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
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.
|
The
Company is currently pursuing alternative business opportunities. There has been limited activity due to a delay in securing funding.
The Company is working to re-energize the business within the next 12 months.
How
We Generate Revenue
In May 2014, the
FASB issued ASU 2014-09, which supersedes the revenue recognition requirements of Accounting Standards Codification, or ASC, Topic
605 “Revenue Recognition.” ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The new revenue recognition model requires identifying the contract, identifying the performance obligations, determining
the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction
of the performance obligations. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty
of revenue and cash flows arising from customer contracts, including significant judgments and change in judgments, and assets
recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be applied either retrospectively to each prior
reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date
of the initial application along with additional disclosures. This ASU is effective for annual reporting periods beginning after
December 15, 2017, with the option to adopt as early as December 15, 2016. The Company adopted the new revenue guidance effective
July 1, 2017. There was no material impact to the Company’s financial statements or financial statement disclosures.
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.
Results
of Operations
For
the Years ended June 30, 2018 and June 30, 2017
The
Company is reporting total revenue of $85,409 for the year ended June 30, 2018, of which only $871 was generated in the current
year and the remaining was from revenue that was deferred at June 30, 2017. The Company generated $3,064 in revenue for the year
ended June 30, 2017.
Cost
of goods sold for the year ended June 30, 2018 was $0, which compares with cost of goods sold of $109,289 for the year ended June
30, 2017. The decrease in our cost of goods sold was related to insufficient funding for the development of 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, 2018, were $403,885. This compares with operating expenses for the year
ended June 30, 2017 of $1,492,703. The decrease in operating expenses for the year ended June 30, 2018 is related to insufficient
capital to continue operating activities, which resulted in decreases in professional fees, licensing fees, management fees and
payroll expense.
As
a result of the foregoing, we had a net loss of $7,950,169 for the year ended June 30, 2018. This compares with a net gain for
the year ended June 30, 2017 of $4,579,151. The difference is primarily due to a 2017 net gain in derivatives of $14,834,604 compared
to a net loss of $6,324,518 for the year ended June 30, 2018. This was also offset by a 2017 loss of $6,223,500 on the acquisition
of Batterfly Energy LTD and decreased amortization of debt discount.
In
its audited financial statements as of June 30, 2018, 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
As
of June 30, 2018, we had cash or cash equivalents of $8,252. As of June 30, 2017, we had cash or cash equivalents of $91,672.
Net cash from operating activities was $(193,420)
for the year ended June 30, 2018. This compares to net cash from operating activities of $(985,095) for the year ended June 30,
2017. The change of $791,675 in our net cash from operating activities for the year ended June 30, 2018 was primarily due
to a change in a net loss of $7,950,169 vs. net income of $4,579,151, coupled with significant swings in derivative liabilities
offset by the loss on Batterfly acquisition.
Cash
flows from investing activities was $0 for the year ended June 30, 2018, compared to the Investment on Batterfly of $892,500 for
the year ended June 30, 2017.
Cash
flows from financing activities was $110,000 for the year ended June 30, 2018, which compares to cash flows from financing activities
of $1,500,034 for the year ended June 30, 2017. The decrease in our cash flows from financing activities for the year ended June
30, 2018 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, 2017, the Company approved the Life Clips, Inc. 2017 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.
Contractual
Commitments
For
the year ending June 30, 2018, the Company had several employment agreements with key officers that automatically renewed for
a second term (year 2), the following table summarizes the terms and related share grants:
Name
|
|
Position
|
|
Contract
Start
|
|
Contract
End
|
|
Cash
per month
|
|
|
Cash
Paid
out in
2018
|
|
Accrued
in
2018 (unpaid)
|
|
|
1st
Grant -
Vested
through
6/30/18, but
not issued
|
|
William
Singer
|
|
VP
|
|
03/01/2017
|
|
03/01/2019
|
|
$
|
3,500
|
|
|
None
|
|
$
|
42,000
|
|
|
|
3,750,000
|
|
Victoria
Rudman
|
|
CFO
|
|
06/30/2017
|
|
06/30/2019
|
|
$
|
12,500
|
|
|
None
|
|
$
|
150,000
|
|
|
|
3,750,000
|
|
William Singer was issued 3,000,000 shares on July 28, 2017 for
services. He was also granted 6,000,000 on August 31, 2017; of which 1,500,000 shares vested on August 31, 2017 and 1,500,000 shares
vested on March 1, 2018 and thereafter 250,000 shares of the Common Stock vesting each month thereafter.
Victoria
Rudman was granted 7,500,000 shares of restricted common stock on June 30, 2017; of which 1,875,000 shares vested on December
30, 2017, 1,875,000 shares vested on June 30, 2018 and thereafter 625,000 shares of the Common Stock vesting each month thereafter.
Material
Agreements
None
Financings
The
following summary table is a listing of all outstanding convertible debt as of June 30, 2018:
Issue
Date
|
|
Maturity
Date
|
|
Original
Interest Rate
|
|
|
Current
Interest Rate (default)
|
|
|
June
30, 2017
|
|
|
June
30, 2018
|
|
10/02/2015
|
|
10/02/2017
|
|
|
3.85
|
%
|
|
|
18.00
|
%
|
|
$
|
265,124
|
|
|
$
|
170,416
|
|
12/07/2015
|
|
12/06/2016
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
100,000
|
|
|
|
91,051
|
|
04/27/2016
|
|
04/27/2017
|
|
|
10.00
|
%
|
|
|
18.00
|
%
|
|
|
300,000
|
|
|
|
300,000
|
|
05/13/2016
|
|
05/13/2017
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
608,930
|
|
|
|
1,075,305
|
|
06/09/2016
|
|
06/09/2017
|
|
|
10.00
|
%
|
|
|
18.00
|
%
|
|
|
51,791
|
|
|
|
32,154
|
|
07/21/2016
|
|
07/21/2017
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
75,000
|
|
|
|
75,000
|
|
09/22/2016
|
|
09/22/2017
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
99,650
|
|
|
|
-
|
|
10/18/2016
|
|
10/18/2017
|
|
|
10.00
|
%
|
|
|
18.00
|
%
|
|
|
45,366
|
|
|
|
-
|
|
01/27/2017
|
|
01/27/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
01/27/2017
|
|
01/27/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
02/02/2017
|
|
02/02/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
02/10/2017
|
|
02/10/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
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
|
%
|
|
|
22.00
|
%
|
|
|
11,700
|
|
|
|
11,700
|
|
02/17/2017
|
|
02/17/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
02/23/2017
|
|
02/23/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
03/14/2017
|
|
03/14/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
03/15/2017
|
|
03/15/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
03/17/2017
|
|
03/17/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
03/28/2017
|
|
03/28/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
04/03/2017
|
|
04/03/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
05/01/2017
|
|
05/01/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
06/01/2017
|
|
06/01/2018
|
|
|
10.00
|
%
|
|
|
22.00
|
%
|
|
|
50,000
|
|
|
|
50,000
|
|
09/19/2017
|
|
08/30/2018
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
30,000
|
|
11/16/2017
|
|
11/16/2018
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
15,000
|
|
01/19/2018
|
|
01/19/2019
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
10,000
|
|
03/22/2018
|
|
03/22/2019
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
15,000
|
|
03/23/2018
|
|
03/23/2019
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
10,000
|
|
04/18/2018
|
|
04/18/2019
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
20,000
|
|
05/01/2018
|
|
05/01/2019
|
|
|
18.00
|
%
|
|
|
18.00
|
%
|
|
|
-
|
|
|
|
10,000
|
|
Total
Convertible Notes
|
|
|
|
|
|
|
|
|
|
$
|
2,045,895
|
|
|
$
|
2,353,960
|
|
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
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.
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
SEC 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 June 30, 2018 and 2017, 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.
Recent
Accounting Pronouncements
Recently
Adopted Standards. The following recently issued accounting standards were adopted during fiscal year 2018:
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing
revenue recognition standards under U.S. GAAP. The new standard provides a five-step process for recognizing revenue that depicts
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The Company adopted this ASU using the full retrospective method effective
July 1, 2017. The impact of adoption of this ASU was immaterial and, accordingly, there were no changes to the previously issued
financial statements for the year ended June 30, 2018.
In
August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments. The new standard is intended
to reduce diversity in practice in how certain cash receipts and cash payments are classified in the statements of cash flows
and must be adopted retrospectively for each prior reporting period presented upon initial adoption. ASU 2016-15 was adopted effective
July 1, 2017 and did not have a material impact on the Company’s consolidated financial statements for the years ended June
30, 2018 and 2017. Accordingly, there were no transactions that required retrospective adjustments in the statements of cash flows
for the year ended June 30, 2018.
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows – Restricted Cash, which requires entities
that have restricted cash or restricted cash equivalents to reconcile the change during the period in the total cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents in its statement of cash flows. As a result,
amounts generally described as cash and restricted cash equivalents should be included with cash and cash equivalents shown on
the statement of cash flows. The Company adopted this standard during 2018 using the retrospective transition method. The adoption
did not result in any changes to the Company’s previously reported statements of cash flows for the year ended June 30,
2018.
In
May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation: Scope of Modification Accounting, which
provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based
payment award. This standard does not change the accounting for modifications of share-based payment awards but clarifies that
modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification
and would not be required if the changes are considered non-substantive. This standard was adopted by the Company in the first
quarter of fiscal 2018 and did not have a material impact on its financial statements.
Standards
Required to be Adopted in Future Years. The following accounting standards are not yet effective; management has not completed
its evaluation to determine the impact that adoption of these standards will have on the Company’s financial statements.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment
model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under
the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. In November 2018, ASU 2016-13
was amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. ASU 2018-19
changes the effective date of the credit loss standards (ASU 2016-13) to fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. Further, the ASU clarifies that operating lease receivables are not within the scope
of ASC 326-20 and should instead be accounted for under the new leasing standard, ASC 842. The Company does not believe that the
impact of this ASU will have a material impact on its consolidated financial statements and related disclosures.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill
impairment test and eliminating the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative
assessment. Instead, under this ASU, an entity would perform its annual, or interim, goodwill impairment test by comparing the
fair value of a reporting unit with its carrying amount and would recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill
allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. This ASU is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The
Company does not believe that the impact of this ASU will have a material impact on its financial statements and related disclosures.
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, 2018, 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
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Life
Clips, Inc.
Index
to Financial Statements
CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of Life Clips, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Life Clips, Inc. (the Company) as of June 30, 2018, and the related consolidated
statements of operations, changes in shareholders’ deficit, and cash flows for the year ended June 30, 2018, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of June 30, 2018, and the results of its operations and its
cash flows for the year ended June 30, 2018, in conformity with accounting principles generally accepted in the United States
of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, 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.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
Substantial
Doubt about the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 3, the Company has incurred net losses and has minimal revenues. These factors, and the need for additional financing
in order for the Company to meet its business plans raises substantial doubt about the Company’s ability to continue as
a going concern. Our opinion is not modified with respect to that matter.
/s/
Accell Audit & Compliance, P.A.
We
have served as the Company’s auditor since 2019.
Tampa,
Florida
February
11, 2020
|
NC
Office
19720
Jetton Road, 3rd Floor
Cornelius,
NC 28031
Tel:
704-897-8336
Fax:
704-919-5089
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders of
Life
Clips, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Life Clips, Inc. (the “Company”) as of June 30, 2017, and the related
statements of income, comprehensive income, shareholders’ equity, and cash flows and the related notes (collectively
referred to as the “financial statements”) for the 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. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of June 30, 2017, and the results of its operations, changes in stockholders’ deficit
and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
The
Company’s Ability to Continue as a Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company has an accumulated deficit, recurring losses, and
expects continuing future losses, and has stated that substantial doubt exists about the Company’s ability to continue as
a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters
are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
L&L
CPAS, PA
Certified
Public Accountants
Cornelius,
North Carolina
The
United States of America
April
3, 2018
The
firm has served this client since July 2015.
LIFE
CLIPS, INC.
BALANCE
SHEETS
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,252
|
|
|
$
|
91,672
|
|
Accounts
Receivable
|
|
|
-
|
|
|
|
3,064
|
|
Total
Assets
|
|
$
|
8,252
|
|
|
$
|
94,736
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
514,986
|
|
|
$
|
358,226
|
|
Accrued
Expenses and Interest Payable
|
|
|
641,386
|
|
|
|
306,353
|
|
Deferred
Revenue
|
|
|
-
|
|
|
|
84,538
|
|
Convertible
Note Payable - In Default (net of discount of $60,219 and $407,905, respectively)
|
|
|
2,293,741
|
|
|
|
1,637,990
|
|
Notes Payable
- In Default
|
|
|
530,000
|
|
|
|
530,000
|
|
Derivative
Liability - Convertible Notes Payable
|
|
|
9,284,359
|
|
|
|
2,959,841
|
|
Total
Current Liabilities
|
|
|
13,264,472
|
|
|
|
5,876,948
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Deficit
|
|
|
|
|
|
|
|
|
Preferred
Stock, ($0.001 par value; 20,000,000 shares authorized, 1,000,000 Series A shares were issued and outstanding as of
June 30, 2018 and June 30, 2017, respectively.)
|
|
|
1,000
|
|
|
|
1,000
|
|
Common
Stock, ($0.001 par value; 5,000,000,000 shares authorized, 1,259,831,337 and 187,866,308 shares issued and outstanding
as of June 30, 2018 and June 30, 2017, respectively.)
|
|
|
1,259,831
|
|
|
|
187,867
|
|
Common
Stock Issuable
|
|
|
89,482
|
|
|
|
45,082
|
|
Additional
Paid in Capital
|
|
|
9,218,935
|
|
|
|
9,859,138
|
|
Accumulated
Deficit
|
|
|
(23,825,468
|
)
|
|
|
(15,875,299
|
)
|
Total
Shareholders’ Deficit
|
|
|
(13,256,220
|
)
|
|
|
(5,782,212
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Deficit
|
|
$
|
8,252
|
|
|
$
|
94,736
|
|
The
accompanying notes are an integral part of these financial statements.
LIFE
CLIPS, INC.
STATEMENTS
OF OPERATIONS
For
the Years Ended
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
85,409
|
|
|
$
|
3,064
|
|
Cost
of Goods Sold
|
|
|
-
|
|
|
|
109,289
|
|
Gross
Profit
|
|
|
85,409
|
|
|
|
(106,225
|
)
|
|
|
|
|
|
|
|
|
|
Operating
Costs:
|
|
|
|
|
|
|
|
|
Licensing
Fees
|
|
|
-
|
|
|
|
262,000
|
|
Finance
Costs
|
|
|
-
|
|
|
|
51,000
|
|
Payroll
Expense
|
|
|
-
|
|
|
|
160,996
|
|
Product
Development Expense
|
|
|
-
|
|
|
|
4,191
|
|
Professional
Fees
|
|
|
381,820
|
|
|
|
662,940
|
|
Consulting
Fees
|
|
|
-
|
|
|
|
15,000
|
|
Management
Fees
|
|
|
-
|
|
|
|
188,000
|
|
Marketing
Expense
|
|
|
2,495
|
|
|
|
14,329
|
|
Software
Fees and Support
|
|
|
1,066
|
|
|
|
2,995
|
|
Travel,
Meals and Entertainment
|
|
|
2,721
|
|
|
|
31,544
|
|
Other
General and Administrative Expenses
|
|
|
15,783
|
|
|
|
99,708
|
|
Total
Operating Costs
|
|
|
403,885
|
|
|
|
1,492,703
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from Operations
|
|
|
(318,476
|
)
|
|
|
(1,598,928
|
)
|
|
|
|
|
|
|
|
|
|
Other
Income/(Expense):
|
|
|
|
|
|
|
|
|
Loss
on Extinguishment of Debt
|
|
|
(559,564
|
)
|
|
|
(72,916
|
)
|
Interest
Expense
|
|
|
(747,611
|
)
|
|
|
(2,360,109
|
)
|
Change
in Fair Value of Derivative
|
|
|
(6,324,518
|
)
|
|
|
14,834,604
|
|
Loss
on Acquisition of Batterfly Energy LTD
|
|
|
-
|
|
|
|
(6,223,500
|
)
|
Total
Other Income (Expense)
|
|
|
(7,631,693
|
)
|
|
|
6,178,079
|
|
Income/(Loss)
Before Income Taxes
|
|
|
(7,950,169
|
)
|
|
|
4,579,151
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
Net
Income/(Loss)
|
|
$
|
(7,950,169
|
)
|
|
$
|
4,579,151
|
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss)
Per Share: Basic and Diluted
|
|
|
(0.01
|
)
|
|
|
0.05
|
|
Weighted
Average Number of Common Shares Outstanding: Basic and Diluted
|
|
|
985,622,702
|
|
|
|
90,001,941
|
|
The
accompanying notes are an integral part of these financial statements.
LIFE
CLIPS, INC.
STATEMENTS
OF CHANGES IN SHAREHOLDERS’ DEFICIT
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Common
Stock
To Be
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Issued
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balances
as of 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 Debt Conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
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 Services
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
500
|
|
|
|
-
|
|
|
|
265,500
|
|
|
|
-
|
|
|
|
266,000
|
|
Shares
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,617,226
|
)
|
|
|
(27,617
|
)
|
|
|
-
|
|
|
|
27,617
|
|
|
|
-
|
|
|
|
-
|
|
Stock
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,600
|
|
Reclassify
to APIC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,324,568
|
|
|
|
-
|
|
|
|
3,324,568
|
|
Net
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,579,151
|
|
|
|
4,579,151
|
|
Balances
as of June 30, 2017
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
187,866,308
|
|
|
|
187,867
|
|
|
|
45,082
|
|
|
|
9,859,138
|
|
|
|
(15,875,299
|
)
|
|
|
(5,782,212
|
)
|
Shares
Issued for Debt Conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
1,068,965,029
|
|
|
|
1,068,964
|
|
|
|
-
|
|
|
|
(642,603
|
)
|
|
|
-
|
|
|
|
426,361
|
|
Stock
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
|
|
3,000
|
|
|
|
44,400
|
|
|
|
2,400
|
|
|
|
-
|
|
|
|
49,800
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,950,169
|
)
|
|
|
(7,950,169
|
)
|
Balances
as of June 30, 2018
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
|
1,259,831,337
|
|
|
$
|
1,259,831
|
|
|
$
|
89,482
|
|
|
$
|
9,218,935
|
|
|
$
|
(23,825,468
|
)
|
|
$
|
(13,256,220
|
)
|
The
accompanying notes are an integral part of these financial statements.
LIFE
CLIPS, INC.
STATEMENTS
OF CASH FLOWS
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$
|
(7,950,169
|
)
|
|
$
|
4,579,151
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to Reconcile Net Income/(Loss) to Net Cash From Operating Activities:
|
|
|
|
|
|
|
|
|
Stock
Compensation
|
|
|
49,800
|
|
|
|
307,600
|
|
Loss
on Extinguishment of Debt
|
|
|
559,564
|
|
|
|
72,916
|
|
Changes
in Fair Value of Derivative Liabilities
|
|
|
6,324,518
|
|
|
|
(14,834,604
|
)
|
Amortization
of Debt Discount
|
|
|
457,686
|
|
|
|
2,146,527
|
|
Loss
on Batterfly Acquisition
|
|
|
-
|
|
|
|
6,223,500
|
|
|
|
|
|
|
|
|
|
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
3,064
|
|
|
|
(3,064
|
)
|
Accounts
Payable
|
|
|
156,760
|
|
|
|
199,239
|
|
Accrued
Expenses and Interest Payable
|
|
|
289,895
|
|
|
|
239,102
|
|
Deferred
Revenue
|
|
|
(84,538
|
)
|
|
|
84,538
|
|
Net
Cash From Operating Activities
|
|
|
(193,420
|
)
|
|
|
(985,095
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Investment
- Batterfly Energy Ltd
|
|
|
-
|
|
|
|
(892,500
|
)
|
Net
Cash From Investing Activities
|
|
|
-
|
|
|
|
(892,500
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment
of Note Payable-Related Party
|
|
|
-
|
|
|
|
(10,000
|
)
|
Proceeds
From Convertible Notes Payables
|
|
|
110,000
|
|
|
|
1,510,034
|
|
Net
Cash From Financing Activities
|
|
|
110,000
|
|
|
|
1,500,034
|
|
|
|
|
|
|
|
|
|
|
Net
Change in Cash
|
|
|
(83,420
|
)
|
|
|
(377,561
|
)
|
|
|
|
|
|
|
|
|
|
Cash
at Beginning of Period
|
|
|
91,672
|
|
|
|
469,233
|
|
|
|
|
|
|
|
|
|
|
Cash
at End of Period
|
|
$
|
8,252
|
|
|
$
|
91,672
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow information:
|
|
|
|
|
|
|
|
|
Cash
Paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of common
shares issued as settlement of debt
|
|
$
|
426,361
|
|
|
$
|
1,010,920
|
|
The
accompanying notes are an integral part of these financial statements.
Life
Clips, Inc.
Notes
to Financial Statements June 30, 2018 and 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
acquisition (the “Acquisition”) of all of the outstanding equity securities of Batterfly Energy Ltd. (“Batterfly”),
an Israel-based corporation that develops and distributes a single-use, cordless battery under the brand name Mobeego for use
with cellular phones and other mobile devices. Batterfly is now a wholly owned subsidiary of the Company. The Acquisition
was completed pursuant to a Stock Purchase Agreement, dated as of June 10, 2016 (the “Purchase Agreement”), among
the Company, Batterfly and all of the shareholders of Batterfly, as amended.
The
Company is currently open to and pursuing alternative business opportunities.
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 Accounting Standards Certifications (“ASC”) 740 “Income
Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the 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” (“ASC 260”). 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.
Fair
Value of Financial Instruments
The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance
on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability,
as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes
a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation
techniques, are assigned a hierarchical level.
The
following are the hierarchical levels of inputs to measure fair value:
|
●
|
Level
1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for
similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities;
or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
|
|
●
|
Level
3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine
fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, accounts payable,
accrued expenses and interest, deferred revenue, 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 6).
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”
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
505-50 “Equity-Based Payments to Non-Employees”. Measurement of share-based payment transactions with nonemployees
shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the
equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance
commitment date or performance completion date.
Recognition
of Revenues
The Company recognized
revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”.
The Company applies the following five steps in order to determine the appropriate amount of revenue recognized as it fulfills
its obligations under each of its agreements:
|
●
|
identify
the contract with a customer;
|
|
●
|
identify
the performance obligations in the contract;
|
|
●
|
determine
the transaction price;
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
Reclassifications
Certain
amounts in the 2017 financial statements have been reclassified to conform to the current period financial presentation. These
reclassifications had no effect on the previously reported net income, cash flows or shareholders’ deficit.
Recently
Issued Accounting Pronouncements
Financial
Accounting Standards Board, or FASB, Accounting Standards Update, or ASU 2016-02 “Leases (Topic 842)”- In February
2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use
asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified
as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current
lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with
certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential
impact this standard will have on its financial statements and related disclosures.
FASB
ASU 2015-17 “Income Taxes (Topic 740)” - In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation
of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax
liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities
and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after
December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The Company has adopted ASU 2015-17
as of July 1, 2017. Adopting this standard did not have a material impact on the Company’s financial statements or financial
statement disclosures.
FASB
ASU 2015-11 “Inventory (Topic 330): Simplifying the Measurement of Inventory,” or ASU 2015-11 - In July 2015,
the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value.
Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO)
or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option
to early adopt as of the beginning of an annual or interim period. The Company adopted ASU 2015-11 on July 1, 2017, the first
day of the Company’s first quarter for the fiscal year ending June 30, 2018. Adoption of this standard did not have a material
impact on the Company’s financial statements or financial statement disclosures.
FASB
ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09 - In May 2014, the FASB issued
ASU 2014-09, which supersedes the revenue recognition requirements of Accounting Standards Codification, or ASC, Topic 605 “Revenue
Recognition.” ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue
recognition model requires identifying the contract, identifying the performance obligations, determining the transaction price,
allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of the performance obligations.
ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and change in judgments, and assets recognized from costs incurred to
obtain or fulfill a contract. ASU 2014-09 can be applied either retrospectively to each prior reporting period presented or retrospectively
with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional
disclosures. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as
early as December 15, 2016. The Company adopted the new revenue guidance effective July 1, 2017. There was no material impact to the Company’s financial statements or financial statement
disclosures.
Subsequent
Events – The Company follows the guidance in ASC 855 “Subsequent Events” for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU
2010-09 of the FASB ASC, 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.
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 an accumulated deficit of $23,825,468. These
factors raise doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern
is dependent on management funding operating costs. The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
NOTE
4. NOTES PAYABLE
At
June 30, 2018 and 2017, the Company had two notes payable in the amount of $530,000, with the following terms:
|
1.
|
The
Batterfly Acquisition Note required the Company to make two payments of $250,000 on October
6, 2017 and February 13, 2017. Upon failure to pay the payment due, the balance began to accrue at 11% interest per annum.
|
|
2.
|
On
July 14, 2016, the Company issued a new promissory note to NUWA Group, LLC., from which
the Company received $30,000 in gross proceeds, has a maturity date of October 14, 2016,
and bears interest at 5% per annum. This promissory note does not have a conversion feature.
|
NOTE
5. CONVERTIBLE DEBT
Convertible
Notes
Balance
at
June 30, 2018
|
|
|
Balance
at
June 30, 2017
|
|
|
Due
Date
|
|
Interest
Rate at June 30, 2018
|
|
Conversion
Terms
|
$
|
1,931,806
|
|
|
$
|
1,564,526
|
|
|
Range
from
10/01/2017 to
04/18/2018
|
|
Range
from
3.85% to 22%
|
|
Conversion
price equal to fifty percent (50%) of the lowest trading price during the twenty (20) trading day period prior to the date
of conversion - $0.0001 at June 30, 2018, convertible into 19,318 million shares not including interest.
|
|
332,154
|
|
|
|
421,369
|
|
|
Range
from
06/10/17 to
03/30/18
|
|
10%
|
|
Conversion
price equal to seventy five percent (75%) of the lowest trading price during the five (5) trading day period prior to the
date of conversion - $0.0003 at June 30, 2018, convertible into 1,107 million shares not including interest.
|
|
90,000
|
|
|
|
60,000
|
|
|
Range
from
01/28/2018 to
05/01/2019
|
|
Range
from
10% to 22%
|
|
Conversion
price equal to fifty percent (50%) of the lowest trading price during the five (5) trading day period prior to the date of
conversion - $0.0002 at June 30, 2018, convertible into 450 million shares not including interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,353,960
|
|
|
$
|
2,045,895
|
|
|
|
|
|
|
|
The
Company evaluated the convertible promissory notes under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815
generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated
for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely
related to the risks of the host contract. The material embedded derivative consists of the embedded conversion feature. The conversion
option bears risks of equity which were not clearly and closely related to the host debt agreement and required bifurcation. See
Note 6 for further discussion.
Debt
Discount
The
Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value
of the derivative liability, as it exceeded the gross proceeds of the note.
The
convertible notes had a debt discount of $60,219 and $407,905 as of June 30, 2018 and 2017, respectively.
Accumulated
amortization of debt discount amounted to $457,686 and $2,146,527 for the years ended June 30, 2018 and 2017, respectively.
Future
Commitments
At
June 30, 2018 and 2017, the Company has outstanding convertible debt of $2,353,960 and 2,045,895, respectively, which is currently
due.
NOTE
6 –DERIVATIVE FINANCIAL INSTRUMENTS
The
Company’s convertible promissory notes and detachable warrants gave rise to derivative financial instruments. The notes
embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic
risks and characteristics. These terms and features consist of the embedded conversion option. Additionally, the detachable warrants
contained terms and features that gave rise to derivative liability classification. As of June 30, 2018, the Company does not
have enough authorized shares to settle all potential conversion and warrant transactions.
The
following tables summarize the components of the Company’s derivative liabilities and linked common shares as of June 30,
2018 and 2017 and the amounts that were reflected in income related to derivatives for the period ended:
|
|
June
30, 2018
|
|
The
financings giving rise to derivative financial instruments
|
|
Indexed
Shares*
(in millions)
|
|
|
Fair
Values
|
|
Embedded
derivatives
|
|
|
24,432
|
|
|
$
|
9,284,352
|
|
Derivative
warrants
|
|
|
1
|
|
|
|
7
|
|
Total
|
|
|
24,433
|
|
|
$
|
9,284,359
|
|
*including
principal and interest
|
|
June
30, 2017
|
|
The
financings giving rise to derivative financial instruments
|
|
Indexed
Shares*
(in millions)
|
|
|
Fair
Values
|
|
Embedded
derivatives
|
|
|
1,526
|
|
|
$
|
2,957,598
|
|
Derivative
warrants
|
|
|
1
|
|
|
|
2,243
|
|
Total
|
|
|
1,527
|
|
|
$
|
2,959,841
|
|
*including
principal and interest
Current
accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to
be classified in liabilities and carried at fair value with changes recorded in income. The Company has selected the Binomial
Lattice Model, which approximates the Monte Carlo Simulations, valuation technique to fair value the compound embedded derivative
because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that
market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among
other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for
option models such as market trading volatility and risk-free rates. The Binomial Lattice Model technique is a level three valuation
technique because it requires the development of significant internal assumptions in addition to observable market indicators.
Significant
inputs and results arising from the Binomial Lattice Model process are as follows for the embedded derivatives that have been
bifurcated from the convertible notes and classified in liabilities:
|
|
June
30, 2018
|
|
June
30, 2017
|
Quoted
market price on valuation date
|
|
$0.0005
|
|
$0.0024
|
Range
of effective contractual conversion rates
|
|
$0.0001
- $0.0003
|
|
$0.0010
- $0.0018
|
Contractual
term to maturity
|
|
0
– 0.83 Years
|
|
0.10
– 2.87 Years
|
Market
volatility:
|
|
|
|
|
Volatility
|
|
210%
|
|
261%
|
Risk-free
interest rate
|
|
2.15%
|
|
0.71%
|
The
Company has selected the Black Scholes Merton valuation technique to fair value the detachable warrants because it believes that
this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would
likely consider in transactions involving compound embedded derivatives.
Significant
inputs and results arising from the Black Scholes Merton process are as follows for the detachable warrants classified in liabilities:
|
|
June
30, 2018
|
|
June
30, 2017
|
Quoted
market price on valuation date
|
|
$0.0005
|
|
$0.0024
|
Contractual
strike price
|
|
$0.40
|
|
$0.40
|
Contractual
term to maturity
|
|
0.82
- 0.87 Years
|
|
1.82
– 1.87 Years
|
Market
volatility:
|
|
|
|
|
Volatility
|
|
210%
|
|
261%
|
Risk-free
interest rate
|
|
2.15%
|
|
0.71%
|
The
following table reflects the issuances of compound embedded derivatives and detachable warrants and changes in fair value inputs
and assumptions related to the compound embedded derivatives during the years ended June 30, 2018 and 2017.
|
|
Year
Ended
June 30, 2018
|
|
|
Year
Ended
June 30, 2017
|
|
Balances
at beginning of year
|
|
$
|
2,959,841
|
|
|
$
|
20,143,189
|
|
Issuances:
|
|
|
|
|
|
|
|
|
Embedded
derivatives
|
|
|
443,639
|
|
|
|
2,553,938
|
|
Detachable
warrants
|
|
|
-
|
|
|
|
-
|
|
Conversions:
|
|
|
|
|
|
|
|
|
Embedded
derivatives
|
|
|
(210,272
|
)
|
|
|
(3,324,568
|
)
|
Detachable
warrants
|
|
|
-
|
|
|
|
-
|
|
Changes
in fair value inputs and assumptions reflected in income
|
|
|
6,091,151
|
|
|
|
(16,392,718
|
)
|
|
|
|
|
|
|
|
|
|
Balances
at end of year
|
|
$
|
9,284,359
|
|
|
$
|
2,959,841
|
|
NOTE
7. EQUITY
Authorized
Capital
On
April 4, 2017, the Company filed Articles of Restatement with the Wyoming Secretary of State authorizing 320,000,000 shares of
common stock, par value $0.001 per share (the “Common Stock”) and 20,000,000 shares of Preferred Stock, par value
$0.001 (the “Preferred Stock”). The Board may issue shares of Preferred Stock in one or more series and fix the rights,
preferences and privileges thereof, including voting rights, terms of redemption, redemption prices, liquidation preferences,
number of shares constituting any series or the designation of such series, without further vote or action by the stockholders.
On
June 28, 2017, the Company filed Articles of Amendment to authorize an increase in the number of authorized shares of Common Stock
from 300,000,000 to 800,000,000.
On
September 28, 2017, the Company filed Articles of Amendment to authorize an increase in the number of authorized shares of Common
Stock from 800,000,000 to 5,000,000,000.
Preferred
Stock
Effective
as of May 19, 2017, the Company amended its Articles of Incorporation to designate 1,000,000 shares of preferred stock as Series
A Preferred Stock, with a par value of $0.001 per share (the “Series A Stock”). Each share of Series A Stock ranks,
with respect to dividend rights and rights upon liquidation, winding up or dissolution of the Company, the same as the common
stock of the Company, par value $0.001 per share (the “Common Stock”) and is not entitled to any specific dividends
or other distributions, other than those declared by the Board of Directors. Each share of Series A Stock has 100 votes on any
matter submitted to the shareholders of the Company, and the Series A Stock votes together with the holders of the outstanding
shares of all other capital stock of the Company (including the Common Stock and any other series of preferred stock then outstanding),
and not as a separate class, series or voting group on any such matter. The Series A Preferred Stock is not transferrable by the
holder, and may be redeemed by the Company at any time for the par value. In the event that the holder of Series A Preferred Stock
who is an employee or officer of the Company leaves their position as an employee or officer of the Company for any reason, the
Series A Preferred Stock held by that holder will be automatically cancelled and will revert to being authorized and unissued
shares of Series A Preferred Stock. The Series A Stock is not convertible into any other class of shares of the Company.
On
May 25, 2017, the Company issued 1,000,000 shares of Series A Stock to Victoria Rudman, the Company’s Chief Financial Officer,
in return for services provided to the Company by Ms. Rudman and to ensure Ms. Rudman’s continued service to the Company.
Effective
as of June 2, 2017, the Company amended its Articles of Incorporation by amending the Certificate of Designation for the Series
A Stock to increase the number of votes that each share of Series A Stock has to 200 votes. Effective as of August 7, 2017, the
Company again amended its Articles of Incorporation by amending the Certificate of Designation for the Series A Stock to increase
the number of votes that each share of Series A Stock has to 400 votes.
Stock
and Incentive Plan
On
April 20, 2017, the Company adopted the Life Clips, Inc. 2017 Stock and Incentive Plan under which the Company may issue nonqualified
stock options, incentive stock options, stock appreciation rights, restricted stock grants and units, performance units and awards
of cash. A maximum of 20,000,000 shares of common stock may be issued under the plan, representing in excess of 35% of the number
of the Company’s currently outstanding shares. Awards under the plan will be made at the discretion of the Board of Directors,
although no awards have been made to date. Accordingly, the Company cannot currently determine the amount of awards that will
be made under the plan.
Warrants
and Options
At
June 30, 2018 and 2017, the Company had 975,000 warrants outstanding, with a strike price of $0.40. No warrants were granted,
forfeited or expired during the years ended June 30, 2018 and 2017. The weighted average remaining lives of the warrants were
0.84 and 1.84 at June 30, 2018 and 2017, respectively.
NOTE
8. INCOME TAX PROVISION
Income
taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due.
Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting which
will be either taxable or deductible when the assets or liabilities are recovered or settled.
The
Company accounts for income taxes in accordance with the provisions of ASC 740, Accounting for Uncertainty in Income Taxes.
The Company accounts for income taxes using an asset and liability approach to calculate deferred income taxes. The asset and
liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided
to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will
not be realized.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law. The Company has completed the accounting for the effects of the Act during the year ended June 30, 2018.
The Company’s financial statements for the year ended June 30, 2018 reflect certain effects of the Act, which
includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
At
June 30, 2018, the Company has a net operating loss carry-forward of $23,825,468 available to offset future taxable income expiring
through 2035. Utilization of future net operating losses may be limited due to potential ownership changes under Section 382 of
the Internal Revenue Code.
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative
to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of June
30, 2018.
The
effects of temporary differences that gave rise to significant portions of deferred tax assets at June 30, 2018 and 2017 are approximately
as follows:
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
Net
Operating Loss Carryforward
|
|
$
|
23,825,468
|
|
|
$
|
15,875,299
|
|
Gross
Deferred Tax Assets
|
|
|
5,003,348
|
|
|
|
5,397,602
|
|
Less
Valuation Allowance
|
|
|
(5,003,348
|
)
|
|
|
(5,397,602
|
)
|
Total
Deferred Tax Assets – Net
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of income taxes computed at the statutory rate to the income tax amount recorded is as follows:
|
|
Year
ended June 30
|
|
|
|
2018
|
|
|
2017
|
|
Income
tax expense (benefit) at statutory rate
|
|
$
|
(1,669,535
|
)
|
|
$
|
1,556,398
|
|
Tax
Cuts and Job Act Impact
|
|
|
2,063,789
|
|
|
|
-
|
|
Decrease
in valuation allowance
|
|
|
(394,254
|
)
|
|
|
(1,556,398
|
)
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
The
Company had no gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future
periods. It has not accrued any interest or penalties associated with income taxes. The Company files income tax returns in the
United States federal jurisdiction. With few exceptions, it is no longer subject to U.S. federal, state or non-U.S. income tax
authorities on tax returns filed before January 31, 2012. No tax returns are currently under examination by tax authorities.
NOTE
9. COMMITTMENTS AND CONTINGENCIES
From
time to time, the Company may be a part to other legal proceedings. Management currently believes that the ultimate resolution
of these matters, and after consideration of amount accrued, will not have a material adverse effect on consolidated results of
operations, financial position, or cash flow.
NOTE
10. SUBSEQUENT EVENTS
The
Company follows the guidance in Section 855-10-50 of the FASB ASC for the disclosure of subsequent events. The company
will evaluate subsequent events through the date of the issuance of the financial statements.
On August 8, 2018, the Company entered into
an 18% Convertible Promissory Note with Long Side Ventures LLC, an unaffiliated third party. The note was in a principal amount
of $15,000, and is convertible at a price equal to fifty percent (50%) of the lowest trading price during the five-trading
day period prior to the date of conversion. The note maturity date is August 8, 2019.
On September 24, 2018, the Company entered
into an 18% Convertible Promissory Note with Long Side Ventures LLC, an unaffiliated third party. The note was in a principal
amount of $5,000, and is convertible at a price equal to fifty percent (50%) of the lowest trading price during the five-trading
day period prior to the date of conversion. The note maturity date is September 24, 2019.
On September 26, 2018, the Company entered
into an 18% Convertible Promissory Note with Crest Ventures LLC, an unaffiliated third party. The note was in a principal amount
of $5,000, and is convertible at a price equal to fifty percent (50%) of the lowest trading price during the five-trading
day period prior to the date of conversion. The note maturity date is September 26, 2019.
On November 28, 2018, the Company entered
into an 18% Convertible Promissory Note with Long Side Ventures LLC, an unaffiliated third party. The note was in a principal
amount of $50,000, and is convertible at a price equal to fifty percent (50%) of the lowest trading price during the five-trading
day period prior to the date of conversion. The note maturity date is November 28, 2019.
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, 2017 acquisition of Batterfly. The Batterfly Acquisition Note required the Company to make a payment of $250,000 on October
6, 2017 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, 2017, which began to accrue interest of 11% from October 6, 2017. 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. The claim was settled during 2019 for which the Company agreed to issue
62,991,567 shares of common stock to the sellers of Batterfly. As of the date of this filing, the shares are still pending issuance.