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, 2019 and 2018
Our cash as of December 31, 2019 was $11,282. 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,
2019 was $32,443,883. For the year ended December 31, 2019, our net loss was
$10,183,410.
Our operating revenues and expenses for our fiscal years ended December 31, 2019
and 2018 and the changes between those periods for the respective items are
summarized as follows:
For the Years Ended
December 31,
2019 2018
REVENUES $ 242,696 $ 6,190
OPERATING EXPENSES:
App hosting 24,068 210,000
Commissions 938 1,817
General and administrative 814,053 719,960
Product development 299,124 80,549
Investor relations 98,264 6,077
Sales and Marketing 48,375 22,575
Total operating expenses 1,284,822 1,040,978
LOSS FROM OPERATIONS (1,042,126 ) (1,034,788 )
OTHER INCOME (EXPENSE):
Accretion and interest expense (621,149 ) (2,052,216 )
Impairment loss - (35,000 )
Provision for settlement of lawsuit (1,035,000 ) -
Loss on debt extinguishments (7,384,866 ) -
Exchange gain or (loss) 24,731 -
Loss on change in fair value of derivative (125,000 ) -
Total other expense, net (9,141,284 ) (2,087,216 )
NET LOSS $ (10,183,410 ) $ (3,122,004 )
23
Revenues
Revenues for the year ended December 31, 2019 increased to $242,696 as compared
to $6,190 for the year ended December 31, 2018. The increase in revenue was due
to receiving a contract to develop an app for a third party.
Operating Expenses
Operating expenses for the year ended December 31, 2019 and the December 31,
2018 were $1,284,822 and $1,040,978 respectively, an increase of 23%. The
increase in operating expenses was due primarily to higher sales and marketing,
product development, and investor relations related to preparing to launch the
Fan Pass app. App hosting expenses decreased with less support for the old
Friendable app.
Net Loss
Our operating results have recognized net loss in the amount of $10,183,410 for
the year ended December 31, 2019 as compared to a net loss of $3,122,004 for the
year ended December 31, 2018. The increase was primarily related due to higher
operating expenses, a loss on extinguishments of debt, and by a provision for
settlement of a lawsuit, offset by lower interest expense.
Liquidity and Capital Resources
Working Capital
December 31, 2019 December 31, 2018
Current Assets $ 71,500 $ 25,646
Current Liabilities $ 16,041,805 $ 10,263,543
Working Capital Deficiency $ (15,970,305 ) $ (10,237,897 )
24
Current liabilities as of December 31, 2019 and 2018 were $16,041,805 and
$10,263,543 respectively, an increase of $5,778,262. The primary reason for the
increase was settling approximately $8.0 million in convertible debt and accrued
interest and replacing it with a $12.8 million derivative liability resulting
from the Company's determination that the resulting reset provision was a
derivative. In addition, the Company recorded a $1.0 million provision for
settlement of a lawsuit.
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, 2019 December 31, 2018Net Cash Used in Operating Activities $ (488,864 ) $ (385,319 )
Net Cash Provided by Financing Activities
474,500 410,965
Net Increase (Decrease) in Cash $ (14,364 ) $ 25,646
Operating Activities
Cash provided by operating activities
The Company used $488,864 in cash from operating activities for the year ended
December 31, 2019 as compared to a use of $385,319 for the year ended December
31, 2018. The increase is due to expenditures related to developing and
preparing to launch Fan Pass.
Cash provided by financing activities
Financing activities for the year ended December 31, 2019 generated cash of
$474,500 as compared to generating $410,965 of cash for the year ended December
31, 2018. The higher cash provided from financing activities in the current year
is attributable to higher proceeds from the sale of stock.
There was no significant impact on the Company's operations as a result of
inflation for the year ended December 31, 2019.
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 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. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company or deemed liquidation event, the
holders of shares of Series B Preferred Stock shall be entitled to be paid the
liquidation amount, as defined out of the assets of the Company available for
distribution to its shareholders, after distributions to holders of the Series A
Preferred Stock and before distributions to holders of Common Stock.
During the year ended December 31, 2019, the Company entered into subscription
agreements with various investors whereby we sold rights to 284,000 shares of
Series C 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.
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).
25
During the year ended December 31, 2019, the Company entered into subscription
agreements with Geneva Roth Remark Holdings, Inc. whereby we sold 149,300 shares
of Series C Preferred Stock for a total purchase price of $136,000.
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
will be 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 have agreed to convert their debt into certain amounts 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; Checkmate
Mobile Inc and Company officers 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 $0.20 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.
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.
26
Going Concern
At December 31, 2019, we had a working capital deficiency, an accumulated
deficit, and a stockholders deficit of $15,970,735, $32,443,883 and $15,970,735
respectively and incurred a net loss and cash used in operations of $10,183,410
and $488,864 respectively in 2019. 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, 2019, 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 be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and
adversely from the Company's estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.
Revenue Recognition
In accordance with ASC 606, revenue is recognized when the following criteria
have been met; valid contracts are identified with specific customers,
performance obligations have been identified, price is determinable, price is
allocated to performance obligations, and the Company has satisfied the
performance obligations. Revenue generally is recognized net of allowances for
returns and any taxes collected from customers and subsequently remitted to
governmental authorities. During the year ended December 31, 2019, the Company
derived revenues primarily from the development of apps for a third party, and
such revenues were recognized upon completion of services.
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.
27
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 an asset 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
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FRIENDABLE, INC. 
