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, 2021 and 2020
Our cash as of December 31, 2021 was $253,523. 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,
2021 was $39,474,426. For the year ended December 31, 2021, our net loss was
$2,905,180.
20
Our operating revenues and expenses for our fiscal years ended December 31, 2021
and 2020 and the changes between those periods for the respective items are
summarized as follows:
For the Years Ended
December 31,
2021 2020
REVENUES
Technology services $ - $ 397,333
Subscription and merchandising sales 6,629 4,572
6,629 401,905
OPERATING EXPENSES:
Commissions 830 871
General and administrative 1,295,718 834,090
Software development, hosting and
support - related party 812,500 532,537
Other software and support fees 80,470 128,068
Artists' performance fees - 431,639
Revenue shares 3,044 660
Investor relations 123,591 140,119
Advertising, promotion and marketing 522,363 108,776
Total operating expenses 2,838,516 2,176,760
LOSS FROM OPERATIONS (2,838,887 ) (1,774,855 )
OTHER INCOME (EXPENSE):
Accretion and interest expense (991,596 ) (450,275 )
Gain on foreign exchange - 2,580
Loss on extinguishment of convertible
notes, net (217,760 ) (87,491 )
Loss on initial derivative expense (1,796,835 ) (1,106,500 )
Loss on settlement of derivatives - (640,822 )
Gain (loss) on change in fair value of
derivatives 2,932,898 (68.000 )
(73,293 ) (2,350,508 )
NET LOSS $ (2,905,180 ) $ (4,125,363 )
Revenues
Revenues for the year ended December 31, 2021 decreased to $6,629 as compared to
$401,905 for the year ended December 31, 2020. The decrease in revenue was
primarily due to the ending in 2020 of the contract to develop an app for a
third party.
Operating Expenses
Operating expenses for the year ended December 31, 2021 and the December 31,
2020 were $2,838,516 and $2,176,760 respectively, an increase of 30.4%. The
increase in operating expenses was due primarily to costs associated with higher
general and administrative expenses in 2021 primarily due to a higher staffing
costs, higher software development costs due to the launch in July 2021 of
FanPass v.2 with enhanced user features and the higher cost in 2021 in
advertising, promotion and marketing of the FanPassLive app, partially offset by
one time artists' performance fees of $ 431,639 incurred with the initial launch
of the Fan Pass app in July, 2020.
Net Loss
Our operating results have recognized net loss in the amount of $2,905,180 for
the year ended December 31, 2021 as compared to a net loss of $4,125,363 for the
year ended December 31, 2020. The decrease was primarily related to a loss on
settlement of derivatives in 2020 and a gain on change in fair value of
derivatives in 2021.
Liquidity and Capital Resources
Working Capital
December 31, 2021 December 31, 2020
Current Assets $ 253,523 $ 148,601
Current Liabilities $ 5,007,005 $ 5,436,963
Working Capital Deficiency $ (4,753,482 ) $ (5,288,362 )
21
Current liabilities as of December 31, 2021 and 2020 were $5,007,005 and
$5,436,963 respectively, a decrease of $429,958. The primary reason for the
decrease was a reduction in derivative liabilities by $ 1,196,700 attributable
to the conversion to common stock of certain convertible debentures and
promissory notes during 2021, offset by an increase in accounts payable and
accrued expenses of $481,509 and an increase in the liability for mandatorily
redeemable Series C convertible Preferred stock of $387,562 .
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, 2021 December 31, 2020
Net Cash Used in
Operating
Activities $ (2,303,244 ) $ (492,080 )
Net Cash
Provided by
Financing
Activities 2,504,065 533,500
Net Increase in
Cash $ 200,821 $ 41,420
Operating Activities
Cash used by operating activities
The Company used $2,303,244 in cash from operating activities for the year ended
December 31, 2021 as compared to a use of $492,080 for the year ended December
31, 2020. The increase is due to higher general and administrative expenses and
higher software development costs to launch FanPassLive v.2 app in 2021.
Cash provided by financing activities
Financing activities for the year ended December 31, 2021 generated cash of
$2,504,065 as compared to generating $533,500 of cash for the year ended
December 31, 2020. The higher cash provided from financing activities in the
current year is primarily attributable to proceeds from the issuance of
convertible Series D preferred stock of $1,860,000 (before finder's fees
thereon) and higher proceeds from the issuance of convertible Series C preferred
stock, which was $594,650 in 2021 vs. $180,000 in 2020.
There was no significant impact on the Company's operations as a result of
inflation for the year ended December 31, 2021.
Series A:
The Series A Preferred Stock was authorized in 2014 and is convertible into nine
(9) times the number of common stock outstanding at time of conversion until the
closing of a Qualified Financing (Through June 30, 2021 "Qualified Financing"
was defined as the sale and issuance of the Company's equity securities that
results in gross proceeds in excess of $2,500,000. Effective July 1, 2021 this
was amended so that "Qualified Financing" is now defined as the sale and
issuance of the Company's equity securities that results in gross proceeds in
excess of $10,000,000.). The number of shares of common stock issued on
conversion of Series A preferred stock is based on the ratio of the number of
shares of Series A preferred stock converted to the total number of shares of
preferred stock outstanding at the date of conversion multiplied by nine (9)
times the number of common stock outstanding at the date of conversion. After
the qualified financing the conversion shares issuable shall be the original
issue price of the Series A preferred stock divided by $0.002. The holders of
Series A Preferred stock are entitled to receive non-cumulative dividends when
and if declared at a rate of 6% per year. On all matters presented to the
stockholders for action the holders of Series A Preferred stock shall be
entitled to cast votes equal to the number of shares the holder would be
entitled to if the Series A Preferred stock were converted at the date of
record.
During the year ended December 31, 2019, 588 shares of Series A preferred stock
were converted to common stock by two related parties who donated them to the
Diocese of Monterey. In addition, 890 Series A shares were converted into
2,018,746 common shares by parties related to the two directors. The 2,018,746
common shares were issuable as of December 31, 2019 and were subsequently issued
during the six months ended June 30, 2020.
During the six months ended June 30, 2020 two directors converted 3 shares of
Series A Preferred Stock into 54,076 shares of common stock.
On June 3, 2020 the Company and Eclectic Artists LLC ("E Artists") entered into
a Partner Agreement and Stock Subscription Agreement, pursuant to which E
Artists will engage musical artists and other talent to engage on the Company's
FanPass platform, providing live streaming events available through the FanPass
mobile application for a term of 18 months. As compensation for bringing the
artists to the FanPass platform, E Artists will receive 5% of net revenue
attributable to the Fan Pass platform, initially for a period of 18 months. In
addition, E Artists will receive Series A preferred stock such that when
converted would be equal to 5% of the outstanding common stock. The number of
Series A preferred shares was calculated at 118 shares valued at $135,617 based
on the quoted trading price of the Company's common stock of $0.0605 on the
agreement date and 2,241,596 equivalent common shares. The Company recorded a
prepaid expense of $135,617 and has amortized a total of $97,010 as sales and
marketing expense for the period through June 30, 2021, which includes
amortization of $44,793 for the six months ended June 30, 2021 (2020 $6,682).
Concurrent with the issuance of the Series A Shares to E Artists, Robert
Rositano, Jr., the Company's CEO and Dean Rositano, the Company's president,
returned an aggregate of 118 Series A Preferred shares to the Company's
treasury.
22
On May 6, 2021 50 Series A Preferred shares held by a third party were converted
to 2,555,738 common shares. After this conversion the total issued and
outstanding Series A Preferred shares were reduced to 19,736.
On September 2, 2021 52 Series A Preferred shares held by a third party were
converted to 4,928,511 common shares. After this conversion the total issued and
outstanding Series A Preferred shares were further reduced to 19,684.
On October 11, 2021 50 Series A Preferred shares held by a third party were
converted to 7,519,927 common shares. After this conversion the total issued and
outstanding Series A Preferred shares were further reduced to 19,634.
Series B Preferred Stock Purchase Agreements
On August 8, 2019 the Company filed a Designation of Series B convertible
Preferred Stock with the state of Nevada, designating 1,000,000 shares of the
Series B Preferred Stock with a stated value of $1.00 per share. A holder of
Series B Preferred Stock has the right to convert their Series 30 days following
the first day of the month following the initial issuance of the Series B
Preferred and continuing for a period of 60 (Sixty) months. The holders of
Series B Preferred stock shall have no voting rights. The holders of Series B
Preferred stock shall not be entitled to receive any dividends. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company or deemed liquidation event, the holders of shares of Series B Preferred
Stock shall be entitled to be paid the liquidation amount, as defined out of the
assets of the Company available for distribution to its shareholders, after
distributions to holders of the Series A Preferred Stock and before
distributions to holders of Common Stock B Preferred Stock into fully paid and
non-assessable shares of Common Stock. Initially, the conversion price for the
Series B Preferred Stock is $.25 per share, subject to standard anti-dilution
adjustments. Additionally, each share of Series B Preferred Stock shall be
entitled to, as a dividend, a pro rata portion of an amount equal to 10% (Ten
Percent) of the Net Revenues ("Net Revenues" being Gross Sales minus Cost of
Goods Sold) derived from the subscriptions and other sales, but excluding and
net of Vimeo fees, processing fees and up sells, generated by Fan Pass Inc., the
wholly-owned subsidiary of the Corporation. The Series B Dividend shall be
calculated and paid on a monthly basis in arrears starting on the day 30 days
following the first day of the month following the initial issuance of the
Series B Preferred and continuing for a period of 60 (Sixty) months. The holders
of Series B Preferred stock shall have no voting rights. The holders of Series B
Preferred stock shall not be entitled to receive any dividends. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Company or deemed liquidation event, the holders of shares of Series B Preferred
Stock shall be entitled to be paid the liquidation amount, as defined out of the
assets of the Company available for distribution to its shareholders, after
distributions to holders of the Series A Preferred Stock and before
distributions to holders of Common Stock. Each Series B Preferred share is
convertible into 4 shares of common stock valued at $0.25.
During the year ended December 31, 2019, the Company entered into subscription
agreements with various investors whereby we sold rights to 284,000 shares of
Series B Preferred Stock, par value of $0.0001 per share, 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. The balance of 284,000 issued
Series B preferred Stock remains unchanged at December 31, 2021 and 2020.
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).
23
On May 29, 2020 the Company defaulted on the shares by being late with the
filing of the Form 10-K, thereby increasing the dividend rate to 22% and the
stated value to $1.50 per share. During the three months ended March 31, 2020,
38,000 shares of Series C convertible preferred stock were issued to an investor
under preferred stock purchase agreements at a price of approximately $0.87 per
share for a total of $33,000.
During the three months ended September 30, 2020 the holder of the Series C
converted 62,500 Series C shares to 3,822,958 common shares for a redemption
value of $96,750 including accrued dividends plus premium of $38,292, which
totaled $135,042 recorded into equity.
During the three months ended December 31, 2020 the holder of the Series C
converted 101,300 Series C shares to 22,704,221 common shares for a redemption
value of $218,655 including accrued dividends, plus premium, recorded into
equity. In addition, during the three months ended December 31, 2020 a total of
149,600 shares of Series C convertible preferred stock were issued to two
investors under preferred stock purchase agreements, at a price of approximately
$0.91 per share, for a total of $136,000 cash and premiums totaling $60,302 were
recorded during this period with respect to these issuances. At December 31,
2020 the remaining liability totals $285,605, represented by a remaining balance
of $184,850 in redeemable Series C stock, together with the related premium of
$74,701 and accrued dividends of $26,054.
During the three months ended March 31, 2021 a holder of the Series C converted
23,500 Series C shares to 5,500,894 common shares for a redemption value of
$50,589 including accrued dividends, plus premium, recorded into equity. In
addition, during the three months ended March 31, 2021 a total of 296,450 shares
of Series C convertible preferred stock were issued to two investors under
preferred stock purchase agreements, at a price of approximately $0.91 per
share, for a total of $269,350 cash and premiums totaling $121,084 were recorded
during this period with respect to these issuances. At March 31, 2021 the
remaining liability totals $634,143 represented by a remaining balance of
$446,050 in redeemable Series C stock, together with the related premium of
$181,385 and accrued dividends of $6,708.
During the three months ended June 30, 2021 the Company elected to redeem and
cancelled 36,300 Series C shares through the payment of $50,938, which
represented 135% of the outstanding principal of $36,300 and accrued dividend of
$1,432. A holder of the Series C converted 84,700 Series C shares to 11,496,360
common shares for a redemption value of $137,553 including accrued dividends,
plus premium, recorded into equity. In addition, during the three months ended
June 30, 2021 a total of 92,125 shares of Series C convertible preferred stock
were issued to an investors under preferred stock purchase agreements, at a
price of approximately $0.91 per share, for a total of $83,750 cash and premiums
totaling $37,629 were recorded during this period with respect to these
issuances. At June 30, 2021 the remaining liability totals $597,490 represented
by a remaining balance of $417,175 in redeemable Series C stock, together with
the related premium of $169,550 and accrued dividends of $10,765.
During the three months ended September 30, 2021 the Company elected to redeem
and cancelled 58,850 Series C shares through the payment of $82,408, which
represented 135% of the outstanding principal of $58,850 and accrued dividend of
$2,192. A holder of the Series C converted 95,700 Series C shares to 17,799,687
common shares for a redemption value of $162,654 including accrued dividends,
plus premium, recorded into equity. In addition, during the three months ended
September 30, 2021 a total of 178,750 shares of Series C convertible preferred
stock were issued to an investor under preferred stock purchase agreements, at a
price of approximately $0.91 per share, for a total of $162,500 cash and
premiums totaling $73,011 were recorded during this period with respect to these
issuances.
During the three months ended December 31, 2021 86,625 shares of Series C
convertible preferred stock were issued to an investor under a preferred stock
purchase agreement, at a price of approximately $0.91 per share. Cash of
$78,750, a discount of $7,875 and a premium expense of $35,382 were recorded
during this period with respect to this issuance. A holder of the Series C
converted 62,625 Series C shares to 21,248,239 common shares for a redemption
value of $90,709 including accrued dividends, plus premium, recorded into
equity.
At December 31, 2021 the remaining liability totals $673,167 represented by a
remaining balance of $465,375 in redeemable Series C stock, together with the
related premium of $189,238 and accrued dividends of $18,554.
Series D
In conjunction with the Company's intention to raise future financing of up to
$5 million through an offering of up to 500,000 Series D convertible Preferred
Stock at the offering price of $10.00 per share, on March 29, 2021 the Company
received a Notice of Qualification from the Securities and Exchange Commission
indicating approval from the Company to proceed with the offering pursuant to
Tier 2 of Regulation A of the Securities Act, which provides exemption from
registration of such securities. On April 5, 2021 the Company filed the
necessary Certificate of Designation with the state of Nevada to designate
500,000 shares of Series D Preferred stock from the Company's total authorized
and unissued Preferred Stock.
Each Series D preferred share is convertible, at the option of the holder, at
any time, into nonassessable common shares (a) at 80% of the average closing
price reported on OTCMarkets for the 20 trading days preceding conversion
through June 30, 2021, (b) as amended, at 80% of the average closing price
reported on OTCMarkets for the 10 trading days preceding conversion effective
July 1, 2021,and (c) as amended as amended, at 50% of the average closing price
reported on OTCMarkets for the 10 trading days preceding conversion effective
March 3, 2022
During the three months ended June 30, 2021 the Company received a total of
$850,000 from the sale of 85,000 Series D Convertible Preferred Stock, and
incurred offering costs of $31,309. In addition, during that period 44,970
Series D Preferred shares were subsequently converted to 31,029,932 common
shares at an average conversion rate of $0.01449 per common share, resulting in
a remaining balance at June 30, 2021 of 40,030 Series D Preferred.
24
During the three months ended September 30, 2021 the Company received a total of
$760,000 from the sale of 76,000 Series D Convertible Preferred Stock. In
addition, during that period 75,506 Series D Preferred shares were subsequently
converted to 114,102,488 common shares at an average conversion rate of $0.00662
per common share, resulting in a remaining balance at September 30, 2021 of
40,524 Series D Preferred.
During the three months ended December 31, 2021 the Company received a total of
$250,000 from the sale of 25,000 Series D Convertible Preferred Stock. In
addition, during that period 13,892 Series D Preferred shares were subsequently
converted to 26,574,626 common shares at an average conversion rate of $0.00523
per common share, resulting in a remaining balance at December 31, 2021 of
51,632 Series D Preferred.
Debt Restructure Agreement
On March 26, 2019 three officers forgave debt totaling $400,000 and a company
controlled by two officers of the Company forgave debt totaling $600,000. The
debt forgiveness is considered a capital transaction and therefore $1,000,000
was recorded as an increase in additional paid-in capital for December 31, 2019.
On March 26, 2019, the Company entered into a Debt Restructuring Agreement with
related parties Robert A. Rositano Jr., Dean Rositano , Frank Garcia , and
Checkmate Mobile, Inc. and Alpha Capital Anstalt , Coventry Enterprises, LLC ,
Palladium Capital Advisors, LLC, EMA Financial, LLC, Michael Finkelstein, and
Barbara R. Mittman, each being a debt holder of the Company.
The debt holders agreed to convert their debt of approximately $6.3 million and
accrued interest of approximately $1.8 million into an initial 5,902,589 shares
of common stock as set forth in the Agreement upon the Company meeting certain
milestones including but not limited to: the Company effecting a reverse stock
split and maintaining a stock price of $1.00 per share; being current with its
periodic report filings pursuant to the Securities Exchange Act; certain vendors
and Company employees forgiving an aggregate of $1,000,000 in amounts owed to
them; the Company raising not less than $400,000 in common stock at a post-split
price of not less than $.20 per share; and certain other things as further set
forth in the Agreement. The debt holders will be subject to certain lock up and
leak out provisions as contained in the Agreement. As part of the Agreement the
parties signed a Rights to Shares Agreement. Whereas the Agreement called for
all the shares to be delivered at closing, the holders are generally restricted
to beneficial ownership of up to 4.99% of the company's common shares
outstanding. The Rights to Shares Agreement allows for the Company to issue
shares to each holder up the 4.99% limitation while preserving the holders'
rights to the total shares in schedule A of the Agreement. Accordingly, the
5,902,589 common shares were recorded as issuable in equity, On December 26,
2019, all parties signed an amendment to the Agreement which set forth, among
other things, the following:
Company Principals have given Holders notice that it has satisfied all
conditions of closing.
The Agreement is considered Closed as of November 5, 2019 ("Settlement Date")
and any conditions of closing not satisfied are waived.
Reset Dates. The "Reset Dates" as set forth in Section 1(h) of the Agreement
shall be as follows: March 4, 2020 and July 2, 2020. As of the reset dates the
holders can convert all or part of the settled note amounts at the lower of (i)
75% of the closing bid price for the Common Stock on such respective Reset Date,
or (ii) the VWAP for the Company's Common Stock for the 7 trading days
immediately preceding and including such respective Reset Dates. This reset
provision provides for the issuance of additional shares above the initial
5,902,589 shares for no additional consideration as measured at each of the two
reset dates.
On March 4, 2020 the Company became obligated to issue an additional 36,193,098
shares of common stock and on July 2, 2020 it became obligated to issue an
additional 63,275,242 shares, for a total amount of shares due of 105,370,930.
On September 21, 2020, Ellis International LP (as successor to Alpha Capital
Anstalt) submitted a request to drawdown and, on September 29, 2020, was issued
687,355 common shares against its entitlement above and reclassified from
issuable shares in the accompanying balance sheet and statement of changes in
stockholder equity.
On November 9, 2020 and on December 9, 2020 Coventry Enterprises requested and
was issued 915,000 and 1,262,000 common shares respectively, and on November 23,
2020 Barbara Mittman requested and was issued 1,134,353 (net) common shares
against their respective entitlement under the debt settlement agreement, which
was reclassified from issuable shares.
During the three months ended March 31, 2021 Ellis International LP requested
and was issued a total of 28,211,310 common shares, Coventry Enterprises
requested and was issued a total of 9,375,000 common shares, and Barbara Mittman
requested and was issued a 3,180,000 common shares, all against their respective
entitlements under the debt settlement agreement, which were reclassified from
issuable shares.
During the three months ended June 30, 2021 Ellis International LP requested and
was issued a total of 21,000,000 common shares, Coventry Enterprises requested
and was issued a total of 15,500,000 common shares, and Barbara Mittman
requested and was issued 6,022,600 common shares, all against their respective
entitlements under the debt settlement agreement, which were reclassified from
issuable shares.
During the three months ended September 30, 2021 Ellis International LP
requested and was issued a total of 16,000,000 common shares. However, Ellis was
only entitled to drawdown a total of 8,709,641 common shares to reach its
maximum common shares allocation from its convertible debenture. The excess
balance of 7,290,359 common shares, which carried a fair value of $91,129 based
on the Company's trading stock price of $0.0125 per share at the drawdown date,
has been applied against the outstanding principal of $100,000 on the Ellis
convertible note.
During the three months ended December 31, 2021 Coventry Enterprises requested
and was issued 5,224,075 common shares against its remaining entitlement under
the debt settlement agreement, which was reclassified from issuable shares.
25
Going Concern
At December 31, 2021, we had a working capital deficiency, an accumulated
deficit, and a stockholders' deficit of $4,753,482, $39,474,482 and $4,753,482
respectively and incurred a net loss and cash used in operations of $2,905,180
and $2,303,244 respectively in 2021. 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, 2021, 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 fair value of assets acquired and liabilities assumed in
business combinations, fair value of consideration issued in business
combinations, 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, 2021 Company
derived revenue solely from subscription fees and merchandising sales from the
Friendable and Fan Pass apps totaling $6,629, which were recognized when
received. This compares with the year ended December 31, 2020 where the Company
derived revenues primarily from the development of apps for a third party of $
397,333 which were recognized upon completion of services and secondarily from
subscription fees and merchandising sales from the Friendable and Fan Pass apps
totaling $4,572 recognized when received.
26
Impairment of Long-Lived Assets
We continually monitor events and changes in circumstances that could indicate
carrying amounts of long-lived assets may not be recoverable. When such events
or changes in circumstances are present, we assess the recoverability of
long-lived assets by determining whether the carrying value of such assets will
be recovered through undiscounted expected future cash flows.
If the total of the future cash flows is less than the carrying amount of those
assets, we recognize an impairment loss based on the excess of the carrying
amount over the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or the fair value less costs to sell.
Stock-based compensation
We record stock-based compensation in accordance with ASC 718, Compensation -
Stock Based Compensation, which requires the measurement and recognition of
compensation expense based on estimated fair values for all share-based awards
made to employees and directors, including stock options. In 2019 the Company
adapted ASU 2018-17 which expands the measurement requirements to non employees.
ASC 718 requires companies to estimate the fair value of share-based awards on
the date of grant using an option-pricing model. We use the Black-Scholes option
pricing model as its method in determining fair value. This model is affected by
our stock price as well as assumptions regarding a number of subjective
variables. These subjective variables include, but are not limited to our
expected stock price volatility over the terms of the awards, and actual and
projected employee stock option exercise behaviors. The value of the portion of
the award that is ultimately expected to vest is recognized as an expense in the
statement of operations over the requisite service period.
Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and enhances disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell 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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