Notes
to Consolidated Financial Statements
June
30, 2021 and 2020
NOTE
1. ORGANIZATION AND OPERATIONS
Life
Clips, Inc. (the “Company”) was incorporated in Wyoming on March 20, 2013 as Blue Sky Media Corporation and its principal
business was developing, financing, producing and distributing motion pictures and related entertainment products. Following the Company’s
October 2, 2015 acquisition of Klear Kapture, Inc. (“Klear Kapture”), the Company continued Klear Kapture’s business
of developing a body camera and an auditable software solution suitable for use by law enforcement. The Company changed its name to Life
Clips, Inc. on November 3, 2015 in order to better reflect its business operations at the time.
On
July 11, 2016, the Company completed its acquisition (the “Acquisition”) of all of the outstanding equity securities of Batterfly
Energy Ltd. (“Batterfly”), an Israel-based corporation that develops and distributes a single-use, cordless battery under
the brand name Mobeego for use with cellular phones and other mobile devices. Batterfly is now a wholly owned subsidiary of the Company.
The Acquisition was completed pursuant to a Stock Purchase Agreement, dated as of June 10, 2016 (the “Purchase Agreement”),
among the Company, Batterfly and all of the shareholders of Batterfly, as amended. The Company has decided to retire its core product,
Mobeego batteries, and continue pursuing alternative business opportunities that will re-energize the business within the next 12 months.
On
April 5, 2021, the Company closed its acquisition of Cognitive Apps Software Solutions, Inc. (“Cognitive Apps”, “Subsidiary”),
a developer of artificial intelligence (AI) applications for the healthcare industry and psychedelic research. Cognitive Apps was incorporated
in British Columbia on November 25, 2020. Its principal business is developing, financing, producing and distributing AI based technological
solutions to the mental health and healthcare sector.
Cognitive
Apps sold all of its issued and outstanding capital stock to LCLP, such that, becoming a 100% wholly-owned subsidiary of LCLP.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation – The consolidated financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates the financial
statements of its wholly-owned subsidiary and all intercompany transactions and account balances have been eliminated in consolidation.
Use
of Estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Cash
and Cash Equivalents – For financial statement presentation purposes, the Company considers all short-term investments with
a maturity date of three months or less to be cash equivalents.
Investments – The Company’s
investments in marketable securities are measured at fair value with unrealized gains and losses recognized in other comprehensive income/(loss).
The Company received a total of 960,559 shares of Ehave, Inc.’s common stock as payment for a licensing agreement. These shares
had a total value of $100,000 upon issuance. Subsequent to issuance, the stock price of the shares decreased and an unrealized loss on
the investment of $61,578 was recognized, decreasing the asset value to $38,422 at June 30, 2021.
Income
Tax – The Company accounts for income taxes under Accounting Standards Certifications (“ASC”) 740 “Income
Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Basic
and Diluted Net Income (Loss) Per Share – The Company computes net income (loss) per share in accordance with ASC 260 “Earnings
Per Share” (“ASC 260”). ASC 260 requires presentation of both basic and diluted earnings per share “EPS’
on the face of the consolidated statements of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per
share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities,
unless the effect is to reduce a loss or increase earnings per share. Diluted EPS excludes all dilutive potential shares if their effect
is anti-dilutive.
Fair
Value of Financial Instruments – The Company measures assets and liabilities at fair value based on an expected exit price
as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of
an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value
may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value
measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs,
used in valuation techniques, are assigned a hierarchical level.
The
following are the hierarchical levels of inputs to measure fair value:
|
●
|
Level
1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar
assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs
that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
|
●
|
Level
3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair
value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and interest,
certain notes payable and notes payable – due to related parties, approximate their fair values because of the short maturity of
these instruments.
The
Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 7). The Company accounts
for its investments, at fair value, on a recurring basis under Level 1 (See Note 5)
Embedded
Conversion Features – The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives
and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted
for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative
treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for
consideration of any beneficial conversion feature.
Derivative
Financial Instruments – The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for
as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported as charges or credits to income.
For
option-based simple derivative financial instruments, the Company uses the Monte Carlo option-pricing model to value the derivative instruments
at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Debt
Issue Costs and Debt Discount – The Company may record debt issue costs and/or debt discounts in connection with raising funds
through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to
interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts
is immediately expensed.
Stock
Based Compensation – ASC 718 “Compensation-Stock Compensation” prescribes accounting and reporting standards
for all stock-based compensation plan payments awarded to employees, including employee stock options, restricted stock, employee stock
purchase plans and stock appreciation rights, which may be classified as either equity or liabilities. The Company should determine if
a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in
cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present
obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction
should be recognized as a liability; otherwise, the transaction should be recognized as equity.
The
Company accounts for stock-based compensation issued to nonemployees and consultants in accordance with the provisions of ASC 505-50
“Equity-Based Payments to Non-Employees”. Measurement of share-based payment transactions with nonemployees shall
be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments
issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance
completion date.
Recognition
of Licensing Revenues – The Company recognizes licensing revenue in accordance with Accounting Standards Update (“ASU”)
No. 2014-09 “Revenue from Contracts with Customers”. The Company recognizes
as revenues the amount of the transaction price that is allocated to the respective performance obligations when the performance obligation
is satisfied, or as it is satisfied. The Company primarily sells disposable and recyclable cell phone batteries. The Company’s
performance obligation is satisfied when the goods have been delivered, which is at a point in time. The Company applies the following
five steps in order to determine the appropriate amount of revenue recognized as it fulfills its obligations under each of its agreements:
|
●
|
identify
the contract with a customer;
|
|
●
|
identify
the performance obligations in the contract;
|
|
●
|
determine
the transaction price;
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
Specifically
for licensing arrangements, the Company determines the nature of its Subsidiary’s promise in granting a license is
either to provide a right to access intellectual property, which is satisfied over time and for which revenue is recognized over time,
or to provide a right to use our intellectual property, which is satisfied at a point in time and for which revenue is recognized at
a point in time. The scope and applicability of the guidance about when to recognize revenue for sales-based or usage-based royalties
promised in exchange for a license of intellectual property and whether restrictions of time, geographical region, or use on a license
of intellectual property do not affect the identification of performance obligations.
Recently
Issued Accounting Pronouncements – Financial Accounting Standards Board, or FASB ASU 2016-02 “Leases (Topic 842)”-
In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their consolidated balance
sheet as a right-of-use asset and a lease liability. For consolidated income statement purposes, the FASB retained a dual model, requiring
leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied
in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align
with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. The Company adopted this in Fiscal Year 2020.
Subsequent
Events – The Company follows the guidance in ASC 855 “Subsequent Events” for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the consolidated financial statements are issued. Pursuant
to ASU 2010-09 of the FASB ASC, the Company as an SEC filer considers its consolidated financial statements issued when they are widely
distributed to users, such as through filing them on EDGAR.
NOTE
3. UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial
statements, the Company has minimal revenues, net accumulated losses since inception and an accumulated deficit of $32,780,235.
These factors raise doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern
is dependent on management funding operating costs. The consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
The
impact of the COVID-19 pandemic has had, and is expected to continue to have, an adverse effect on our business and our financial results.
The COVID-19 pandemic has negatively affected global economy, disrupted consumer spending and global supply chains and created significant
volatility and disruption of financial markets. The pandemic had and will continue to have an adverse effect on our business and financial
performance. The extent of the impact of the COVID-19, including our ability to execute our business strategies as planned, will depend
on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted. The COVID-19
pandemic could also adversely affect our liquidity and ability to access the capital markets. Uncertainty regarding the duration of the
COVID-19 pandemic may adversely impact our ability to raise additional capital, or require additional capital.
NOTE
4. ACQUISITION OF SUBSIDIARY
On
April 5, 2021, the Company closed its acquisition of Cognitive Apps Software Solutions, Inc. (“Cognitive Apps”, “Subsidiary”),
a developer of artificial intelligence (AI) applications for the healthcare industry and psychedelic research. Cognitive Apps was incorporated
in British Columbia on November 25, 2020. Its principal business is developing, financing, producing and distributing AI based technological
solutions to the mental health and healthcare sector.
Cognitive
Apps sold all of its issued and outstanding capital stock to LCLP, such that, becoming a 100% wholly-owned subsidiary of LCLP.
In
exchange for the acquisition, the subsidiary received the following consideration:
(a)
Preferred Shares. Exchange each issued and outstanding share of Cognitive Apps common stock for 5,760,000 shares of LCLP Series
B Preferred Shares. The Series B Preferred Shares are convertible based on 80% of average of the 5 lowest closing prices for a share
of Common Stock on the principal exchange or market on which such shares are then trading for the 20 trading days immediately preceding
such date. Notwithstanding the foregoing, in no case shall the fair market value multiplied by the total number of shares issued and
outstanding be less than $5,000,000. The fair value on the date of acquisition was calculated at $10,016,089.
(b)
Warrants. In addition to the Acquisition Preferred Shares, the Shareholders, on a pro-rata basis, will receive warrants to purchase
a total of 3,500,000 shares of the common shares of the Company at an exercise price of $0.10. The fair value of the warrants
on the date of acquisition was calculated at $20,111.
(c)
Financing. The Company shall use its best efforts after Closing to provide Cognitive Apps, as a wholly owned subsidiary, up to
$1,000,000 in the form of an equity investment by Corporation into the subsidiary.
Cognitive
Apps had no operations and no significant assets recorded at the acquisition date. Based on the calculated purchase price of $10,036,200,
the entire amount was allocated to intangible assets. Due the lack of historical operations and uncertainty regarding future operations,
the Company impaired the full value of the intangible asset acquired. Also, as there were no previous operations, there are no pro forma
disclosures to present.
NOTE
5. RELATED PARTY TRANSACTIONS
At
June 30, 2021 and 2020, due to related parties was $1,155,550 and $763,050, respectively. At June 30, 2021, this was comprised
of unpaid compensation of $776,050 to Victoria Rudman, $164,500 to William Singer, $90,000 to Charles Adelson, and $125,000 to
Robert Grinberg.
As
of June 30, 2021, the board approved to pay these and any other amounts due by converting them to common stock.
At June 30, 2021 and 2020, due from related party
was $34,271 and $0, respectively. This amount is due from a Subsidiary shareholder.
NOTE
6. NOTES PAYABLE – IN DEFAULT
At
June 30, 2020, the Company had two notes payable in the amount of $530,000, with the following terms:
|
1.
|
The
Batterfly Acquisition Note required the Company to make two payments of $250,000 on October 6, 2017 and February 13, 2017. Upon failure
to pay the payment due, the balance began to accrue at 11% interest per annum.
|
|
2.
|
On
July 14, 2016, the Company issued a new promissory note to NUWA Group, LLC (“NUWA”), from which the Company received
$30,000 in gross proceeds, has a maturity date of October 14, 2016, and bears interest at 5% per annum. This promissory note does
not have a conversion feature.
|
As
of June 30, 2021, all of the above Notes Payable were settled with shares of the Company’s Common Stock.
NOTE
7. CONVERTIBLE NOTES PAYABLE
On
June 15, 2021, the Company entered into six Note Exchange Agreements to amend and restate 35 variable conversion notes, most of which
were in default, with interest rates ranging from 3.85% to 22% to a fixed conversion rate of $0.01 with an interest rate
of 8%. A total of $3,288,241 in principal and interest was converted from the variable to fixed conversion price, reducing the
need for derivative calculations to the 5 remaining notes that one holder declined to exchange.
As
of June 30, 2021, the Company entered into two new notes payable with Leviston Resources LLC in the amount of $375,000, with the
following terms:
|
1.
|
On
April 22, 2021, the Company entered into a Future Advance Convertible Promissory Note for $275,000, with a maturity date of
April 22, 2023 and an interest rate of 10%. The note also allows for a second draw of up to $250,000.
|
|
2.
|
On
June 29, 2021, the Company entered into a Promissory Note for $100,000, with a maturity date of December 23, 2022 and an interest
rate of 4%.
|
Convertible
Notes
As
of June 30, 2021, the amount of the Company’s convertible notes in-default decreased to $541,051 when compared to June 30, 2020
amount of $2,428,960, as follows:
Balance at
June 30, 2021
|
|
|
Balance at
June 30, 2020
|
|
|
Due Date
|
|
Interest Rate at
June 31, 2021
|
|
|
$
|
541,051
|
|
|
$
|
1,931,806
|
|
|
Range from
05/13/2017 to 01/20/2022
|
|
Range from 3.85% to 22%
|
|
Conversion price equal to fifty percent (50%) of the lowest trading price during the twenty (20) trading day period prior to the date of conversion - $0.0018 and at June 30, 2021, convertible into 133.9 million shares not including interest.
|
|
-
|
|
|
|
332,154
|
|
|
06/09/2017
|
|
18%
|
|
Conversion price equal to seventy five percent (75%) of the lowest trading price during the five (5) trading day period prior to the date of conversion - $0.0046 and at June 30, 2021, convertible into 65.9 million shares not including interest.
|
|
-
|
|
|
|
165,000
|
|
|
Range from 01/27/2018 to 11/15/2019
|
|
Range from 18% to 22%
|
|
Conversion price equal to fifty percent (50%) of the lowest trading price during the five (5) trading day period prior to the date of conversion - $0.0024 and at June 30, 2021, convertible into zero shares not including interest.
|
|
3,288,241
|
|
|
|
-
|
|
|
06/15/2023
|
|
8%
|
|
Conversion price equal to $0.01 and at June 30, 2021, convertible into 328.8 million shares not including interest.
|
|
375,000
|
|
|
|
-
|
|
|
Range from 04/22/2023 to 12/23/2022
|
|
Range from 4% to 10%
|
|
Conversion price equal to $0.015 (the Qualified Regulation A Offering Subscription Price), and at June 30, 2021, convertible into 23.33 million shares not including interest.
|
$
|
4,204,292
|
|
|
$
|
2,428,960
|
|
|
|
|
|
|
|
The
Company evaluated the convertible promissory notes under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally
requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate
accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract.
The material embedded derivative consists of the embedded conversion feature. The conversion option bears risks of equity which were
not clearly and closely related to the host debt agreement and required bifurcation.
Debt
Discount
The
Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the
derivative liability, as it exceeded the gross proceeds of the note.
Total
amortization of debt discount amounted to $99,960 and $22,890 for the years ended June 30, 2021 and 2020, respectively.
As of June 30, 2021 and 2020, the debt discounts
were $80,369 and $0, respectively.
NOTE
8. DERIVATIVE FINANCIAL INSTRUMENTS
The
Company’s convertible promissory notes and detachable warrants gave rise to derivative financial instruments. The notes embodied
certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics.
These terms and features consist of the embedded conversion option. Additionally, the detachable warrants contained terms and features
that gave rise to derivative liability classification. As of June 30, 2021, the Company does not have enough authorized shares to settle
all potential conversion and warrant transactions.
The
following tables summarize the components of the Company’s derivative liabilities and linked common shares as of June 30, 2021
and 2020 and the amounts that were reflected in income related to derivatives for the period ended:
|
|
June 30, 2021
|
|
The financings giving rise to derivative financial instruments
|
|
Indexed
Shares*
(in millions)
|
|
|
Fair
Values
|
|
Embedded derivatives
|
|
|
563
|
|
|
$
|
1,577,001
|
|
Total
|
|
|
563
|
|
|
$
|
1,577,001
|
|
*including
principal and interest
|
|
June 30, 2020
|
|
The financings giving rise to derivative financial instruments
|
|
Indexed
Shares*
(in millions)
|
|
|
Fair
Values
|
|
Embedded derivatives
|
|
|
68,617
|
|
|
$
|
13,249,507
|
|
Total
|
|
|
68,617
|
|
|
$
|
13,249,507
|
|
*including
principal and interest
The
following table summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative
financial instruments by type of financing for the years ended June 30, 2021 and 2020:
|
|
For the Years Ended
|
|
The financings giving rise to derivative financial instruments and the gain (loss)
effects:
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Embedded derivatives
|
|
$
|
7,274,230
|
|
|
$
|
(10,018,665
|
)
|
Total
|
|
$
|
7,274,230
|
|
|
$
|
(10,018,665
|
)
|
Current
accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified
in liabilities and carried at fair value with changes recorded in income. The Company has selected the Binomial Lattice Model, which
approximates the Monte Carlo Simulations, valuation technique to fair value the compound embedded derivative because it believes that
this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely
consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions,
credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility
and risk-free rates. The Binomial Lattice Model technique is a level three valuation technique because it requires the development of
significant internal assumptions in addition to observable market indicators. For instruments in which the time to expiration has expired,
the Company has utilized the intrinsic value as the fair value. The intrinsic value is the difference between the quoted market price
on the valuation date and the applicable conversion price.
Significant
inputs and results arising from the Monte Carlo Simulation process are as follows for the embedded derivatives that have been bifurcated
from the convertible notes and classified in liabilities:
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Quoted market price on valuation date
|
|
$
|
0.0046
|
|
|
$
|
0.0003
|
|
Range of effective contractual conversion rates
|
|
$
|
0.0018
|
|
|
$
|
0.00005 - $0.00029
|
|
Contractual term to maturity
|
|
|
NA
|
|
|
|
NA
|
|
Market volatility:
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
NA
|
|
|
|
NA
|
|
Risk-adjusted interest rate
|
|
|
NA
|
|
|
|
NA
|
|
The
following table reflects the issuances of compound embedded derivatives and detachable warrants and changes in fair value inputs and
assumptions related to the embedded derivatives and detachable warrants during the years ended June 30, 2021 and 2020.
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Balances at beginning of period
|
|
$
|
13,249,507
|
|
|
$
|
3,230,842
|
|
Issuances:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
50,000
|
|
|
|
-
|
|
Conversions:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
-
|
|
|
|
-
|
|
Reclassifications to equity:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
(4,448,276
|
)
|
|
|
-
|
|
Changes in fair value inputs and assumptions reflected in income
|
|
|
(7,274,230
|
)
|
|
|
10,018,665
|
|
|
|
|
|
|
|
|
|
|
Balances at end of period
|
|
$
|
1,577,001
|
|
|
$
|
13,249,507
|
|
NOTE
9. EQUITY
Authorized
Capital
On
September 28, 2017, the Company filed Articles of Amendment authorizing 5,000,000, shares of common stock, par value $0.001 per share
(the “Common Stock”) and 20,000,000 shares of Preferred Stock, par value $0.001 (the “Preferred Stock”). The
Board may issue shares of Preferred Stock in one or more series and fix the rights, preferences and privileges thereof, including voting
rights, terms of redemption, redemption prices, liquidation preferences, number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders.
Preferred
Stock
Effective
May 19, 2017, the Company amended its Articles of Incorporation to designate 1,000,000 shares of preferred stock as Series A Preferred
Stock, with a par value of $0.001 per share (the “Series A Stock”). Each share of Series A Stock ranks, with respect to dividend
rights and rights upon liquidation, winding up or dissolution of the Company, the same as the common stock of the Company, par value
$0.001 per share (the “Common Stock”) and is not entitled to any specific dividends or other distributions, other than those
declared by the Board of Directors. Each share of Series A Stock has 400 votes on any matter submitted to the shareholders of the Company,
and the Series A Stock votes together with the holders of the outstanding shares of all other capital stock of the Company (including
the Common Stock and any other series of preferred stock then outstanding), and not as a separate class, series or voting group on any
such matter. The Series A Preferred Stock is not transferrable by the holder, and may be redeemed by the Company at any time for the
par value. In the event that the holder of Series A Preferred Stock who is an employee or officer of the Company leaves their position
as an employee or officer of the Company for any reason, the Series A Preferred Stock held by that holder will be automatically cancelled
and will revert to being authorized and unissued shares of Series A Preferred Stock. The Series A Stock is not convertible into any other
class of shares of the Company.
On
June 16, 2021, the Board determined that it would be in the best interest of the Company to increase the Company’s authorized Series
A Preferred stock to 5,000,000 (Five Million) shares.
Additionally,
the Board authorized 5,760,000 (Five Million Seven Hundred and Sixty Thousand) shares of the Company’s Series B preferred pursuant
to the acquisition of its Subsidiary. In exchange for the acquisition, the subsidiary received as consideration these Preferred Shares
in exchange for each issued and outstanding share of Cognitive Apps common stock at $1.00 per share.
Each
share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, beginning 12 months from the date of issuance,
and thereafter at any time and from time to time, and without the payment of additional consideration by the holder thereof, into that
number of fully paid and nonassessable shares of Common Stock (whether whole or fractional) that have a Fair Market Value, in the aggregate,
equal to the Series B Conversion Price. The “Series B Conversion Price” shall initially be equal to $1.00. Such initial Series
B Conversion Price, and the rate at which shares of Series B Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below. “Fair Market Value” shall mean as of any date of determination, the 80% of average of the
5 lowest closing prices for a share of Common Stock on the principal exchange or market on which such shares are then trading for the
20 trading days immediately preceding such date. Notwithstanding the foregoing, in no case shall the Fair Market Value multiplied by
the total number of shares issued and outstanding be less than $5,000,000.
Stock
and Incentive Plan
On
April 20, 2017, the Company adopted the Life Clips, Inc. 2017 Stock and Incentive Plan under which the Company may issue nonqualified
stock options, incentive stock options, stock appreciation rights, restricted stock grants and units, performance units and awards of
cash. A maximum of 20,000,000 shares of common stock may be issued under the plan, representing in excess of 35% of the number of the
Company’s currently outstanding shares. Awards under the plan will be made at the discretion of the Board of Directors, although
no awards have been made to date. Accordingly, the Company cannot currently determine the amount of awards that will be made under the
plan.
Warrants
The
Company did not issue any warrants during the year ended June 30, 2020.
On
April 5, 2021, as part of its acquisition of Cognitive Apps, the Company issued the shareholders of the subsidiary warrants to purchase
a total of 3,500,000 shares of the Company’s common stock.
Additionally,
on April 22, 2021, the Company issued the holder of a convertible note payable, warrants to purchase a total of 30,000,000 shares of
the Company’s common stock.
The
following table shows the warrants outstanding at June 30, 2021:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Life
(Years)
|
|
|
Average Intrinsic Value
|
|
Outstanding, June 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
33,500,000
|
|
|
|
0.10
|
|
|
|
5.00
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2021
|
|
|
33,500,000
|
|
|
|
0.10
|
|
|
|
4.75
|
|
|
|
-
|
|
Exercisable, June 30, 2021
|
|
|
33,500,000
|
|
|
$
|
0.10
|
|
|
|
4.75
|
|
|
$
|
-
|
|
NOTE
10. INCOME TAX PROVISION
Income
taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently
due. Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which will
be either taxable or deductible when the assets or liabilities are recovered or settled.
The
Company accounts for income taxes in accordance with the provisions of ASC 740, Accounting for Uncertainty in Income Taxes. The
Company accounts for income taxes using an asset and liability approach to calculate deferred income taxes. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets
for which management believes it is more likely than not that the net deferred asset will not be realized.
At
June 30, 2021, the Company has a net operating loss carry-forward of $(22,694,075) available to offset future taxable income
expiring through 2035. Utilization of future net operating losses may be limited due to potential ownership changes under Section
382 of the Internal Revenue Code.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred
income tax asset balances to warrant the application of a full valuation allowance as of June 30, 2021.
The
effects of temporary differences that gave rise to significant portions of deferred tax assets at June 30, 2021 and 2020 are approximately
as follows:
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Net Operating Loss Carryforward
|
|
$
|
32,780,235
|
|
|
$
|
29,301,198
|
|
Above multiplied by tax rate of
|
|
|
21
|
%
|
|
|
21
|
%
|
Gross Deferred Tax Assets
|
|
|
6,883,849
|
|
|
|
6,153,251
|
|
Less Valuation Allowance
|
|
|
(6,883,849
|
)
|
|
|
(6,153,251
|
)
|
Total Deferred Tax Assets – Net
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of income taxes computed at the statutory rate to the income tax amount recorded is as follows:
|
|
Year ended June 30
|
|
|
|
2021
|
|
|
2020
|
|
Income tax expense (benefit) at statutory rate
|
|
$
|
(730,598
|
)
|
|
$
|
(2,255,469
|
)
|
Tax Cuts and Job Act Impact
|
|
|
-
|
|
|
|
-
|
|
Decrease in valuation allowance
|
|
|
730,598
|
|
|
|
2,255,469
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company had no gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods.
It has not accrued any interest or penalties associated with income taxes. The Company files income tax returns in the United States
federal jurisdiction. With few exceptions, it is no longer subject to U.S. federal, state or non-U.S. income tax authorities on tax returns
filed before January 31, 2012. No tax returns are currently under examination by tax authorities.
NOTE
11. COMMITTMENTS AND CONTINGENCIES
From
time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these
matters will not have a material adverse effect on consolidated results of operations, financial position, or cash flow.
NOTE
12. SUBSEQUENT EVENTS
On
July 1, 2021, the Company entered into a Note Exchange Agreement to amend and restate the remaining 5 variable conversion notes, all
of which were in default, with interest rates ranging from 18% to 22% to a fixed rate $0.01 with an interest rate of 8%. A total of $1,085,824
in principal and interest was converted from the variable to fixed conversion price, reducing the need for future derivative calculations.
On
July 20, 2021 a Form 1-A Regulation A Offering Circular dated June 9, 2021 and its exhibits were filed with and qualified by the Securities
and Exchange Commission (the “SEC”). During the months of July and August 2021, the Company entered into Subscription Agreements
with Investors to offer shares of its common stock at a purchase price of $0.015 per share for total gross proceeds of up to $5,000,000.
Proceeds to date are $3,125,000 with a total of 208,333,333 shares.
On
August 26, 2021, the Company filed a Form 8-K announcing that it closed its acquisition of Belfrics Holdings Limited and its related
entities (collectively “Belfrics”) operating cryptocurrency exchanges and blockchain development services in Asia and Africa.
The entities acquired are:
Belfrics
Global PTE Ltd., a Singapore corporation
Belfrics
BT Pvt Ltd, an India corporation
Belfrics
Cryptex Pvt Ltd, an India corporation
Belfrics
Tanzania Ltd, a Tanzania corporation
Belfrics
Nigeria Pvt Ltd, a Nigeria corporation
Belfrics
BT SDN BHD, a Malaysia corporation
Belfrics
Holding Limited, a Malaysia corporation
Belfrics
Academy SDN BHD, a Malaysia corporation
Belfrics
International Ltd, a Malaysia corporation
Belfrics
Europe SL, a Spain corporation
Belfrics
Kenya Pvt. Ltd, a Kenya corporation
Incrypts
SDN BHD, a Malaysia corporation
Belfrics
Malaysia SDN BHD
Pursuant
to the definitive agreement previously executed between Belfrics and the Company, the Company issuing the Belfrics shareholders a new
class of preferred stock with an initial issuance price of $20,000,000 (Twenty Million Dollars) in the aggregate. The Belfrics shareholders
can earn up to an additional $15,000,000 (Fifteen Million Dollars) by reaching certain milestones. This description of the terms of the
agreement is qualified in its entirety to the Acquisition Agreement between the parties filed as an exhibit on Form 8-K filed on July
15, 2021.
Founded
in 2014, the Belfrics digital exchange platform, which was fully developed in-house, is one of the most compliant platforms in the cryptocurrency
industry. Supported by the proprietary technology of Belrium Blockchain KYC solution, the KYC (“Know Your Customer”) and
AML (“Anti-Money Laundering”) process of Belfrics Exchange is a well accepted compliance solution. With 10 operational offices
in 8 countries, Belfrics provides localized and personalized support to digital currency traders. Through its Blockchain Academy, Belfrics
provides continuous training to traders, developers and blockchain enthusiasts in more than 20 countries. Belfrics is licensed and regulated
by the Labuan Financial Services Authority (LFSA) in Malaysia.
On
September 26, 2021, the Company entered into a 1.75% Secured Promissory Note with Belfrics Global Pte Ltd, its wholly-owned subsidiary.
The note was for a principal amount of $1,000,000, and due and payable on June 30, 2022. As collateral security for the obligations to
make full and timely payment of the Principal, and all accrued interest and other amounts payable under the Note, Belfrics deposited
250,000 (two hundred and fifty thousand) Belrium tokens in the wallet of the Escrow Agent, Jonathan D. Leinwand, P.A. Upon payment of
the amount due, the Belrium tokens shall be released and returned to Belfrics.