Footnotes
to Consolidated Financial Statements
September
30, 2021
NOTE
1. ORGANIZATION AND OPERATIONS
Life
Clips, Inc. (the “Company”) was incorporated in Wyoming on March 20, 2013.
On
April 5, 2021, the Company closed its acquisition of Cognitive Apps Software Solutions, Inc. (“Cognitive Apps”, a developer
of artificial intelligence (AI) applications for the healthcare industry and psychedelic research. Cognitive Apps was incorporated in
British Columbia, Canada on November 25, 2020. Its principal business is developing, financing, producing and distributing AI based technological
solutions to the mental health and healthcare sector. Cognitive Apps sold all of its issued and outstanding capital stock to the Company,
becoming a 100%
wholly owned subsidiary.
On
August 25, 2021, the Company closed its acquisition of Belfrics Holdings Limited and its related entities (collectively “Belfrics”).
The new business of operating cryptocurrency exchanges and blockchain development services in Asia and Africa. Belfrics sold all of its
issued and outstanding capital stock to the Company, becoming a 100%
wholly owned subsidiary.
The
Belfrics entities acquired are:
Belfrics
Global PTE Ltd., a Singapore corporation
Belfrics
BT Pvt Ltd, an India corporation
Belfrics
Cryptex Pvt Ltd, an India corporation
Belfrics
Tanzania Ltd, a Tanzania corporation
Belfrics
Nigeria Pvt Ltd, a Nigeria corporation
Belfrics
BT SDN BHD, a Malaysia corporation
Belfrics
Holding Limited, a Malaysia corporation
Belfrics
Academy SDN BHD, a Malaysia corporation
Belfrics
International Ltd, a Malaysia corporation
Belfrics
Europe SL, a Spain corporation
Belfrics
Kenya Pvt. Ltd, a Kenya corporation
Incrypts
SDN BHD, a Malaysia corporation
Belfrics
Malaysia SDN BHD
Founded
in 2014, Belfrics Belfrics internally developed a cryptocurrency digital exchange platform. Supported by the proprietary technology of
Belrium Blockchain KYC solution, the KYC (“Know Your Customer”) and AML (“Anti-Money Laundering”) process of
Belfrics Exchange is a well-accepted compliance solution. With 10 operational offices in 8 countries, Belfrics provides localized and
personalized support to digital currency traders. Through its Blockchain Academy, Belfrics provides continuous training to traders, developers
and blockchain enthusiasts in more than 20 countries. Belfrics is licensed and regulated by the Labuan Financial Services Authority (LFSA)
in Malaysia.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation – The consolidated financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates the financial
statements of its wholly owned subsidiary and all intercompany transactions and account balances have been eliminated in consolidation.
Foreign
Currency Translation – The Companies’
subsidiaries have 7 different functional currencies in addition to U.S. Dollar, but its reporting currency is in U.S. Dollar. The
currencies are Canadian Dollars, Euro, Indian Rupee, Kenyan Shilling, Malaysian Ringgit, Nigerian Naira, and Tanzanian Shilling. The
balance sheet accounts are translated at exchange rates in effect at the end of the period and income statement accounts are translated
at average exchange rates for the period. Translation gains and losses are included as a separate component of stockholders’ deficit.
Use
of Estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Cash
and Cash Equivalents – For financial statement presentation purposes, the Company considers all short-term investments with
a maturity date of three months or less to be cash equivalents.
Investments
– The Company’s investments in marketable securities are measured at fair value with unrealized gains and losses recognized
in other comprehensive income/(loss). The Company received a total of 960,559 shares of Ehave, Inc.’s common stock as payment for
a licensing agreement. These shares had a total value of $100,000 upon issuance. Subsequent to issuance, the stock price of the shares
decreased and an unrealized loss on the investment of $80,789 was recognized, decreasing the asset value to $19,211 at June 30, 2021.
Intangible Assets – The Company had no intangibles at June 30, 2021. At September 30, 2021, the Company’s intangible assets consisted of approximately $43.7 million of cryptocurrency that is recorded at historical cost and not amortized due to its indefinite life. In addition, the Company had an immaterial amount of other intangibles which are recorded at cost based on third party expenditures. The Company will begin amortizing the other intangibles over their estimated remaining useful life when it begins revenue-producing applications. Useful lives of intangible assets are determined after considering the specific facts and circumstances related to each intangible asset. Factors that will be considered when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Indefinite life intangibles are reviewed for impairment when circumstances suggest there could be an impairment, but at least annually.
Property and Equipment – Belfrics property and equipment includes computers and software, furniture and fittings, and office equipment. Depreciation is provided based on the estimated useful life of assets on straight line basis which ranges from three years to five years.
Leases
- The Company accounts for leases in accordance with ASU 2016-02, “Leases” (Topic 842). Based on this standard, the Company
determines if an agreement is a lease at inception. Leases are included – right to use, current portion of lease liability, and
operating lease liability, less current portion in the Company’s consolidated balance sheets. Finance leases are included in right-of-use
assets, lease liability and lease liability, long-term in the Company’s consolidated balance sheets.
As
permitted under Topic 842, the Company has made an accounting policy election not to apply the recognition provisions to short term leases
(leases with a lease term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably
certain to exercise); instead, the Company will recognize the lease payments for short-term leases on a straight-line basis over the
lease term.
Impairment of Long-Lived Assets –
When facts and circumstances indicate that the carving value of long-lived assets may not be recoverable. management recoverability of
the carrying value by preparing estimates of revenues and the resulting gross profit and cash flows. These estimated future cash flows
are consistent with those Belfrics uses in its internal planning. If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount, it recognizes an impairment loss. The impairment loss recognized, if any, is the
amount by interest charges) is less than the carrying amount, it recognizes an impairment loss. The impairment loss recognized, if any,
is the amount by which the carving amount of the asset (or asset group) exceeds the fair value. Belfrics may use a variety of methods
to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumption’s management
believes hypothetical fair value of these assets, including discounted cash flow models, which are consistent with the assumption’s management
believes hypothetical marketplace participants would use. The Company has not recorded any impairment expense on its long-lived assets
as of September 30, 2021.
Income
Tax – The Company accounts for income taxes under Accounting Standards Certifications (“ASC”) 740 “Income
Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred
tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Basic
and Diluted Net Income (Loss) Per Share – The Company computes net income (loss) per share in accordance with ASC 260 “Earnings
Per Share” (“ASC 260”). ASC 260 requires presentation of both basic and diluted earnings per share “EPS’
on the face of the consolidated statements of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per
share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities,
unless the effect is to reduce a loss or increase earnings per share. Diluted EPS excludes all dilutive potential shares if their effect
is anti-dilutive.
Fair
Value of Financial Instruments – The Company measures assets and liabilities at fair value based on an expected exit price
as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of
an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value
may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value
measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs,
used in valuation techniques, are assigned a hierarchical level.
The
following are the hierarchical levels of inputs to measure fair value:
|
●
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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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●
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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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Level
3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair
value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and interest,
certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
The
Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 8). The Company accounts
for its investments, at fair value, on a recurring basis under Level 1 (See Note 5)
Embedded
Conversion Features – The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives
and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted
for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative
treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for
consideration of any beneficial conversion feature.
Derivative
Financial Instruments – The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for
as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported as charges or credits to income.
For
option-based simple derivative financial instruments, the Company uses the Monte Carlo option-pricing model to value the derivative instruments
at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Debt
Issue Costs and Debt Discount – The Company may record debt issue costs and/or debt discounts in connection with raising funds
through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to
interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts
is immediately expensed.
Stock
Based Compensation – ASC 718 “Compensation-Stock Compensation” prescribes accounting and reporting standards
for all stock-based compensation plan payments awarded to employees, including employee stock options, restricted stock, employee stock
purchase plans and stock appreciation rights, which may be classified as either equity or liabilities. The Company should determine if
a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in
cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present
obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction
should be recognized as a liability; otherwise, the transaction should be recognized as equity.
The
Company accounts for stock-based compensation issued to nonemployees and consultants in accordance with the provisions of ASC 505-50
“Equity-Based Payments to Non-Employees”. Measurement of share-based payment transactions with nonemployees shall
be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments
issued. The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance
completion date.
Recognition
of Licensing Revenues – The Company recognizes
revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”
(“Topic 606”). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the
standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The amount of revenue that is recorded reflects the consideration that the company expects to receive in exchange for those goods. The
Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract;
(ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the
contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction
price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The
Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled
to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of Topic
606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which
of these performance obligations are distinct. The Company recognizes as revenue the amount of the transaction price that is allocated
to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s
performance obligations are transferred to customers at a point in time, typically upon delivery.
Commission
revenue is recorded on a trade-date basis when the Company satisfies its performance obligation. The Company receives commissions
on cryptocurrency transaction initiated on its platform. Fees, investment advisory and administrative services revenue is recognized
as the services related to the underlying assignment are completed.
Recently
Issued Accounting Pronouncements – Management has evaluated other recently issued accounting pronouncements and does not believe
that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related
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. LEASES
In
connection with the acquisition of Belfrics, Inc. on August 25, 2021, the Company acquired four facilities’ leases.
The
properties’ location, square footage, lease commencement date, expiration date, terms and payments are as follows:
SCHEDULE OF RIGHT-OF-USE
ASSET
|
|
Belfrics Holding Ltd
|
|
|
Belfrics International Ltd
|
|
|
Belfrics BT SDN BHD
|
|
|
Belfrics Kenya Ltd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
|
Suite B, Lot 3, Level 1, Lazenda Phase 3, OKK Abudllah, Labuan
|
|
|
|
Suite C, Lot 3, Level 1, Lazenda Phase 3, OKK Abudllah, Labuan
|
|
|
|
Suite E, Lot 3, Level 1, Lazenda Phase 3, OKK Abudllah, Labuan
|
|
|
|
11th Floor Unit 2, Mirage Tower 1, Westlands, Chiromo Road. Nairobi.
|
|
Square Footage
|
|
|
300 sq ft
|
|
|
|
700 sq ft
|
|
|
|
300 sq ft
|
|
|
|
974 sq ft
|
|
Lease commencement date
|
|
|
January 1, 2020
|
|
|
|
January 1, 2020
|
|
|
|
January 1, 2020
|
|
|
|
January 1, 2018
|
|
Lease expiration date
|
|
|
December 31, 2022
|
|
|
|
December 31, 2022
|
|
|
|
December 31, 2022
|
|
|
|
April 1, 2023
|
|
Lease terms
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
8 years
|
|
Monthly lease payments
|
|
$
|
840
|
|
|
$
|
720
|
|
|
$
|
720
|
|
|
$
|
709
|
|
Right-of-use
asset is summarized below:
|
|
Belfrics
Holding Ltd
|
|
|
Belfrics International Ltd
|
|
|
Belfrics BT SDN BHD
|
|
|
Belfrics Kenya Ltd
|
|
|
Total
|
|
Office Lease
|
|
$
|
11,225
|
|
|
$
|
13,096
|
|
|
$
|
11,225
|
|
|
$
|
61,643
|
|
|
$
|
97,189
|
|
Less accumulated amortization
|
|
|
(685
|
)
|
|
|
(799
|
)
|
|
|
(685
|
)
|
|
|
(2,992
|
)
|
|
|
(5,161
|
)
|
Right-of-use, net
|
|
$
|
10,540
|
|
|
$
|
12,297
|
|
|
$
|
10,540
|
|
|
$
|
58,651
|
|
|
$
|
92,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease liability is summarized below:
SCHEDULE
OF OPERATING
LEASE LIABILITY
|
|
Belfrics Holding Ltd
|
|
|
Belfrics International Ltd
|
|
|
Belfrics BT SDN BHD
|
|
|
Belfrics Kenya Ltd
|
|
|
Total
|
|
Office Lease
|
|
$
|
10,540
|
|
|
$
|
12,296
|
|
|
$
|
10,540
|
|
|
$
|
58,652
|
|
|
$
|
92,028
|
|
Less: current portion
|
|
|
(2,148
|
)
|
|
|
(9,791
|
)
|
|
|
(8,392
|
)
|
|
|
(36,637
|
)
|
|
|
(56,968
|
)
|
Long term portion
|
|
$
|
8,392
|
|
|
$
|
2,505
|
|
|
$
|
2,148
|
|
|
$
|
22,015
|
|
|
$
|
35,060
|
|
SCHEDULE
OF MATURITY OF LEASE LIABILITIES
Maturity of lease liabilities are as follows:
|
|
Belfrics Holding Ltd
|
|
|
Belfrics International Ltd
|
|
|
Belfrics BT SDN BHD
|
|
|
Belfrics Kenya Ltd
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending June 30, 2022
|
|
$
|
6,483
|
|
|
$
|
7,564
|
|
|
$
|
6,483
|
|
|
$
|
28,659
|
|
|
$
|
49,189
|
|
Year ending June 30, 2023
|
|
|
4,322
|
|
|
|
5,042
|
|
|
|
4,322
|
|
|
|
31,843
|
|
|
|
45,529
|
|
Total future minimum lease payments
|
|
|
10,805
|
|
|
|
12,606
|
|
|
|
10,805
|
|
|
|
60,502
|
|
|
|
94,718
|
|
Less imputed interest
|
|
|
(265
|
)
|
|
|
(310
|
)
|
|
|
(265
|
)
|
|
|
(1,850
|
)
|
|
|
(2,690
|
)
|
Present Value
of Payments
|
|
$
|
10,540
|
|
|
$
|
12,296
|
|
|
$
|
10,540
|
|
|
$
|
58,652
|
|
|
$
|
92,028
|
|
NOTE
4. PROPERY AND EQUIPMENT
As
of June 30, 2021, the Company had no property and equipment. Property and equipment as of September 30, 2021 consisted of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
|
|
September 30, 2021
|
|
Software Development Fees
|
|
$
|
1,311,684
|
|
Plant and Machinery
|
|
|
60,098
|
|
Furniture and Fittings
|
|
|
36,210
|
|
Computers and Software
|
|
|
19,896
|
|
Property and equipment, gross
|
|
|
-
|
|
Accumulated Depreciation
|
|
|
(17,019
|
)
|
Total
|
|
$
|
1,410,869
|
|
NOTE
5. ACQUISITION OF SUBSIDIARIES
BELFRICS
On
August 25, 2021, the Company acquired 100%
of Belfrics in consideration of the issuance of 2,000,000
shares of the Company’s Series C preferred
stock, with the opportunity to earn an additional 1,500,000
shares of the Company’s Series C preferred
stock. The consideration paid for Belfrics had a face value of $20,000,000,
with the opportunity to acquire an additional $15,000,000
face value of the preferred stock. Giving effect
to the formula converting the preferred stock to common stock, the value of the consideration paid at the time of closing was $41,802,925.
Voting
Rights. Majority voting control of the Company lies in the Series A Preferred (“Series A”). The 5,000,000 shares of Series
A have voting power equal to 2 billion common shares. These shares are held by Robert Grinberg, the Company’s CEO and Victoria
Rudman, the Company’s CFO. Therefore, even if all preferred shares and other dilutive instruments were converted to common shares,
the Series holders would still have majority voting rights.
Board
Composition. The Board of the Company consists of three people: Robert Grinberg, Victoria Rudman, and Charles Adelson. The principal
of the Belfrics Entities has the right to be appointed to the Board. However, as of the date of filing, the original board of directors
remains in place post-acquisition.
Executives/Senior
Management. There was no change in senior management after the acquisition. Mr. Grinberg remains CEO and Ms. Rudman remains CFO.
None of the Belfrics’ principals became an executive officer of the parent company.
Based
on the forgoing management has determined that Life Clips, Inc. is both the legal and accounting acquirer as there was no change in control
or management.
SCHEDULE OF BUSINESS ACQUISITIONS
|
|
|
1
|
|
Consideration
|
|
|
|
Series C Preferred Stock
|
|
$
|
26,014,226
|
|
Contingent Liability
|
|
|
15,788,699
|
|
Preferred Shares
|
|
$
|
41,802,925
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired:
|
|
|
|
|
Cash
|
|
$
|
74,377
|
|
Other Current Assets
|
|
|
1,626,712
|
|
Intangibles
|
|
|
45,447,674
|
|
Property and Equipment
|
|
|
1,050,065
|
|
Right-of-Use
Asset
|
|
|
97,189
|
|
Total fair value of net identifiable assets
|
|
$
|
48,296,017
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
335,452
|
|
Due to Related Party
|
|
|
6,060,451
|
|
Lease Liability
|
|
|
97,189
|
|
Total fair value of net identifiable liabilities
|
|
$
|
6,493,092
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired
|
|
$
|
41,802,925
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
COGNITIVE
APPS
On
April 5, 2021, the Company closed its acquisition of Cognitive Apps Software Solutions, Inc. (“Cognitive Apps”, a developer
of artificial intelligence (AI) applications for the healthcare industry and psychedelic research. Cognitive Apps was incorporated in
British Columbia, Canada on November 25, 2020. Its principal business is developing, financing, producing and distributing AI based technological
solutions to the mental health and healthcare sector. Cognitive Apps sold all of its issued and outstanding capital stock to the Company,
becoming a 100% wholly owned subsidiary.
In
exchange for the acquisition, Cognitive Apps received the following consideration:
(a)
Preferred Shares. Exchange each issued and outstanding share of Cognitive Apps common stock for 5,760,000 shares of Series B Preferred
(“Series B”). The Series B are convertible based on 80% of average of the 5 lowest closing prices for a share of common stock
on the principal exchange or market on which such shares are then trading for the 20 trading days immediately preceding such date. Notwithstanding
the foregoing, in no case shall the fair market value multiplied by the total number of shares issued and outstanding be less than $5,000,000.
The fair value on the date of acquisition was calculated at $10,016,089.
(b)
Warrants. In addition to the Series B shares, the previous Cognitive Apps shareholders, on a pro-rata basis, will receive warrants
to purchase a total of 3,500,000 shares of the common shares of the Company at an exercise price of $0.10. The fair value of the warrants
on the date of acquisition was calculated at $20,111.
Cognitive
Apps had no operations and no significant assets recorded at the acquisition date. Based on the calculated purchase price of $10,036,200,
the entire amount was allocated to intangible assets. Due the lack of historical operations and uncertainty regarding future operations,
the Company impaired the full value of the intangible asset acquired. Also, as there were no previous operations, there are no pro forma
disclosures to present.
Pro
Forma Disclosures
The
following unaudited pro forma financial results reflects the historical operating results of the Company, including the unaudited pro
forma results of Belfrics and Cogntive Apps for the three months ended September 30, 2021 and the year ended June 30, 2021 (Note the
Company acquired Belfrics on August 25, 2021). The pro forma financial information set forth below reflects adjustments to the historical
data of the Company to give effect to each of these acquisitions and the related equity issuances as if each had occurred on July 1,
2020. The pro forma information presented below does not purport to represent what the actual results of operations would have been for
the periods indicated, nor does it purport to represent the Company’s future results of operations purport to represent what the actual
results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations.
SCHEDULE
OF PRO FORMA INFORMATION
The
following table summarizes on an unaudited pro forma basis the Company’s results of operations for the three months ended September
30, 2021 and for the year ending June 30, 2021:
|
|
September 30, 2021
|
|
|
June 30, 2021
|
|
Revenues
|
|
$
|
45,574
|
|
|
$
|
170,897
|
|
Net Loss
|
|
|
(535,324
|
)
|
|
|
(3,698,228
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share- basic and diluted
|
|
$
|
(0.0004
|
)
|
|
$
|
(0.0029
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding- basic and diluted
|
|
|
1,472,824,710
|
|
|
|
1,259,831,337
|
|
The calculations of pro forma net revenue and pro forma net loss give
effect to the business combinations for the period from July 1, 2020 until the respective closing dates for (i) the historical net revenue
and net income (loss), as applicable, of the acquired businesses, (ii) incremental depreciation and amortization for each business combination
based on the fair value of property and equipment and identifiable intangible assets acquired and the related estimated useful lives.
NOTE
6. RELATED PARTY TRANSACTIONS
At
June 30, 2021, $1,155,550 was
due to related parties. As of September 30, 2021, $5,504,287
was due to related parties for Belfrics only
and is primarily comprised of loans from the entities’ shareholders.
At
June 30, 2021, the Company reported $34,271 due from related party, a Cog Apps shareholder. As of September 30, 2021 the amount has been
repaid in full.
NOTE
7. CONVERTIBLE NOTES PAYABLE
Convertible
Notes
As
of September 30, 2021, the amount of the Company’s convertible notes in-default was reduced to $0, when compared to June 30, 2021
amount of $541,051, as follows:
SCHEDULE OF CONVERTIBLE NOTES
Balance at September 30, 2021
|
|
|
Balance at
June 30, 2021
|
|
|
Due Date
|
|
Interest Rate at September 30, 2021
|
|
|
$
|
-
|
|
|
$
|
541,051
|
|
|
Range from 05/13/2017 to 01/20/2022
|
|
Range from 3.85% to 22%
|
|
Conversion price equal to fifty percent (50%) of the lowest trading price during the twenty (20) trading day period prior to the date of conversion - at September 30, 2021, convertible into 0 shares not including interest.
|
|
4,369,895
|
|
|
|
3,288,241
|
|
|
Range from 06/15/2023 to 07/01/23
|
|
8%
|
|
Conversion price equal to $0.01. At September 30, 2021, convertible into 434.5 million shares not including interest.
|
|
-
|
|
|
|
375,000
|
|
|
Range from 04/22/2023 to 12/23/2022
|
|
Range from 4% to 10%
|
|
Conversion price equal to $0.015. At September 30, 2021, convertible into 0 shares not including interest.
|
$
|
4,369,895
|
|
|
$
|
4,204,292
|
|
|
|
|
|
|
|
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.
Total
amortization of debt discount amounted to $80,369 and $178 for the three months ended September 30, 2021 and 2020, respectively.
The
debt discount was $0 and $80,369 at September 30, 2021 and June 30, 2021, respectively.
Future
Commitments
At
September 30, 2021 the Company has outstanding convertible debt of $4,344,896, which is due within the next 21 months.
NOTE
8. DERIVATIVE FINANCIAL INSTRUMENTS
As
of September 30, 2021, the Company no longer has any derivatives.
The
Company’s convertible promissory notes and detachable warrants gave rise to derivative financial instruments. The notes embodied
certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics.
These terms and features consist of the embedded conversion option. Additionally, the detachable warrants contained terms and features
that gave rise to derivative liability classification. As of June 30, 2021, the Company does not have enough authorized shares to settle
all potential conversion and warrant transactions.
The
following tables summarize the components of the Company’s derivative liabilities and linked common shares as of June 30, 2021
and the amounts that were reflected in income related to derivatives for the period ended:
SCHEDULE OF COMPONENTS OF DERIVATIVE LIABILITIES
|
|
June 30, 2021
|
|
The financings giving rise to derivative financial instruments
|
|
Indexed
Shares*
(in millions)
|
|
|
Fair
Values
|
|
Embedded derivatives
|
|
|
563
|
|
|
$
|
1,577,001
|
|
Total
|
|
|
563
|
|
|
$
|
1,577,001
|
|
*
|
including principal and
interest
|
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 September 30, 2020:
SCHEDULE OF GAIN (LOSS) OF DERIVATIVE INSTRUMENTS
The financings
giving rise to derivative financial instruments and the gain (loss) effects:
|
|
June
30, 2021
|
|
Embedded derivatives
|
|
$
|
7,103,673
|
|
Total
|
|
$
|
7,103,673
|
|
Current
accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified
in liabilities and carried at fair value with changes recorded in income. The Company has selected the Binomial Lattice Model, which
approximates the Monte Carlo Simulations, valuation technique to fair value the compound embedded derivative because it believes that
this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely
consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions,
credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility
and risk-free rates. The Binomial Lattice Model technique is a level three valuation technique because it requires the development of
significant internal assumptions in addition to observable market indicators. For instruments in which the time to expiration has expired,
the Company has utilized the intrinsic value as the fair value. The intrinsic value is the difference between the quoted market price
on the valuation date and the applicable conversion price.
Significant
inputs and results arising from the Monte Carlo Simulation process are as follows for the embedded derivatives that have been bifurcated
from the convertible notes and classified in liabilities:
SCHEDULE OF SIGNIFICANT INPUTS AND RESULTS FROM VALUATION ASSUMPTIONS
|
|
June 30, 2021
|
|
Quoted market price on valuation date
|
|
$
|
0.0046
|
|
Range of effective contractual conversion rates
|
|
$
|
0.0018
|
|
Contractual term to maturity
|
|
|
NA
|
|
Market volatility:
|
|
|
|
|
Volatility
|
|
|
NA
|
|
Risk-adjusted interest rate
|
|
|
NA
|
|
The
following table reflects the issuances of compound embedded derivatives and detachable warrants and changes in fair value inputs and
assumptions related to the embedded derivatives and detachable warrants during the year ended June 30, 2021 and as of September 30, 2021.
SCHEDULE OF CHANGES IN FAIR VALUE INPUTS AND ASSUMPTIONS RELATED TO COMPOUND EMBEDDED DERIVATIVES
|
|
-
|
|
|
Year Ended
|
|
|
|
September 30, 2021
|
|
|
June 30, 2021
|
|
Balances at beginning of period
|
|
$
|
1,577,001
|
|
|
$
|
13,249,507
|
|
Issuances:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
-
|
|
|
|
50,000
|
|
Conversions:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
-
|
|
|
|
-
|
|
Reclassifications to equity:
|
|
|
|
|
|
|
|
|
Embedded derivatives
|
|
|
-
|
|
|
|
(4,448,276
|
)
|
Changes in fair value inputs and assumptions reflected in income
|
|
|
(1,577,001
|
)
|
|
|
(7,274,230
|
)
|
|
|
|
|
|
|
|
|
|
Balances at end of period
|
|
$
|
-
|
|
|
$
|
1,577,001
|
|
NOTE
9. EQUITY
Authorized
Capital
On
September 28, 2017, the Company filed Articles of Amendment authorizing 5,000,000,000 shares of common stock, par value $0.001 per share
(the “Common Stock”) and 20,000,000 shares of Preferred Stock, par value $0.001 (the “Preferred Stock”). The
Board may issue shares of Preferred Stock in one or more series and fix the rights, preferences and privileges thereof, including voting
rights, terms of redemption, redemption prices, liquidation preferences, number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders.
Preferred
Stock
Effective
May 19, 2017, the Company amended its Articles of Incorporation to designate 1,000,000 shares, which increased to 5,000,000 on June 16,
2021, of preferred stock as Series A Preferred Stock, with a par value of $0.001 per share. Each share of Series A 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 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 has 400 votes on any matter submitted to the shareholders of the Company, and the Series A 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 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 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 held by that holder will be automatically cancelled and will revert to being authorized and unissued shares of Series A. The Series
A is not convertible into any other class of shares of the Company.
Additionally,
the Board authorized 5,760,000 shares of the Company’s Preferred Stock (“Series B”) pursuant to the acquisition of
Cognitive Apps.
Each
share of Series B shall be convertible, at the option of the holder thereof, beginning 12 months from the date of issuance, and thereafter
at any time and from time to time, and without the payment of additional consideration by the holder thereof, into that number of fully
paid and nonassessable shares of common stock (whether whole or fractional) that have a fair market value, in the aggregate, equal to
the Series B conversion price.
The
Series B conversion price shall initially be equal to $1.00 and shall be subject to adjustment as provided below. fair market value shall
mean, as of any date of determination, 80% of average of the 5 lowest closing prices for a share of common stock on the principal exchange
or market on which such shares are then trading for the 20 trading days immediately preceding such date. Notwithstanding the foregoing,
in no case shall the fair market value multiplied by the total number of shares issued and outstanding be less than $5,000,000.
In conjunction with the acquisition
of Belfrics, the Company filed a designation authorizing and designating 3,500,000 shares of Series C Convertible Preferred Stock (“Series
C”).
Each share of Series C shall be convertible,
at the option of the holder thereof, beginning 12 months from the date of issuance, and thereafter at any time and from time to time,
and without the payment of additional consideration by the holder thereof, into that number of fully paid and non-assessable shares
of common stock (whether whole or fractional) that have a fair market value, in the aggregate, equal to the Series C conversion price.
The Series C conversion price shall initially be equal to $10.00 and shall
be subject to adjustment as provided below. fair market value shall mean, as of any date of determination, 80% of average of the 5 lowest
closing prices for a share of common stock on the principal exchange or market on which such shares are then trading for the 20 trading
days immediately preceding such date. Notwithstanding the foregoing, in no case shall the Fair Market Value multiplied by the total number
of shares issued and outstanding be less than $5,000,000.
Stock
and Incentive Plan
On
April 20, 2017, the Company adopted the Life Clips, Inc. 2017 Stock and Incentive Plan under which the Company may issue nonqualified
stock options, incentive stock options, stock appreciation rights, restricted stock grants and units, performance units and awards of
cash. A maximum of 20,000,000 shares of common stock may be issued under the plan, representing in excess of 35% of the number of the
Company’s currently outstanding shares. Awards under the plan will be made at the discretion of the Board of Directors, although
no awards have been made to date. Accordingly, the Company cannot currently determine the amount of awards that will be made under the
plan.
NOTE
10. COMMITMENTS 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
11. SUBSEQUENT EVENTS
On
October 22, 2021, the Company entered into an intellectual property license agreement with Software Research Labs LLC, (“SRL”). In consideration of the mutual promises and covenants contained in the agreement, the parties agreed to the following:
|
1.
|
The Company is granted
a license to use SRL technology in block chain technology for the crypto-currency industries. The Company shall have the right to
enter into agreements with third parties to sub-license the technology, subject to SRL approval.
|
|
|
|
|
2.
|
Consideration was 8,333,333
shares of Company common stock.
|
|
|
|
|
3.
|
Term of agreement is for
three years, beginning on January 8, 2022. There is a renewal option for successive 3-year terms at a cost of $250,000 payable in
the common stock of the Company at a 25% discount to the market price, unless either party gives written notice of non-renewal to
the other, at least 30 days before the end of the then-current term.
|