(EDGAR Online via COMTEX) -- 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.
Friendable, Inc., a Nevada corporation (the "Company"), was incorporated in the State of Nevada
Friendable Inc. (FDBL) is a mobile technology and marketing company focused on connecting and engaging users through its proprietary mobile and desktop applications. The Company's first app, the "Friendable" subscription app, was a traditional dating application with its focus on building revenue, as well as reintroducing the brand as a non-threatening, all-inclusive place where "Everything starts with Friendship"?meet, chat & date.
On June 28, 2017, the Company formed a wholly owned Nevada subsidiary called Fan Pass, Inc.
Launched July 24, 2020, the Company's "Fan Pass" flagship subscription app is designed to help artists engage with their fans around the world and earn revenue while doing so. The Live Streaming platform supports artists at all levels, providing exclusive artist content "channels," live event streaming, promotional support, fan subscriptions and custom merchandise designs, all of which are revenue streams for each artist. With Fan Pass, artists can offer exclusive content channels to their fans, who can simply use their smartphones to gain access to their favorite artists as well as an all-access pass, giving them access to all artists on the platform. Additionally, the Fan Pass team will deploy social broadcasters to capture exclusive VIP experiences, interviews and behind-the-scenes content featuring their favorite artists - all available to fan subscribers for free on a trial basis. Thereafter, subscriptions are billed monthly, providing VIP access at a fraction of the cost of traditional face-to-face meetups. Presently, Fan Pass has signed more than 5,300 music artists, of which more than 750 artists have been on boarded with their own "broadcast" music Channel available on the Fan Pass app for live streaming and pre-recorded music content.
Friendable Inc. was founded by Robert A. Rositano Jr. and Dean Rositano, two brothers with over 25 years of experience working together on technology-related ventures.
The Company maintains websites at www.Friendable.com and www.fanpasslive.com . The information on these app websites is not incorporated herein. Additionally, you can download the Fan Pass app from the Apple app Store or Google Play Stores.
What precisely does Fan Pass Live do?
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.
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 on July 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, On August 5, 2021 the Company announced the approval of the Fan Pass v2.0 livestream artist platform by both the Apple App and Google Play Stores. The mobile applications can be downloaded by users worldwide, and Fan Pass v2.0 is also accessible via desktop and web applications.
How sweet does it get for the artists? These revenues are proportionately shared with all Channel artists according to fan views and downloads. In exchange for its platform features, live streaming tools, bandwidth, processing, and handling, Fan Pass also earns platform fees on each separately ticketed event, as well as splits with each artist on subscriber fees and merchandise designed and sold on the platform. Fan Pass v2.0 contains all new UI/UX user interface attributes, updated feature sets for artists and fan, as well as an accelerated onboarding process for artists and artists' content, and enhanced dashboard features.
The Company aims to establish Fan Pass as its premier brand and mobile platform that is dedicated to connecting and engaging users from anywhere around the World.
Fan Pass Live provides fans exclusive access into the lives of their favorite artists, and provides artists a 'virtual stage' to perform, earn revenues, and engage with fans from around the world.
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We previously advised that on April 7, 2021 the Company had entered into a letter of understanding with Santo Mining Corp. ("SMC") to form a joint venture to pursue the development and sale of NFT's (non-fungible tokens of verifiable, tradable assets of digital art, music") or other content or collectibles originating through the Company's exploitation of the content associated with and from the Fan Pass app. However, the Company has not been able to conclude a definitive agreement with SMC and accordingly is no longer proceeding with this arrangement. Nonetheless, the Company is pursuing other opportunities for the distribution of its potential NFT's.
On October 21, 2021 the Company signed a non-binding Letter of Intent to acquire all of the assets of Artist Republik, Inc. in consideration for the issuance of common stock of the Company equal to 37% of the common stock issued and outstanding (presently estimated to be 37% of 469,673,940, or 173,779,358 common stock). The transaction is scheduled to close in November, 2021. Started in early 2020, Artist Republik provides the tools for Music Artists to produce, distribute and market their original music on a variety of digital streaming platforms, including Spotify and Apple Music, together with providing Artists with the ability to find and book local venues and shows. Artist Republik presently serves 100,000 Artists and shares a portion of its revenue with the Artists. Closing the acquisition will complete the Company's presence in the music industry by directly serving both independent Artists in the distribution of music content and the connection and participation with their fans.
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 to McMillan 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, including Nocturne 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, 2021 2020 2021 2020 REVENUES: Technology services $ - $ 109,500 $ - $ 319,331 Subscription and merchandising sales 1,866 1,892 4,780 3,340 1,866 111,392 4,780 322,671 OPERATING EXPENSES: App hosting 7,500 12,000 22,500 33,000 Commissions 247 191 605 625 General and administrative 315,672 224,401 962,281 605,458 Software development and support 252,500 105,790 575,000 460,102 Artists' performance fees - 425,058 - 425,058 Revenue shares 920 402 2,124 402 Investor relations 58,118 3,921 104,968 140,527 Sales and marketing 127,269 30,081 393,321 82,335 Total operating expenses 762,226 801,844 2,060,799 1,747,507 LOSS FROM OPERATIONS (760,360 ) (690,452 ) (2,056,019 ) (1,424,836 ) OTHER INCOME (EXPENSE) Accretion and interest expense (426,200 ) (38,423 ) (936,113 ) (266,710 ) Gain on foreign exchange - - - 2,580 Initial derivative expense - - (1,796,835 ) (419,000 ) Gain (loss) on settlement of derivatives - 257,317 - (640,821 ) Derivatives income (expense) 867,298 263,000 2,818,298 259,000 441,098 481,894 85,350 (1,064,951 ) NET LOSS $ (319,262 ) $ (208,558 ) $ (1,970,669 ) $ (2,489,787 )
For the three months ended September 30, 2021 compared to September 30, 2020
The Company had revenues of $1,866 and $111,392 for the three months ended September 30, 2021 and 2020 respectively. Revenues in 2021 related entirely to subscriber and merchandising revenue from the Company's Fan Pass and Friendable apps. (2020 $1,892). Revenues for the three months ended September 30, 2020 includes $109,500 from technology services provided under a contract with a third party, which expired at the end of 2020 (2021 $0). No new third-party technology services contract has been obtained to date in 2021.
The Company had operating expenses of $762,226 and $801,844 for the three months ended September 30, 2021 and 2020 respectively. The decrease in operating expenses was due primarily to Artists' performance fees of $425,058 incurred in 2020 in connection with the initial launch of the Fan Pass app.in July, 2020, offset by higher salary costs of full time employees, higher software development costs to build and launch Fan Pass V 2.0 in July 2021 and higher sales and marketing costs to promote the Fan Pass app. in 2021.
Other Income and Expense
The Company had other net income of $441,098 for the three months ended September 30, 2021, compared to other income of $481,894 for the three months ended September 30, 2020. Higher interest expense in 2021 was offset by higher derivatives income.
The Company had a net loss of $319,262 for the three months ended September 30, 2021, compared to a net loss of $208,558 for the three months ended September 30, 2020. The increase in net loss was due primarily to the decline in revenues in 2021 explained above.
For the nine months ended September 30, 2021 compared to September 30, 2020
The Company had revenues of $4,780 and $322,671 for the nine months ended September 30, 2021 and 2020 respectively. The decrease was due to the end of a contract to develop a third-party app at the end of 2020, which was not replaced by a new third-party app. development contract in 2021. Revenue in 2021 related entirely to subscriber and merchandising revenue from the Company's own Fan Pass and Friendable apps.
The Company had operating expenses of $2,060,799 and $1,747,507 for the nine months ended September 30, 2021 and 2020 respectively. The increase in operating expenses of $313,292 was due primarily to an increase of $356,823 in general and administrative expenses arising primarily from higher legal fees and increased salaries, and an increase in sales and marketing expenses of $310,986 in 2021 to support the Fan Pass 2.0 app. launch, partially offset by the absence of Artists; performance fees of $425,058 incurred in 2020 in support of the initial launch of the Fan Pass app in July, 2020.
Other Income and Expense
The Company had other net income of $85,350 for the nine months ended September 30, 2021 compared with other expense of $1,064,951 for the nine months ended September 30, 2020. The change was due primarily to higher a derivatives income of $2,818,298, less interest expense and loss on initial derivative expense of $2,732,948 in 2021, compared with much smaller derivatives income $259,000 and loss on settlement of derivatives $640,821 and initial derivative expense $419,000 in 2020.
The Company had net losses of $1,970,669 and $2,489,787 for the nine months ended September 30, 2021 and 2020 respectively. The decrease in net loss was due primarily to the absence in 2021 of Artists' performance fees totaling $425,058 incurred in 2020 to support the initial launch of the Fan Pass app.
Liquidity and Capital Resources Working Capital September 30, 2021 December 31, 2020 (unaudited) Current Assets $ 463,741 $ 148,601 Current Liabilities $ 4,800,703 $ 5,436,963 Working Capital (Deficiency) $ (4,336,962 ) $ (5,288,362 )
Current assets at September 30, 2021 increased compared to December 31, 2020 primarily due to higher cash from the Company's Regulation A capital raise program, offset by a reduction in accounts receivable and prepaid expenses.
Current liabilities at September 30, 2021 decreased compared to December 31, 2020 primarily due to the reduction in derivative liabilities from convertible note conversions in 2021 and changes in the fair value of derivatives, offset by an increase in accounts payable and accrued expenses and an increase in the liability for mandatorily redeemable Series C convertible preferred stock from additional capital raises.
Cash Flows Nine months Nine months Ended Ended September 30, 2021 September 30, 2020 Net Cash Used in Operating Activities $ (1,843,633 ) $ (260,931 ) Net Cash Provided by Financing Activities 2,237,815 258,500 Net Increase (Decrease) in Cash $ 394,182 $ (2,431 )
Net Cash Used in Operating Activities
Our cash used in operating activities was $1,843,633 for the nine month period ended September 30, 2021 compared to $260,931 for the nine month period ended September 30, 2020. Net loss was $1,970,669 and $2,489,787 for the nine month periods ending September 30, 2021 and 2020 respectively. In 2021, adjustments to reconcile the net loss to net cash used primarily included a loss on initial derivative expense of $1,796,835, offset by a gain from the change in fair value of derivatives of $2,818,298. In 2020, adjustments to reconcile the net loss to net cash used included adjustment for loss on settlement of derivative of $640,822, and loss on initial derivative expense of $419,000. In 2021, changes in operating assets and liabilities included a reduction in amount due to related party of $134,499 and an increase to accounts payable and accrued expenses of $335,173. In 2020 changes in operating assets and liabilities included an increase to accounts payable and accrued expenses of $409,743 and an increase due to related party $30,083.
Net Cash Provided by Financing Activities
Our cash provided by financing activities of $2,237,815 for the nine month period ended September 30, 2021 included the issuance of Series C preferred stock sold for cash of $515,900 offset by a redemption payments of Series C preferred stock totaling $95,150, 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 and repayment of convertible notes of $116,500. Our cash provided by financing activities of $258,500 for the nine month period ended September 30, 2020 included the issuance of Series C preferred stock sold for cash of $33,000, net proceeds from the issuance of convertible notes of $105,000 and proceeds of $60,000 from the sale of common stock.
The Company derives the majority of its financing by issuing convertible notes or stock to investors. The investors have the right to convert the notes and certain preferred stock 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. In addition, investors purchasing Series D preferred stock have the right to convert that stock to common shares.
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, 2021, the Company has a working capital deficiency of $4,336,962, has an accumulated deficit of $38,539,915 and has a stockholder's deficit of $4,336,962 and its operations continue to be funded primarily from sales of its stock. During the nine months ended September 30, 2021 the Company had a net loss and net cash used in operations of $1,970,669 and $1,843,633. 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 short term loans and 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 September 30, 2021, the Company had no off-balance sheet arrangements.
Nov 10, 2021
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