FRIENDABLE, INC. 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
AboutFriendable Inc.
Friendable published its first mobile application in theApple App Store andGoogle Play Store in 2014 in the social networking and dating category. TheFriendable app achieved over 1.5 million downloads, top 10 worldwide rankings, and has led to celebrity-related marketing opportunities and various relationships with well-known music artists as well as up-and-coming independent artists.
On
Friendable has since pivoted its business focus to its Music Artist Offering, a one of a kind 360 artist platform. The offering now includes music production/collaboration, music distribution (Spotify, Sound Cloud), Play Listing, Livestream/live events, promotions, ticket sales, behind the scenes, merchandising designs/store/ship, tips, fan interaction, subscription offerings and more, which all equal revenue sharing and earning for all music artists. It is the Company's goal to become the new launch point for Indie Artists, as well as Artists at all levels, as they build engagement, revenue, and fans/followers.The Fan Pass livestream artist platform was launchedJuly 24, 2020 . The platform has proven invaluable for artists and fans alike as performances shifted from the stage to the "digital screen". The Company has grown its product and services offerings to include a 360 suite of music artist services, completing this full spectrum solution with its acquisition of Artist Republik and FeaturedX inJanuary 2022 .Friendable was founded by brothersRobert A. Rositano Jr . andDean Rositano , who have more than 27 years of experience working together on technology-related ventures. 33 For more information,
visit www.Friendable.com, www.FanPassLive.com, www.artistrepublik.comand www.featuredX,com
Additionally, Download the FanPass and FanPassLive apps on the
What precisely does
For starters, Fan Pass breaks down the barrier between artists and fans, with artists broadcasting their events, concerts, and announcements to supporters directly from the Fan Pass mobile application or desktop. More importantly, it gives back to artists a way to remain relevant to their fan base and earn revenue, launch their careers without the debt and ownership created by cumbersome record labels and ultimately provides all the products, services, and support to develop revenues, brand, fan base, music distribution and production/collaboration for artists at any level of their career as well.Fan Pass Live offers artists at all levels and genres, the opportunity to engage fans from one location, removing the need for multiple sharing platforms. It conveniently provides Exclusive Artist "Channels" jam-packed with all their relevant content from videos, photos, interviews, and past and upcoming events.
While Fan Pass charges the fans a small transaction fee for ticket sales, artists keep the money earned from ticket sales. The handling of merchandise is also taken care of by the company and once it's approved by the artist, all merchandising is released within the artist's Channel.
For artists there are tools available to help them "up their game" such as the creation of custom logos and merchandising, live chat options, promotional aids that provide the ability to live stream, post photos, audio, and video with ease. For subscribers, fans can browse for upcoming events, shop merchandising, search by music genre and create dashboards. They can also view notifications, discussions, and their favorite music artists in one app. While it's free for the artists to join, Fan Pass monetizes its business model by using an "ALL ACCESS VIP" Offering. Commencing with the release of Fan Pass v2.0 onJuly 24, 2021 , this offering is priced at a$2.99 monthly subscription ($25.99 annual subscription), paid by fans through its website,Apple App Store or Google Play Stores, with a three-day free trial. Fan Pass also offers an "Artist Pro" monthly subscription of$8.99 which offers the "ALL ACCESS VIP", plus advanced dashboard analytics, merchandising store access and promotion of scheduled music events, OnAugust 5, 2021 , the Company announced the approval of the Fan Pass v2.0 livestream artist platform by both the Apple App and
Artist Republk business acquisition
OnJanuary 4, 2022 , the Company completed its acquisition of substantially all the assets ofArtist Republik, Inc. ("Artist Republik"). Artist Republik is a subscription service specifically created for music artists to obtain music distribution on certain digital platforms (such as Spotify and Apple Music) and receipt of royalties from those platforms, together with providing a marketplace to purchase beats, obtain enhanced audio production and purchase access to playlists. Its decentralized platform allows independent music artists from around the world to take control of their own careers through networking, centralized resources, and AI-based management tools. Artist Republik has attracted approximately 100,000 artists to its offerings and has operating revenues from the sales of services. The Company acquired all of Artist Republik's customer lists, customers, back-end processes, name, trademarks, internet domains and other things necessary to carry on the business of Artist Republik. 34 In January, 2022 we also launched and released FeaturedX.com, a web property acquired as part of the Company's acquisition of Artist Republik, FeaturedX has thousands of artists currently available and is a place where artists can book a guest feature, co-write, MIDI composition or live instrumental tracking for artists releasing their next single or looking to extend reach and exposure by tapping into these available resources for music production and collaboration. While continuing to deliver a variety of expanded services to our artists, platforms, and offerings, FeaturedX has now taken center stage as our next service offering ready for growth. Working closely withMr. O'Leary andMr. Menig , the 2 original co-founders of Featured X, it was immediately clear that having them both on board as partners for our journey forward would be one of our keys to success. This said, we have been able to reach agreement with both O'Leary and Menig to join our team as partners as we focus on revenue, artists, and additional services growth on a platform that already has great momentum.Ryan "Tuck" O'Leary is a co-founder of FeaturedX and best known for slinging his bass around with "Texas Metal" powerhouse Fit For A King, and has added another ace to his ever-growing deck. InAugust 2020 alongside his longtime friendJeff Menig , O'Leary launched a new connective platform for creatives. FeaturedX is the first premier platform for connecting and working with your favorite artists from a multitude of genres. This is a dream team of the greatest artists in alternative music. Combining years of friendships and touring experience we built this as a community. Now teaming up withFan Pass Live , FeaturedX is looking to continue expanding and growing an already stellar roster of creatives.Jeff Menig is a co-founder of FeaturedX and an entertainment industry professional with over 21 years of experience in band management, live events, merchandise, consulting, artist development, and marketing. His unrelentingly passionate and persistent entrepreneur makes precision focused usage of the diverse set of skills he's developed. Menig builds brands and bands for the social media age, optimizing the multiple opportunities for engagement, communication, and personal interaction for his clients. His keen attention to detail, from visual elements to messaging, makes him invaluable as he teams withFan Pass Live to grow the FeaturedX brand and services. For a complete and up to date presentation of the entire 360 platform, brands, products and services offered by the Company please use the following link to view the Company's 360 Capabilities Deck & Presentation or visit the investors tab on the Company's website, which will lead to theFriendable, Inc. Investor Relations or friendable.com/ir where the presentation can also be located. LINK "360 Capabilities Deck & 2022 Presentation" [[Image Removed: (GRAPHICS)]]
In August, 2022 the Company received notice from the Company's counsel that the "Business Division" of theSEC had contracted counsel, in response to a routine amendment filed by the Company onJuly 21, 2022 to its Regulation A offering, asserting the need to move away from any Regulation A offering that was not at a fixed price per share and/or was not an offering limiting conversion to common shares at a fixed price, and if the offering was not in compliance with Regulation A, the purchasers of the Series D Preferred Stock may have certain claims against the Company for rescission. The Company has advised all such holders and has obtained verbal confirmation from them that they will not seek rescission. The Company is in the process of obtaining written waivers from these investors. As of the date of this report the Company has obtained waivers from two of the total eight investors. Certain investors still hold Series D Preferred Stock and certain investors have already converted some shares of the Series D Preferred into common stock. Accordingly, as ofSeptember 30, 2022 the Company has reclassified the Series D Preferred Stock of$311,260 representing 31,126 Series D Preferred to temporary equity and has reclassified the common stock issued upon conversion of Series D Preferred Stock of$1,432,940 representing 1,429,999,087 common shares to temporary equity relating to the six investors that have not yet provided written waivers as of the date of this report. The Artist Republik brand and business was the first to be damaged by theSEC's decision. The Company's ability to finance through it's "Qualified Regulation A" offering was halted by theSEC's actions/requirement, as well as investor's ability to participate in the offering until such time the Company amends and re-files its Regulation A on a fixed per common share conversion price basis and has obtained SEC Qualification to that amendment. 35 Artist Republik had run a "Song of the Summer" or "SOTS" campaign for artist song submission to pay top 5$1,000 each for best Song of the Summer. The Company's cash flows from the Artist Republik business itself are not able to fully sustain operations and the Company relies upon investment capital for marketing promotions, growth, development, and technology deployments and, with theSEC questioning the Company's Regulation A offering which effectively halted ongoing funding efforts, the Company, has not been able to pay out these prize monies yet. In addition, the Artist Republik website, features, and functions are currently unavailable until such time the Company can raise capital again through its amended and re-qualified Regulation A offering, the intended 1 for 500 stock split becomes effective and it can successfully engage in alternative financing structures. In the interim and temporarily, the Company's current level of revenues from the Artist Republik business has significantly declined below management's original forecast for third and fourth quarter 2022 as a result of certain technologies that were inactive or not working correctly as inherited from the acquisition of Artist Republik. Additionally, the Company retained the Artist Republik founder and other key personnel that represented their specific knowledge and ability to integrate front end and back-end systems, servers and API's that are all needed for the interworking's of the Fan Pass Live "360" offering which is to include music distribution. Unfortunately, those retained following the transition and representations made prior, during and following the acquisition were not held or performed by the outside personnel retained. The Company's CTO continues to work diligently to unwind certain aspects of prior technologies while integrating in such a way that the Artist Republik services and offering can become live again in Q1 of 2023, as Management believes it is a significant draw for independent artists and becomes the initial "Front Door" or entry point for each artist to begin their journey with the Company and all its service offerings. Management further performed a quantitative assessment of the carrying value of goodwill of$830,268 that arose from the January, 2022 acquisition of the Artist Republik business and determined that, as ofSeptember 30, 2022 , it needed to be expensed in the Consolidated Statements of Operations. Executive Leadership
Our two founders are a team of Entrepreneurs who have over 25 years of tech related startup experience, recruiting talent, building teams and turning ideas into big business opportunities, as well as exits for investors. Together raising over$40M in capital, spanning various companies, with a history dating back to the first ever Internet IPO (Netcom Online Communications - 1993), as well as the development of the first ever World Wide Web Directory (sold toMcMillan Publishing 1995) and even deploying a first mover social network by the name of nettaxi.com - 1998 - 2002, which was prior to Facebook and resulted in a top 10 most trafficked web site in the World, with a market cap of approximately$700M upon exiting the public company. Relationships developed over the years include such companies as Apple, eBay and AT&T, as well as joint ventures with Music Industry Giants, includingNocturne Productions ,Herbie Herbert (Manager of the Band Journey) and Music.com; an early adopter offering digital music downloads. Results of Operations For the Three Months Ended For the Nine months Ended September 30, September 30, 2022 2021 2022 2021
REVENUES:
Subscription and merchandising sales $ 2,596
$ 5,177 $ 4,780 Music royalties and services 46,337 - 156,550 - 48,933 1,866 161,727 4,780 OPERATING EXPENSES Commissions 2,581 247 8,741 605 General and administrative 325,283 315,672 1,048,151 962,281 Software development, hoisting and support - related party 180,000 260,000 540,000 597,500 Other software support fees 14,606 - 44,448 - Revenue shares 42,465 920 138,288 2,124 Investor relations 2,587 58,118 9,627 104,968 Advertising, promotion and marketing 30,427 127,269 202,928 393,321 Impairment of goodwill 830,268 - 830,268 - Amortization of intangible assets 14,596 -
43,788
1,442,813 762,226 2,866,239 2,060,799
LOSS FOR OPERATIONS (1,393,880 ) (760,360 ) (2,704,512 ) (2,056,019 )
OTHER INCOME(EXPENSE)
Accretion and interest expense (50,552 ) (426,200 ) (155,211 ) (936,113 )
Gain on extinguishment of convertible
note - - 81,706 -
Loss in initial derivative expense (19,452 ) - (78,452 ) (1,796,835 )
Loss on settlement of convertible debt - - (85,913 ) -
Gain on change to fair value of
derivatives 91,699 867,298 98,999 2,818,298
21,655 441,098 (138,871 ) 85,350
NET INCOME (LOSS)$ (1,372,225 ) $ (319,262
)$ (2,843,393 ) $ (1,970,669 ) 36
For the three months ended
Revenues: The Company had revenues of$48,933 and$1,866 for the three months endedSeptember 30, 2022 and 2021 respectively. Revenues in 2022 included$46,337 in music royalties and services and$1,496 in subscriptions relating to the Artist Republik music business acquiredJanuary 5, 2022 (2021$0 ). The remainder of 2022 revenue related to Fan Pass subscriptions and merchandising sales of$1,099 for the three months endedSeptember 30, 2022 (2021:$1,866 ). Operating Expenses
The Company had operating expenses of$1,442,813 and$762,226 for the three months endedSeptember 30, 2022 and 2021 respectively. The increase in operating expenses in 2022 was due primarily to the expensing of goodwill due to impairment of$830,268 and increased artist revenue shares, partially offset by lower investor relations expense and related party software development, hosting and support. Other Income and Expense The Company had other income of$21,655 for the three months endedSeptember 30, 2022 , compared with other income of$441,098 for the three months endedSeptember 30, 2021 . The decrease in other income was due primarily to a gain on change in fair value of derivatives in 2021 of$867,298 offset by higher accretion and interest expense of$ 426,200 in 2021. Net Loss
The Company had net loss of$1,372,225 for the three months endedSeptember 30, 2022 , compared to a net loss of$319,262 for the three months endedSeptember 30, 2021 . The higher net loss in 2022 was due primarily to the expensing of goodwill due to impairment$830,268 . In addition, 2021 had a gain on change in fair value of derivatives of$867,298 , offset by higher accretion and interest expense, compared with 2022.
For the nine months endedSeptember 30, 2022 compared toSeptember 30, 2021
Revenues The Company had revenues of$161,727 and$4,780 for the nine months endedSeptember 30, 2022 and 2021 respectively. The increase was due to the Artist Republik music business acquiredJanuary 5, 2022 . Revenue in 2021 related entirely to subscriber and merchandising revenue from theCompany's Fan Pass app. Operating Expenses The Company had operating expenses of$2,866,239 and$2,060,799 for the nine months endedSeptember 30, 2022 and 2021 respectively. The increase in operating expenses was due primarily to the expensing of goodwill due to impairment of$830,268 in 2022, increase of$136,164 in revenue shares expense on Artist Republik revenue, new amortization expense of intangible assets$43,788 , and an increase of$85,870 in general and administrative expenses arising primarily from higher legal and audit fees attributable to the acquisition of the Artist Republik business, partially offset by lower investor relations and advertising, promotion and marketing expense. Other Income and Expense The Company had other expense of$138,871 and other income of$85,350 for the nine months endedSeptember 30, 2022 and 2021, respectively. The reduction in 2022 related primarily to a gain on change in fair value of derivatives of$2,818,298 offset by a loss on initial derivative expense of$1,796,835 and increased accretion and interest expense of$936,113 in 2021. Net Loss
The Company had net losses of$2,843,383 and$1,970,669 for the nine months endedSeptember 30, 2022 and 2021 respectively. The increase in net loss was due primarily to the expensing of goodwill due to impairment of$830,268 which increased operating expenses, partially offset by a reduction in other expense and an increase in revenues.
Liquidity and Capital Resources
Working Capital
September 30, 2022 December 31, 2021
(unaudited)
Current Assets $ 5,745 $ 253,523
Current Liabilities $ (5,493,148 ) $ (5,007,005 )
Working Capital (Deficiency) $ (5,487,405 ) $ (4,753.482 )
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Current assets at
Current liabilities atSeptember 30, 2022 increased compared toDecember 31, 2021 primarily due to a contingent purchase consideration of$410,000 relating to the acquisition of the Artist Republik business in 2022 and an increases in accounts payable and accrued expenses of$464,511 , partially offset by a reduction of$411,348 in 2022 in the Company's mandatorily redeemable Series C convertible preferred stock liability. Cash Flows Nine months Nine months Ended Ended September 30, 2022 September 30, 2021 Net Cash Used in Operating Activities $ (1,232,478 ) $ (1,843,633 ) Net Cash Provided by Investing Activities 9,500 - Net Cash Provided by Financing Activities 975,200 2,237,815 Net Increase (Decrease) in Cash $ (247,778 ) $ 394,182
Our cash used in operating activities was$1,232,478 for the nine month period endedSeptember 30, 2022 compared to$1,843,633 for the nine month period endedSeptember 30, 2021 . Net loss was$2,843,383 and$1,970,669 for the nine month periods endingSeptember 30, 2022 and 2021 respectively. In 2022, adjustments to reconcile the net loss to net cash used primarily included stock option expense$82,974 , amortization of debt discount$58,784 , amortization of intangible assets of$43,788 , expensing the impairment of goodwill$830,268 and initial derivative expense of$78,452 . In 2021, adjustments to reconcile the net loss to net cash used included primarily an adjustment for initial derivative expense$1,796,835 and change in fair value of derivatives of$(2,818,298) . In 2022, changes in operating assets and liabilities included an increase in amount due to related party of$62,500 and an increase to accounts payable and accrued expenses of$501,879 . In 2021 changes in operating assets and liabilities included an increase to accounts payable and accrued expenses of$335,176 offset by a reduction in amount due to related party$134,499 .
Net Cash Provided by Investing Activities
For the nine months ending
Net Cash Provided by Financing Activities
Our cash provided by financing activities of$975,200 for the nine month period endedSeptember 30, 2022 included cash from the issuance of Series D preferred stock under Regulation A of$879,200 less finder's fees of$24,250 , net proceeds from the issuance of Series C preferred stock of$ 53,750 and proceeds of$66,500 from the issuance of convertible notes. Our cash provided by financing activities of$2,237,815 for the nine month period endedSeptember 30, 2021 included the issuance of Series C preferred stock sold for cash of$515,900 proceeds from the issuance of Series D preferred stock under Regulation A of$1,610.000 , less offering costs of$31,310 , and net proceeds from the issuance of convertible notes of$358,500 offset by a prepayment of convertible note
of$ 116,500 . The Company derives the majority of its financing by issuing Series C and Series D preferred stock to investors. The investors have the right to convert Series C preferred stock at a discount of 29% to the then market price into common shares of the Company after the requisite Rule 144 waiting period. Series D preferred stock had been immediately convertible into common stock at deep discounts ranging from 20% to 50% to the market until theSecurities and Exchange Commission first raised their concern inAugust 2022 regarding this "at-the-market" convertibility and ruled that future of Series D preferred stock conversions to common stock must occur at a defined (to be determined) set
market price. Going Concern Following theSecurities and Exchange Commission's request to amend the Company's Regulation A offering, the Company had also entered a corporate action for its 500 for 1 reverse stock split. Such split has yet to be approved byFINRA as of the date of this filing. However, the Company expects notice for an effective date shortly. An effective date will trigger the Company's amended Regulation A filing, review and qualification by theSEC which may enable the Company to resume capital raising efforts for the future growth objectives
of
the business.
38
The accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which implies that the
Company would continue to realize its assets and discharge its liabilities in
the normal course of business. As of September 30, 2022 , the Company has a
working capital deficiency of $5,487,403 has an accumulated deficit of
$42,641,808 and has a stockholder's deficit of $7,069,008 after reclassification
of temporary equity of $1,744,200 and its operations continue to be funded
primarily from sales of its stock. During the nine months ended September 30,
2022 , including the expensing of goodwill due to impairment of $830,268 , the
Company had a net loss and net cash used in operations of $2,843,383 and
$1,232,478 . These factors raise substantial doubt about the Company's ability to
continue as a going concern for a period of twelve months from the issuance of
this report. The ability of the Company to continue as a going concern is
dependent on the Company's ability to obtain the necessary financing through the
issuance of convertible notes and equity instruments. The unaudited 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 continue raising financing through equity sales of Series C
and Series D Preferred stock, while intending to reduce and/or eliminate its
convertible debt. 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.
Off-Balance Sheet Arrangements
As of
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