SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
[X] Quarterly report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2016
[ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 333-198828
Life Clips, Inc.
(Exact Name of Registrant as Specified in Its Charter)
or Other Jurisdiction of
Incorporation or Organization)
Classification Code Number)
233 S. Sharon Amity Rd.
Charlotte, NC 28211
Phone: (800) 292-8991
(Address and telephone number of registrant’s principal executive offices and principal place of business)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)
|Large accelerated filer [ ]||Accelerated filer [ ]|
|Non-accelerated filer [ ]||Smaller reporting company [X]|
|(Do not check if a smaller reporting company)|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|Class||Outstanding at November 29, 2016|
|Common Stock, $0.001 par value per share||76,178,269|
LIFE CLIPS, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2016
TABLE OF CONTENTS
|PART I — FINANCIAL INFORMATION|
|Item 1.||Financial Statements||3|
|Item 2.||Management’s Discussion and Analysis of Financial Condition and Results of Operations||14|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk||17|
|Item 4.||Control and Procedures||17|
|PART II — OTHER INFORMATION|
|Item 1.||Legal Proceedings||17|
|Item 1A.||Risk Factors||17|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds||17|
|Item 3.||Defaults Upon Senior Securities||17|
|Item 4.||Mine Safety Disclosures||17|
|Item 5.||Other Information||17|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Life Clips, Inc. and Subsidary (F/K/A Blue Sky Media Corporation)
|September 30, 2016||June 30, 2016|
|Due from related party|
|Total current assets||171,411||469,233|
|Other Current Assets|
|Inventory - Cameras and Accessories||3,881||-|
|Other Current Assets||5,000||-|
|Investment - Batterfly Energy LTD||32,500||-|
|Total other current assets||74,751||240,000|
|LIABILITIES AND SHAREHOLDERS’ DEFICIT|
|Accrued Expense and Interest Payable||87,994||48,476|
|Convertible Notes Payable (net of discount of $624,413 and $681,047, respectively)||480,587||108,953|
|Payroll Tax Liabilities||18,287||8,195|
|Total Current Liabilities||2,563,387||1,846,468|
|Long Term Liabilities|
|Derivative Liability - Convertible Notes Payable||5,126,717||18,625,104|
|Convertible Notes Payable (Net of debt discount of $717,179 and $908,466, respectively.)||460,399||334,112|
|Total Long Term Liabilities||5,587,116||18,959,216|
|Preferred stock, ($0.001 par value; 20,000,000 shares authorized, no shares were issued and outstanding).||-||-|
|Common stock, ($0.001 par value; 320,000,000 shares authorized, 70,836,334 and 53,332,576 shares issued and outstanding as of September 30, 2016 and June 30, 2016, respectively).||70,837||53,333|
|Additional paid in capital||8,422,204||304,666|
|Total shareholders’ deficit||(7,904,341||)||(20,096,451||)|
|Total liabilities and shareholders’ deficit||$||246,162||$||709,233|
The accompanying notes are an integral part of these condensed, consolidated financial statements.
Life Clips, Inc. and Subsidiary (F/K/A Blue Sky Media Corporation)
Statements of Operations
|For the three month||For the three month|
|period ended||period ended|
|September 30, 2016||September 30, 2015|
|Cost of goods sold||45,489|
|Product Development Expense||934||-|
|Software Fees and Support||1,786||1,103|
|Other general and administrative expenses||26,847||6,462|
|Total operating costs||1,911,442||58,891|
|(Loss) from operations||(1,883,610||)||(58,891||)|
|Other income (expense)|
|Amortization of Debt Discount||(416,519||)||(31,750||)|
|Loss on Derivative||12,592,429|
|Loss on Acquisition of Batterfly Energy LTD||(6,191,000||)||-|
|Total Other Income (Expense)||5,940,678||(31,750||)|
|Income (Loss) before income taxes||4,057,068||(90,641||)|
|Provision for income taxes||-||-|
|Net Income (loss)||$||4,057,068||$||(90,641||)|
|Basic earnings per share||0.06||**|
|Weighted average number of common shares outstanding||64,205,131||38,037,120|
**Less than $0.01
The accompanying notes are an integral part of these condensed, consolidated financial statements.
Life Clips, Inc. and Subsidary (F/K/A Blue Sky Media Corporation)
Statement of Cash Flows
For the Three Months Ended
|September 30, 2016||September 30, 2015|
|Cash flows from operating activities:|
|Net Income (loss)||$||4,057,068||(90,641||)|
|Other Current Assets||(5,000||)||(8,888||)|
|Changes in derivative liabilities||(13,768,115||)||-|
|Amortization of Debt discount||416,519||-|
|Adjustments to reconcile Net Income to Net Cash provided by operations:|
|Accrued expense and interest payable||39,518||-|
|Payroll tax liabilities||10,092||-|
|Net cash (used in) operating activities||(9,011,766||)||(99,529||)|
|Cash flows from investing activities:|
|Investment - Batterfly Energy Ltd||(32,500||)||-|
|Net cash (used in) provided by investing activities||(32,500||)||(10,000||)|
|Cash flows from financing activities:|
|Loans payable - Others||31,750|
|Notes Payable||530 ,000||75,000|
|Issuance of Common Stock for Acquisition if Batterfly Energy Ltd||5,091,000||-|
|Issuance of Common Stock for Convertible Note Payable||1,409,284||-|
|Issuance of Common Stock for Services||1,634,758||-|
|Proceed from convertible notes payables||81,402||-|
|Net cash provided by financing activities||8,746,444||106,750|
|Net cash increased in cash||(297,822||)||(2,779||)|
|Cash at beginning of period||469,233||2,643|
|Cash at end of period||$||171,411||$||(136||)|
|Supplemental Disclosures of cash flow information:|
|Cash paid for:|
|NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES|
|Value of common shares issued as payment of debt||$||65,000||$||-|
|Value of common shares issued for acquisition of Batterfly Energy LTD||$||5,091,000||$||-|
|Value of common shares issued as payment for services||$||1,634,758||$||-|
The accompanying notes are an integral part of these condensed, consolidated financial statements.
Life Clips, Inc.
(f/k/a Blue Sky Media Corp)
Footnotes to Financial Statements September 30, 2016
NOTE 1. ORGANIZATION AND OPERATIONS
Business and basis of presentation – Life Clips, Inc. (the “Company”) was incorporated under the laws of Wyoming on March 20, 2013 as Blue Sky Media Corporation. On November 3, 2015, the Company changed its name to Life Clips, Inc. to more accurately reflect its business after a merger set forth below.
The Company was in the business of developing, production and distributing motion pictures. The Company entered into a merger and exchange agreement on October 2 nd , 2015. Klear Kapture was in the business of developing state-of-the-art body/action cameras.
On October 2, 2015, the Company completed a stock merger and exchange agreement with Klear Kapture, Inc. (“Klear Kapture”). Pursuant to the terms of the Share Exchange Agreement, the Company agreed to issue 380,037,120 shares of its unregistered common stock to the shareholders of Klear Kapture in exchange for 10,000 shares of its common stock, representing 100% of its issued and outstanding common stock. As part of the Share Exchange, the Company purchased 107,261,000 shares of our common stock from its former executive officers and directors for a price of $345,000. Upon the effective date of the transaction, Klear Kapture became a wholly owned subsidiary of Life Clips.
Since the merger, the company has focused on developing software and cameras for the action sports market as well as seeking acquisitions that are complementary to the video market. Our goal is to provide affordable yet high quality technology devices to meet the growing consumer demand for videos and pictures. This field includes creating software to support our hardware offerings in mobile Apps, cloud services, and future offerings in vertical markets for both our hardware and organically designed software.
Life Clips is in the business to create digital life memories. We do this by designing, manufacturing and selling world class digital devices that allow consumers to capture videos or pictures. Life Clips was a research and development company during the 2015 financial year. In July, 2016 we began shipping our first action cameras under the Life Clips brand. Almost concurrently with that first delivery of cameras, the Company began negotiations with HP to design, manufacture and distribute HP branded cameras. Our vision as a company remained the same, namely to create high quality digital cameras that should gain significant market share.
The Company acquired Batterfly Energy in July 2016. Batterfly manufactures the Mobeego® brand emergency cell phone battery. The Mobeego provides an extra 20-40% shot of power to a cell phone without having to be tethered or charged. The batteries have a 10-year shelf life. The Company realized the packaging that was inherited did not convey the message properly and is in the process of re-packaging the product.
On September 22, 2016 entered into a partnership license agreement with HP. The agreement allows Life Clips to design, manufacture and sell HP branded action cameras, 360 cameras, dash cameras and still cameras. The agreement also calls for accessory sales and the building of an online cloud repository to store, edit and share user created videos and pictures.
The Agreement called for the Company to no longer sell the Life Clips branded cameras or accessories to eliminate channel conflict or confusion. Therefore, the Company will focus its efforts on creating best in class HP branded products and accessories.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash and cash equivalents – For financial statement presentation purposes, the Company considers all short term investments with a maturity date of three months or less to be cash equivalents.
Income Tax – The Company accounts for income taxes under ASC 740 “Income Taxes” which codified SFAS 109, “Accounting for Income Taxes.” under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Basic and Diluted Net Income (Loss) Per Share – The Company computes net income (loss) per share in accordance with ASC 260 “Earnings Per Share” which codified SFAS No. 128. “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
Intangible Asset – The Company is developing software. The development cost through June 30, 2016 has totaled $70,450. The software has an infinite useful life and will be tested annually for impairment.
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
|●||Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.|
|●||Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.|
|●||Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.|
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 8.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Stock based compensation – ASC 718 “Compensation Stock Compensation” codified SFAS No. 123 prescribes accounting and reporting standards for all stock based compensation plans payments award to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, which may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of an entity’s past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.
The Company accounts for stock based compensation issued to nonemployees and consultants in accordance with the provisions of ASC 50550 “Equity Based Payments to NonEmployees” which codified SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 9618, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services”. Measurement of share based payment transactions with nonemployees shall be based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share based payment transaction should be determined at the earlier of performance commitment date or performance completion date.
Common Stock – On December 15, 2015, the Company filed Articles of Amendment to authorize 320,000,000 shares of common stock, to change the par value to $0.001 and to execute a 11:1 forward stock split. All common stock and per share data for the period presented in this Quarterly Report on Form 10-K have been adjusted to give effect to the forward stock split.
Preferred Stock – On December 15, 2015, the Company filed Articles of Amendment to authorize 20,000,000 shares of preferred stock, par value $0.001.
Recognition of Revenues – The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. This statement established that revenue can be recognized when persuasive evidence of an arrangement exists, the services have been delivered, all significant contractual obligations have been satisfied, the fee is fixed or determinable and collection is reasonably assured.
Subsequent Events – The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.
Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Recent Pronouncements –
The Company reviewed all recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC and they did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 3. UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the Company has minimal revenues, net accumulated losses since inception and a shareholders’ deficit of $(7,904,341). These factors raise doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management funding operating costs and the successful production and sales release of the Life Clips camera. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4. RELATED PARTY TRANSACTIONS
At September 30, 2016 and June 30, 2016, there were no related party transactions.
NOTE 5. INTANGIBLE ASSETS
The Company is developing software. The development cost for the period ended September 30, 2016 is $0. The software has an infinite useful life and will be tested annually for impairment.
|September 30, 2016||June 30, 2016|
|Less: Impairment Charges||(646,980||)|
|Less: Accumulated Amortization||-||-|
|Software - net||$||-0-||$||-0-|
NOTE 6. NOTES PAYABLE
On July 14, 2016 the Company issued a $30,000 promissory note to NUWA Group, LLC. The promissory note is a standard, non-convertible note. The effective interest rate is 5.00% per annum, calculated yearly not in advance. The note is to be repaid in full on October 14, 2016. Note proceeds are to be used for operating expenses.
Pursuant to the Stock Purchase Agreement by and among Batterfly Energy, LTD and the Company, on July 11, 2016 the Company issued a $500,000 Promissory Note and Stock Pledge Agreement to the former shareholders of Batterfly Energy, LTD. The promissory note is a standard, non-convertible note. The effective interest rate is 1.00% with a default interest rate of 10.00%. The note is to be repaid in two (2) payments, $250,000 on October 11, 2016 and the balance due on February 13, 2017.
At September 30, 2016 and June 30, 2016 the Company had notes payable in the amount of $530,000 and $0, respectively.
NOTE 7. CONVERTIBLE DEBT AND WARRANTS
The Company has recorded derivative liabilities associated with convertible debt instruments and warrants, as more fully discussed at Note 8.
(A) Convertible Debt
On October 2, 2015, the Company completed an offering of its 3.85% Convertible Promissory Notes (the “3.85% Notes”) in the aggregate principal amount of $617,578 and on December 7, 2015 the Company completed an offering of its 10% Convertible Promissory Notes (the “10% Notes”) in the aggregate principal amount of $250,000 (the “10% Notes”, and together with the 3.85% Notes, each a “Note” and collectively, the “Notes”), as applicable, with certain “accredited investors” (the “Investors”), as defined under Regulation D, Rule 501 of the Securities Act. The entire principal amount of the Notes remaining outstanding at September 30, 2016 was $802,578, such amount being exclusive of securities converted into the Notes separate from the offering of the Notes. Pursuant to the offering of the Notes, the Company received $617,578 and $250,000 in net proceeds on October 2, 2015 and December 7, 2015, respectively.
In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on the two-year anniversary of said date. Upon a default of the Notes, the interest rate will increase to 18%. The principal balance of each Note and all unpaid interest will become due and payable twenty-four (24) months after the date of issuance. The Notes may be prepaid with or without a penalty depending on the date of the prepayment. The principal and interest under the 3.85% Notes are converted at $ $0.026. The principal and interest under the 10% Notes are convertible into shares of the Company’s common stock at 75% times the Volume Weighted Average Price for a 5 days period prior to the conversion date as quoted on the OTC market and pursuant to the terms of a Security Purchase Agreement, dated as of October 2, 2015 and December 7, 2015, as applicable, by and between the Company and each Investor.
In connection with the Notes Offering, the Company entered into Registration Rights Agreements, each dated as of October 2, 2015 and December 7, 2015 and each by and between us and each of the Investors.
The company entered into convertible notes with ten third party accredited investors from December 2015 to September 2016. In addition to the terms customarily included in such instruments, the Notes began accruing interest on the date that each Investor submitted the principal balance of such Investor’s Note, with the interest thereon becoming due and payable on terms specified in said date (see below). Interest rates range from 5% to 10% and are due at various dates from August 2016 to March 2018. These notes are convertible at any time by the investor, prior to the note principal and interest being repaid at rates ranging from $0.10 to $0.35 per share, subject to change due to a ratchet feature contained in most of the notes.
|Issue Date||Maturity Date||Interest rate||Interest rate (default)||Principal|
|Total Convertible Notes||2,347,578.00|
(B) Terms of Debt
The debt carries interest between 3.85% and 10%, and is due in October 2017 through March 2018.
All convertible debt in connection with the Notes Offering are convertible at $0.026 and $0.183/share (on September 30, 2016), however, the Notes include a “ratchet feature”, which allows for a lower offering price based on market prices.
(C) Future Commitments
At September 30, 2016, the Company has outstanding convertible debt of $2,347,578 which is payable within the next eighteen months.
The Company issued six warrants dated from February to July 2016. Four of the warrants are related to consulting agreements and two are related to convertible note holders. All warrants issued through September 30, 2016 were accounted for as derivative liabilities, as the warrants were not held on reserve at and therefore tainted. See Note 8. Two warrants issued were exercised during the period ended September, 2016. The details are:
|Purpose of||Issue||Number Shares||Warrant||Period Warrants|
|Warrant Issuance||Date||Common Stock||Exercise Price||Exercisable|
|Consulting Services||2/22/2016||2,600,000||$||0.001||2/22/2016 to 2/22/2019|
|Website design and Digital||3/10/2016||1,916,500||$||0.001||3/10/2016 to 3/10/2019|
|Locker app development|
|Investor Incentive||4/27/2016||625,000||$||0.400||4/27/2016 to (not defined)|
|Investor Incentive||5/13/2016||350,000||$||0.400||5/13/2016 to 5/13/2019|
|Consulting Services||7/29/2016||525,000||$||0.001||7/29/2016 to 7/29/2021|
|Consulting Services||7/29/2016||225,000||$||0.001||7/29/2016 to 7/29/2021|
NOTE 8. DERIVATIVE LIABILITIES
The Company identified conversion features embedded within convertible debt and warrants issued in the period ended September 30, 2016. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion and warrant transactions.
As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow:
|September 30, 2016||June 30, 2016|
|Fair value at the commitment date - convertible debt||$||6,336,002||$||6,142,583|
|Fair value at the commitment date - warrants||1,900,399||1,541,236|
|Fair value mark to market adjustment - convertible debt||(272,564||)||10,641,842|
|Fair value mark to market adjustment - warrants||(1,588,763||)||1,817,529|
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as September 30, 2016:
|Commitment Date||Re-measurement Date|
|Expected term||0.5 to 5 years||0.10-4.83 years|
|Risk free interest rate||0.39%-1.14%||0.36%- 0.71%|
NOTE 9. CONVERTIBLE DEBT - NET
The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
The Company recorded debt discount of $168,598 as of September 30, 2016 and $2,076,912 for the year ended June 30, 2016.
Accumulated amortization of debt discount amounted to $903,919 as of September 30, 2016 and $487,399 for the year ended June 30, 2016. The Company recorded amortization expense of the debt issuance cost of $416,519 as of September 30, 2016 and $487,399 for the year ended June 30, 2016.
|September 30, 2016||June 30, 2016|
|Balance Prior Year||443,065||85,000|
|Less: gross Debt Discount recorded||(168,598||)||(2,076,912||)|
|Add: Amortization of Debt Discount||416,519||487,399|
|Less Current portion||(480,587||)||(108,953||)|
|Long-Term Convertible Debt||$||460,399||334,112|
NOTE 11. EQUITY
For the three month period ended September 30, 2016 17,503,758 shares of common stock were issued bringing out total shares issued and outstanding to 70,836,334.
On October 2, 2015 (the “Effective Date”) the Company entered into and closed on a merger and exchange agreement (the “Share Exchange Agreement”) with Klear Kapture in an effort to expand its current line of business. Klear Kapture has developed a body camera and an auditable software solution suitable for use by law enforcement that it intends to produce, market and sell. Following the closing of the Share Exchange Agreement, we intend to continue Klear Kapture’s historical business and proposed business and have entered into a services agreement with our former executive officers and directors to operate our film marketing, distribution and production video and APP development businesses pursuant to the terms of a Services Agreement dated October 2, 2015 (the “Services Agreement”). However, we no longer intend to operate the pre-transaction business of the Company.
Pursuant to a consulting agreement with a non-related third party, we issued 3,190,000 shares on October 2, 2015 for a price of approximately $0.00318 per share (an aggregate of $10,150), which was recorded as consulting services.
On December 15, 2015, the Company filed Articles of Amendment to authorize 320,000,000 shares of common stock, par value $0.001 per share, to authorize 20,000,000 share of preferred stock, par value $0.001 per share, and to execute a 11:1 forward stock split. All common stock and per share date for the period presented in this Annual Report on Form 10-K has been adjusted to give effect to the forward stock split.
Pursuant to the terms of the Share Exchange Agreement, as of the Effective Date, we agreed to issue 38,037,120 shares of our unregistered common stock to the shareholders of Klear Kapture in exchange for 10,000 shares of its common stock, representing 100% of its issued and outstanding common stock in the Share Exchange. As part of the Share Exchange, we purchased 107,261,000 shares of our common stock from our former executive officers and directors for a price of approximately $ 0.00318 per share (an aggregate of $345,000). Upon the Effective Date, Klear Kapture became a wholly owned subsidiary of our company and our pro-forma shares of common stock outstanding giving effect to the repurchase of shares from our former executive officers and directors is 53,343,620. Robert Gruder who was appointed as our Chief Executive Officer and a Director in connection with the Share Exchange received 30,296,563 shares of our common stock in exchange for 7,965 shares of Klear Kapture’s common stock he previously owned. Mr. Gruder’s ownership of our common stock at the exchange date represented approximately 56.8% of our issued and outstanding shares of common stock. At September 30, 2016 Mr. Gruder’s ownership of our common stock represents approximately 40.4% of our issued and outstanding shares.
On April 20, 2016, the company adopted the Life Clips, Inc. 2016 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.
The Company has issued six warrants dated from February to July 2016. Four of the warrants are related to consulting agreements and two are related to convertible note holders. See Note 7 (D) for details:
NOTE 12. SUBSEQUENT EVENTS
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The company will evaluate subsequent events through the date of the issuance of the financial statements.
On October 24, 2016 3,534,706 shares were issued in a conversion of a convertible note payable.
On October 24, 2016 1,807,229 shares were issued in a conversion of a convertible note payable.
On November 8, 2016 268,102 shares were issued in a conversion of a convertible note payable.
On November 11, 2016 157,895 shares were issued in a conversion of a convertible note payable.
On November 15, 2016 2,900,000 shares were issued in a conversion of a convertible note payable.
Item 2. Management’s discussion and analysis of financial condition and results of operations.
Unless we specify otherwise, all references in this Annual Report to the “ Company ,” “ our ,” “ we ” and “ us ” refer to Life Clips, Inc. and its consolidated subsidiaries. In addition to statements of current and historical facts, this Quarterly Report on Form 10-K contains forward-looking statements. The words “forecast,” “will,” “intend,” “anticipate,” “project,” “intend,” “expect,” “should,” “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, including those discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
|●||Our ability to achieve our business of producing and selling products;|
|●||Our ability to penetrate the consumer action camera market;|
|●||Our ability to produce commercial grade photo and video products;|
|●||Our ability to attract, retain and motivate qualified employees and management.|
|●||The impact of federal, state or local government regulations;|
|●||Competition in the consumer action camera market;|
|●||Availability and cost of additional capital;|
|●||Litigation in connection with our business; and|
|●||Our ability to protect our trademarks, patents and other proprietary rights.|
This list of factors that may affect future performance and the accuracy of forward-looking statements are illustrative but not exhaustive. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
We were incorporated in Wyoming on March 20, 2013 and our principal business is providing consumers with an alternative way to capture, manage, share, broadcast and enjoy situational life experiences. We do this by enabling people to capture photos or videos either with single or multiple perspectives of an event during compelling life moments. Our core business is to allow individuals to capture and use content. To this end, we develop hardware and software solutions to provide individuals a rugged device which allows consumers to record and take pictures in situations where mobile devices would be prone to breakage. The device can then help users with managing, sharing and enjoying engaging content. We sell to consumers and to specific industries such as law enforcement and fire professionals. Prior to October 2, 2015, when we acquired Klear Kapture, Inc., a Delaware corporation (“ Klear Kapture ”), our name was “Blue Sky Media Corporation,” and our principal business was developing, financing, producing and distributing motion pictures and related entertainment products.
Life Clips is in the business to create digital life memories. We do this by designing, manufacturing and selling world class digital devices that allow consumers to capture videos or pictures. Life Clips was a research and development company during the 2015 financial year. In July 2016 we began shipping our first action cameras under the Life Clips brand. Almost concurrently with that first delivery of cameras, the Company began negotiations with HP to design, manufacture and distribute HP branded cameras. Our vision as a company remained the same, namely to create high quality digital cameras that should gain significant market value.
On September 22, 2016 Life Clips entered into a partnership license agreement with HP. The agreement allows Life Clips to design, manufacture and sell HP branded action cameras, 360 cameras, dash cameras and still cameras. The agreement also calls for accessory sales and the building of an online cloud repository to store, edit and share user created videos and pictures.
The agreement called for the company to no longer sell the Life Clips branded cameras or accessories to eliminate channel conflict or confusion. Therefore, the company will focus its efforts on creating best in class HP branded products and accessories.
The Company acquired Batterfly Energy in July, 2016. Batterfly manufactures the Mobeego brand emergency cell phone battery. The Mobeego provides an extra 20-40% shot of power to a cell phone without having to be tethered or charged. The batteries have a 10-year shelf life. The Company realized the packaging that was inherited did not convey the message properly and is in the process of re-packaging the product.
Our common stock is quoted for trading on the OTCQB under the symbol “LCLP.” Our principal executive offices are located at 233 S. Sharon Amity Rd., Suite 201, Charlotte, NC 28211. Our telephone number is (800) 292-8991.
Significant Accounting Policies
Please see Note 2 to the Company’s unaudited financial statements as of and for the three and twelve months ended June 30, 2016 included in this Annual Report for a discussion of the Company’s significant accounting policies.
Results of Operations
For the three months ended September 30, 2016 and 2015, we had gross revenues of $73,321 and $0 respectively.
Total operating expenses were $1,911,442 compared with $58,891 for the three months ended September 30, 2016 and 2015, respectively. In connection with the completion of the share exchange transaction with Klear Kapture on October 2, 2015, the Company received additional working capital. The Company believed that continuing to operate its existing line of business was not in the best interests of its shareholders. New management decided to change the primary focus of the business. Using the new working capital, the Company continued developing Klear Kapture’s concepts of an innovative state-of-the-art action camera set. Operating expenses therefore increased significantly due to software and design costs associated with the developing including adding new employees.
Net income for the three months ended September 30, 2016 was $4,057,068 as compared to net loss of $90,641 at September 30, 2015. The increased net income was primarily due to calculations of SFAS 123R which requires that companies use a fair value method to value stock options and other forms of share-based payments and recognize the related compensation expense in calculating net earnings. SFAS 123R applies to all companies that have issued stock options and other stock-based compensation, whether the firm is a large public company with actively traded, liquid stock, a public company whose stock is thinly traded, or a private company.
The Company anticipates introducing its new HP branded products in the second quarter of 2016. The new products are two compact action cameras targeted to retail audiences. The new cameras will have what we believe are unique features such as IR for night recording, live streaming, and two cameras that can film the same event simultaneously to get two perspectives of that event. The Company believes that multiple views and live streaming would be positive features of the camera based on trends in the Internet and video segments. The Company is focusing its efforts on these products for the success of continued operations. Non-acceptance by retailers would have a significant impact on continuing operations.
Liquidity and Capital Resources
As of the period ending September 30, 2016 the Company had cash on hand of $171,411, total current assets of $246,162 and total assets of $246,162, total current liabilities of $2,563,387 and total shareholder’s deficit of $7,904,341.
The Company’s cash was generated from a series of convertible notes issued to non-related third parties, and a $30,000 promissory note to a non-related third party and a $500,000 short term promissory note as part of the acquisition of Batterfly Energy LTD. The Company plans to raise additional working capital via additional notes or equity sales to ensure that it will have enough cash to fund its primary operation for the next twelve (12) months.
The Company has no agreements in place with its shareholders, officer and director or with any third parties to fund operations beyond the end of the Company’s September 30, 2016 period ended. The Company has not negotiated nor has available to it any other third party sources of liquidity.
Cash flows used by operating activities for the three months period ended September 30, 2016 were $9,011,766 compared to cash flows used in operating activities of $99,529 to the three months period ended September 30, 2015.
Cash flows used in investing activities totaled $32,500 for the three months period ended September 30, 2016 and $10,000 for the three months period ended September 30, 2015.
Cash flows provided by financing activities totaled $8,746,444 for the three months period ended September 30, 2016 and cash flows provided by financing activities totaled $106,750 for the three months period ended September 30, 2015.
Off-Balance Sheet Arrangements
The Company has no current off-balance sheet arrangements and does not anticipate entering into any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and chief financial officer are responsible for establishing and maintaining our disclosure controls and procedures. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2015. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the evaluation date, such controls and procedures were not effective.
Changes in internal controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1 A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 7, 2015, we entered into a Securities Purchase Agreement (the “ Purchase Agreement ”) with Susannah Forest (the “ Purchaser ”) under which the Company issued a Secured Convertible Promissory Note (the “ Note ”) to the Purchaser in a private placement. The Note was offered and sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”) and Rule 506(b) of Regulation D thereunder. The Purchaser also qualified as an “accredited investor” within the meaning of Rule 501 of Regulation D. The Company received gross proceeds of $250,000 from the sale of the Note.
The Purchaser has the right at any time to convert all or a portion of the outstanding and unpaid principal amount of the note and any accrued and unpaid interest into shares of common stock of the Company. The conversion price is the amount equal to 75% of the volume weighted average price of the Company’s common stock for a 5-day period prior the conversion date, subject to certain minimum and maximum conversion prices. The number of shares of common stock issuable is determined by dividing the amount to be converted by the conversion price. The conversion price is subject to adjustment upon the occurrence of certain events.
On August 31, 2016, the company issued 2,593,247 shares of its common stock to NUWA Group LLC in a cashless warrant exchange pursuant to the terms of a business consulting agreement dated February 22, 2016. The share price at the effective date was $0.365 and the warrant for 2,600,000 shares was exercisable at $0.001 per share for total increase in Common Stock of $2,593.25 and in Additional Paid In Capital of $943,941.91.
On September 9, 2016, the company issued 2,500,000 shares of its common stock to Long Side Ventures LLC in exchange for $65,000.00 of the purchaser’s convertible note payable. The original issuance date of the $ 151,073 note payable was October 2, 2015. The exercise price of the note was stated at $0.026 per common share. The proceeds reduced Convertible Notes Payable $65,000.00.
On September 20, 2016, the company issued 1,910,511 shares of its common stock to Binary Ventures, Inc. in a cashless warrant exchange pursuant to the terms of a business consulting agreement dated March 10, 2016. The share price at the effective date was $0.221 and the warrant for 1,916,500 shares was exercisable at $0.001 per share for total increase in Common Stock of $1,910.51 and in Additional Paid In Capital of $420,312.42.
Item 3. Defaults upon Senior Securities
Please see Note 6 to the financial statements included in Item 1 to this Annual Report on Form 10-K, which is incorporated herein by this reference.
Item 4. Mining Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
|2.1||Share Exchange Agreement, dated as of October 2, 2015, by and among Blue Sky Media Corp., Wayne Berian, Hannah Grabowski, and Klear Kapture, Inc. (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed October 8, 2015)|
|3.1||Articles of Incorporation, as amended|
|3.2||Bylaws (incorporated by reference to Exhibit 3.3 to the registrant’s Form S-1 filed on September 19, 2014)|
|10.1||Services Agreement entered into as of October 2, 2015 by and between Wayne Berian, Hannah Grabowski and Blue Sky Media Corp. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed October 8, 2015)|
|10.2||Securities Purchase Agreement dated as of October 2, 2015, by and between Blue Sky Media Corp. and buyers identified on the signature pages to such agreement (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed October 8, 2015)|
|10.3||Form of Secured Convertible Promissory Note (incorporated by reference to Exhibit A to Securities Purchase Agreement filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q)|
|10.4||Form of Registration Rights Agreement (Incorporated by reference to Exhibit B to Securities Purchase Agreement filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q)|
|10.5||Consulting Services Agreement entered into as of October 1, 2015 by and between Newbridge Financial, Inc. and Blue Sky Media Corp. (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed October 8, 2015)|
|10.6||Securities Purchase Agreement, dated as of December 7, 2015, between Life Clips, Inc. and Susannah Forest (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed December 31, 2015)|
|10.7||Secured Convertible Promissory Note, dated December 7, 2015, issued by Life Clips, Inc. to Susannah Forest (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed December 31, 2015)|
|31.1**||Certification of the Chief Executive Officer, as the principal executive officer and the principal financial officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted in accordance with section 302 of the Sarbanes-Oxley Act of 2002|
|32.1**||Certification of the Chief Executive Officer, as the principal executive officer and the principal financial officer, under 18 U.S.C. Section 1350, as adopted in accordance with Section 906 of the Sarbanes-Oxley Act of 2002|
** Filed Herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|Dated: November 29, 2016||LIFE CLIPS, INC.|
|By:||/s/ Robert Gruder|
|Chief Executive Officer|
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Gruder , certify that:
1) I have reviewed this Quarterly report of Life Clips, Inc. on Form 10-Q;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have;
|(a)||Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure the material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;|
|(b)||Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;|
|(c)||Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.|
|(d)||Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of a Quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and|
5) I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|(a)||All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process summarize and report financial information; and|
|(b)||Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls over financial reporting.|
|Date: November 29, 2016||/s/ Robert Gruder|
Chief Executive Officer and Chief Financial Officer
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002
In connection with the Quarterly Report of Life Clips, Inc. (the Company”) on Form 10-Q for the period ended herein as filed with the Securities and Exchange Commission (the “Report”), I, Robert Gruder , Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that:
|(1)||The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and|
|(2)||The information contained in the Report fully presents, in all material respects, the financial condition and results of operations or the Company.|
|Life Clips, Inc.|
|Date: November 29, 2016||By:||/s/ Robert Gruder|
Chief Executive Officer and Chief Financial Officer