Attached files

file filename
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Friendable, Inc.exhibit_31-1.htm
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Friendable, Inc.exhibit_32-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Friendable, Inc.exhibit_31-2.htm
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2017
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
 
Commission File Number: 000-52917
 
FRIENDABLE, INC.

(Exact name of registrant as specified in its charter)
 
Nevada
 
98-0546715
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
 
1821 S Bascom Ave., Suite 353, Campbell, California 95008

(Address of principal executive offices) (zip code)
 
(855) 473-8473

(Registrant’s telephone number, including area code)
 
N/A
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes No
 
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
4,772,310,369 shares of common stock outstanding as of November 19, 2017
 
 
 i
 

TABLE OF CONTENTS
 
 
 
PART I - FINANCIAL INFORMATION
1
 
 
ITEM 1. FINANCIAL STATEMENTS
1
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
15
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
20
 
 
ITEM 4. CONTROLS AND PROCEDURES
20
 
 
PART II - OTHER INFORMATION
21
 
 
ITEM 1. LEGAL PROCEEDINGS
21
 
 
ITEM 1A. RISK FACTORS
21
 
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
21
 
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
21
 
 
ITEM 4. MINE SAFETY DISCLOSURES
21
 
 
ITEM 5. OTHER INFORMATION
21
 
 
ITEM 6. EXHIBITS
22
 
 
SIGNATURES
23
 
 
 
 
 
 
 
 
 
 
 
 ii
 

As used in this report, the term “the Company” means Friendable, Inc., formerly known as iHookup Social, Inc., and its subsidiary, unless the context clearly indicates otherwise.
 
Special Note Regarding Forward-Looking Information
 
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: the Company’s future financial performance, the Company’s business prospects and strategy, anticipated trends and prospects in the industries in which the Company’s businesses operate and other similar matters. These forward-looking statements are based on the Company’s management's expectations and assumptions about future events as of the date of this quarterly report, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.
 
Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect the Company’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward-looking statements discussed in this quarterly report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of the Company’s management as of the date of this quarterly report. The Company does not undertake to update these forward-looking statements
 
In this quarterly report on Form 10-Q, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in the Company’s capital stock.
 
An investment in the Company’s common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this quarterly report on Form 10-Q in evaluating the Company and its business before purchasing shares of the Company’s common stock. The Company’s business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in the Company’s common stock only if you can afford to lose your entire investment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 iii
 
 
PART I - FINANCIAL INFORMATION
 
 
ITEM 1.  FINANCIAL STATEMENTS.
 
 
 
FRIENDABLE, INC.
 
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
September 30, 2017
 
(Unaudited)
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016
 
2
 
 
 
Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016
 
3
 
 
 
Consolidated Statements of Stockholders’ Deficiency for the period from December 31, 2015 to September 30, 2017
 
4
 
 
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016
 
5
 
 
 
Notes to the Consolidated Financial Statements
 
6-14
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
  1
 
 
 
 
 FRIENDABLE, INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in US dollars)
 
ASSETS
 
 
September 30, 
2017
(Unaudited)
 
 
December 31, 
2016
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash
 $- 
 $119,804 
Accounts receivable
  1,005 
  1,009 
Prepaid expenses
  6,863 
  6,963 
Total current assets
  7,868 
  127,776 
 
    
    
Intangible assets (Note 3)
  35,000 
  35,000 
 
    
    
 TOTAL ASSETS
 $42,868 
 $162,776 
 
    
    
 
    
    
LIABILITIES AND STOCKHOLDERS' DEFICIT
    
    
 
    
    
LIABILITIES
    
    
Current liabilities
    
    
Accounts payable and accrued liabilities (Note 8)
  2,394,419 
  1,554,350 
Convertible debentures (Note 10)
  4,460,478 
  2,171,923 
Deferred revenue
  - 
  6,323 
 
    
    
Total current liabilities
  6,854,897 
  3,732,596 
 
    
    
Convertible debentures (Note 10)
  - 
  218,964 
 
    
    
Total liabilities
  6,854,897 
  3,951,560 
 
Going concern (Note 1)
    
    
Commitments (Note 7)
    
    
Subsequent event (Note 13)
    
    
 
    
    
STOCKHOLDERS' DEFICIT
    
    
Preferred stock, 50,000,000 shares authorized at par value of $0.0001, 21,267 (December 31, 2016 – 21,655) shares issued and outstanding (Note 4)
  2 
  2 
Common stock, 15,000,000,000 shares authorized at par value of $0.0001, 3,388,135,026 (December 31, 2016 – 1,068,031,823) shares issued and outstanding (Note 4)
  338,814 
  106,803 
Additional paid-in capital
  10,782,464 
  9,609,198 
Common stock subscriptions receivable (Note 8)
  (4,500)
  (4,500)
Deficit
  (17,928,809)
  (13,500,287)
Total Stockholders' Deficit
  (6,812,029)
  (3,788,784)
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 $42,868 
 $162,776 
  
 
The accompanying notes are an integral part of these consolidated financial statements.
  
 
 
 
 
 
 
 2
 
 
 FRIENDABLE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in US dollars)
(Unaudited)
 
 
 
 
Three Months Ended September 30, 2017
 
 
Three Months Ended September 30, 2016
 
 
Nine months
Ended September 30, 2017
 
 
Nine months
Ended September 30, 2016
 
 
 $ 
 $  
 $  
 $  
REVENUES
  2,298 
  5,915 
  7,876 
  24,495 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
    Accretion and interest expense (Note 10)
  1,263,476 
  335,468 
  2,714,869 
  1,514,264 
    App hosting (Note 8)
  141,011 
  89,652 
  418,837 
  318,204 
    Commissions
  690 
  1,774 
  2,363 
  7,318 
    Financing costs
  - 
  38,067 
  - 
  113,525 
    General and administrative (Note 8)
  216,498 
  218,127 
  675,877 
  678,850 
    Product development (Note 8)
  133,000 
  80,386 
  225,450 
  239,620 
    Sales and marketing
  60,699 
  606,515 
  224,002 
  1,379,116 
 
    
    
    
    
 
    
    
    
    
 TOTAL OPERATING EXPENSES
  1,815,374 
  1,369,989 
  4,261,398 
  4,250,897 
 
    
    
    
    
 LOSS FROM OPERATIONS
  (1,813,076)
  (1,364,074)
  (4,253,522)
  (4,226,402)
 
    
    
    
    
OTHER EXPENSES
    
    
    
    
    Loss on investment (Note 11)
  - 
  - 
  (175,000)
  - 
 
    
    
    
    
NET LOSS AND COMPREHENSIVE LOSS
  (1,813,076)
  (1,364,074)
  (4,428,522)
  (4,226,402)
 
    
    
    
    
BASIC LOSS PER SHARE
  (0.00)
  (0.00)
  (0.00)
  (0.01)
 
    
    
    
    
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
 2,251,340,870 
  678,909,446 
  1,747,564,991 
  454,287,515 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
  3
 
 
 
FRIENDABLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
FOR THE PERIOD FROM DECEMBER 31, 2015 TO SEPTEMBER 30, 2017
(Expressed in US dollars)
(Unaudited)
 
 
 
 
 
Common # Stock
 
 
Common Stock Amount
 
 
Preferred #
 
 
Preferred Stock Amount
 
 
Additional Paid-in Capital
 
 
Common Stock Subscriptions
 
 
Deficit
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2015
  218,977,542 
 $21,898 
  22,165 
 $2 
 $5,697,308 
 $(4,500)
 $(7,387,048)
 $(1,672,340)
 
    
    
    
    
    
    
    
    
Shares issued for services
  65,465,714 
  6,547 
   
   
  231,545 
   
   
  238,092 
 
    
    
    
    
    
    
    
    
Conversion of convertible notes (Note 10)
  652,069,721 
  65,207 
   
   
  311,248 
   
   
  376,455 
 
    
    
    
    
    
    
    
    
Conversion of preferred shares (Note 4)
  104,524,944 
  10,452 
  (510)
   
  (10,452)
   
   
   
 
    
    
    
    
    
    
    
    
Issuance of convertible notes (net) (Note 10)
   
   
   
   
  2,882,248 
   
   
  2,882,248 
 
    
    
    
    
    
    
    
    
Exercise of warrants
  26,993,902 
  2,699 
   
   
  (2,699)
   
   
   
 
    
    
    
    
    
    
    
    
Debt forgiveness (Note 8)
   
   
   
   
  500,000 
   
   
  500,000 
 
    
    
    
    
    
    
    
    
Net loss for the year
   
   
   
   
   
   
  (6,113,239)
  (6,113,239)
 
    
    
    
    
    
    
    
    
Balance December 31, 2016
  1,068,031,823 
 $106,803 
  21,655 
 $2 
 $9,609,198 
 $(4,500)
 $(13,500,287)
 $(3,788,784)
 
Shares issued for services
  123,220,000 
  12,322 
   
   
  56,368 
   
   
  68,690 
 
    
    
    
    
    
    
    
    
Conversion of convertible notes (Note 10)
  1,899,157,030 
  189,916 
   
   
  312,220 
   
   
  502,136 
 
    
    
    
    
    
    
    
    
Conversion of preferred shares (Note 4)
  297,726,173 
  29,773 
  (388)
   
  (29,773)
   
   
   
 
    
    
    
    
    
    
    
    
Issuance of convertible notes (net) (Note 10)
   
   
   
   
  834,451 
   
   
  834,451 
 
    
    
    
    
    
    
    
    
Net loss for the period
   
   
   
   
   
   
  (4,428,522)
  (4,428,522)
 
    
    
    
    
    
    
    
    
Balance September 30, 2017
  3,388,135,026 
 $338,814 
  21,267 
 $2 
 $10,782,464 
 $(4,500)
 $(17,928,809)
 $(6,812,029)
 
 
The accompanying notes are an integral part of these consolidated financial statements. 
 
 
 4
 
 
FRIENDABLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Expressed in US dollars)
(Unaudited)
 
 
 
 
 
 
Nine months ended 
September 30, 2017
 
 
Nine months ended 
September 30, 2016
 
Cash Flows from Operating Activities:
 
 
 
 
 
 
Net loss
 $(4,428,522)
 $(4,226,402)
 
    
    
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
    
    
Interest on convertible debentures
  367,355 
  182,064 
Accretion expense
  2,347,514 
  1,342,434 
Shares issued for services
  68,690 
  - 
Loss on investment
  175,000 
  177,034 
Changes in Operating Assets and Liabilities
    
    
Decrease in accounts receivable
  4 
  2,645 
Decrease in prepaid expenses
  100 
  - 
Increase in accounts payable
  545,285 
  276,166 
Net Cash Used in Operating Activities
  (924,574)
  (2,246,059)
 
    
    
Cash Flows Used in Investing Activities:
    
    
Investment in Hang With
  (175,000)
  - 
Net Cash Used in Investing Activities
  (175,000)
  - 
 
    
    
Cash Flows from Financing Activities:
    
    
Proceeds from convertible debentures (net)
  979,770 
  2,251,508 
 
    
    
Net Cash Provided by Financing Activities
  979,770 
  2,251,508 
 
    
    
Net Increase(Decrease) in Cash
  (119,804)
  5,449 
 
    
    
Cash on Hand – Beginning
  119,804 
  15,880 
 
    
    
Cash on Hand – Ending
 $- 
 $21,329 
 
    
    
Supplemental Cash Flow Information:
    
    
Cash paid for interest
 $ 
 $ 
Cash paid for income taxes
 $ 
 $ 
 
    
    
Non-cash Investing and Financing Items:
    
    
Shares issued for conversion of debt (net)
 $- 
 $213,255 
Convertible debentures issued to extinguish promissory notes
 $- 
 $- 
 
    
    
  
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 5
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
 
 
1.  NATURE OF BUSINESS AND GOING CONCERN
 
Friendable, Inc., a Nevada corporation (the “Company”), was incorporated in the State of Nevada as Digital Yearbook Inc. Effective June 15, 2011, the Company completed a merger with its subsidiary, Titan Iron Ore Corp., a Nevada corporation, which was incorporated solely to effect a change in the Company’s name from “Digital Yearbook Inc.” to “Titan Iron Ore Corp.” The Company then began to pursue business in the area of mining exploration.
 
On February 3, 2014, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger”) with iHookup Operations Corp., a wholly-owned Delaware subsidiary of the Company (“Acquisition Sub”) and iHookup-DE, whereby iHookup-DE was the surviving entity and became the wholly-owned subsidiary of the Company. iHookup-DE’s former stockholders exchanged all of their 6,000 shares of outstanding common stock for 25,000 shares of the Company’s designated Series A Preferred Stock.
 
The Merger was regarded as a reverse recapitalization whereby iHookup-DE was considered to be the accounting acquirer as its stockholders retained control of the Company after the Merger. On February 3, 2014, the Merger was completed and as a result, iHookup-DE acquired the net liabilities of the Company. As a result of the Merger, the Company ceased its prior operations and its business became the development and dissemination of a “proximity based” mobile-social media application that facilitates connections between people, utilizing the intelligence of global positioning system and localized recommendations.
 
On September 28, 2015, the Company filed a Certificate of Amendment to its Articles of Incorporation changing the name of the Company from “iHookup Social, Inc.” to “Friendable, Inc.”. On October 27, 2015, the Company’s trading symbol on the OTC Pink marketplace was changed from “HKUP” to “FDBL”. This change was made in conjunction with the re-branding of the Company’s app from "iHookup Social" to "Friendable". On May 31, 2017, the Company filed an Amendment to its Articles of Incorporation increasing the authorized common stock from 10,000,000,000 to 15,000,000,000 shares.
 
On June 28, 2017, the Company incorporated a subsidiary, Fan Pass Inc., a Nevada corporation, which was incorporated to undertake the development of the mobile application “The Fan Pass App”.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which implies that the Company would continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. As of September 30, 2017, the Company has a working capital deficiency of $6,847,029 and has an accumulated deficit of $17,928,809 since inception and its operations continue to be funded primarily from sales of its stock and issuance of convertible debentures. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain the necessary financing 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. No assurance can be given that any such additional financing will be available, or that it can be obtained on terms acceptable to the Company and its stockholders.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company’s fiscal year end is December 31.
 
Interim financial statements
The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim consolidated financial information and with the instructions for Securities and Exchange Commission (“SEC”) Form 10-Q and they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K filed on April 17, 2017, with the SEC.
 
In the opinion of management, all adjustments (consisting of normal and recurring accruals) considered necessary for fair presentation of the Company’s financial position, results of operations and cash flows have been included. Operating results for the nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for future quarters or the year ending December 31, 2017.
 
 
 
 
 6
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Use of Estimates
The preparation of these statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, valuation of convertible debenture conversion options, deferred income tax asset valuations, financial instrument valuations, share-based payments, other equity-based payments, and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. 
 
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. The Company derives revenues from the sale of application software, unlimited messaging subscriptions for periods varying from one to twelve months, and arrangements for virtual gifts and access to special features referred to as coin packs. Revenue from the sale of application software is recognized upon download. Revenue from messaging subscriptions is recognized as revenue ratably over the subscription period beginning on the date the service is made available to customers. Revenue from coin packs is recognized on a consumption basis commensurate with the customer utilization of such resources.
 
Advertising Costs
The Company’s policy regarding advertising is to expense advertising when incurred. During the nine months ended September 30, 2017, the Company incurred $26,179 (September 30, 2016: $1,379,116) 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.
 
 
 7
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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.
 
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees and directors, including stock options.
 
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option pricing model as its method in determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the terms of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of comprehensive loss over the requisite service period.
 
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
 
Allowance for Doubtful Accounts
The Company monitors its outstanding receivables for timely payments and potential collection issues. During the nine months ended September 30, 2017 and 2016, the Company did not have any allowance for doubtful accounts.
  
Financial Instruments
Financial assets and financial liabilities are recognized in the balance sheet when the Company has become party to the contractual provisions of the instruments.
 
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, and convertible debentures. The fair values of these financial instruments approximate their carrying value, due to their short term nature, and current market rates for similar financial instruments. Fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company’s financial instruments recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
 
Basic and Diluted Loss Per Share
 
The Company computes net loss per share in accordance with ASC 260, Earnings per Share.  ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of comprehensive loss. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
 
As of September 30, 2017, there were approximately 38,807,536,857 potentially dilutive shares outstanding.
 
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
 
 
  8
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, Revenue Recognition -Construction-Type and Production-Type Contracts”. ASU 2014-09 requires the disclosure of sufficient information to enable users of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company will also be required to disclose information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. Early adoption is not allowed. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. ASU 2015-14 deferred the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on its consolidated financial statements.
 
3.  INTANGIBLE ASSETS
 
As at September 30, 2017, the Company owns the Friendable Properties which includes domain names, logos, icons, and registered trademarks for which it paid cash consideration of $35,000.
 
4.  COMMON AND PREFERRED STOCK
 
Common Stock:
 
Issued during 2017
 
During the nine months ended September 30, 2017, the Company issued 1,899,157,030 shares of common stock to various convertible note holders for full and partial conversion of the notes (Note 10).
 
During the nine months ended September 30, 2017, the Company issued 123,220,000 shares of common stock as payment for services.
 
During the nine months ended September 30, 2017, the Company issued 297,726,173 shares of common stock to various Series A preferred stockholders on conversion of 388 preferred shares.
 
Preferred Stock:
 
The Series A Preferred Stock is convertible into nine (9) times the number of common stock outstanding until the closing of a Qualified Financing (i.e. the sale and issuance of the Company’s equity securities that results in gross proceeds in excess of $2,500,000).  The number of shares of common stock issued on conversion of preferred stock is based on the ratio of the number of shares of preferred stock converted to the total number of shares of preferred stock outstanding at the date of conversion multiplied by nine (9) times the number of common stock outstanding at the date of conversion.
 
5.  SHARE PURCHASE WARRANTS
 
Details of share purchase warrants during the nine months ended September 30, 2017 are:
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
Exercise
 
 
 
Number of Warrants
 
 
Price
$
 
Balance, December 31, 2016
  978,335,757 
  0.005 
Warrants issued
  118,000,000 
  0.003 
Balance, September 30, 2017
  1,096,335,757 
  0.004 
 
 
  9
 
 
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
6.  STOCK-BASED COMPENSATION
 
On November 22, 2011, the Board of Directors of the Company. (see Note 1) approved a stock option plan (“2011 Stock Option Plan”), the purpose of which is to enhance the Company’s stockholder value and financial performance by attracting, retaining and motivating the Company’s officers, directors, key employees, consultants and its affiliates and to encourage stock ownership by such individuals by providing them with a means to acquire a proprietary interest in the Company’s success through stock ownership. Under the 2011 Stock Option Plan, officers, directors, employees and consultants who provide services to the Company may be granted options to acquire common shares of the Company.   The aggregate number of options authorized by the plan shall not exceed 4,974 shares of common stock of the Company. 
 
The following table summarizes the options outstanding and exercisable under the 2011 Stock Option Plan as of September 30, 2017:
 
 
 
Option Price
 
 
 
 
Expiry Date
 
Per Share($)
 
 
Number
 
December 21, 2021
  1,680 
  1,725 
June 21, 2022
  400 
  500 
June 25, 2023
  134 
  850 
 
 $1,044 
  3,075 
  
The Board of Directors and the stockholders holding a majority of the voting power approved a 2014 Equity Incentive Plan (the “2014 Plan”) on February 28, 2014, with a to be determined effective date. The purpose of the 2014 Plan is to assist the Company and its affiliates in attracting, retaining and providing incentives to employees, directors, consultants and independent contractors who serve the Company and its affiliates by offering them the opportunity to acquire or increase their proprietary interest in the Company and to promote the identification of their interests with those of the stockholders of the Company. The 2014 Plan will also be used to make grants to further reward and incentivize current employees and others.
 
There are 120,679 shares of common stock reserved for issuance under the 2014 Plan. The Board shall have the power and authority to make grants of stock options to employees, directors, consultants and independent contractors who serve the Company and its affiliates. Any stock options granted under the 2014 Plan shall have an exercise price equal to or greater than the fair market value of the Company’s shares of common stock. Unless otherwise determined by the Board of Directors, stock options shall vest over a four-year period with 25% being vested after the end of one (1) year of service and the remainder vesting equally over a 36-month period.  The Board may award options that may vest based upon the achievement of certain performance milestones. As of September 30, 2017, no options have been awarded under the 2014 Plan.
 
The following table summarizes the Company’s stock options outstanding and exercisable:
 
 
 
Number of Options
 
 
Weighted Average Exercise Price
 
 
Weighted- Average Remaining Contractual Term (years)
 
 
Aggregate Intrinsic Value
 
 
 $  
 $  
Outstanding and exercisable, December 31, 2016
  3,075 
  1,044 
  6.57 
  - 
Outstanding and exercisable, September 30, 2017
  3,075 
  1,044 
  5.82 
  - 
 
7.  COMMITMENTS
 
 
The following table summarizes the Company’s significant contractual obligations as of September 30, 2017:
 
 
$
 
 
Employment Agreements (1)
75,000
 
 (1) Employment agreements with related parties.
 
 
  10
 
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
 8.  RELATED PARTY TRANSACTIONS AND BALANCES
 
During the nine months ended September 30, 2017, the Company incurred $364,000 (2016: 332,667) in salaries to officers and directors with such costs being recorded as general and administrative expenses.
 
During the nine months ended September 30, 2017, the Company incurred $688,837 (2016: $588,204) 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, product development and general and administrative expenses, respectively.
  
As of September 30, 2017, the Company had a stock subscription receivable totaling $4,500 (December 31, 2016: $4,500) from an officer and director and from a company with an officer and director in common.
 
As of September 30, 2017, accounts payable includes $429,437 (December 31, 2016: $234,058) payable to a company with two officers and directors in common, and $376,667 (December 31, 2015: $215,000) 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, 2016, two officers forgave debt totaling $200,000 and a company controlled by three officers (December 31, 2016: two officers) of the Company forgave debt totaling $300,000. The debt forgiveness was considered a capital transaction and therefore $500,000 was recorded as an increase in additional paid-in capital as of December 31, 2016.
 
The above transactions were recorded at their exchange amounts, being the amounts agreed by the related parties.
 
9.  FAIR VALUE MEASUREMENTS
 
ASC 820, Fair Value Measurements and Disclosures, require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
 
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.
 
Level 2
Level 2 applies to assets or liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and determining whether a market is considered active requires management judgment.
 
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.
 
Pursuant to ASC 825, cash is based on Level 1 inputs. The Company believes that the recorded values of accounts receivable and accounts payable approximate their current fair values because of their nature or respective relatively short durations. The fair value of the Company’s convertible debentures approximates their carrying values as the underlying imputed interest rates approximates the estimated current market rate for similar instruments.
 
As of September 30, 2017, there were no assets or liabilities measured at fair value on a recurring basis presented on the Company’s balance sheet, other than cash. 
 
 
 
 
 
 11
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
 10.  CONVERTIBLE DEBENTURES
 
Current Convertible Debentures:
 
 
Conversion Feature
 
Issuance
 
Net Principal ($)
 
 
Discount ($)
 
 
Carrying Value ($)
 
 
Interest Rate
 
Maturity Date
  a ) 
2-Apr-13
  5,054 
  - 
  5,054 
  0%
2-Jan-14
  b ) 
5-Aug-15
  631,800 
  - 
  631,800 
  7%
5-Feb-17
  b ) 
5-Aug-15
  18,750 
  - 
  18,750 
  7%
5-Feb-17
  d ) 
17-Feb-15
  102,135 
  - 
  102,135 
  8%
17-Feb-16
  d ) 
17-Feb-15
  5,000 
  - 
  5,000 
  8%
17-Feb-16
  c ) 
27-Feb-15
  37,500 
  - 
  37,500 
  8%
27-Feb-16
  d ) 
19-Mar-15
  53,551 
  - 
  53,551 
  8%
19-Mar-16
  d ) 
19-Mar-15
  8,000 
  - 
  8,000 
  8%
19-Mar-16
  c ) 
11-May-15
  50,000 
  - 
  50,000 
  8%
10-May-16
  d ) 
2-Jun-15
  29,500 
  - 
  29,500 
  8%
1-Jun-16
  d ) 
2-Jun-15
  45,966 
  - 
  45,966 
  8%
1-Jun-16
  d ) 
2-Jun-15
  10,000 
  - 
  10,000 
  8%
1-Jun-16
  d ) 
2-Jun-15
  58,540 
  - 
  58,540 
  8%
1-Jun-16
  d ) 
2-Jun-15
  35,408 
  - 
  35,408 
  8%
1-Jun-16
  d ) 
2-Jun-15
  20,758 
  - 
  20,758 
  8%
1-Jun-16
  c ) 
11-Jun-15
  50,000 
  - 
  50,000 
  8%
10-Jun-16
  d ) 
16-Jun-15
  30,464 
  - 
  30,464 
  8%
15-Jun-16
  d ) 
19-Jun-15
  30,000 
  - 
  30,000 
  8%
18-Jun-16
  d ) 
19-Jun-15
  35,408 
  - 
  35,408 
  8%
18-Jun-16
  c ) 
24-Jun-15
  37,500 
  - 
  37,500 
  8%
23-Jun-16
  d ) 
24-Jun-15
  35,000 
  - 
  35,000 
  8%
23-Jun-16
  c ) 
24-Jun-15
  37,500 
  - 
  37,500 
  8%
23-Jun-16
  d ) 
7-Jul-15
  75,000 
  - 
  75,000 
  8%
7-Oct-15
  d ) 
1-Aug-15
  17,408 
  - 
  17,408 
  8%
4-Aug-16
  d ) 
1-Aug-15
  30,000 
  - 
  30,000 
  8%
1-Aug-16
  d ) 
1-Aug-15
  35,408 
  - 
  35,408 
  8%
1-Aug-16
  d ) 
21-Sep-15
  64,744 
  - 
  64,744 
  8%
21-Sep-16
  b ) 
3-May-16
  50,000 
  - 
  50,000 
  8%
3-May-17
  c ) 
3-May-16
  50,000 
  - 
  50,000 
  8%
3-May-17
  d ) 
3-May-16
  29,500 
  - 
  29,500 
  8%
3-May-17
  d ) 
3-May-15
  45,965 
  - 
  45,965 
  8%
3-May-17
  b ) 
24-May-16
  61,571 
  - 
  61,571 
  8%
24-May-17
  d ) 
24-May-16
  30,464 
  - 
  30,464 
  8%
24-May-17
  b ) 
26-May-16
  157,500 
  - 
  157,500 
  8%
26-May-17
  d ) 
15-Jun-16
  5,000 
  - 
  5,000 
  8%
15-Jun-17
  b ) 
2-Jun-16
  160,000 
  - 
  160,000 
  7%
2-Jun-17
  b ) 
2-Jun-16
  4,000 
  - 
  4,000 
  7%
2-Jun-17
  b ) 
15-Jun-16
  50,000 
  - 
  50,000 
  7%
15-Jun-17
  b ) 
15-Jun-16
  1,250 
  - 
  1,250 
  7%
15-Jun-17
  b ) 
17-May-16
  100,000 
  - 
  100,000 
  7%
8-Sep-17
  b ) 
17-May-16
  2,500 
  - 
  2,500 
  7%
8-Sep-17
  b ) 
19-May-16
  110,000 
  - 
  110,000 
  7%
8-Sep-17
  b ) 
19-May-16
  2,750 
  - 
  2,750 
  7%
8-Sep-17
  b ) 
27-Jan-16
  250,000 
  - 
  250,000 
  7%
27-Jul-17
  b ) 
8-Mar-16
  110,000 
  - 
  110,000 
  7%
8-Sep-17
  b ) 
27-Jan-16
  18,750 
  - 
  18,750 
  7%
27-Jul-17
  b ) 
8-Mar-16
  5,000 
  - 
  5,000 
  7%
8-Sep-17
  b ) 
8-Mar-16
  90,000 
  - 
  90,000 
  7%
8-Sep-17
  b ) 
7-Jul-16
  50,000 
  - 
  50,000 
  7%
8-Sep-17
  b ) 
4-Aug-16
  110,000 
  - 
  110,000 
  7%
8-Sep-17
  b ) 
15-Aug-16
  157,000 
  - 
  157,000 
  7%
8-Sep-17
  b ) 
12-Sep-16
  83,000 
  - 
  83,000 
  7%
8-Sep-17
  b ) 
7-Jul-16
  1,250 
  - 
  1,250 
  7%
8-Sep-17
  b ) 
4-Aug-16
  2,750 
  - 
  2,750 
  7%
8-Sep-17
  b ) 
15-Aug-16
  3,925 
  - 
  3,925 
  7%
8-Sep-17
  b ) 
12-Sep-16
  2,075 
  - 
  2,075 
  7%
8-Sep-17
  b ) 
4-Aug-16
  110,000 
  - 
  110,000 
  7%
4-Aug-17
  b ) 
15-Aug-16
  157,500 
  - 
  157,500 
  7%
15-Aug-17
 
 12
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
10.  CONVERTIBLE DEBENTURES (CONTINUED)
 
  b ) 
8-Sep-16
  80,000 
  - 
  80,000 
  7%
8-Sep-17
  b ) 
11-Nov-16
  80,000 
  40,896 
  39,104 
  7%
11-Nov-17
  b ) 
6-Dec-16
  88,000 
  55,689 
  32,311 
  7%
6-Dec-17
  b ) 
9-Jan-17
  84,000 
  63,565 
  20,435 
  7%
9-Jan-18
  b ) 
3-Mar-17
  32,000 
  27,032 
  4,968 
  7%
3-Mar-18
  c ) 
2-Feb-17
  109,305 
  89,610 
  19,695 
  8%
2-Feb-17
  c ) 
15-Mar-17
  96,000 
  87,066 
  8,934 
  8%
15-Mar-18
  b ) 
7-Oct-16
  465,000 
  422,483 
  42,517 
  7%
7-Apr-18
  b ) 
7-Nov-16
  286,376 
  172,389 
  113,987 
  7%
7-May-18
  b ) 
12-Dec-16
  289,142 
  51,824 
  237,318 
  7%
12-Jun-18
  b ) 
18-Jan-17
  286,208 
  79,133 
  207,075 
  7%
7-Apr-18
  b ) 
7-Apr-17
  25,000 
  21,734 
  3,266 
  8%
7-Apr-18
  b ) 
3-May-17
  27,000 
  24,404 
  2,596 
  8%
3-May-18
  c ) 
5-May-17
  30,000 
  27,342 
  2,658 
  8%
5-May-18
  b ) 
2-Jun-17
  27,000 
  25,068 
  1,932 
  8%
2-Jun-18
  b ) 
21-Jul-17
  231,761 
  200,164 
  31,597 
  7%
21-Jul-18
  b ) 
21-Jul-17
  24,000 
  14,059 
  9,941 
  7%
21-Jul-18
 
    
    
    
    
 
 
  5,862,936 
  1,402,458 
  4,460,478 
    
 
 
 
a)
The conversion price per share equal to the lower of:
i.
100% of the average price of the Company’s common stock for the 5 trading days preceding the conversion date;
ii.
70% of the daily average price of the Company’s common stock for the 10 trading days preceding the conversion date.
 
b)
The conversion price is a range of $0.0025-$0.0078.
 
c)
The conversion price equal to 50% of the lowest closing bid price of the Company’s common stock in the 20-25 trading days prior to the conversion.
 
d)
The conversion price of $0.0005.
 
During the nine months ended September 30, 2017, the Company received net proceeds from convertible debentures of $979,770.
 
During the nine months ended September 30, 2017, $620,336 of convertible debentures were settled by issuing 1,899,157,030 shares of common stock of the Company.
 
During the nine months ended September 30, 2017, the Company incurred $90,250 in transaction costs in connection with the issuance of the convertible debentures that have been offset against the carrying values of the related debentures on the issuance date.
 
During the nine months ended September 30, 2017, the Company incurred $2,714,869 in accretion and interest expense in connection with the convertible debentures.
 
At September 30, 2017, convertible debentures with the principal amount of $5,862,936 are subject to a General Security Agreement covering substantially all of the Company’s assets.
 
 
 13
 
 
 FRIENDABLE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 2017
(Expressed in US dollars)
 
10.  CONVERTIBLE DEBENTURES (CONTINUED)
 
The Company has evaluated whether separate financial instruments with the same terms as the conversion features above would meet the characteristics of a derivative instrument as described in paragraphs ASC 815-15-25. The terms of the contracts do not permit net settlement, as the shares delivered upon conversion are not readily convertible to cash. The Company’s trading history indicated that the shares are thinly traded and the market would not absorb the sale of the shares issued upon conversion without significantly affecting the price. As the conversion features would not meet the characteristics of a derivative instrument as described in ASC 815-15-25, the conversion features are not required to be separated from the host instrument and accounted for separately. As a result, at September 30, 2017 the conversion features and non-standard anti-dilutions provisions would not meet derivative classification.
 
Convertible debentures with maturity dates prior to September 30, 2017 are now due on demand.
 
11.  LOSS ON INVESTMENT AND INTANGIBLE ASSET
 
On October 7, 2016, the Company entered into a Securities Purchase Agreement (the “Alpha SPA”) with Alpha Capital Anstalt (“Alpha Capital”), to issue and sell up to, in principal amount, $1,615,000 of convertible notes, payable in four tranches (the “Alpha Notes”). The first tranche of $465,000 was funded on October 7, 2016 (the “Initial Closing Date”) and the second, third, and fourth tranches of $375,000 were funded, respectively, during the first week of each of November 2016, December 2016, and January 2017 (the subsequent closing dates and, with the Initial Closing Date, each a “Closing”).
 
The Company used a portion of the proceeds of each Closing to purchase Series A Convertible Participating Preferred Stock of a private entity named Hang With, Inc. (“Hang With”). Alpha Capital is currently Hang With’s majority shareholder. On October 7, 2016, the Company entered into a Securities Purchase Agreement with Hang With (the “Hang With SPA”) to buy up to 330,397 shares of Hang With’s Series A Convertible Participating Preferred Stock (the “Preferred Stock”) for $750,000. On the Initial Closing Date, the Company paid $225,000 and was to receive 99,118 shares of Preferred Stock. The Company paid Hang With $175,000 on each of the subsequent three Closings. In connection with entering into the Hang With SPA, the Company and Hang With entered into a Software License Agreement (the “License Agreement”) in which Hang With is licensing the intellectual property of the Hang With apps to the Company. As part of the Hang With SPA and as compensation for the Company entering into the License Agreement and the future development agreement, Hang With was to issue 154,185 shares of Preferred Stock on the Initial Closing Date, and was to issue 100,000 shares of its common stock to the Company.
 
The Company attributed much of the value of Hang With to Hang With management’s representation that, in the history of its own apps, it had a certain amount of total users and a range of monthly active users. Hang With believed, prior to the Hang With SPA being signed, that, with the Company’s investment, the monthly active users would be at the higher end of the range within a short period of time. Based on these representations by management the Company believed that it could specifically market its own apps to the minimum monthly active users of the Hang With app that Hang With management’s represented existed.
 
The Company believes that, after the November 2016 Closing, the Hang With app was removed for a period of time from the app stores on which it appeared and that the app was shut down for a period of time. At this point, Hang With effectively had zero monthly active users. In addition, the Company was not able to utilize Hang With’s technology in the Friendable app as was contemplated by the License Agreement due to Hang With’s technology being, in the Company’s view, out of date. The Company is currently seeking to negotiate a settlement with Hang With regarding the Company’s claims against Hang With.
 
As of December 31, 2016 Hang With had not delivered any of the preferred or common shares to the Company. During the year ended December 31, 2016, the Company had paid Hang With $575,000 which has been written off as a loss on investment. During the nine months ended September 30, 2017, the Company had paid Hang With $175,000 in connection to the fourth Closing which has been written off as a loss on investment.
 
12.  LOSS ON SETTLEMENT AGREEMENT
 
The Company and Joseph Canouse had been in a dispute regarding what amount, if any, was owed pursuant to a consulting agreement between the parties signed on April 1, 2014. On December 7, 2016, Mr. Canouse obtained a judgment in state court in Georgia in the amount of $82,931 and the right to garnish the Company’s bank accounts. On April 7, 2017, the Company entered into a Settlement Agreement with Mr. Canouse (the “Agreement”). Pursuant to the Agreement, the Company agreed to issue an 8% Convertible Note (the “Note”) in the principal amount of $82,931 to an entity controlled by Mr. Canouse. Under the terms of the Agreement, in return for the issuance of the Note, Mr. Canouse will file a Consent Motion to Withdraw Judgment, dismiss all garnishments, and cease all collection activities. As of December 31, 2016, the Company recorded a loss on settlement agreement of $82,931 and accrued a corresponding liability. As of September 30, 2017, the Note has not been issued.
 
13.  SUBSEQUENT EVENT
 
a)  
Subsequent to September 30, 2017, the Company issued 1,384,175,343 shares of common stock on conversion of $237,017 of convertible debt.
 
 14
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1 “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.
 
Overview
 
We were incorporated in the State of Nevada on June 5, 2007. Effective June 15, 2011, we completed a merger with our subsidiary, Titan Iron Ore Corp., a Nevada corporation, which was incorporated solely to effect a change in our name to “Titan Iron Ore Corp.”
 
As of December 31, 2013, Titan Iron Ore Corp. was a mineral exploration company. Due to our inability to raise capital to further develop mining claims and pursue mineral exploration, we decided to exit the mining business and look for other opportunities.
 
On February 3, 2014, we completed a merger with iHookup Social, Inc., a Delaware corporation (“iHookup”) pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) dated January 31, 2014. Pursuant to the Merger Agreement, we incorporated a new subsidiary called iHookup Operations Corp, a Delaware corporation, which merged with and into iHookup, causing the subsidiary’s separate existence to cease and iHookup to become a wholly-owned subsidiary of the Company. iHookup’s stockholders exchanged all of their twelve million (12,000,000) shares of outstanding common stock for fifty million (50,000,000) shares of the Company’s newly designated Series A Preferred Stock. 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 holderare 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 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 transaction, the former Friendable 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.
 
On May 31, 2017, the Company filed an Amendment to its Articles of Incorporation increasing the authorized common stock from 10,000,000,000 to 15,000,000,000 shares. On June 28, 2017, the Company incorporated a subsidiary, Fan Pass Inc., a Nevada corporation, which was incorporated to undertake the development of the mobile application “The Fan Pass App”.
 
Friendable, Inc. is a mobile technology company that develops, acquires, and invests in mobile applications with a social focus. In 2013, the Company released its flagship product Friendable, a mobile social application where users can create one-on-one or group-style meetups for food, drinks, live music, or any occasion. In 2017, Friendable, Inc. plans to release “Fan Pass”, a live streaming video application where fans can watch exclusive video content of their favorite celebrities by subscribing to celebrity channels. Through the Friendable and Fan Pass mobile applications, Friendable Inc. aims to become the premier social platform dedicated to connecting and engaging users to expand connections beyond today’s existing limitations. The Company’s Fan Pass mobile app, as well as the Fan Pass, Inc. business operations are currently in a development stage.
 
The Company’s first product was the Friendable app, a mobile social application for mobile devices where users can create one-on-one or group-style meet-ups for food, drinks, live music, or any other occasion. Since its inception in 2013, Friendable has generated more than 1 million downloads, 900,000 registered users, and 700,000 user profiles, and has been featured in popular music videos such as the 2016 hit “Ain’t Your Mama” by singer Jennifer Lopez (over 390 million views on YouTube). The Company expects the Friendable app to continue acquiring users organically and through various forms of social media. The current version of the Friendable application continues to need additional capital to be used on various forms of R&D, including upgrades that conform with the most recent versions of Apple’s updated IOS as well as any Google requirements that may render the apps performance sub-par or not usable.
 
In 2018, the Company intends to identify a merger candidate for Friendable, Inc., the ideal candidate would be in the technology sector, having a solid management team, business model and ultimately an “X” Factor opportunity for explosive growth in an underserved or emerging market. Additionally, the Company intends to complete the spin off “Fan Pass, Inc.”, file an S1 registration statement and become a stand-alone public company under the Fan Pass brand. Friendable, Inc. management also intends to resume their respective positions (those currently held at Friendable) as well as taking on these very same responsibilities for Fan Pass, Inc. Part of completing the Fan Pass, Inc. spin out and S1 registration statement will be a distribution of Fan Pass, Inc. shares to all Friendable, Inc. (FDBL) shareholders of record (record date TBD).
 
Having a strategy that provides a new and exciting business opportunity for Friendable, Inc. will provide the opportunity for a WIN WIN on both sides for our shareholders and will allow Fan Pass, Inc. to pursue the release of the Fan Pass mobile app. The app is designed as a live streaming video application whereby fans can view exclusive back-stage and uncensored video content from their favorite performing artists and/or celebrity, live or on an archived basis. The Company is developing the mobile application and seeking to leverage partnerships with prominent artists, which Friendable has established previous relationships with in 2017. Through these celebrity partnerships, the Company believes Fan Pass will convert the built-in fan bases of these artists into the application’s initial viewership base, making quick and large scalability a real option.
 
 15
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
Results of Operations
 
 
Three Months Ended September 30, 2017
 
 
Three Months Ended September 30, 2016
 
 
Nine months
Ended September 30, 2017
 
 
Nine months
Ended September 30, 2016
 
 
 $  
 $  
 $  
 $  
REVENUES
  2,298 
  5,915 
  7,876 
  24,495 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
    Accretion and interest expense (Note 10)
  1,263,476 
  335,468 
  2,714,869 
  1,514,264 
    App hosting (Note 8)
  141,011 
  89,652 
  418,837 
  318,204 
    Commissions
  690 
  1,774 
  2,363 
  7,318 
    Financing costs
  - 
  38,067 
  - 
  113,525 
    General and administrative (Note 8)
  216,498 
  218,127 
  675,877 
  678,850 
    Product development (Note 8)
  133,000 
  80,386 
  225,450 
  239,620 
    Sales and marketing
  60,699 
  606,515 
  224,002 
  1,379,116 
 
    
    
    
    
 
    
    
    
    
 TOTAL OPERATING EXPENSES
  1,815,374 
  1,369,989 
  4,261,398 
  4,250,897 
 
    
    
    
    
 LOSS FROM OPERATIONS
  (1,813,076)
  (1,364,074)
  (4,253,522)
  (4,226,402)
 
    
    
    
    
OTHER EXPENSES
    
    
    
    
    Loss on investment (Note 11)
  - 
  - 
  (175,000)
  - 
 
    
    
    
    
NET LOSS AND COMPREHENSIVE LOSS
  (1,813,076)
  (1,364,074)
  (4,428,522)
  (4,226,402)
 
For the three months ended September 30, 2017 compared to September 30, 2016
 
Revenues
 
The Company had revenue of $2,298 and $5,915 during the three months ended September 30, 2017 and 2016, respectively, a decrease of 61%. The decrease in revenue was due to the Company’s effort to increase shareholder value by reducing subscriptions fees and adding to the registered user base.
 
Accretion and interest expense
 
Accretion and interest expenses were incurred in the amount of $1,263,476 and $335,468 for the three months ended September 30, 2017 and 2016, respectively. The increase is attributable to more convertible notes.
 
 16
 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
App hosting
 
App hosting expenses were incurred in the amount of $141,011 and $89,652 for the three months ended September 30, 2017 and 2016, respectively. The increase is attributable to more registered users of the app.
 
General and Administrative Expenses
 
General and administrative expenses were incurred in the amount of $216,498 and $218,127 for the three months ended September 30, 2017 and 2016, respectively.
 
Product Development Expenses
 
Product development expenses were incurred in the amount of $133,000 and $80,386 during the three months ended September 30, 2017 and 2016, respectively. The increase in product development expenses was due to Fan Pass development.
 
Financing Expenses
 
During the three months ended September 30, 2017, financing expenses were $0 as compared to $38,067 during the three months ended September 30, 2016. The decrease in financing expenses was due to changes in accounting methods.
 
Sales and Marketing Expenses
 
Sales and marketing expenses were incurred in the amount of $60,699 and $606,515 during the three months ended September 30, 2017 and 2016, respectively. The decrease in sales and marketing expenses was due to reduced celebrity advertising expenditures.
 
Net Loss
 
The Company had a net loss for the three months ended September 30, 2017 of $1,813,076 as compared to a net loss of $1,364,074 for the three months ended September 30, 2016, an increase of 33%. The increase in net loss was due primarily to lower general and administrative and sales and marketing costs offset by higher accretion and interest, product development, and app hosting expenses.
 
For the nine months ended September 30, 2017 compared to September 30, 2016
 
Revenues
 
The Company had revenue of $7,876 and $24,495 during the nine months ended September 30, 2017 and 2016, respectively, a decrease of 68%. The decrease in revenue was due to the Company’s effort to increase shareholder value by reducing subscriptions fees and adding to the registered user base.
 
Accretion and interest expense
 
Accretion and interest expenses were incurred in the amount of $2,714,869 and $1,514,264 for the nine months ended September 30, 2017 and 2016, respectively. The increase is attributable to more convertible notes.
 
 17
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
  
App hosting
 
App hosting expenses were incurred in the amount of $418,837 and $318,204 for the three months ended September 30, 2017 and 2016, respectively. The increase is attributable to more registered users of the app.
 
General and Administrative Expenses
 
General and administrative expenses were incurred in the amount of $675,877 and $678,850 for the nine months ended September 30, 2017 and 2016, respectively.
 
Product Development Expenses
 
Product development expenses were incurred in the amount of $225,450 and $239,620 during the nine months ended September 30, 2017 and 2016, respectively.
 
Financing Expenses
 
During the nine months ended September 30, 2017, financing expenses were $0 as compared to $113,525 during the nine months ended September 30, 2016. The decrease in financing expenses was due to changes in accounting methods.
 
Sales and Marketing Expenses
 
Sales and marketing expenses were incurred in the amount of $224,002 and $1,379,116 during the nine months ended September 30, 2017 and 2016, respectively. The decrease in sales and marketing expenses was due to reduced celebrity advertising expenditures.
 
Net Loss
 
The Company had a net loss for the nine months ended September 30, 2017 of $4,253,522 as compared to a net loss of $4,226,402 for the nine months ended September 30, 2016. The increase in net loss was due primarily to lower product development and sales and marketing costs offset by a loss on the Hang With investment and higher accretion and interest and app hosting expenses.
 
Liquidity and Capital Resources
 
Working Capital
 
 
 
September 30, 2017
 
 
December 31, 2016
 
 
 
(unaudited)
 
 
(audited)
 
Current Assets
 $7,868 
 $127,776 
Current Liabilities
  6,854,897 
  3,732,596 
Working Capital (Deficiency)
 $(6,847,029)
 $(3,604,820)
 
Current assets for the quarter ended September 30, 2017 decreased compared to December 31, 2016 primarily due to less cash on hand.
 
Current liabilities for the quarter ended September 30, 2017 increased compared to December 31, 2016 primarily due to additional convertible debentures and increased accounts payable.
 
Cash Flows
 
 
 
Nine months
 
 
Nine months
 
 
 
Ended
 
 
Ended
 
 
 
September 30, 2017
 
 
September 30, 2016
 
Net Cash Used in Operating Activities
 $(924,574)
 $(2,246,059)
Net Cash Used in Investing Activities
  (175,000)
  - 
Net Cash Provided by Financing Activities
  979,770 
  2,251,508 
Net Increase (Decrease) in Cash
 $(119,804)
 $5,449 
 
 
 18
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
Net Cash Used in Operating Activities
 
Our cash used in operating activities of $924,574 for the nine month period ended September 30, 2017 consisted primarily of a net loss of ($4,428,522) offset by adjustments of $2,714,869 for accretion and interest expense, an increase in accounts payable of $545,285, and $175,000 for loss on investment.
 
Net Cash Used in Investing Activities
 
Net cash used cash in investing activities for the nine month period ended September 30, 2017 consisted of an investment in Hang With of $175,000.
 
Net Cash Provided by Financing Activities
 
Our cash provided by financing activities of $979,770 for the nine month period ended September 30, 2017 and $2,251,508 for the nine month period ended September 30, 2016 consisted of the issuance of convertible debentures.
 
The Company derives the majority of its financing by issuing convertible notes to investors. The investors have the right to convert the notes into common shares of the Company after the requisite Rule 144 waiting period. The notes generally call for the shares to be issued at a deep discount to the market price at the time of conversion.
 
Securities Purchase Agreement, Convertible Note, and Pledge Agreement with Alpha Capital Anstalt
 
On July 21, 2017, the Company entered into a Securities Purchase Agreement (the “Alpha SPA”) with Alpha Capital Anstalt (“Alpha Capital”), to issue and sell up to, in principal amount, $500,000 of convertible notes, payable in two tranches (the “Alpha Notes”). The first tranche of $300,000 was funded on July 21, 2017 (the “Initial Closing Date”). The second tranche of $200,000 will be upon effectiveness of the registration statement of Fan Pass Inc. and trading of common stock which is not later than 9 months after first closing. The Alpha Notes are senior to all current and future indebtedness of the Company except as agreed to by the parties. The conversion price of the notes will be the lowest conversion price of any instrument issued by the Company. The Alpha Notes are long-term debt obligations that are material to the Company. The Alpha Notes also contain certain representations, warranties, covenants and events of default. In the event of default, at the option of Alpha Capital and in their sole discretion, Alpha Capital may consider the Alpha Note’s immediately due and payable.
 
In connection with the Alpha Notes and Alpha SPA, the Company also entered into a Pledge Agreement whereby as collateral security, the Company pledged shares of common stock of its subsidiary, Fan Pass, Inc. The number of shares pledged will be determined at a later date. The Company also has pledged collateral to Alpha Capital in the form of the Fan Pass Security Agreement which grants a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest to the assets of Fan Pass Inc, including all intellectual property. The Alpha Notes have a beneficial ownership limitation such that Alpha Capital can never own more than 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Alpha Notes.
 
For its services as a placement agent for this transaction, Palladium Capital Advisors, LLC (“Palladium”) shall receive compensation of 8% of the aggregate purchase price paid in each Closing, the amount being $24,000 for the first closing. The Company has agreed to pay legal costs of $50,000 payable upon the First Closing, and an additional $50,000 upon the funding of the second tranche of $200,000, and $40,000 within thirty (30) days that Fan Pass, Inc. has a class of common stock registered pursuant to Section 12(g) of the Exchange Act.
 
 19
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
Going Concern
 
As of September 30, 2017, the Company has a working capital deficiency of $6,847,029 and has an accumulated deficit of $17,928,809 since inception and its operations continue to be funded primarily from sales of its stock and issuance of convertible debentures. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to obtain the necessary financing through the issuance of convertible notes and equity financings. The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
We have generated minimal revenues and have incurred losses since inception. Accordingly, we will be dependent on future additional financing in order to finance operations and growth. There is no assurance that we will generate sufficient revenue to sustain our operations.
 
Off-Balance Sheet Arrangements
 
As of September 30, 2017, the Company had no off-balance sheet arrangements.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
This Item 3 is not applicable to us as a smaller reporting company and has been omitted.
 
ITEM 4. CONTROLS AND PROCEDURES.
 
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 quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were not effective.
 
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 September 30, 2017. 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 September 30, 2017 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; and (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. 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 not be undertaken. 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.
 
 20