Amended Annual Report (10-k/a)

Date : 07/12/2018 @ 6:06AM
Source : Edgar (US Regulatory)
Stock : Life Clips, Inc. (PN) (LCLP)
Quote : 0.0007  0.0 (0.00%) @ 3:59PM

Amended Annual Report (10-k/a)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K /A

(Amendment No. 1)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2017

 

Commission File No. 000-55697

 

LIFE CLIPS, INC.

(Exact Name of Issuer as specified in its charter)

 

Wyoming   46-2378100
(State or other jurisdiction   (IRS Employer
of incorporation)   File Number)

 

18851 NE 29th Ave.

Suite 700 PMB# 348

   
Aventura, FL   33180
(Address of principal executive offices)   (zip code)

 

(800) 292-8991

(Registrant’s telephone number, including area code)

 

Securities to be Registered Pursuant to Section 12(b) of the Act: None

 

Securities to be Registered Pursuant to Section 12(g) of the Act:

 

Common Stock, $0.001 per share par value

 

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X].

 

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [  ] No [X].

 

Indicate by check mark whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: [X] No: [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes [X] No [  ]

 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is contained in this form and no disclosure will be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ]   Accelerated filer [  ]
     
Non-accelerated filer [  ] (Do not check if a smaller reporting company)   Smaller reporting company [X]
     
Emerging growth company [  ]    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [  ] No [X].

 

The market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $1,375,375.

 

As of April 3, 2018, registrant had outstanding 1,259,831,337 shares of common stock.

 

 

 

 

 

 

EXPLANATORY NOTE

 

Life Clips, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment”) to the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2017(the “Form 10-K”), filed with the Securities and Exchange Commission on April 4, 2018 (the “Original Filing Date”), to make certain corrections to Item 9A. Controls and Procedures, pursuant to a letter dated June 28, 2018, from the Securities and Exchange Commission.

 

This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date.

 

Pursuant to Rule 406T of Regulation S-T, the interactive data files attached as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 
 

 

FORM 10-K

 

LIFE CLIPS, INC.

 

INDEX

 

PART I  
     
  Item 1. Business 4
     
  Item 1A. Risk Factors 7
     
  Item 1B. Unresolved Staff Comments 7
     
  Item 2. Properties 7
     
  Item 3. Legal Proceedings 7
     
  Item 4. Mine Safety Disclosures 7
     
PART II  
     
  Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 7
     
  Item 6. Selected Financial Data 9
     
  Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9
     
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk 15
     
  Item 8. Financial Statements and Supplementary Data 15
     
  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16
     
  Item 9A. Controls and Procedures 16
     
  Item 9B. Other Information 17
     
PART III  
     
  Item 10. Directors, Executive Officers and Corporate Governance 17
     
  Item 11. Executive Compensation 21
     
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 22
     
  Item 13. Certain Relationships and Related Transactions, and Director Independence 23
     
  Item 14. Principal Accountant Fees and Services 23
     
PART IV  
     
  Item 15. Exhibits Financial Statement Schedules 23
     
Signatures 25

 

  2  

 

 

Forward-Looking Statements

 

The following discussion contains forward-looking statements regarding us, our business, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation: our ability to successfully develop new products and services for new markets; the impact of competition on our revenues, changes in law or regulatory requirements that adversely affect or preclude clients from using us for certain applications; delays our introduction of new products or services; and our failure to keep pace with our competitors.

 

When used in this discussion, words such as “believes”, “anticipates”, “expects”, “intends” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

 

  3  

 

 

PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.

 

General Information about Our Company

 

Life Clips, Inc. (“Life Clips”, “we,” “us,” “our,” and 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.

 

Recent Developments

 

On July 11, 2016, the Company completed its previously announced 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.

 

Following the acquisition of Batterfly, we began to focus on developing three synergistic businesses:

 

  Expanding the Mobeego line of mobile accessories.
     
  Global Sourcing Services that includes product design, factory identification, negotiations, compliance qualification, and end-to-end logistics management to source products anywhere in the world.
     
  Sales and marketing services that provide an efficient path for companies to launch and market product into multi-channel retail and capture the maximum return on investment.

 

We plan to reengage in these initiatives as we seek potential new distributors, joint venture and strategic alliance partners and additional sources of financing to enable us to pursue marketing and future development and commercialization activities related to the Mobeego.

 

On June 22, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”) with Ascenda Corporation, a company limited by shares incorporated under the laws of Independent State of Samoa (“Ascenda”), Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Hong Kong (“Company HK”), and Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Independent State of Samoa (“Company Samoa”, and collectively with Company HK, the “Targets” and each a “Target”).

 

Effective as of November 24, 2017, Huey Long, the Company’s Chief Executive Officer and a member of its board of directors, resigned his position as an officer and director of the Company as previously disclosed by the Company. Further, on November 27, 2017, Seller, Company HK, Company Samoa and Donald Ruan entered into a Rescission and Mutual Release Agreement (the “Rescission Agreement”) pursuant to which the parties thereto agreed to rescind, ab initio, the SPA. As a result of the Rescission Agreement, the acquisition of the Targets is deemed not to have occurred and will be of no further force or effect. As a result of these events, and the Company’s efforts to secure additional financing and additional partners to expand sales of its Mobeego product line, the Company is no longer seeking to launch its planned global sourcing business with Textiss USA, Misaki Corporation and Axperrt Company Limited as previously disclosed.

 

Products

 

Our core product is Mobeego batteries.

 

Batteries

 

Mobeego consists of a one-time use, non-rechargeable, battery and a special, reusable phone adapter (plug), which is a small device that includes the charging control circuitry as well as a specific male connector that matches user device’s female connector. The Company is evaluating the resumption of selling Mobeego in the following ways:

 

  (1) Sets including a specific adapter and one or two emergency batteries
     
  (2) Refill Batteries
     
  (3) 6 pack of Batteries
     
  (4) set including an adapter and one emergency battery for Action cameras such as Life Clips’ action camera.

 

  4  

 

 

The Battery (Energy Unit):

 

The Energy Unit consists of a custom designed plastic casing, shaped as a small can of energy drink, hosting a powerful lithium battery. The energy “can” has a rail used to connect it to the adapter through a rail connection. This unit is designed to be seen as the “energy drink for the mobile devices”. It is for a single use, non-rechargeable.

 

Adapter

 

The adapter is a small plastic device that connects to the Battery through 2 connectors and to the mobile device through the specific connector on user’s cellphone, which could be Lightning or Deck for iPhones, micro-USB for Android devices, Blackberries and others. The Adapter features an On/Off switch and a LED to indicate when is charging. Within the adapter, there is a smart, electronic charging circuit on a circuit board.

 

Sales

 

We are evaluating a sales distribution model and the viability of sales of our products through retailers directly and through distributors. We are evaluating relationships with retailers and distributors, and our partners’ sales forces to map out a sales strategy for our products and a way to work with them to merchandise our products in a compelling manner in-store, as well as assessing a viable way to provide consumers with informative and convenient ecommerce experiences at retail partner websites.

 

Direct sales

 

In addition to the evaluation of our international sales model, we are evaluating the feasibility of selling directly to large and small retailers in the United States, directly to some retail outlets. Elements of the plans we are evaluating include:

 

Independent specialty retailers. Potential use a network of location-based independent manufacturer representatives to sell our products to independent specialty retailers focused on action sports markets. Our representatives would provide highly personalized service to these retailers, including assisting with product mix planning, channel marketing and in-store merchandising, taking orders and providing clinics to educate retail sales personnel about Mobeego products.
   
Big box retailers. Potential sales to large retailers with a national presence, including Amazon.com, Inc., Best Buy, Target Corporation and Wal-Mart, Inc.
   
Mid-market retailers. Potential sales to retailers with a large regional or national presence, often focused on specific verticals such as consumer electronics, sporting goods, military, hunting and fishing and motor sports, which we refer to as our “mid-market” channel.
   
Ecommerce channel. Sales of our Mobeego products directly to consumers around the world through an online store. We will evaluate ways to drive consumers to our website through online and offline advertising, as well as marketing promotions carried out at tradeshows and sponsored events.

 

Competition, competitive position in the industry and methods of competition

 

The battery industry is highly competitive. The Company faces intense competition from very large, international corporations, as well as from local and national companies. In addition, the Company faces competition from well-known companies that have large market share.

 

The intensity of competition in the future is expected to increase and no assurance can be provided that the Company can sustain its market position or expand its business.

 

Many of the Company’s current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and name recognition than the Company has.

 

The global sourcing industry is highly competitive. We face competition from very large international competitors. The competition in the future is going to increase. Ascenda is positioned to leverage its client partners and add additional clients.

 

  5  

 

 

Status of any publicly announced new product or service

 

None.

 

Employees

 

As of June 30, 2017, we had five contracted employees.

 

Patents and Trademarks

 

The Company currently has a United States trademark, Serial Number 86888487, for Life Clips. The Company, pursuant to the Batterfly acquisition, now also holds a United States trademark, Serial Number 79172000 for Mobeego, a patent in China, number 201630018307.4, as well as two patents in Israel, numbers 002743724-0001 and 002743724-0002. Any encroachment upon the company’s proprietary information, including the unauthorized use of its brand name, the use of a similar name by a competing company or a lawsuit initiated either by our Company or against our Company for infringement upon proprietary information or improper use of a trademark, may affect our ability to create brand name recognition, cause customer confusion and/or have a detrimental effect on its business due to the cost of defending any potential litigation related to infringement. Litigation or proceedings before the U.S. or International Patent and Trademark Offices may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and/or to determine the validity and scope of the proprietary rights of others. Any such litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business operations and/or results of operations.

 

Government Approval

 

The battery and global sourcing industries may be regulated at the federal levels, both in terms of health and safety concerns, as well as product quality. Operation of the Company’s business requires various licenses, permits and approvals. The Company currently holds all applicable licenses and permits to operate its business, and will continue to hold all applicable permits and licenses to continue operating its business and running its marketplace. In addition, Company will also ensure compliance with any additional licensing requirements that are required on an ongoing basis.

 

Government and Industry Regulation

 

The Company will be subject to local and international laws and regulations that relate directly or indirectly to its operations, such as the Securities Act of 1933, the Securities and Exchange Act of 1934, and Wyoming Corporation Law. It will also be subject to common business and tax rules and regulations pertaining to the operation of its business, such as the United States Internal Revenue Tax Code and the Wyoming State Tax Code, as well as international tax codes and shipping tariffs. The Company will also be subject to proprietary regulations such as United States Trademark and Patent Law as it applies to the intellectual property of third parties. The Company believes that the effects of existing or probable governmental regulations will be additional responsibilities of the management of the Company to ensure that the Company is in compliance with securities regulations as they apply to the Company’s products as well as ensuring that the company does not infringe on any proprietary rights of others with respect to its products. The Company will also need to maintain accurate financial records in order to remain complaint with securities regulations as well as any corporate tax liability it incurs.

 

Research and Development

 

During the year ended June 30, 2017, the Company spent $0 on the development of its products. We believe that we will need to incur research, compliance, licensing and development expenses, specifically related to our Mobeego products.

 

Environmental Compliance

 

We believe that we are not subject to any material costs for compliance with any environmental laws.

 

How to Obtain our SEC Filings

 

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports, are available on our website at www.lifeclips.com, as soon as reasonably practicable after we file these reports electronically with, or furnish them to, the Securities and Exchange Commission (“SEC”). Except as otherwise stated in these reports, the information contained on our website or available by hyperlink from our website is not incorporated into this Annual Report on Form 10-K or other documents we file with, or furnish to, the SEC.

 

  6  

 

 

Our investor relations department can be contacted via email at ir@lifeclips.com or at our principal executive office located at 18851 NE 29th Ave., Suite 700 PMB# 348, Aventura, FL 33180. Our telephone number is (800)-292-8991.

 

ITEM 1A. RISK FACTORS

 

Not required for a Smaller Reporting Company.

 

ITEM 1B. Unresolved Staff Comments.

 

None.

 

ITEM 2. PROPERTIES.

 

The Company’s operations are currently being conducted out of the Company’s offices located at 18851 NE 29th Ave., Suite 700 PMB# 348, Aventura, FL 33180. The Company’s office space is being rented for a price of $135.00 per month. The Company considers the current principal office space to be adequate and will reassess its needs based upon the future growth of the Company.

 

ITEM 3. LEGAL PROCEEDINGS.

 

On January 11, 2017, the Company received a default notice related to a $500,000 promissory note (the “Batterfly Acquisition Note”) issued to the sellers of Batterfly Energy, Ltd. (“Batterfly”) as partial consideration for the Company’s July 11, 2016 acquisition of Batterfly. The Batterfly Acquisition Note requires the Company to make a payment of $250,000 on October 6, 2016 and $250,000 on February 13, 2017. The default letter states that the Company failed to pay the $250,000 payment due on October 6, 2016, which began to accrue interest of 11% from October 6, 2016. In addition, the default notice states that the Company owes $20,000 in aggregate to two of the Batterfly shareholders related to consulting fees associated with the Batterfly acquisition. Finally, the default notice states that a payment of $250,000, as well as an additional payment of $20,000 must be paid by January 23, 2017. The Company filed a claim against the sellers of Batterfly with the London Court of International Arbitration (LCIA Arbitration No: 173692) and on September 7, 2017 the parties entered into a Stipulation for Stay of Arbitration in the matter as they seek to negotiate a settlement of their claim. Settlement discussions are ongoing.

 

Other than as set forth above, we are not a party to any material legal proceedings, nor is our property the subject of any material legal proceeding.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock is quoted on the OTC PINK Tier of the OTC Markets Group, under the symbol “LCLP”.

 

The following table sets forth the range of high and low bid prices of our common stock as reported and summarized on the OTC PINK, as applicable, for the periods indicated. These prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

 

Calendar Quarter   High     Low  

Year Ended June 30, 2016

               
2016 First Quarter   $ 0.20     $ 0.20  
2016 Second Quarter   $ 0.635     $ 0.535  
2016 Third Quarter   $ 0.2024     $ 0.17  
2016 Fourth Quarter   $ 0.0249     $ 0.017  

Year Ended June 30, 2017

               
2017 First Quarter   $ 0.009     $ 0.0079  
2017 Second Quarter   $ 0.0024     $ 0.0022  
2017 Third Quarter   $ 0.0006     $ 0.0005  
2017 Fourth Quarter   $ 0.0003     $ 0.0001  

 

  7  

 

 

Holders

 

As of April 3, 2018, there were 66 record holders of our common stock, and there were 1,259,831,337 shares of our common stock outstanding.

 

Dividend Policy

 

We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The payment of dividends on our common stock is within the discretion of our board of directors. We intend to retain any earnings for use in our operations and the expansion of our business. Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors that our board of directors may deem relevant. We are not under any contractual restriction as to our present or future ability to pay dividends.

 

Recent Sales of Unregistered Securities

 

On July 21, 2016, the Company entered into a 10% Convertible Promissory Note with Long Side Ventures LLC, an unaffiliated third party. The note was in a principal amount of $75,000, and is convertible at a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On September 22, 2016, the Company entered into a 10% Convertible Promissory Note with St. George, an unaffiliated third party. The note has a maturity date of April 7, 2017 and bears interest at 10% per annum. The note was in a principal amount of $225,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On October 18, 2016, the Company entered into a 10% Convertible Promissory Note with JSJ, an unaffiliated third party. The note was in a principal amount of $150,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On January 27, 2017, the Company entered into a 10% Convertible Promissory Note with LSV, an unaffiliated third party. The note was in a principal amount of $5,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On January 27, 2017, the Company entered into a 10% Convertible Promissory Note with Summit, an unaffiliated third party. The note was in a principal amount of $5,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On February 2, 2017, the Company entered into a 10% Convertible Promissory Note with Taconic, an unaffiliated third party. The note was in a principal amount of $5,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On February 10, 2017, the Company entered into a 10% Convertible Promissory Note with LSV, an unaffiliated third party. The note was in a principal amount of $11,666, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On February 10, 2017, the Company entered into a 10% Convertible Promissory Note with Summit, an unaffiliated third party. The note was in a principal amount of $11,668, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On February 14, 2017, the Company entered into a 10% Convertible Promissory Note with Taconic, an unaffiliated third party. The note was in a principal amount of $11,700, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On February 17, 2017, the Company entered into a 10% Convertible Promissory Note with Edgestone, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On February 23, 2017, the Company entered into a 10% Convertible Promissory Note with Forest, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

  8  

 

 

On March 14, 2017 the Company issued a promissory note for services to Atlanta Capital Partners, an unaffiliated third party, in an amount of $50,000. The note has a maturity date of March 14, 2018 and bears interest at 10% per annum.

 

On March 15, 2017, the Company entered into a 10% Convertible Promissory Note with Edgestone, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On March 17, 2017, the Company entered into a 10% Convertible Promissory Note with Forest, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On March 28, 2017, the Company entered into a 10% Convertible Promissory Note with Forest, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On April 3, 2017, the Company entered into a 10% Convertible Promissory Note with Edgestone, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On May 1, 2017, the Company entered into a 10% Convertible Promissory Note with Edgestone, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

On May 17 2017, the Company issued 1,000,000 shares of the Series A Preferred Stock to Victoria Rudman, the Company’s Chief Financial Officer and a director, in return for services provided to the Company by Ms. Rudman and to ensure Ms. Rudman’s continued service to the Company.

 

On June 1, 2017, the Company entered into a 10% Convertible Promissory Note with Edgestone, an unaffiliated third party. The note was in a principal amount of $50,000, and is convertible a price equal to fifty percent (50%) of the lowest trading price during the twenty trading day period prior to the date of conversion.

 

These securities were issued in reliance on the exemption from registration provided by Sections 4(a)(2) and/or 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”).

 

ITEM 6. SELECTED FINANCIAL DATA

 

A smaller reporting company is not required to provide the information in this Item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Financial Data” and our financial statements and related notes included elsewhere in this Information Statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this Information Statement, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those described below. You should read the “Risk Factors” section of this Information Statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

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 previously announced 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.

 

  9  

 

 

Following the acquisition of Batterfly, we began to focus on developing three synergistic businesses:

 

  Expanding the Mobeego line of mobile accessories.
  Global Sourcing Services that includes product design, factory identification, negotiations, compliance qualification, and end-to-end logistics management to source products anywhere in the world.
  Sales and marketing services that provide an efficient path for companies to launch and market product into multi-channel retail and capture the maximum return on investment.

 

We plan to reengage in these initiatives as we seek potential new distributors, joint venture and strategic alliance partners and additional sources of financing to enable us to pursue marketing and future development and commercialization activities related to the Mobeego.

 

On April 2, 2017, the Company entered into a termination agreement with HP whereby they terminated the Trademark License Agreement. Pursuant to the terms of the termination agreement, the Company agreed to pay HP $62,500.00 by July 15, 2017 and $62,500.00 by October 15, 2017. As of April 2, 2017, the Company agreed to refrain from using any HP trademarks on any products and confirmed that the Company did not have any HP Branded Products in its inventory.

 

On June 22, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”) with Ascenda, a company limited by shares incorporated under the laws of Independent State of Samoa (“Ascenda”), Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Hong Kong (“Company HK”), and Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Independent State of Samoa (“Company Samoa”, and collectively with Company HK, the “Targets” and each a “Target”).

 

Effective as of November 24, 2017, Huey Long, the Company’s Chief Executive Officer and a member of its board of directors, resigned his position as an officer and director of the Company as previously disclosed by the Company. Further, on November 27, 2017, Seller, Company HK, Company Samoa and Donald Ruan entered into a Rescission and Mutual Release Agreement (the “Rescission Agreement”) pursuant to which the parties thereto agreed to rescind, ab initio, the SPA. As a result of the Rescission Agreement, the acquisition of the Targets is deemed not to have occurred, and the note issued by the Company as partial consideration for the acquisition was terminated and rescinded ab initio , and will be of no further force or effect. As a result of these events, and the Company’s efforts to secure additional financing and additional partners to expand sales of its Mobeego product line, the Company is no longer seeking to launch its planned global sourcing business with Textiss USA, Misaki Corporation and Axperrt Company Limited as previously disclosed.

 

How We Generate Revenue

 

We expect to recognize revenues in accordance with the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition”.

 

Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.

 

General and administrative expenses consisted of professional service fees, and other general and administrative overhead costs. Expenses are recognized when incurred.

 

Depending on the extent of our future growth, we may experience significant strain on our management, personnel, and information systems. We will need to implement and improve operational, financial, and management information systems. In addition, we are implementing new information systems that will provide better record-keeping, customer service and billing. However, there can be no assurance that our management resources or information systems will be sufficient to manage any future growth in our business, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.

 

  10  

 

 

Results of Operations

 

For the Years ended June 30, 2017 and June 30, 2016

 

The Company generated $3,064 in revenue for the year ended June 30, 2017, which compares with revenue of $534 for the year ended June 30, 2016. Our revenues increased during the year ended June 30, 2017 due to an increase in the sales of our products, which was limited to only bulk sale.

 

Cost of Goods Sold for the year ended June 30, 2017 were $109,289, which compares with Cost of Goods Sold of $71,903 for the year ended June 30, 2016. The increase in our cost of goods sold was related to expenses for the development of our products.

 

Operating expenses, which consisted of professional fees, licensing fees, management fees, payroll expenses, finance costs, and general and administrative expenses, for the year ended June 30, 2017, were $1,492,703. This compares with operating expenses for the year ended June 30, 2016 of $2,182,542. The decrease in operating expenses for the year ended June 30, 2017 is related to notable relating to consulting costs and software fees.

 

As a result of the foregoing, we had a net gain of $4,579,151 for the year ended June 30, 2017. This compares with a net loss for the year ended June 30, 2016 of 19,713,550. The decrease in our net loss is primarily due to a net gain in derivatives of 14,834,604 compared to a net loss of 16,922,622 for the year ended June 30, 2017. This was also offset by a loss of 6,223,500 on the Acquisition of Batterfly Energy LTD and increased Amortization of Debt Discount.

 

In its audited financial statements as of June 30, 2017, the Company was issued an opinion by its auditors that raised substantial doubt about the ability to continue as a going concern based on the Company’s current financial position. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully develop and market our products and our ability to generate revenues.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of June 30, 2017 we had cash or cash equivalents of $91,672. As of June 30, 2016 we had cash or cash equivalents of $469,233. As of June 30, 2017 our working capital deficit amounted to $2,822,371 an increase of $1,685,136 as compared to $1,846,468 as of June 30, 2016. This increase is primarily a result of a decrease in cash and accounts receivable and an increase in total current liabilities.

 

Net cash used in operating activities was $985,095 for the year ended June 30, 2017. This compares to net cash used in operating activities of $895,989 for the year ended June 30, 2016. The increase of $89,107 in our net cash used in operating activities for the year ended June 30, 2017 was primarily due to a changes in a net gain of 4,579,151 vs. a net loss of 19,713,550, coupled with significant swings in derivative liabilities offset by loss on Batterfly acquisition.

 

Cash flows used in investing activities was $892,500 for the year ended June 30, 2017, and remained the same when compared to $240,000 for the year ended June 30, 2016.

 

Cash flows provided by financing activities was $1,500,034 for the year ended June 30, 2017, which compares to cash flows provided by financing activities of $1,602,578 for the year ended June 30, 2016. The decrease in our cash flows provided by financing activities for the year ended June 30, 2017 was due to a decrease in proceeds from convertible notes.

 

We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Due to the ongoing global economic crisis, we believe it may be difficult to obtain additional financing if needed. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

Stock Incentive Plan

 

On April 20, 2016, the Company approved the Life Clips, Inc. 2016 Stock and Incentive Plan (“the Plan”). The Plan provides for the granting of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock grants and units, performance units and awards, and cash. The Plan allows for an issuance of a maximum of 20,000,000 shares of common stock, with awards made at the discretion of the board of directors. No awards have been made to date.

 

  11  

 

 

Contractual Commitments

 

Employment Agreements

 

For the year ending June 30, 2017, the Company entered into several employment agreements with key officers, the following table summarizes the terms and related share grants:

 

Name   Position     Contract Start     Contract End     Resignation Date     Cash per month # of shares     Cash Paid out in 2017     Accrued in 2017 (unpaid)     1st Grant - On Effective  Date  
Huey Long     CEO       02/02/2017       02/02/2018       11/10/2017     $ 25,000     $ 125,000       -       3,750,000  
William Singer     VP       03/01/2017       03/01/2018       Active     $ 3,500     $ 17,500       -       1,500,000  
Scott Silverman     VP       06/21/2017       06/21/2018       09/25/2017     $ 12,500     $ 6,250     $ 6,250       Resigned prior to Vesting date, therefore no shares issued.  
Victoria Rudman*     CFO       01/16/2017*     06/30/2018       Active     $ 5,000     $ 30,000       *Agreement as of 7/1/17       1,875,000  

 

*Ms. Rudman was appointed CFO on January 16, 2017 (Form 8-K filed on January 23, 2017). A formal agreement was not executed until June 30, 2017 at a cash rate of $12,500 monthly.

 

Name   Position     Contract Start     Contract End     Resignation Date     Cash per month # of Shares     Cash Paid out in 2017     Accrued in 2017 (unpaid)     1st Grant - On Effective  Date  
Huey Long     CEO       02/02/2017       02/02/2018       11/10/2017     $ 25,000     $ 125,000       -       3,750,000  
William Singer     VP       03/01/2017       03/01/2018       Active     $ 3,500     $ 17,500       -       1,500,000  
Scott Silverman     VP       06/21/2017       06/21/2018       09/25/2017     $ 12,500     $ 6,250     $ 6,250       Resigned prior to Vesting date, therefore no shares issued.  
Victoria Rudman*     CFO       01/16/2017*     06/30/2018       Active     $ 5,000     $ 30,000       *Agreement as of 7/1/17       1,875,000  

 

Material Agreements

 

On July 11, 2016, the Company completed its previously announced 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.

 

On June 22, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”) with Ascenda Corporation, a company limited by shares incorporated under the laws of Independent State of Samoa (“Ascenda”), Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Hong Kong (“Company HK”), and Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Independent State of Samoa (“Company Samoa”, and collectively with Company HK, the “Targets” and each a “Target”).

 

Effective as of November 24, 2017, Huey Long, the Company’s Chief Executive Officer and a member of its board of directors, resigned his position as an officer and director of the Company as previously disclosed by the Company. Further, on November 27, 2017, Seller, Company HK, Company Samoa and Donald Ruan entered into a Rescission and Mutual Release Agreement (the “Rescission Agreement”) pursuant to which the parties thereto agreed to rescind, ab initio, the SPA. As a result of the Rescission Agreement, the acquisition of the Targets is deemed not to have occurred and will be of no further force or effect. As a result of these events, and the Company’s efforts to secure additional financing and additional partners to expand sales of its Mobeego product line, the Company is no longer seeking to launch its planned global sourcing business with Textiss USA, Misaki Corporation and Axperrt Company Limited as previously disclosed.

 

  12  

 

 

Financings

 

The following summary table is a listing of all outstanding convertible debt as of June 30, 2017:

 

Issue Date   Maturity Date   Interest rate     Interest rate (default)     Total Principal     Converted     Net Principal  
10/02/2015   10/02/2017     3.85 %     18.00 %   $ 617,578     $ 352,454     $ 265,124  
12/07/2015   12/06/2016     10.00 %     10.00 %     250,000       150,000       100,000  
02/04/2016   02/03/2017     5.00 %     n/a       15,000       15,000       -  
04/26/2016   04/26/2017     10.00 %     18.00 %     25,000       25,000       -  
04/26/2016   04/26/2017     10.00 %     18.00 %     50,000       50,000       -  
04/27/2016   04/27/2017     10.00 %     18.00 %     300,000       -       300,000  
05/13/2016   05/13/2017     10.00 %     22.00 %     700,000       91,070       608,930  
06/09/2016   06/09/2017     10.00 %     18.00 %     75,000       23,209       51,791  
07/14/2016   10/14/2016     5.00 %     n/a       30,000       -       30,000  
07/21/2016   07/21/2017     10.00 %     10.00 %     75,000       -       75,000  
08/23/2016   08/23/2017     10.00 %     18.00 %     15,000       15,000       -  
09/22/2016   09/22/2017     10.00 %     22.00 %     225,000       125,350       99,650  
10/18/2016   10/18/2017     10.00 %     18.00 %     150,000       104,634       45,366  
01/27/2017   01/27/2018     10.00 %     18.00 %     5,000       -       5,000  
01/27/2017   01/27/2018     10.00 %     18.00 %     5,000       -       5,000  
02/02/2017   02/02/2018     10.00 %     18.00 %     5,000       -       5,000  
02/10/2017   02/10/2018     10.00 %     18.00 %     11,666       -       11,666  
02/10/2017   02/10/2018     10.00 %     18.00 %     11,668       -       11,668  
02/14/2017   02/14/2018     10.00 %     18.00 %     11,700       -       11,700  
02/17/2017   02/17/2018     10.00 %     18.00 %     50,000       -       50,000  
02/23/2017   02/23/2018     10.00 %     18.00 %     50,000       -       50,000  
03/14/2017   03/14/2018     10.00 %     18.00 %     50,000       -       50,000  
03/15/2017   03/15/2018     10.00 %     18.00 %     50,000       -       50,000  
03/17/2017   03/17/2018     10.00 %     18.00 %     50,000       -       50,000  
03/28/2017   03/28/2018     10.00 %     18.00 %     50,000       -       50,000  
04/03/2017   04/03/2018     10.00 %     18.00 %     50,000       -       50,000  
05/01/2017   05/01/2018     10.00 %     18.00 %     50,000       -       50,000  
06/01/2017   06/01/2018     10.00 %     18.00 %     50,000       -       50,000  
Total Convertible Notes                   $ 3,027,612     $ 951,717     $ 2,075,895  

 

Capital Expenditures

 

Other Capital Expenditures

 

We expect to incur research and development costs, as well as marketing expenses in connection with the expansion of our business.

 

Fiscal year end

 

Our fiscal year end is June 30.

 

Going Concern

 

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with our financial statements. As reflected in the financial statements included elsewhere in this report, the Company has minimal revenues, net accumulated losses since inception and a shareholders’ deficit of $5,782,212 as of June 30, 2017.

 

We believe that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for us to continue as a going concern. While we believe in the viability of our strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate revenues.

 

The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Future Financings

 

We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.

 

  13  

 

 

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.

 

Critical Accounting Policies

 

The Commission has defined a company’s critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies that are significant to understanding our results.

 

The following are deemed to be the most significant accounting policies affecting us.

 

Use of Estimates

 

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: property and equipment, foreign currency transactions and translations, and common stock valuation. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

 

Income Taxes

 

We account for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on our balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. We must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. Changes in our valuation allowance in a period are recorded through the income tax provision on the statement of operations.

 

From the date of our inception we adopted ASC 740-10-30. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, we recognized no material adjustment in the liability for unrecognized income tax benefits.

 

Non-Cash Equity Transactions

 

Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to contemporaneous cash sale of stock.

 

Fair Value of Financial Instruments

 

We apply the provisions of accounting guidance, FASB Topic ASC 825 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2015 and June 30, 2015, the fair value of accounts payable approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.

 

  14  

 

 

 

Recent Accounting Pronouncements

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). The standard clarifies the definition of a business by adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Under ASU 2017-01, to be considered a business, the assets in the transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Prior to the adoption of the new guidance, an acquisition or disposition would be considered a business if there were inputs, as well as processes that when applied to those inputs had the ability to create outputs. Early adoption is permitted for certain transactions. Adoption of ASU 2017-01 may have a material impact on our consolidated financial statements if we enter into future business combinations.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not anticipate the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

 

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows.

 

The Company reviewed all recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC and they did not or are not believed by management to have a material impact on the Company’s present or future financial statements

 

Off-Balance Sheet Arrangements

 

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. As of June 30, 2017, we have no off-balance sheet arrangements.

 

Inflation

 

We do not believe that inflation has had a material effect on our results of operations.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

A smaller reporting company is not required to provide the information in this Item.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

  15  

 

 

Life Clips, Inc.

 

Index to Financial Statements

 

CONTENTS

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-2
     
Balance Sheets as of June 30, 2017 and 2016   F-3
     
Statements of Operations for the years ended June 30, 2017 and 2016   F-4
     
Statements of Changes in Stockholders’ Deficit for the years ended June 30, 2017 and 2016   F-5
     
Statements of Cash Flows for the years ended June 30, 2017 and 2016   F-6
     
Notes to Financial Statements   F-7

 

F- 1

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Shareholders of

Life Clips, Inc.

 

We have audited the accompanying balance sheets of Life Clips, Inc. (the “Company”) as of June 30, 2017 and 2016, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two years in period end June 30, 2017. Life Clips, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2017 and 2016, and the results of its operations, changes in stockholders’ (deficit) and cash flows for the years ended June 30, 2017 and 2016 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has a net loss and negative cash flows from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ L&L CPAS, PA

L&L CPAS, PA

Certified Public Accountants

Cornelius, North Carolina

The United States of America

April 3, 2018

 

F- 2

 

 

Life Clips, Inc.

BALANCE SHEETS

 

    June 30, 2017     June 30, 2016  
    (Audited)     (Audited)  
ASSETS                
Current assets                
Cash   $ 91,672     $ 469,233  
Total current assets   $ 91,672     $ 469,233  
Other Current Assets                
Accounts Receivable     3,064       -  
Deposit     -       240,000  
Total other current assets   $ 3,064     $ 240,000  
Fixed Assets                
Total Fixed Assets     -       -  
Total assets   $ 94,736     $ 709,233  
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT                
Current liabilities                
Accounts Payable   $ 358,226     $ 162,759  
Accrued Expense and Interest Payable     250,262       48,476  
Customer Deposits     84,538       -  
Convertible Note Payable (net of discount of $ 407,905 and $681,047, respectively)     1,637,990       108,953  
Note Payable - Batterfly & NUWA     530,000       -  
Liquidated Damages Payable     37,316       -  
Payroll Tax Liabilities     18,776       8,195  
Derivative Liabilities     -       1,518,085  
Total Current Liabilities     2,917,107       1,846,468  
Long Term Liabilities                
Derivative Liability - Convertible Notes Payable     2,959,841       18,625,104  
Convertible Notes Payable (Net of debt discount of $-0- and $908,466, respectively.)     -       334,112  
Total Long Term Liabilities     2,959,841       18,959,216  
Total Liabilities     5,876,948       20,805,684  
                 
Shareholders' deficit                
Preferred stock, ($0.001 par value; 20,000,000 shares authorized, on 5/8/17 1,000,000 shares were issued and outstanding).     1,000       -  
Common stock, ($0.001 par value; 8,000,000,000 shares authorized, 187,866,264 (plus 11,004,166 reserved for employee vesting) and 53,332,576 shares issued and outstanding as of June 30, 2017 and June 30, 2016, respectively).     187,867       53,333  
Shares to be issued/returned     6,732       -  
Additional paid in capital     9,897,488       304,666  
Accumulated deficit     (15,875,299 )     (20,454,450 )
Total shareholders' deficit     (5,782,212 )     (20,096,451 )
                 
Total liabilities and shareholders' deficit   $ 94,736     $ 709,233  

 

The accompanying notes are an integral part of these financial statements.

 

F- 3

 

 

LIFE CLIPS, INC.

STATEMENTS OF OPERATIONS

For the years ended June 30, 2017 and 2016

 

    June 30, 2017     June 30, 2016  
    (Audited)     (Audited)  
Revenues                
Revenues   $ 3,064     $ 534  
Cost of goods sold     109,289       71,903  
Gross profit     (106,225 )     (71,369 )
Operating costs:                
Licensing Fee     262,000       -  
Finance Costs     51,000       33,935  
Payroll Expense     160,996       184,201  
Product Development Expense     4,191       49,599  
Professional Fees     620,340       478,537  
Consulting Fees     15,000       670,317  
Management Fees     188,000       -  
Marketing Expense     14,329       10,364  
Software Fees and Support     2,995       646,980  
Travel, Meals and Entertainment     31,544       37,987  
Preferred shares issued     1,000       -  
Employee Stock Vesting in Treasury     41,600       -  
Other general and administrative expenses     99,708       70,622  
Total operating costs     1,492,703       2,182,542  
Gain/(Loss) from operations     (1,598,927 )     (2,253,911 )
Other income (expense)                
Loss on Debt Settlement     (72,916 )     -  
Interest expense     (213,582 )     (49,615 )
Amortization of Debt Discount     (2,146,527 )     (487,402 )
Gain/(Loss) on Derivative     14,834,604       (16,922,622 )
Loss on Acquisition of Batterfly Energy LTD     (6,223,500 )     -  
Total Other Income (Expense)     6,178,078       (17,459,639 )
Gain/(Loss) before income taxes     4,579,151       (19,713,550 )
Provision for income taxes     -       -  
Net gain/(loss)   $ 4,579,151     $ (19,713,550 )
Basic earnings per share     0.05       (0.40 )
Weighted average number of common shares outstanding     90,001,941       49,435,410  

 

The accompanying notes are an integral part of these financial statements.

 

F- 4

 

 

LIFE CLIPS, INC.

STATEMENT OF STOCKHOLDERS’ (DEFICIT)

For the years ended June 30, 2017 and 2016

 

                Shares to                    
    Preferred     Common     be     Additional           Total  
    Stock     Stock     Issued and     Paid-In     Accumulated     Shareholders’  
    Shares     Amount     Shares     Amount     Returned     Capital     Deficit     (Deficit)  
Balances as of June 30, 2015                     38,037,120     $ 38,037             $ 665,283     $ (740,900 )   $ (37,580 )
Reorganization due to recapitalization                     119,366,500       119,367               (129,838 )             (10,471 )
Shares cancelled in reverse re-capitalization                     (107,261,000 )     (107,261 )             (237,739 )             (345,000 )
Shares issued for consulting service                     3,190,000       3,190               6,960               10,150  
Net Loss for the year ended June 30, 2016                                                     (19,713,550 )     (19,713,550 )
Balances June 30, 2016                     53,332,620       53,333       -       304,666       (20,454,450 )     (20,096,451 )
Issuance of Preferred Stock for services     1,000,000       1,000                                               1,000  
Shares issued for conversions and true-ups                     141,650,914       141,651       13,482       855,787               1,010,920  
Shares issued for Batterfly Acquisition                     10,000,000       10,000               5,081,000               5,091,000  
Shares issued for Ascenda Acquisition (Cancelled. Returned after 6/30/17)                     10,000,000       10,000       (10,000 )     -               -  
Shares issued for consulting services                     500,000       500               265,500               266,000  
Shares cancelled and returned to treasury                     (27,617,226 )     (27,617 )             27,617               -  
Shares in treasury for employee stock vesting -To be issued                                     3,250       38,350               41,600  
Reclassify to APIC                                             3,324,568               3,324,568  
Net Income for the year ended June 30, 2017                                                     4,579,151       4,579,151  
Balances as of June 30, 2017     1,000,000     $ 1,000       187,866,308     $ 187,867       6,732     $ 9,897,488     $ (15,875,299 )   $ (5,782,212 )

 

The accompanying notes are an integral part of these financial statements.

 

F- 5

 

 

LIFE CLIPS, INC.

STATEMENTS OF CASH FLOWS

For the years ended June 30, 2017 and 2016

 

    June 30, 2017     June 30, 2016  
    (Audited)     (Audited)  
Cash flows from operating activities:                
Net gain/(loss)   $ 4,579,151     $ (19,713,550 )
Common Stock Compensation     307,600       1,199,933  
Loss on Debt Settlement     72,916       -  
Changes in derivative liabilities     (14,834,604 )     16,922,622  
Amortization of Debt discount     2,146,527       487,402  
Loss on Batterfly acquisition     6,223,500       -  
Adjustments to reconcile Net Income to Net Cash provided by operations:                
Gain/(Loss) on Derivative     -       -  
Other Current Assets     -       -  
Deposit                
Due from related party     -       2,713  
Accounts Receivable     (3,064 )        
Accounts Payable     188,658       162,759  
Accrued expense and interest payable     201,786       33,938  
Deferred Revenue     84,538       -  
Liquidated Damages Payable     37,316       -  
Payroll tax liabilities     10,581       8,195  
Net cash (used in) operating activities   $ (985,095 )   $ (895,988 )
                 
Cash flows from investing activities:                
Investment - Batterfly Energy Ltd     (892,500 )     (240,000 )
Investment - Ascenda     -       -  
Net cash (used in) provided by investing activities   $ (892,500 )   $ (240,000 )
                 
Cash flows from financing activities:                
Repurchase of common stock     -       (345,000 )
Repayment of note payable-related party     (10,000 )     (85,000 )
Proceed from convertible notes payables     1,510,034       2,032,578  
Net cash provided by financing activities   $ 1,500,034     $ 1,602,578  
                 
Net cash increased in cash     (377,561 )     466,589  
                 
Cash at beginning of period     469,233       2,644  
                 
Cash at end of period   $ 91,672     $ 469,233  
                 
Supplemental Disclosures of cash flow information:                
Cash paid for:                
Interest   $ -     $ 11,791  
Income taxes   $ -     $ -  
                 
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES                
                 
Value of common shares issued as payment of debt   $ -     $ -  
Value of common shares issued for services   $ 35,400     $ -  
Value of common shares returned to treasury   $ 30,617     $ -  
Value of common shares issued for acquisition of Batterfly Energy LTD   $ 5,091,000     $ -  
Issuance of Common Stock for acquisition of Batterfly Energy LTD     9,500,000       -  
Issuance of Common Stock for convertible notes payable     141,650,914       -  
Issuance of Common Stock for services     3,250,000       -  
Notes payable   $ 1,224,925     $ -  

 

The accompanying notes are an integral part of these financial statements.

 

F- 6

 

 

Life Clips, Inc.

Footnotes to Financial Statements June 30, 2017

 

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 previously announced 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.

 

Our Company is focused on developing three synergistic businesses:

 

  Expanding the Mobeego line of mobile accessories.
  Global Sourcing Services that includes product design, factory identification, negotiations, compliance qualification, and end-to-end logistics management to source products anywhere in the world.
  Sales and marketing services that provide an efficient path for companies to launch and market product into multi-channel retail and capture the maximum return on investment.

 

On June 22, 2017, the Company entered into a Stock Purchase Agreement (the “SPA”) with Ascenda, a company limited by shares incorporated under the laws of Independent State of Samoa (“Seller”), Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Hong Kong (“Company HK”), and Hong Kong Ascenda International Co., Limited, a company limited by shares incorporated under the laws of Independent State of Samoa (“Company Samoa”, and collectively with Company HK, the “Targets” and each a “Target”). On November 27, 2017 the SPA was rescinded, ab initio, and is of no further force or effect. See Note 14.

 

The following is a description of recent transactions entered into by the Company and its key distributors:

 

On April 7, 2017, the Company entered into a five-year authorized sales representative agreement to provide global sales and marketing to Textiss USA (Textiss), a California Corporation, for its Crazyboxer line of men’s underwear (the “Products”). Textiss is a global leader in the textile and garment industry with a specialization in the design, production, and distribution of underwear. Over the five-year contract, the Company will carry out worldwide multi-channel retail sales and marketing for Textiss for the following accounts: Costco, HSN, Sam’s Club, Wal-Mart, Target, Nordstrom’s Rack, Amazon.com, Walmart.com, Jet.com, Boxed.com, Costco.com, Samsclub.com, Target.com, Zappos.com and Nordstrom.com. With respect to each signed contract with a customer for the sale of the Products, the Company will be entitled to the following commission:

 

  1. For retail stores (brick and mortar) the commission will be 5% of Net Revenue (as defined below) received from the retailer;
  2. For online stores managed by the Company, the commission rate will be 10% of Gross Revenue, minus returns.
  3. “Net Revenue” shall be (i) gross revenue paid to the Company from the customer, less (ii) the cost of goods sold, any market development funds (as agreed to by the Company) and product returns. The Company shall receive a monthly accounting of all sales activity and commissions, and commissions shall be payable within the (10) days of the end of each month for all sales in the preceding proceeding month.

 

The Company and Textiss will have the option to extend the initial five-year term for additional periods of one-year each at the end of the Initial Term or any Renewal Term.

 

On April 12, 2017, the Company’s Mobeego battery products became available on Amazon.com. Mobeego™ is an affordable, single-use, cordless battery that provides an instant shot of power for your phone, so you can stay mobile whenever and wherever. After use, the battery can be discarded or recycled. Mobeego batteries are great for emergency preparedness, since they can be stored up to 10 years without any power leaking. Each package contains a battery and a reusable smartphone adaptor.

 

The Mobeego products available from the Company on Amazon,com include: the Mobeego Single Shot Starter Kit that includes an iPhone or USB reusable adaptor and single battery providing up to 4 hours of additional power. Additional batteries are also available in 3 packs and 6 packs. The Mobeego products are eligible for free shipping with an Amazon Prime membership.

 

F- 7

 

 

On April 19, 2017, the Company entered into a distribution agreement with Misaki Corporation (“Misaki”), organized under the laws of Tokyo, Japan. It is a royalty free, non-exclusive one-year contract with a distributor to sell Mobeego products in Japan. The contract granted Misaki the non-transferable right to promote, market and resell Mobeego products and will be automatically renewed for one additional year, provided Misaki has performed all of its commitments and obligations. The terms of the contract require Misaki to pay 50% of each accepted order in advance and 50% on delivery.

 

On May 3, 2017, the Company entered into a distribution agreement with Axperrt Company Limited (“Axpert”), organized under the laws of Republic of China. It is a royalty free, non-exclusive one-year contract with a distributor to sell Mobeego products throughout Asia, New Zealand, Singapore, the Philippines, India, Indonesia, Cambodia and Vietnam. The contract grants Axpert the non-transferable right to promote, market and resell Mobeego products and will be automatically renewed for one additional year, provided Axpert has performed all of its commitments and obligations. The terms of the contract require Axpert to pay 50% of each accepted order in advance and 50% on delivery.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles 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 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.

 

Income Tax – The Company accounts for income taxes under ASC 740 “Income Taxes” which codified SFAS 109, “Accounting for Income Taxes.” under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements 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” which codified SFAS No. 128. “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. 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.

 

Intangible Asset – The Company is no longer developing software. The development cost through June 30, 2016 has totaled $70,450. The software has an infinite useful life and will be tested annually for impairment.

 

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.

 

F- 8

 

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, 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 8.

 

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 Black-Scholes 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” codified SFAS No. 123 prescribes accounting and reporting standards for all stock based compensation plans payments award 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 50550 “Equity Based Payments to NonEmployees” which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 9618, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services”. 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 Revenues – The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. This statement established that revenue can be recognized when persuasive evidence of an arrangement exists, the services have been delivered, all significant contractual obligations have been satisfied, the fee is fixed or determinable and collection is reasonably assured.

 

Subsequent Events – The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.

 

Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

F- 9

 

 

The Company reviewed all recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC and they did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

NOTE 3. UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN

 

The accompanying 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 financial statements, the Company has minimal revenues, net accumulated losses since inception and a shareholders’ deficit of $5,782,212 as of June 30, 2017. 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 and the successful production and sales release of the Life Clips camera. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 4. RELATED PARTY TRANSACTIONS

 

At June 30, 2017 and June 30, 2016, a major shareholder owed the Company $-0- and $-0-, respectively.

 

The compensation paid to related parties for the ending June 30, 2017 is outlined in the following table:

 

          Contract     Contract     Resignation     Cash per     Cash Paid out     Accrued in 2017     1st Grant - On Effective Date  
Name   Position     Start     End     Date     month     in 2017     (unpaid)     # of Shares  
Huey Long     CEO       02/02/2017       02/02/2018       11/10/2017     $ 25,000     $ 125,000       -       3,750,000  
William Singer     Director       03/01/2017       03/01/2018       Active     $ 3,500     $ 17,500       -       1,500,000  
Victoria Rudman*     CFO       01/16/2017*     06/30/2018       Active     $ 5,000     $ 30,000       *Agreement as of 7/1/17       1,875,000  

 

*Ms. Rudman was appointed CFO on January 16, 2017 (Form 8-K filed on January 23, 2017). A formal agreement was not executed until June 30, 2017 at a cash rate of $12,500 monthly.

 

NOTE 5. INTANGIBLE ASSETS

 

The Company is no longer in the business of developing software. The development cost for the years ended June 30, 2017 and 2016 are $0 and $646,980, respectively. The software had been written off during the annual impairment test.

 

    June 30, 2016     June 30, 2016  
             
Software   $     $ 646,980  
Less: Impairment Charges           (646,980 )
Less: Accumulated Amortization            
Software - net   $ -0-     $ -0-  

 

NOTE 6. NOTES PAYABLE

 

At June 30, 2017 and June 30, 2016 the Company had notes payable in the amount of $530,000 and $0, respectively.

 

NOTE 7. CONVERTIBLE DEBT AND WARRANTS

 

The Company has recorded derivative liabilities associated with convertible debt instruments and warrants, as more fully discussed at Note 8.

 

(A) Convertible Notes and Warrants

 

On October 2, 2015, the Company completed an offering of its 3.85% Convertible Promissory Notes (the “3.85% Notes”) in the aggregate principal amount of $617,578 and on December 7, 2015 the Company completed an offering of its 10% Convertible Promissory Notes (the “10% Notes”) in the aggregate principal amount of $250,000 (the “10% Notes”, and together with the 3.85% Notes, each a “Note” and collectively, the “Notes”), as applicable, with certain “accredited investors” (the “Investors”), as defined under Regulation D, Rule 501 of the Securities Act. The entire principal amount of the Notes remaining outstanding at December 31, 2016 was $417,588, such amount being exclusive of securities converted into the Notes separate from the offering of the Notes. Pursuant to the offering of the Notes, the Company received $617,578 and $250,000 in net proceeds on October 2, 2015 and December 7, 2015, respectively.

 

In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on the two-year anniversary of said date. Upon a default of the Notes, the interest rate will increase to 18%. The principal balance of each Note and all unpaid interest will become due and payable twenty-four (24) months after the date of issuance. The Notes may be prepaid with or without a penalty depending on the date of the prepayment. The principal and interest under the 3.85% Notes are converted at $ $0.026. The principal and interest under the 10% Notes are convertible into shares of the Company’s common stock at 75% times the Volume Weighted Average Price for a 5 days period prior to the conversion date as quoted on the OTC market and pursuant to the terms of a Security Purchase Agreement, dated as of October 2, 2015 and December 7, 2015, as applicable, by and between the Company and each Investor.

 

In connection with the Notes Offering, the Company entered into Registration Rights Agreements, each dated as of October 2, 2015 and December 7, 2015 and each by and between us and each of the Investors.

 

F- 10

 

 

The company entered into convertible notes with eleven third party accredited investors from December 2015 to December 2016. In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on terms specified in said date (see below). Interest rates range from 5% to 10% and are due at various dates from August 2016 to March 2018. These notes are convertible at any time by the investor, prior to the note principal and interest being repaid at rates ranging from $0.006 to $0.033 per share, subject to change due to a ratchet feature contained in most of the notes.

 

Balance at                 Purchased     Balance at     Interest     Interest     Due   Interest     Conversion
July 1, 2016     Additions     Conversions     (sold)     June 30, 2017     Expense     converted     Date   Rate     Price
  25,000       -       (25,000 )     -       -       1,274       (1,274 )   05/30/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  50,000       -       (50,000 )     -       -       3,041       (3,041 )   10/02/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  164,360       -       (164,360 )     -       -       7,433       (7,433 )   10/02/17     3.85 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  15,000       -       (15,000 )     -       -       813       (813 )   02/23/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  151,073       -       -       -       151,073       10,087       -     10/02/17     3.85 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  151,073       -       (81,494 )     -       69,578       7,952       -     10/02/17     3.85 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  151,073       -       (106,600 )     -       44,473       7,854       -     10/02/17     3.85 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  250,000       -       (150,000 )     -       100,000       32,792       -     12/07/16     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  300,000       -       -       -       300,000       38,992       -     04/28/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  700,000       -       (91,070 )     -       608,930       80,187       -     05/14/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  75,000       -       (23,209 )     -       51,791       25,833       -     06/10/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       75,000       -       -       75,000       7,007       -     07/22/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       225,000       (125,350 )     -       99,650       15,474       -     09/23/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       150,000       (94,634 )     (10,000 )     45,366       8,993       -     10/19/17     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       5,000       -       -       5,000       210       -     01/28/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       5,000       -       -       5,000       210       -     01/28/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       5,000       -       -       5,000       201       -     02/03/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       11,666       -       -       11,666       444       -     02/11/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       11,668       -       -       11,668       444       -     02/11/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       11,700       -       -       11,700       433       -     02/15/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,808       -     02/18/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,726       -     02/24/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,466       -     03/15/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,452       -     03/16/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,425       -     03/18/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,274       -     03/29/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       1,205       -     04/04/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       822       -     05/02/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       50,000       -       -       50,000       397       -     06/02/18     10.00 %   50% of the average of the lowest three trading prices during the 20 trading day period prior to the conversion date
  -       30,000       -       -       30,000       1,442             10/14/16     5.00 %   Non-Convertible
  2,032,578       980,034       (926,717 )     (10,000 )     2,075,895       262,691       (12,561 )                

 

F- 11

 

 

The Company has determined that the conversion feature of the Notes represents an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. See Note 8 for further discussion.

 

(B) Terms of Debt

 

The debt carries interest between 3.85% and 10%, and is due in October 2017 and March 2018.

 

All convertible debt in connection with the Notes Offering are convertible at $0.026 and $0.44/share (on June 30, 2016), however, the Notes include a “ratchet feature”, which allows for a lower offering price based on market prices.

 

(C) Future Commitments

 

At June 30, 2016, the Company has outstanding convertible debt of $2,075,895 which is payable within the next eleven months.

 

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.

 

The Company recorded debt discount of $681,047 and $2,076,912 for the year ended June 30, 2017 and 2016.

 

The amortization of debt discount amounted to $2,146,527 and $487,399 for the year ended June 30, 2017 and 2016, respectively.

 

The Convertible Notes Payable changes for the year ended June 30, 2017 are listed in the following table.

 

    June 30, 2017     June 30, 2016  
Balance Prior Year (current and long term)   $ 443,065     $ 85,000  
Proceeds     980,034       2,032,578  
Repayments/Conversion     (951,725 )     (85,000 )
Less: gross Debt Discount recorded     (980,034 )     (2,076,912 )
Add: Amortization of Debt Discount     2,146,650       487,399  
Less Current portion     (1,637,990 )     (108,953 )
Long-Term Convertible Debt   $ -     $ 334,112  

 

NOTE 8. DERIVATIVE LIABILITIES

 

The Company identified conversion features embedded within convertible debt and warrants issued in the year ended June 30, 2017. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion and warrant transactions.

 

The derivate liability changes for the year ended June 30, 217 are listed in the following table.

 

    Derivative Liabilities  
DL as of 6/30/2016     20,143,189  
Initial DL     2,533,938  
Changes in DL     (16,392,718 )
Reclassify to APIC