LIFE CLIPS, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

Forward-looking statements

The following discussion contains forward-looking statements about us, our business, our prospects and our results of operations that are subject to certain risks and uncertainties posed by numerous factors and events that could cause our business, prospects and results actual operating results differ materially from those that may be anticipated by these forward-looking statements. Factors that could affect these forward-looking statements include, but are not limited to: our ability to successfully develop new products and services for new markets; the impact of competition on our revenues; changes in laws or regulatory requirements that adversely affect or prevent customers from using us for certain applications; delays our launch of new products or services; and our inability to keep pace with our competitors.

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

General information about our company

Life Clips, Inc. (the “Company”) was incorporated in Wyoming to March 20, 2013.

At April 5, 2021the Company completed its acquisition of Cognitive Application Software Solutions, Inc. (“Cognitive Apps”), a developer of artificial intelligence (AI) applications for the health industry and psychedelic research. Cognitive Apps has been incorporated into British Columbia, Canada to November 25, 2020. Its core business is the development, financing, production and distribution of AI-based technology solutions for the mental health and healthcare sector. Cognitive Apps sold all of its issued and outstanding share capital to the Company, thereby becoming a wholly owned subsidiary.

At August 25, 2021the Company completed 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 share capital to the Company, thereby becoming a wholly owned subsidiary.

The acquired Belfrics entities 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, a Malaysia corporation

Founded in 2014, Belfrics has developed an in-house digital cryptocurrency exchange platform. Backed by the proprietary technology of the Belrium Blockchain KYC solution, Belfrics Exchange’s KYC (“Know Your Customer”) and AML (“Anti-Money Laundering”) process is a well accepted compliance solution. With 10 operational offices in 8 countries, Belfrics provides localized and personalized support to digital currency traders. Through his Blockchain Academy, Belfrics provides ongoing training for traders, developers and blockchain enthusiasts in over 20 countries. Belfrics is licensed and regulated by the Labuan Financial Services Authority (LFSA) in Malaysia.

RECENT DEVELOPMENTS

At August 25, 2021Belfrics sold all of its issued and outstanding share capital to the Company, becoming a wholly owned subsidiary

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In exchange for the acquisition, Belfrics received the following consideration:

  (a) Preferred Shares. Exchange each issued and outstanding share of The Belfrics
      Entities common stock for 2,000,000 shares of Series C Preferred Shares,
      pursuant to the Designation set forth as Exhibit B.

  (c) Earn Out. Upon obtaining the milestones set forth on Schedule 2.1(c) the
      Sellers shall be entitled to up to an additional 1,500,000 of Series C
      Preferred Stock on a pro rata basis.

Founded in 2014, the fully in-house developed digital exchange Belfrics is one of the most compliant platforms in the cryptocurrency industry. Backed by the proprietary technology of the Belrium Blockchain KYC solution, Belfrics Exchange’s KYC (“Know Your Customer”) and AML (“Anti-Money Laundering”) process is a well accepted compliance solution. With 10 operational offices in 8 countries, Belfrics provides localized and personalized support to digital currency traders. Through his Blockchain Academy, Belfrics provides ongoing training to Blockchain traders, developers and enthusiasts in over 20 countries. Belfrics is licensed and regulated by the Labuan Financial Services Authority (LFSA) in Malaysia.

Results of operations for the three months ended December 31, 2021 and 2020

For the three months ended December 31, 2021 and 2020, the Company achieved a gross profit of $1,556,267 and $0, respectively. This is the direct result of the acquisition of Belfrics and is mainly generated by Belfrics.

Total operating costs were $1,696,826 compared to $112,764 for the three months ended December 31, 2021 and 2020, respectively. The increase is directly related to higher professional fees, payroll expenses, marketing expenses, travel and meal expenses, and other general and administrative expenses due to the acquisition of Belfrics.

The Other income (expense) value was ($3,301,505) in comparison with $(3,078,667) for the three months ended December 31, 2021 and 2020, respectively. This change is mainly due to a change in the fair value of derivatives, offset by a change in the fair value of contingent liabilities. No derivative calculation was required in 2021, resulting in an increase in $2,980,287 and management’s assessment of the inventory milestones that can be achieved by Belfrics resulted in an offsetting decrease in ($3,234,378).

Net loss for the three months ended December 31, 2021 has been ($3,442,064) compared to the net loss of ($3,191,431) for the three months ended December 31, 2020.

Results of operations for the six months ended December 31, 2021 and 2020

For the six months ended December 31, 2021 and 2020 we had a gross profit of
$1,601,841 and $0, respectively. This is the direct result of the acquisition of Belfrics and is mainly generated by Belfrics.

Total operating costs were $2,159,275 in comparison with $195,390 for the six months ended December 31, 2021 and 2020, respectively. The increase is directly related to higher professional fees, payroll expenses, marketing expenses, travel and meal expenses, and other general and administrative expenses due to the acquisition of Belfrics.

The Other income (expense) value was $(3,398,903) in comparison with $3,931,403 for the six months ended December 31, 2021 and 2020, respectively. This change is mainly due to a change in the fair value of the contingent liability not present in 2020, as well as a decrease in the fair value of the derivative and a loss on impairment of intangible assets. The contingent liability and the impairment are due to the acquisition of Belfrics.

Cash and capital resources

Liquidity is the ability of a business to generate sufficient cash to meet its cash requirements. From December 31, 2021 the Company had cash on hand $2,016,631total assets of $50,857,761total liabilities of
$30,129,176 and total equity of $20,728,585. Since all of the variable convertible notes payable have been converted to a fixed value, the liability derived from $1,577,001 was final and ended on June 30, 2021. An impairment loss on intangible assets in the amount of $1,522,597 has been registered to infringe on cryptocurrency assets.

The Company’s cash was generated by a series of convertible bonds issued to unrelated third parties as well as by raising funds under Regulation A. The Company plans to raise additional working capital through additional notes or share sales to ensure that it will have sufficient cash to fund its core business over the next twelve (12) months.

The Company has not entered into any agreement with its shareholders, managers and directors or with third parties to finance operations beyond the end of the Company’s activity. December 31, 2021 period ended. The Company has not negotiated or has at its disposal other sources of third-party liquidity.

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Cash flows from operating activities for the six-month periods ended December 31, 2021 and 2020 have been ($2,180,463) and ($36,891), respectively. The variation is mainly due to the net loss and the increase in accounts payable offset by changes in the fair value of derivative liabilities, due to related parties, impairment on intangible assets and accrued expenses converted into shares , which are directly linked to the acquisition of Belfrics.

Cash flows from investing activities totaled ($655,922) and $0 for the six-month periods ended December 31, 2021 and 2020, respectively. The increase is directly related to the purchases of property, plant and equipment from Belfrics ($377,823)offset by the net cash acquired on the acquisitions of $74,377.

Cash flows from financing activities total $4,650,000 and $40,000 for the six-month periods ended December 31, 2021 and 2020, respectively. This is primarily due to the new proceeds from Settlement A funding.

Off-balance sheet arrangements

The Company currently has no 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.

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