conversion, at the option of the
preferred holders or until the closing of a Qualified Financing
(i.e. the sale and issuance of our equity securities that results
in gross proceeds in excess of $2,500,000) at one time or in the
same round. As a result of the Titan Iron Ore Corp. and iHookup
merger transaction, the former iHookup stockholders received a
controlling interest in the Company due to the voting rights of the
Series A Preferred Stock being connected to their super-majority
conversion rights.
The
following tabulation shows, as of April 22, 2021, the number of
shares of capital stock owned beneficially by: (a) all persons
known to be the holders of more than five percent (5%) of voting
securities, (b) Directors, (c) Executive Officers and (d) all other
Officers and Directors as a group.
|
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
Percent of Class (3)
|
|||||||
|
|
|
|
|
|
|
|||||
|
|
(a)
|
Holders Over 5%
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
|
Series
A preferred
|
Robert
A Rositano Jr.
|
9,246
(1)
|
Direct
|
46.73%
|
||||||
|
|
3846
Moanna Way,
|
|
|
|
||||||
|
|
Santa
Cruz, CA 95062
|
|
|
|
||||||
|
|
|
|
|
|
|
|||||
|
Series
A preferred
|
Dean
Rositano126 Sea Terrace Way,Aptos, CA 95003
|
1,882
|
Direct
|
9.51%
|
||||||
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
Series
A preferred
|
Copper
Creek Holdings, LLC (2)7960
B Soquel Dr., Suite #146Aptos, CA 95003
|
14,730
|
Direct
|
74.45%
|
||||||
|
|
-Robert
Rositano
|
7,365
|
|
37.22%
|
||||||
|
|
-Stacy
Rositano
|
7,365
|
|
37.22%
|
||||||
|
|
|
|
|
|
||||||
|
|
(b)
|
Directors
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
|
Series
A preferred
|
Robert
A Rositano Jr.
|
9,246
(1)
|
Direct
and
|
46.73%
|
||||||
|
|
3846
Moanna Way,
|
|
Indirect
|
|
||||||
|
|
Santa
Cruz, CA 95062
|
|
|
|
||||||
|
|
|
|
|
|
|
|||||
|
Series
A preferred
|
Dean
Rositano
|
1,882
|
Direct
|
9.51%
|
||||||
|
|
126 Sea
Terrace Way,
|
|
|
|
||||||
|
|
Aptos,
CA 95003
|
|
|
|
||||||
|
|
|
|
|
|
|
|||||
|
|
(c)
|
Executive Officers
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
|
Series
A preferred
|
Robert
Rositano, Jr. and Dean Rositano as named above
|
|
|
|||||||
|
|
|
|
|
|
|
|||||
|
Series
A preferred
|
(d)
|
Officers and Directors as a Group for preferred stock
|
11,128
(1)
|
Direct
and Indirect
|
60.63%
|
|||||
|
|
(1)
|
Includes
the shares beneficially owned by Robert Rositano Jr through Copper
Creek Holdings, LLC. Does not include the shares beneficially owned
by Stacy Rositano through Copper Creek Holdings, LLC.
|
|
|
(2)
|
Copper
Creek Holdings, LLC is owned and managed by Robert Rositano Jr and
his wife Stacy Rositano, thus each may be deemed to beneficially
own half of the interest of Copper Creek Holdings,
LLC.
|
|
|
(3)
|
Based
on 19,789 shares of
Series A preferred stock issued and outstanding as of December 31,
2020.
|
34
|
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
Percent of Class (3)
|
|||||||
|
|
|
|
|
|
|
|||||
|
|
(a)
|
Directors
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
|
Common
stock
|
Copper
Creek Holdings, LLC (2)7960
B Soquel Dr., Suite #146Aptos, CA 95003
|
15,596
|
Direct
|
*
|
||||||
|
|
-Robert
Rositano
|
7,798
|
|
*
|
||||||
|
|
-Stacy
Rositano
|
7,798
|
|
*
|
||||||
|
|
|
|
|
|
|
|||||
|
Common
stock
|
Robert
A Rositano Jr.
|
17,026
(1)
|
Direct
and
|
*
|
||||||
|
|
3846
Moanna Way,
|
|
Indirect
|
|
||||||
|
|
Santa
Cruz, CA 95062
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
Common
stock
|
Dean
Rositano
|
9,245
|
Direct
|
*
|
||||||
|
|
126 Sea
Terrace Way,
|
|
|
|
||||||
|
|
Aptos,
CA 95003
|
|
|
|
||||||
|
|
|
|
|
|
||||||
|
|
(b)
|
Executive Officers
|
|
|
|
|||||
|
|
|
|
|
|
||||||
|
Common
stock
|
Robert
Rositano, Jr. and Dean Rositano as named above
|
|
|
|||||||
|
|
|
|
|
|
|
|||||
|
Common
stock
|
(c)
|
Officers and Directors as a Group for common stock
|
26,271 (1)
|
Direct
and Indirect
|
0.051%
|
|||||
|
|
*
|
Less
than 1%.
|
|
|
(1)
|
Includes
the shares beneficially owned by Robert Rositano Jr through Copper
Creek Holdings, LLC. Does not include the shares beneficially owned
by Stacy Rositano through Copper Creek Holdings, LLC.
|
|
|
(2)
|
Copper
Creek Holdings, LLC is owned and managed by Robert Rositano Jr and
his wife Stacy Rositano, thus each may be deemed to beneficially
own half of the interest of Copper Creek Holdings,
LLC.
|
|
|
(3)
|
Based
on 51,665,821 of common
stock issued and outstanding as of December 31, 2020.
|
Changes in Control
We are
not aware of any arrangements that may result in “changes in
control” as that term is defined by the provisions of Item
403(c) of Regulation S-K.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with related persons
Other
than as disclosed below, there has been no transaction, or
currently proposed transaction, in which our company was or is to
be a participant and the amount involved exceeds the lesser of
$120,000 or one percent of the average of our total assets at year
end for the last two completed fiscal years, and in which any of
the following persons had or will have a direct or indirect
material interest:
|
|
(i)
|
Any
director or executive officer of our company;
|
|
|
|
|
|
|
(ii)
|
Any
beneficial owner of shares carrying more than 5% of the voting
rights attached to our outstanding shares of common
stock;
|
35
|
|
(iii)
|
Any
person who acquired control of our company when it was a shell
company or any person that is part of a group, consisting of two or
more persons that agreed to act together for the purpose of
acquiring, holding, voting or disposing of our common stock, that
acquired control of Titan Iron Ore Corp. when it was a shell
company; and
|
|
|
|
|
|
|
(iv)
|
Any
immediate family member (including spouse, parents, children,
siblings and in-laws) of any of the foregoing persons.
|
During
the year ended December 31, 2020, the Company incurred $418,333
(2019: $459,200) in salaries and payroll taxes to officers and
directors with such costs being recorded as general and
administrative expenses.
During the year
ended December 31, 2020, the Company incurred $47,500, $485,037 and
$60,000 (2019: $24,068, $299,124, and $58,883) in app hosting,
software development and support and rent to a company with two
officers and directors in common with such costs being recorded as
app hosting, software development and support and general and
administrative expenses.
During the year ended December 31, 2020 two directors converted 3
shares of Series A Preferred Stock into 54,076 shares of common
stock. In addition, concurrent with the issuance of 118 Series A
Shares to Eclectic Artists LLC, a talent agency, pursuant to the
terms of a Partner Agreement the same two directors returned 118
Series A Preferred shares to the Company’s
treasury.
As of
December 31, 2020, the Company had a stock subscription receivable
totaling $4,500 (December 31, 2019: $4,500) from an officer and
director and from a company with an officer and director in
common.
As of
December 31, 2020, accounts payable related party includes $190,320
(December 31, 2019: due from related party $30,083) representing
amounts due to/from a company with two officers and directors in
common for services provided by that company, and accounts payable
and accrued expenses includes $918,408 (December 31, 2019:
$783,416) payable in salaries to directors and officers of the
Company. The amounts are unsecured, non-interest bearing and are
due on demand.
During
the year ended December 31, 2019, two directors converted 588
shares of Series A preferred stock at the contractual conversion
rate into 1,002,970 shares of common stock and donated them to the
Diocese of Monterey and other parties related to the directors
converted 890 Series A preferred shares into 2,018,746 common
shares that are issuable at December 31, 2019.
During
the year ended December 31, 2019, three officers forgave debt
totaling $400,000 and a company controlled by two officers of the
Company forgave debt totaling $600,000. The total amount is
reflected as contributed capital.
There
are several related party transactions reported within this annual
report. All conflicts of interests between such related parties
have been duly approved by the required board and/or shareholder
approvals. Please see below for further disclosure:
Dean
Rositano and Robert Rositano are both directors and 14% and
14% stockholders respectively of CMI. At CMI, Dean Rositano
also serves as President and Chief Technology Officer, while Robert
Rositano serves as Chief Executive Officer. They will both continue
their respective roles at CMI while serving as directors and
officers of Friendable, Inc.
Dean
Rositano and Robert Rositano are both directors and stockholders of
Friendable, Inc. At Friendable, Inc., Dean Rositano also serves as
President and Chief Technology Officer, while Robert Rositano
serves as Chief Executive Officer and Secretary. The majority
stockholder of Friendable, Inc. is Copper Creek Holdings, LLC, a
Nevada limited liability company owned and managed by Robert
Rositano and his wife, Stacy Rositano.
The
holders of preferred stock are entitled to cast votes equal to the
number of votes equal to the number of whole shares of common stock
into which the shares of Series A Preferred Stock held by such
holder are convertible. The total aggregate issued shares of Series
A Preferred Stock at any given time regardless of their number
shall be convertible into the number of shares of common stock
which equals nine (9) times the total number of shares of common
stock which are issued and outstanding at the timeof any
conversion, at the option of the preferred holders or until the
closing of a Qualified Financing (i.e. the sale and issuance of our
equity securities that results in gross proceeds in excess of
$2,500,000) at one time or in the same round. As a result of the
transaction, the former iHookup stockholders received a controlling
interest in the Company due to the voting rights of the Series A
Preferred Stock being connected to their super-majority conversion
rights.
As
described above, Dean Rositano and Robert Rositano have both been
appointed directors and officers of Friendable, Inc. Dean Rositano
also serves as President and Chief Technology Officer, while Robert
Rositano serves as Chief Executive Officer, Chief Financial Officer
and Secretary.
36
Director Independence
Because
our common stock is not currently listed on a national securities
exchange, we have used the definition of “independence”
of The NASDAQ Stock Market to make this determination. NASDAQ
Listing Rule 5605(a)(2) provides that an “independent
director” is a person other than an officer or employee of
the Company or any other individual having a relationship which, in
the opinion of the Company’s board of directors, would
interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. The NASDAQ listing rules
provide that a director cannot be considered independent
if:
|
|
●
|
the
director is, or at any time during the past three years was, an
employee of the company;
|
|
|
●
|
the
director or a family member of the director accepted any
compensation from the company in excess of $120,000 during any
period of 12 consecutive months within the three years preceding
the independence determination (subject to certain exclusions,
including, among other things, compensation for board or board
committee service);
|
|
|
●
|
a
family member of the director is, or at any time during the past
three years was, an executive officer of the company;
|
|
|
●
|
the
director or a family member of the director is a partner in,
controlling stockholder of, or an executive officer of an entity to
which the company made, or from which the company received,
payments in the current or any of the past three fiscal years that
exceed 5% of the recipient’s consolidated gross revenue for
that year or $200,000, whichever is greater (subject to certain
exclusions); or
|
|
|
●
|
the
director or a family member of the director is employed as an
executive officer of an entity where, at any time during the past
three years, any of the executive officers of the company served on
the compensation committee of such other entity; or the director or
a family member of the director is a current partner of the
company’s outside auditor, or at any time during the past
three years was a partner or employee of the company’s
outside auditor, and who worked on the company’s
audit.
|
Based
upon the above, we currently do not have any independent board
members.
ITEM 14. PRINCIPAL ACCOUNTING FEES
AND SERVICES
Audit Fees
The
Company has engaged a new audit firm, Salberg & Company, P.A.
(“Salberg”) to perform the audit for the year ended
December 31, 2019. Manning Elliott LLP (“Manning
Elliott”) performed the reviews for the first 3 quarters of
2019. The aggregate fees billed by our auditors for the most
recently completed fiscal year ended December 31, 2020 and for
fiscal year ended December 31, 2019 for professional services
rendered by the principal accountant for the audit of our annual
consolidated financial statements and review of the consolidated
financial statements included in our quarterly reports on Form 10-Q
and services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for
these fiscal periods were as follows:
|
|
Salberg
|
Salberg
|
Manning Elliott
|
|
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
|
Fee
Category
|
31-Dec-20
|
31-Dec-19
|
31-Dec-19
|
|
Audit Fees
(1)
|
$58,300
|
$28,000
|
$19,058
|
|
Audit Related Fees
(2)
|
645
|
-
|
-
|
|
Tax Fees
(3)
|
-
|
-
|
15,400
|
|
All Other Fees
(4)
|
-
|
-
|
-
|
|
Total
|
$58,945
|
$28,000
|
$34,458
|
|
|
1
|
Audit
fees consist of fees incurred for professional services rendered
for the audit of our financial statements, for reviews of our
interim consolidated financial statements included in our quarterly
reports on Form 10-Q and for services that are normally provided in
connection with statutory or regulatory filings or
engagements.
|
|
|
2
|
Audit-related
fees consist of fees billed for professional services that are
reasonably related to the performance of the audit or review of our
consolidated financial statements, but are not reported under
“Audit fees.”
|
|
|
3
|
Tax
fees consist of fees billed for professional services relating to
tax compliance, tax planning, and tax advice.
|
|
|
4
|
All
other fees consist of fees billed for all other
services.
|
37
Pre-Approval Policies and Procedures with respect to Services
Performed by Independent Registered Public Accounting
Firms
Before
Manning Elliott and Salberg were engaged by us to render any
auditing or permitted non-audit related service, our board of
directors approved the engagements.
Our
board of directors has considered the nature and amount of fees
billed by Manning Elliott and Salberg and believe that the
provision of services for activities unrelated to the audit was
compatible with maintaining Manning Elliott and Salberg’s
independence.
PART IV
ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES
38
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
FRIENDABLE
INC.
|
|
|
|
|
|
|
|
|
Date:
April 27, 2021
|
By:
|
/s/ Robert
Rositano Jr
|
|
|
|
|
Robert
Rositano Jr
|
|
|
|
|
Chief
Executive Officer, Chief Financial Officer, Secretary, and Director
(Principal Executive Officer, Principal Financial Officer and
Principal Accounting Officer)
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Date:
April 27, 2021
|
By:
|
/s/ Robert
Rositano Jr
|
|
|
|
|
Robert
Rositano Jr
|
|
|
|
|
Chief
Executive Officer, Secretary, and Director(Principal Executive
Officer
Principal
Financial Officer and Principal Accounting Officer)
|
|
|
Date:
April 27, 2021
|
By:
|
/s/ Dean
Rositano
|
|
|
|
|
Dean
Rositano
|
|
|
|
|
President
and Chief Technology Officer and Director
|
|
39