Footnotes
to Consolidated Financial Statements
March
31, 2019
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
Basis
of Presentation and Consolidation – The consolidated financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates the
financial statements of its wholly-owned subsidiaries and all intercompany transactions and account balances have been eliminated
in consolidation.
Interim
Disclosures – These unaudited consolidated financial statements should be read with the Company’s audited financial
statements and footnotes included in the Company’s Report on Form 10-K for the year ended June 30, 2018, filed with the
Securities and Exchange Commission (“the Commission”) on February 12, 2020. The results of operations for the nine
month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the entire year ending
June 30, 2019 or for any future period.
Use
of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at
the date of the 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:
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●
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Level
1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
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●
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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.
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|
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●
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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, 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
included in the line item loss on extinguishment of debt. If a conversion of the underlying debt occurs, a proportionate share
of the unamortized amounts is immediately expensed.
Stock
Based Compensation – ASC 718 “Compensation Stock Compensation” prescribes accounting and reporting standards
for all stock-based compensation plan payments awarded to employees, including employee stock options, restricted stock, employee
stock purchase plans and stock appreciation rights, which may be classified as either equity or liabilities. The Company should
determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation
to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance
or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation
exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.
The
Company accounts for stock-based compensation issued to nonemployees and consultants in accordance with the provisions of ASC
505-50 “Equity-Based Payments to Non-Employees”. Measurement of share-based payment transactions with nonemployees
shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the
equity instruments issued. The fair value of the share-based payment transaction should be determined at the earlier of performance
commitment date or performance completion date.
Recognition
of Revenues – The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) No.
2014-09 “Revenue from Contracts with Customers”. The Company recognizes as revenues the amount of the transaction
price that is allocated to the respective performance obligations when the performance obligation is satisfied, or as it is satisfied.
The Company primarily sells disposable and recyclable cell phone batteries. The Company’s performance obligation is satisfied
when the goods have been delivered, which is at a point in time. The Company applies the following five steps in order to determine
the appropriate amount of revenue recognized as it fulfills its obligations under each of its agreements:
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●
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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.
|
Recently
Issued Accounting Pronouncements – Financial Accounting Standards Board (“FASB”) ASU 2016-02 “Leases
(Topic 842)”- In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases
on their 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 consolidated 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 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 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 $18,194,655. 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
March 31, 2019 and June 30, 2018, 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 interest at 11% 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
March 31, 2019
|
|
|
Balance at
June 30, 2018
|
|
|
Due Date
|
|
Interest Rate
|
|
Conversion Terms
|
$
|
1,931,806
|
|
|
$
|
1,931,806
|
|
|
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
|
|
|
|
332,154
|
|
|
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
|
|
|
|
90,000
|
|
|
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.
|
|
75,000
|
|
|
|
-
|
|
|
11/28/2019
|
|
18%
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,428,960
|
|
|
$
|
2,353,960
|
|
|
|
|
|
|
|
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.
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.
Future
Commitments
At
March 31, 2019, the Company has outstanding convertible debt of $2,428,960 which is due within the next 12 months.
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 March 31, 2019, 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 March 31,
2019 and June 30, 2018 and the amounts that were reflected in income related to derivatives for the period ended:
|
|
March 31, 2019
|
|
The financings giving rise to derivative financial instruments
|
|
Indexed
Shares*
(in millions)
|
|
|
Fair
Values
|
|
Embedded derivatives
|
|
|
12,368
|
|
|
$
|
3,077,314
|
|
Derivative warrants
|
|
|
1
|
|
|
|
-
|
|
Total
|
|
|
12,369
|
|
|
$
|
3,077,714
|
|
*including
principal and interest
|
|
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
The
following table summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative
financial instruments by type of financing for the three months ended March 31, 2019 and 2018:
The financings giving rise to derivative financial instruments
|
|
For the Three Months Ended
|
|
and the gain (loss) effects:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Embedded derivatives
|
|
$
|
(1,207,669
|
)
|
|
$
|
(479,279
|
)
|
Derivative warrants
|
|
|
-
|
|
|
|
0
|
|
Total
|
|
$
|
(1,207,669
|
)
|
|
$
|
(479,279
|
)
|
The
following table summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative
financial instruments by type of financing for the nine months ended March 31, 2019 and 2018:
The financings giving rise to derivative financial
|
|
For the Nine Months Ended
|
|
instruments and the gain (loss) effects:
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Embedded derivatives
|
|
$
|
6,281,651
|
|
|
$
|
(2,339,377
|
)
|
Derivative warrants
|
|
|
(5
|
)
|
|
|
2,243
|
|
Total
|
|
$
|
6,281,646
|
|
|
$
|
(2,337,134
|
)
|
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 Monte Carlo Simulation process are as follows for the embedded derivatives that have been
bifurcated from the convertible notes and classified in liabilities:
|
|
March 31, 2019
|
|
June 30, 2018
|
Quoted market price on valuation date
|
|
$0.0005
|
|
$0.0005
|
Range of effective contractual conversion rates
|
|
$0.00025
|
|
$0.0001 - $0.0003
|
Contractual term to maturity
|
|
0.05 – 0.67 Years
|
|
0 – 0.83 Years
|
Market volatility:
|
|
|
|
|
Volatility
|
|
51%
|
|
210%
|
Risk-adjusted interest rate
|
|
2.46%
|
|
2.15%
|
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:
|
|
March 31, 2019
|
|
June 30, 2018
|
Quoted market price on valuation date
|
|
$0.0005
|
|
$0.0005
|
Contractual strike price
|
|
$0.40
|
|
$0.40
|
Contractual term to maturity
|
|
0.08 - 0.13 Years
|
|
0.82 - 0.87 Years
|
Market volatility:
|
|
|
|
|
Volatility
|
|
8%
|
|
210%
|
Risk-free interest rate
|
|
2.43%
|
|
2.15%
|
The
following table reflects the issuances of compound embedded derivatives and detachable warrants and changes in fair value inputs
and assumptions related to the embedded derivatives and detachable warrants during the nine months ended March 31, 2019 and 2018.
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Balances at beginning of period
|
|
$
|
9,284,359
|
|
|
$
|
2,959,841
|
|
Issuances:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
136,009
|
|
|
|
317,532
|
|
Detachable warrants
|
|
|
-
|
|
|
|
-
|
|
Conversions:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
-
|
|
|
|
(315,084
|
)
|
Detachable warrants
|
|
|
-
|
|
|
|
-
|
|
Changes in fair value inputs and assumptions reflected in income
|
|
|
(6,342,654
|
)
|
|
|
2,270,504
|
|
|
|
|
|
|
|
|
|
|
Balances at end of year
|
|
$
|
3,077,714
|
|
|
$
|
5,232,793
|
|
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
March 31, 2019 and June 30, 2018, the Company had 975,000 warrants outstanding, with a strike price of $0.40. No warrants were
granted, forfeited or expired during the nine month periods ended March 31, 2019 and 2018. The weighted average remaining lives
of the warrants were 0.09 and 0.84 at March 31, 2019 and June 30, 2018, respectively.
NOTE
8. COMMITTMENTS AND CONTINGENCIES
From
time to time, the Company may be a party to other legal proceedings. Management currently believes that the ultimate resolution
of these matters will not have a material adverse effect on consolidated results of operations, financial position, or cash flow.
NOTE
9. SUBSEQUENT EVENTS
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.
On
June 2, 2020, the Board of Directors, agreed to issue 5,260,000,000 common stock shares in lieu of unpaid management and director
salaries of the accrued amounts from July 1, 2018 through and including March 31, 2020. As of the date of this filing, the shares
are still pending issuance.