NOTE 2 — GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business.
As shown in the accompanying financial statements,
as of June 30, 2022, the Company had cash on hand of $1,000 and a working capital deficit (current liabilities in excess of current assets)
of $1,077,000. During the nine months ended June 30, 2022, the net loss attributed to common stockholders was $4,591,000 and net cash
used in operating activities was $2,427,000. The Company is currently in default on a $600,000 convertible note payable to Discovery Growth
Fund, LLC (See Note 8).
Discovery Growth Fund, LLC
The Company has incurred significant losses since
its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products or services to achieve
profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained
on a continuing basis. In making this assessment we performed a comprehensive analysis of
our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended June
30, 2023, and our current capital structure including equity-based instruments and our obligations and debts.
The Company expects to continue to incur significant
losses from operations and have negative cash flows from operating activities for the near-term.
These losses could be significant as the Company has not yet generated revenues, but has continuing operating expenses including, but
not limited to, compensation costs, professional fees, software development costs and regulatory
fees.
The Company’s primary source of operating funds
has been from cash proceeds from the sale of common stock and the issuances of promissory notes and other debt. The Company has experienced
net losses from operations since inception, but it expects these conditions to improve in the future as it develops its business model.
The Company had a stockholders’ deficit at June 30, 2022 and requires additional financing to fund future operations.
Management’s current business plan is primarily
to: (i) pursue additional capital raising opportunities, (ii) continue to explore and execute prospective partnering or distribution opportunities;
and (iii) identify unique market opportunities that represent potential positive short-term cash flow.
The Company’s existence is dependent upon management’s
ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s
financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems.
If the Company does not obtain additional capital,
the Company will be required to reduce the scope of its business development activities or
cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash
balances, cash needs, and expense levels.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
These factors create substantial doubt about the Company’s
ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements
are issued. The consolidated financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Significant estimates include the relative fair value of assets acquired, valuation of intangible assets for impairment
testing, valuation of share-based compensation, and the valuation allowance on deferred tax assets. Actual results could differ from those
estimates, and those estimates may be material.
Asset Acquisitions
The Company accounts for acquisitions of legal entities
that do not meet the definition of a business under ASC 805 as asset acquisitions. Assets acquired and liabilities assumed are recorded
at their relative fair value and no goodwill is recorded. Contingent consideration for assets acquired is measured and is recognized as
an expense on the date the contingency occurs.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries Nebula Software Corp. and Rebel Blockchain, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.
Cash
For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market
accounts to be cash equivalents.
At June 30, 2022 and 2021, respectively, the Company
did not have any cash equivalents.
The Company is exposed to credit risk on its cash
and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured
by the FDIC, which is $250,000. At June 30, 2022 and September 30, 2021, the Company had cash in banks exceeding the insured FDIC limit
of $0 and $172,000, respectively.
Equity Method Investment
The equity method is applied to investments in affiliated
companies and joint ventures. An affiliated company is an entity which is not controlled by the Company, but for which the Company is
able to exert significant influence over the decisions on financial and operating business policies. If the Company has 20% or more, but
not more than 50%, of the voting rights of another entity, the Company is presumed to have significant influence over that entity. However,
if a company has less than 20% of the voting rights and is able to exert significant influence, then the equity method should be applied.
Under the equity method, the investment in an affiliated company or joint venture is initially recognized at cost and the carrying amount
is increased or decreased to recognize the Company’s share of the net income or loss of the affiliated company or joint venture.
When the Company’s share of losses of an affiliated company equals or exceeds it interest in the affiliated company or joint venture,
the Company discontinues recognizing its share of further losses. All intercompany profits have been eliminated in proportion to interests
in affiliated companies or joint ventures.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
Segments
The Company uses the “management approach”
to identify its reportable segments. The management approach requires companies to report segment financial information consistent with
information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s
reportable segments. Management has determined that the Company has one operating segment.
Fair Value Measurements
The Company accounts for financial instruments under
Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring
fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s
principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy
to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured
at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The
hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining
fair value.
The three tiers are defined as follows:
| |
● |
Level 1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| |
● |
Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| |
● |
Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment
of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment
and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable
management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation
method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the
weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded fair
value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future
fair values.
The Company recorded intangible assets for an asset
acquisition (See Note 5). The Company performs impairment tests on these assets to reduce such asset to their fair value as applicable.
These are considered level 3 non-recurring fair value measurements. The Company may use both qualitative and quantitative techniques such
as the income method to value such assets. At September 30, 2021, the Company recorded impairment of intangible assets of $128,000, resulting
in a net book value of zero.
Financial Instruments
Accounting Standards Codification subtopic 825-10,
Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying
value of accounts payable and accrued expenses, and short-term borrowings, as reflected in the consolidated balance sheets, approximate
fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and
equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information
relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values
of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair
value has been disclosed.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
Impairment of Long-lived Assets
Management evaluates
the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances
indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-
Lived Assets.” Events and circumstances considered by the Company in determining where
the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited
to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant
negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company
estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison of
the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Income Taxes
The Company accounts for income tax using the asset
and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates
that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the
deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss
in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty
in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As
of June 30, 2022 and September 30, 2021, the Company had no uncertain tax positions that qualify for either recognition or disclosure
in the consolidated financial statements.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs are included as a component of general and administrative expense in the consolidated statements of operations. The Company recognized
$515,000 and $25,000 in marketing and advertising costs during the nine months ended June 30, 2022 and 2021, respectively.
Research and Development Costs
Research and development costs consist of expenditures
for the research and development of new products and technology. These costs are primarily expenses to vendors contracted to perform research
projects and develop technology for the Company’s mobile gaming applications. Costs incurred for research and development are expensed
as incurred.
Stock-Based Compensation
We account for our stock-based
compensation to employees and non-employees under ASC 718 “Compensation – Stock Compensation” using the fair
value-based method. Under this method, compensation cost is measured at the grant date based on
the value of the award and is recognized over the requisite service period, which is usually the vesting period. This guidance
establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It
also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of
the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
Net Loss per Common Share
The Company computes earnings (loss) per share under
Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share,
if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into
common stock using the “if converted” method.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
The computation of basic and diluted income (loss)
per share excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater
than the average market price of the common stock during the period.
Potentially dilutive securities excluded from the
computation of basic and diluted net loss per share are as follows:
Schedule of potentially dilutive equity securities
| | |
June 30, |
| | |
2022 | |
2021 |
| Series A preferred shares | |
| 369,167,000 | | |
| 400,000,000 | |
| Convertible notes | |
| 44,707,814 | | |
| — | |
| Total potentially dilutive shares | |
| 413,874,814 | | |
| 400,000,000 | |
Based on the potential common stock equivalents noted
above at June 30, 2022, the Company has sufficient authorized shares of common stock (2,000,000,000)
to settle any potential exercises of common stock equivalents.
Recent Accounting Standards
In August 2020, the FASB issued ASU 2020-06, which
simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with
a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately
present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt,
unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase
reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU
2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury
stock method will be no longer available. The Company adopted ASU 2020-06 in the first quarter of fiscal 2022 utilizing the modified retrospective
method. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related
disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which significantly changes
how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 will replace today’s
“incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based
on expected rather than incurred losses. On November 15, 2019, the FASB delayed the effective date of Topic 326 for certain small public
companies and other private companies until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller
reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company does not expect
the new guidance will have a material impact on its financial statements.
There are various other updates recently issued, most
of which represented technical corrections to the accounting literature or application to specific industries and are not expected to
a have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 4 — NOTE RECEIVABLE, INVESTMENT
IN AND OPTION TO ACQUIRE COMMON SHARES OF WINNERS, INC., AND NOTE PAYABLE – RELATED PARTY
During the year ended September 30, 2020, the Company
completed certain transactions with Winners Inc., formerly known as GoooGreen, Inc. (OTC:WNRS) (www.vegaswinners.com). Winners, Inc. is
engaged in the business of sports gambling research, data, advice, analysis and predictions utilizing all available media, advertising
formats and its database of users. The business and customers of Winners is expected to compliment and benefit that of the Company. These
transactions are considered related party transactions since certain officers and members of the Company’s Board of Directors are
also members of Winner’s Inc. Board of Directors.
On September 8, 2021, the Company exercised the option
to acquire common shares of Winners, Inc and the Company recorded the investment using the equity method of accounting and reflecting
it as an equity method investee.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
The asset and liability balances are as follows:
Schedule of assets and liability
| | |
June 30, | |
September 30, |
| | |
2022 | |
2021 |
| Notes receivable | |
$ | — | | |
$ | 515,000 | |
| Accrued interest receivable | |
| — | | |
| 41,000 | |
| Equity method investment in Winners, Inc. | |
| — | | |
| 105,000 | |
| Total assets | |
$ | — | | |
$ | 661,000 | |
| | |
| | | |
| | |
| Notes payable | |
$ | 111,000 | | |
$ | — | |
| Accrued interest payable | |
| 2,000 | | |
| — | |
| Total liabilities | |
$ | 113,000 | | |
$ | — | |
A. Notes Receivable
During the year ended September 30, 2020, the Company
loaned Winners, Inc. $350,000, of which $150,000 was repaid to the Company by Winners, Inc. in that same year. During the year ended September
30, 2021, the Company loaned Winners, Inc. an additional $315,000.
The notes were secured by all tangible and intangible
assets of Winners Inc., bore interest at a rate of 10% per annum and matured on August 11, 2021 and was past due until it was repaid.
During the nine months ended June 30, 2022, the entire
receivable balance of $515,000 as well as accrued interest of $62,000 was repaid to the Company.
The balance of the notes receivable as of June 30,
2022 is $0.
B. Accrued Interest Receivable
During the nine months ended June 30, 2022, the Company
recorded interest income of $21,000 from the notes receivable and the entire balance of accrued interest receivable of $62,000 was repaid
to the Company.
C. Investment in Winners, Inc.
In July 2020, the Company purchased 500,000 shares
of Winners Inc. common stock representing approximately 3% of Winners, Inc. issued and outstanding common stock in exchange for cash of
$50,000.
The Company accounted for the investment to Winners
Inc. pursuant to ASC 320, Investments - Debt and Equity, as the Company’s equity interest does not give it the ability to exercise
significant influence (generally less than 20% of an investee’s equity) and accounts for the investment at fair value. The investment
is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.
On September 8, 2021, the Company began accounting
for its investment in Winners, Inc as an equity method investment (See Note 7).
D. Option to Acquire Common Shares of Winners,
Inc.
In August 2020, the Company obtained an option as
amended from Thomas Terwilliger, Winners, Inc.’s former Chief Executive Officer and shareholder, to purchase 149,012,000 (14,901,200
pre-split) common shares for $175,000 for which the Company had provided a $100,000 non-refundable deposit. Once the Company remitted
the remaining $75,000 to Mr. Terwilliger, the option became exercisable anytime through May 31, 2021 and which exercise date was subsequently
extended.
The Company followed the guidance of ASC 321, Investment
– Equity Securities and accounted the option at cost of $100,000. The remaining balance of $75,000 was paid to Mr. Terwilliger and
the option was exercised on September 8, 2021 (See Note 7).
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
E. Investment in Equity Method Investee - Winners,
Inc.
Upon payment of the remaining balance of $75,000 owed
to Mr. Terwilliger for the option, the option was exercised on September 8, 2021. Subsequent to exercise of the option, the Company began
accounting for the investment as an equity method investment under ASC 323, Investment - Equity Method and Joint Ventures (See Note 7).
F. Note Payable
During March 30, 2022 through June 16, 2022, the Company
borrowed an aggregate of $111,000 from Winners, Inc. in exchange for three promissory notes bearing interest at 10% per annum and due
on demand. As of June 30, 2022, the principal balance due on the note payable was $111,000 and accrued interest payable on the notes was
$2,000.
NOTE 5 — ACQUISITION OF NEBULA SOFTWARE
CORP. (ASSET PURCHASE)
On December 3, 2020, the Company acquired 100% of
the outstanding shares of Nebula in exchange for 10,000,000 shares of common stock having a fair value of $128,000 ($0.0128/share), based
upon the quoted closing trading price. The $128,000 was recorded as an intangible asset. In addition, there was 10,000,000 additional
common shares due as contingent consideration upon the launch of the HeyPal™ App without major software bugs which inhibit large
functionality. These common shares were issued and accounted for as a $2,370,000 expense in March 2021 when the contingency occurred,
which was included in general and administrative expenses.
With the acquisition, the Company is able to consolidate
and complement existing content operations, trained workforce, proprietary software and operating platform, and the opportunity to generate
future synergies with our existing business.
The Company has included the results of operations
of Nebula since its acquisition date. There were no acquisition related costs.
Pursuant to ASU 2017-01, Business Combinations (Topic
805): “Clarifying the Definition of a Business”, this acquisition was determined to be that of an asset and not a business,
therefore, there was not a business combination requiring acquisition accounting or related financial reporting. Since this was deemed
to be an asset purchase, this did not result in the recognition of goodwill.
During the year ended September 30, 2021, the Company
recorded an impairment expense of $128,000 since the asset has not generated any revenue and the Company cannot project any positive cash
flows.
NOTE 6 – ACQUISITION OF REBEL BLOCKCHAIN,
INC. (“RBI”) (ASSET PURCHASE)
On March 19, 2021, the Company acquired 100% of Rebel
Blockchain, Inc. (a start-up) in exchange for a contingent consideration arrangement in the form of up to 15,000,000 common shares of
the Company.
Pursuant to the agreement, the Company is required
to issue milestone payments in the form of common shares as follows:
| |
● |
2,000,000 shares upon launch of Nifter™ marketplace without major software bugs which inhibit large functionality subject to and issuable upon the Company’s common stock 10-day volume weighted minimum average price per share of $0.30 within 15 days of the benchmark being reached. |
| |
|
|
| |
● |
3,000,000 shares upon reaching $100,000 in monthly gross merchandise value on the Nifter™ platform subject to and issuable upon the Company’s common stock 10-day volume weighted minimum average price per share of $0.50 within 15 days of the benchmark being reached. |
| |
|
|
| |
● |
4,000,000 shares upon reaching $1,000,000 in yearly gross merchandise value on the Nifter™ platform subject to and issuable upon the Company’s common stock 10-day volume weighted minimum average price per share of $0.75 within 15 days of the benchmark being reached. |
| |
|
|
| |
● |
6,000,000 shares upon reaching $10,000,000 in 3-year gross merchandise value on the Nifter™ platform subject to and issuable upon the Company’s common stock 10-day volume weighted minimum average price per share of $ 1.00 within 15 days of the benchmark being reached. |
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
As of the issuance date of this report, no contingency
has been met and no contingent shares have been issued.
Pursuant to ASU 2017-01, Business Combinations (Topic
805): “Clarifying the Definition of a Business”, this acquisition was determined to be that of an asset and not a business,
therefore, there was not a business combination requiring acquisition accounting or related financial reporting. Since this was deemed
to be an asset purchase, this did not result in the recognition of goodwill and no assets or liabilities were recorded on the acquisition
date as there was no initial consideration.
NOTE 7 – EQUITY METHOD INVESTMENT –
RELATED PARTY
In fiscal 2020, the Company was granted by Thomas
Terwilliger, Winners, Inc.’s former Chief Executive Officer an option to purchase 149,012,000 shares owned by him representing approximately
83.3% of the Winners, Inc.’s then outstanding common stock for $175,000 for which the Company had provided a $100,000 non-refundable
deposit in 2020. On September 8, 2021, the Company completed the option exercise and paid the remaining $75,000. Prior to the exercise
of the option, the Company owned 5,000,000 shares of Winners, Inc. With the exercise of the option, the Company now owns 154,012,000 shares
of the common stock of Winners, Inc. The total shares outstanding of Winners, Inc. on the date of exercise was 280,090,934 shares.
As a result, the Company owns approximately 55% of
Winners, Inc. common shares, but does not have voting control due to the existence of outstanding Series A preferred shares which have
super-voting rights (See Below).
Winners, Inc. has outstanding Redeemable Preferred
Stock with the following terms:
| |
● |
100,000,000 shares authorized |
| |
|
|
| |
● |
Par value – $0.001 |
| |
|
|
| |
● |
Convertible – one hundred (100) shares of common stock for each one (1) share of preferred stock |
| |
|
|
| |
● |
Dividends – para passu with common stock |
| |
|
|
| |
● |
Voting - equivalent to the as converted number of common shares (100:1) |
| |
|
|
| |
● |
Liquidation value – no stated value but para passu with common stock on an as converted basis Deemed liquidation provision relating to any reorganization, recapitalization, reclassification, consolidation or merger |
| |
|
|
| |
● |
Convertible – Automatic upon the later of (a) written consent of at least a majority of the then outstanding Series A preferred stock; or (b) January 1, 2023 |
| |
|
|
| |
● |
Anti-dilution rights – Ability to maintain a 90% interest on a fully-diluted basis of all common stock and related common stock equivalents for the period ending January 1, 2024 |
There are 9,000,000 Series A preferred shares issued
and outstanding. The total voting power of those shares is 900,000,000 votes.
The Company conducted an analysis to determine the
proper accounting method for its investment in Winners, Inc. Although Clickstream directly holds less than 20% of the vote of Winners,
Inc. (approximately 5.5%), Clickstream can exert influence over Winners, Inc. due to among other reasons, voting shares held by related
parties of Clickstream and board representation. Therefore, the Company determined that the investment should be recorded pursuant ASC
323, Investment - Equity Method and Joint Ventures.
Accordingly, the Company has recognized the investment
in Winners, Inc. and its subsidiary VegasWinners, Inc. effective September 8, 2021, as an equity method investment.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
At September 30, 2021, the underlying equity in net
assets of Winners, Inc. and its subsidiary was $1,456,000. The Company owns 54.99% of the common stock of Winners, Inc., or $800,000.
The book value on the initial date of September 8, 2021, is $192,000. Therefore, the book value exceeds the purchase price of $192,000
(See table below) by $608,000.
Schedule of purchase price allocation
| Consideration Paid: | |
Fair Value |
| Cash | |
$ | 175,000 | |
| Pre-existing investment at fair value | |
| 17,000 | |
| Total consideration paid | |
$ | 192,000 | |
The Company measured the fair value per share of the
outstanding capital stock on the initial date of September 8, 2021, utilizing a dribble out method which resulted in a fair value of the
pre-existing interest of $17,000.
A loss of $18,000 was recognized in operations on
September 8, 2021, the re-measurement to fair value of the pre-existing equity interest held. Activity related to the investment in equity
method investee is as follows:
Schedule of remeasurement of fair value of equity interest
| Initial recognition, September 8, 2021 | |
$ | 192,000 | |
| Loss of equity method investee | |
| (87,000 | ) |
| Investment in equity method investee - Winners, Inc., September 30, 2021 | |
| 105,000 | |
| Loss of equity method investee | |
| (105,000 | ) |
| Investment in equity method investee - Winners, Inc., December 31, 2021 | |
$ | — | |
As of June 30, 2022, the Company owns 154,012,000
shares of Winners, Inc. The quoted closing price on that date was $0.0099. As such, the market value of the investment based on the closing
price is $1,524,719.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable were comprised of the following
as of June 30, 2022 and September 30, 2021:
Schedule of convertible notes payable
| | |
June 30, | |
September 30, |
| | |
2022 | |
2021 |
| Discovery Growth Group LLC convertible note payable | |
$ | 600,000 | | |
$ | — | |
| Sixth Street Lending LLC convertible note payable | |
| 48,000 | | |
| — | |
| Sixth Street Lending LLC convertible note payable | |
| 104,000 | | |
| — | |
| Total convertible note payable | |
| 752,000 | | |
| — | |
| Less unamortized debt discount | |
| (32,000 | ) | |
| — | |
| Add debt premium | |
| 55,000 | | |
| — | |
| Total convertible notes payable, net of unamortized debt discount plus debt premium | |
| 775,000 | | |
| — | |
| Less current portion | |
| (775,000 | ) | |
| — | |
| Long-term portion | |
$ | — | | |
$ | — | |
Discovery Growth Fund, LLC
On November 16, 2021, the Company issued a convertible
note payable to Discovery Growth Fund, LLC with a face value of $600,000 in exchange for cash proceeds of $500,000, representing an original
issue discount (“OID”) of $100,000. The note bears interest at 8% per annum and all principal and unpaid interest are due
and payable on maturity on May 16, 2022. From the period commencing February 16, 2022, and terminating on the maturity date, the noteholder
has the right to exchange the principal plus accrued interest into shares of the Company’s qualified Reg A offering. The note is
convertible with a conversion price of $0.04 per share provided that number of shares beneficially owned by the noteholder and its affiliates
does not result in the beneficial ownership exceeding 4.99% of the then outstanding shares of common stock.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
During the nine months ended June 30, 2022, the Company
amortized $100,000 of debt discount and accrued interest of $30,000. As of June 30, 2022, the remaining balance due on the convertible
note payable was $600,000.
In the event of default, the entire unpaid principal
and accrued interest become immediately due and payable upon the occurrence of any of the following events:
(a) any failure on the part of the Company to make
any payment under this Note when due, and such failure continues for five (5) days after the due date; accrued interest shall default
to the maximum legal rate;
(b) the Company’s commencement (or take any
action for the purpose of commencing) of any proceeding under any bankruptcy, or for the reorganization of any party liable hereon, whether
as maker, endorser, guarantor, surety or otherwise, or for the readjustment of any of the debts of any of the foregoing parties, under
the Federal Bankruptcy Code, as amended, or any part thereof, or under any other laws, whether state or Federal, for the relief of debtors,
now or hereafter existing, by any of the foregoing parties, or against any of the foregoing parties;
(c) a proceeding shall be commenced against the Company
under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute and relief is ordered against
such party, or the proceeding is controverted but is not dismissed within thirty (30) days after the commencement thereof;
(d) the appointment of a receiver, trustee or custodian
for all or substantially all of the assets of the Company, which appointment remains in place for at least one hundred twenty (120) days,
the dissolution or liquidation of the Company; or
(e) the admission by the Company of its inability
to pay its debts as they mature, or an assignment for the benefit of the creditors of the Company.
The OID has been accounted for as debt discount and
will be amortized to interest expense using the effective interest method over the term of the note payable.
On May 16, 2022, the maturity date of the note, the
Company failed to pay both the principal and accrued interest due on the note. On May 24, 2022, Discovery Growth Fund, LLC (the “Payee”)
notified the Company it was in default of its convertible promissory note dated November 16, 2021 in the amount of $600,000
plus accrued interest and attorney’s fees due May 16, 2022. On May 26, 2022, the Payee filed a complaint in the United States
District Court Central District of California, Western Division. On June 3, 2022, the Payee filed a Second Amended Complaint (“SAC”)
alleging breach of contract. On June 15, 2022, the Payee filed a First Amended Ex Parte Application for Writ of Attachment. On July 12,
2022, the Court denied the Payee’s Ex Parte Application for Writ of Attachment.
1800 Diagonal Lending LLC (formerly Sixth Street
Lending LLC)
On December 9, 2021, the Company issued a convertible
note payable to 1800 Diagonal Lending LLC (formerly Sixth Street Lending LLC) with a face value of $169,000 in exchange for cash proceeds
of $154,000, representing an original issue discount (“OID”) of $15,000. A one-time upfront interest charge of 10% was applied
and $17,000 was added to the principal with an offset to debt discount. The principal and interest is to be paid over ten consecutive
equal payments commencing January 10, 2022 for a total of $186,000, with a final maturity date of December 9, 2022. During the nine months
ended June 30, 2022, the Company paid five payments totaling $93,000. As a result of the payments, the Company reduced the debt premium
by $31,000, resulting in a gain on debt extinguishment of $31,000. During the nine months ended June 30, 2022, the noteholder converted
an aggregate of $45,000 of principal into 5,756,396 shares of common stock, resulting in a reduction in convertible notes payable by $45,000
and debt premium by $15,000, with a corresponding increase in common stock of $1,000 and additional paid-in capital of $59,000. As of
June 30, 2022, the remaining balance due on the convertible note payable was $53,000, net of debt discount of $11,000, plus debt premium
of $16,000.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
On March 1, 2022, the Company issued a second convertible
note payable to Sixth Street Lending LLC (formerly Sixth Street Lending LLC) with a face value of $116,000 in exchange for cash proceeds
of $100,000, representing an original issue discount (“OID”) of $16,000. A one-time upfront interest charge of 12% was applied
and $14,000 was added to the principal with an offset to debt discount. The principal and interest is to be paid over ten consecutive
equal payments commencing April 15, 2022 for a total of $130,000, with a final maturity date of March 1, 2023. During the nine months
ended June 30, 2022, the Company paid two payments totaling $26,000. As a result of the payments, the Company reduced the debt premium
by $4,000, resulting in a gain on debt extinguishment of $4,000. As of June 30, 2022, the remaining balance due on the convertible note
payable was $122,000, net of debt discount of $21,000, plus debt premium of $39,000.
The notes are convertible with a conversion price
of 75% of the lowest trading price during the ten trading days prior to the conversion date. The OID was accounted for as debt discount
and will be amortized to interest expense over the term of the respective note payable. The notes will be treated as stock settled debt.
As such, the Company recorded aggregate debt premium of $105,000. At June 30, 2022, as a result of the aforementioned payments and conversions,
the remaining debt premium was $55,000
There is a cross-default provision whereby the notes
becomes immediately due in the event of default and the total obligation is equal to 150% of the then outstanding balance plus default
interest.
If any of the following events of default listed below
shall occur, and if the borrower fails to pay the default amount within five (5) business days of written notice that such amount is due
and payable, then the holder shall have the right at any time, to convert the balance owed pursuant to the note including the default
amount into shares of common stock of the Company as set forth herein.
Failure to Pay Principal and Interest. The
Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise
and such breach continues for a period of five (5) days after written notice from the Holder.
Breach of Covenants. The Borrower breaches
any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited
to the Purchase Agreement and such breach continues for a period of twenty (20) days after written notice thereof to the Borrower from
the Holder.
Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto
or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect
when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with
respect to this Note or the Purchase Agreement.
Receiver or Trustee. The Borrower or any subsidiary
of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
Bankruptcy. Bankruptcy, insolvency, reorganization
or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
Delisting of Common Stock. The Borrower shall
fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the quotation platforms maintained
by the OTC Markets Group) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York
Stock Exchange, or the American Stock Exchange.
Failure to Comply with the Exchange Act. The
Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the
reporting requirements of the Exchange Act.
Liquidation. Any dissolution, liquidation,
or winding up of Borrower or any substantial portion of its business.
Cessation of Operations. Any cessation of operations
by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any
disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
Financial Statement Restatement. The restatement
of any financial statements filed by the Borrower with the SEC at any time after 180 days after the Issuance Date for any date or period
until this Note is no longer outstanding, if the result of such restatement would, by comparison to the un-restated financial statement,
have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
Replacement of Transfer Agent. In the event
that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement,
a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including
but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer
agent to Borrower and the Borrower.
Cross-Default. Notwithstanding anything to
the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or
other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods,
shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall
be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements
by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and
instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including,
without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion
documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing
and future debt of Borrower to the Holder.
In addition, for all convertible note payable outstanding,
the Company has reserved a total 43,296,296 common shares as per the requirements of the convertible notes payable agreements.
NOTE 9 – RELATED PARTY TRANSACTIONS
Consulting Agreements
During fiscal 2020, the Company executed consulting
agreements with shareholders and/or officers of the Company ranging from 12 months to 36 months.
During the nine months ended June 30, 2022 and 2021,
the Company recognized consulting expense – related parties of $809,000 and $650,000, respectively, which is included in selling,
general and administrative expenses in the accompanying consolidated statements of operations.
Winners, Inc.
During the nine months ended June 30, 2022, the Company
received a $515,000 in principal payments and $62,000 of accrued interest receivable in regards to the promissory notes from Winners,
Inc. (See Note 4).
During March 30, 2022 through June 16, 2022, the Company
borrowed an aggregate of $111,000 from Winners, Inc. in exchange for three promissory notes bearing interest at 10% per annum and due
on demand (See Note 4).
NOTE 10– CONVERTIBLE SERIES A PREFERRED STOCK
Issuance of Series A Preferred Stock
The Company is authorized to issue 10,000,000 shares
of preferred stock and has designated 4,000,000 preferred shares as Series A preferred.
The Series A has the following rights and privileges
as amended:
| |
● |
have a conversion rate of 100 shares of Common Stock for each share of Preferred Stock; |
| |
|
|
| |
● |
shall be treated pari passu with Common Stock except that the dividend on each share of Preferred Stock shall be the amount of dividend declared and paid on each share of common stock multiplied by the Conversion rate; |
| |
|
|
| |
● |
shall be treated pari passu with Common Stock except that the liquidation payment on each share of Series A Convertible Preferred Stock shall be equal to the amount of the payment on each share of Common Stock multiplied by the Conversion Rate; |
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
| |
● |
shall vote on all matters as a class with the holders of Common Stock and each share of Series A Convertible Preferred Stock shall be entitled to the number of votes per share equal to the Conversion Rate; |
| |
|
|
| |
● |
shall automatically be converted into shares of common
stock at its then effective Conversion Rate upon the latest of:
a. The closing of either a Form S-1 Registration or
Form 1-A Offering under the Securities Act of 1933, as amended, covering the offer and sale to the public of Common Stock for the account
of the Company with $5,000,000 in cash proceeds to the Company, net of underwriting discounts;
b. The written consent of the holders of at least
a majority of the then outstanding Series A Convertible Preferred Stock; and
c. January 1, 2022. |
| |
|
|
| |
● |
shall have anti-dilution rights (the “Anti-Dilution Rights”) during the two-year period after the Series A Convertible Preferred converted into shares of Common Stock at its then effective conversion Rate. The anti-dilution rights shall be applied pro-rata to the holder’s ownership of the Series A Convertible Preferred Stock. The Company agrees to assure that the holders of the Series A Convertible Preferred Stock shall have and maintain at all times, full ratchet anti-dilution protection rights as to the total number of issued and outstanding shares of common stock and preferred stock of the Company from time to time, at the rate of 80%, calculated on a fully- diluted basis. In the event that the Company issues any shares of common stock, preferred stock or any security convertible into or exchangeable for common stock or preferred stock to any person or entity, the Company agrees to undertake all necessary measures as may be necessary or expedient to accommodate its performance under this Series A Convertible Preferred Stock Designation, including, without limitation, the amendment of its articles of incorporation to the extent necessary to provide for a sufficient number of shares of authorized common stock or preferred stock to be issued to Series A Convertible Preferred Stock holders so as to maintain in Series A Convertible Preferred Stock holders, an 80% interest in the common stock and preferred stock of the Company, calculated on a fully-diluted basis. |
Issuance of Series A Convertible Preferred Stock
During the year ended September 30, 2020, the Company
issued 1,000,000 shares of Series A Convertible Preferred Stock (the “Series A”) in exchange for cash proceeds of $12,000,
or $0.0125 per share. In addition, the Company issued 2,000,000 shares of its Series A to two non-related consultants for services rendered
and 1,000,000 shares of its Series A to a related party pursuant to a consulting agreement with a total fair value of $38,000, which was
based on the cash selling price of the Series A of $0.0125 per share.
The Company considered accounting guidance to determine
the appropriate treatment of the Series A shares. Accordingly, based on a deemed liquidation provision which causes potential cash redemption
of the Series A shares, the Company recorded the issuance of its Series A for cash and services with a total amount of $50,000 as temporary
equity.
Redemption of Series A Shares
On January 28, 2022, the Company entered into a Stock
Purchase Agreement (the “Agreement”) whereby the Company agreed to repurchase 462,500 Series A shares owned by the Panza Family
Trust (“Panza”) for the aggregate sum of $100,000 payable as follows: (i) $50,000 within one day of execution of the Agreement;
and (ii) 12 equal monthly installments of $4,166.66 commencing March 1, 2022. Upon execution of the Agreement, Panza returned 231,250
Series A shares to the Company. Subsequently, each time Panza receives a monthly installment, it shall return an additional 19,270.83
shares to the Company. Whatever fraction of shares is left to accomplish the transfer of all 462,500 Series A shares shall be transferred
in the last month.
During the nine months ended June 30, 2022, an aggregate
of 308,330 Series A preferred shares were redeemed for $67,000 in cash, resulting in a deemed dividend of $63,000. Accordingly, the Series
A convertible preferred stock was reduced by $4,000 and a $63,000 deemed dividend was recorded to the accumulated deficit. As of June
30, 2022, the remaining amount owed under the Agreement was $33,000.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
NOTE 11 - STOCKHOLDERS’ EQUITY (DEFICIT)
Issuance of Common Shares for Services
During the nine months ended June 30, 2022, the Company
agreed to issue a total of 24,387,257 shares of common stock, of which 21,299,430 shares were issued and 3,087,827 are to be issued, to
consultants with a fair value of $795,000 for services rendered, of which $311,000 is included in prepaid expenses as of June 30, 2022
and is being amortized over the respective service period or agreement term. The common shares issued were valued at the trading price
at the respective date of issuances.
During the nine months ended June 30, 2021, the Company
issued a total of 13,877,179 shares of common stock to consultants with a fair value of $2,591,000 for services rendered.
Issuance of Common Shares for Licensing and Marketing
Fees
Effective March 29, 2022,
the Company entered into a Collaboration Agreement (the “Agreement”) with The Stan Lee Estate (“SLE”) and Roc
Nation LLC (“Roc Nation”) pursuant to which the parties will collaborate in the mining, marketing and distributing of non-fungible
tokens (“NFTs) of among other things data, art, assets, expressions and any other information, expressions and renderings of or
related to SLE that SLE owns, controls or otherwise has the right to use and distribute on a non-exclusive and exclusive basis including
147 original art drawings by Stan Lee and autographed by Stan Lee as one NFT, Stan Lee original drawings of Spiderman Circa 1940’s,
Stan Lee/Charles Schultz collaboration painting of Snoopy and Spiderman, Silver Surfer artwork original and Spiderman woven tapestry original.
For its compensation under
the Agreement, the Company will receive 10% of net revenues from original issue NFT’s and 20% of all resale net revenues. In turn,
the Company will issue to SLE: (a) 15,000,000 restricted shares of the Company’s common stock upon execution of the Agreement; and
(b) 10,000,000 restricted shares of the Company’s Common Stock after in each case NFT gross sales reach $1,000,000, $10,000,000
and $20,000,000. Additionally, SLE is to receive a series of 5% equity interests in Rebel after in each case NFT gross sales reach $1,000,000,
$5,000,000, $75,000,000 and $100,000,000. Also, Roc Nation is to receive 15,000,000 restricted shares of the Company’s Common Stock
upon execution of this Agreement and 5,000,000 restricted shares when NFT gross sales reach $10,000,000.
During the nine months ended
June 30, 2022, the 15,000,000 common shares required to be issued to SLE upon execution of the Agreement resulted in prepaid licensing
fees of $390,000, which is being amortized to expense over the one-year term of the Agreement. As of June 30, 2022, the amount remaining
in prepaid expense was $283,000. As of June 30, 2022, the 15,000,000 common shares to SLE are shown as common stock to be issued on the
accompanying consolidated balance sheet. The 15,000,000 common shares required to be issued to Roc Nation upon execution of the Agreement
resulted in prepaid marketing fees of $390,000, which is being amortized to advertising expense over the one-year term of the Agreement.
As of June 30, 2022, the amount remaining in prepaid expense was $283,000. Effective March 29, 2022, the 15,000,000 common shares to Roc
Nation were issued.
Issuance of Common Shares for Settlement of Employment
Agreement
On October 14, 2021, the Company issued a total of
1,550,000 shares of common stock as settlement of an employment agreement with a former employee. The common shares were valued at the
trading price of $0.10 on the settlement date or $155,000. As there was $9,000 accrued to the employee, the Company recognized a loss
on the settlement of $146,000.
Issuance of Common Shares for Cash
During the nine months ended June 30, 2022, the Company
issued a total of 15,000,000 shares of common stock in a private placement offering for cash proceeds of $750,000.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
Issuance of Common Shares Upon Conversions of Convertible
Notes Payable
During the nine months ended June 30, 2022, a noteholder
converted an aggregate of $45,000 of principal into 5,756,396 shares of common stock, resulting in a reduction in convertible notes payable
by $45,000 and debt premium by $15,000, with a corresponding increase in common stock of $1,000 and additional paid-in capital of $59,000
(See Note 8).
Issuance of Common Shares to be Issued
On May 13, 2022, the Company issued 140,000 common
shares that were previously to be issued as of September 30, 2021.
Issuance of Common Shares for Acquisition
During the nine months ended June 30, 2021, the Company
issued 10,000,000 shares of common stock to acquire 100% of Nebula Software Corp. with a fair value of $128,000.
NOTE 12 – RESEARCH AND DEVELOPMENT COSTS
Research and development costs consist of expenditures
for the research and development of new products and technology. These costs are primarily expenses to vendors contracted to perform research
projects and develop technology for the Company’s mobile gaming applications. Costs incurred for research and development are expensed
as incurred.
During the three and nine months ended June 30, 2022,
the Company incurred $189,000 and $484,000, respectively, of research and development expenses relating to the Company’s efforts
to develop, design and enhance our mobile gaming app and the HeyPal™ app.
During the three and nine months ended June 30, 2021,
the Company incurred and $230,000 and $521,000, respectively, of research and development expenses relating to the Company’s efforts
to develop, design and enhance our mobile gaming app.
NOTE 13– COMMITMENTS AND CONTINGENCIES
Legal Matters
On May 24, 2022, Discovery Growth Fund, LLC (the
“Payee”) notified the Company it was in default of its convertible promissory note dated November 16, 2021
in the amount of $600,000 plus accrued interest and attorney’s fees due May 16, 2022. On May 26, 2022, the Payee filed a complaint
in the United States District Court Central District of California, Western Division. On June 3, 2022, the Payee filed a Second Amended
Complaint (“SAC”) alleging breach of contract. On June 15, 2022, the Payee filed a First Amended Ex Parte Application for
Writ of Attachment. On July 12, 2022, the Court denied the Payee’s Ex Parte Application for Writ of Attachment (See Note 8).
We are involved in certain legal proceedings that
arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies
to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated.
Legal expenses associated with the contingency are expensed as incurred. There was no outstanding litigation as of June 30, 2022 other
than that described above.
Consulting Agreements
On April 1, 2022, the Company entered into a Director
Agreement with Michael Smith to serve a director of the Company in exchange for $5,000 per month. On April 15, 2022, the effective date
of the Director Agreement was changed from April 1, 2022 to May 1, 2022.
On April 1, 2022, the Company entered into a Director
Agreement with Raymond Brothers to serve a director of the Company in exchange for $5,000 per month. On April 15, 2022, the effective
date of the Director Agreement was changed from April 1, 2022 to May 1, 2022.
CLICKSTREAM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(unaudited)
The Company has consulting agreements with various
consultants and related party consultants with a service term ranging from 12 months up to 36 months. The following table summarizes the
Company’s future payments/commitments as of June 30, 2022:
Schedule of operating leases future payments
| 2022 | | |
$ | 199,000 | |
| 2023 | | |
| 209,000 | |
| Total minimum payments | | |
$ | 408,000 | |
Collaboration Agreement with Stan Lee Estate and
Roc Nation LLC
Effective March 29, 2022,
Clickstream Corporation (the “Company”) and its subsidiary Rebel Blockchain Corp (“Rebel”) entered into a Collaboration
Agreement (the “Agreement”) with The Stan Lee Estate (“SLE”) and Roc Nation LLC (“Roc Nation”) pursuant
to which the parties will collaborate in the mining, marketing and distributing of non-fungible tokens (“NFTs) of among other things
data, art, assets, expressions and any other information, expressions and renderings of or related to SLE that SLE owns, controls or otherwise
has the right to use and distribute on a non-exclusive and exclusive basis including 147 original art drawings by Stan Lee and autographed
by Stan Lee as one NFT, Stan Lee original drawings of Spiderman Circa 1940’s, Stan Lee/Charles Schultz collaboration painting of
Snoopy and Spiderman, Silver Surfer artwork original and Spiderman woven tapestry original.
For its compensation under
the Agreement, the Company will receive 10% of net revenues from original issue NFT’s and 20% of all resale net revenues. In turn,
the Company will issue to SLE: (a) 15,000,000 restricted shares of the Company’s common stock upon execution of the Agreement (to
be issued as of June 30, 2022); and (b) 10,000,000 restricted shares of the Company’s Common Stock after in each case NFT gross
sales reach $1,000,000, $10,000,000 and $20,000,000. Additionally, SLE is to receive a series of 5% equity interests in Rebel after in
each case NFT gross sales reach $1,000,000, $5,000,000, $75,000,000 and $100,000,000. Also, Roc Nation is to receive 15,000,000 restricted
shares of the Company’s Common Stock upon execution of this Agreement and 5,000,000 restricted shares when NFT gross sales reach
$10,000,000.
The gross sales milestones
(the “Milestones”) for additional share awards are performance based and, accordingly, are accrued when it is probable the
respective performance condition shall be achieved. As of June 30, 2022, sales of the NFTs had not yet begun. Hence, it was not yet probable
that any of the Milestones would be achieved. Accordingly, no additional licensing fees or marketing costs were recognized for the Milestones
for the nine months ended June 30, 2022.
Other Commitments
Certain asset acquisition contingent consideration
may be issuable in the future if contingency conditions are met (See Note 6).
NOTE 14– SUBSEQUENT EVENTS
On July 5, 2022, a noteholder converted $25,000 of
principal into 5,102,041 shares of common stock, resulting in a reduction in convertible notes payable by $25,000 and debt premium by
$8,000, with a corresponding increase in common stock of $1,000 and additional paid-in capital of $32,000.
On August 18, 2022, the Company issued a promissory
note payable to Leonard Tucker, LLC with a face value of $12,500 in exchange for cash proceeds of $10,000, representing an original issue
discount (“OID”) of $2,500. The note bears interest at 8% per annum and all principal and unpaid interest are due and payable
on the earlier of: (a) proceeds are received from any debt or equity financing; or (b) August 18, 2023.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the
statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding
our current beliefs, goals and expectations about matters such as our expected financial position and operating results, our business
strategy and our financing plans. The forward-looking statements in this report are not based on historical facts, but rather reflect
the current expectations of our management concerning future results and events. The forward-looking statements generally can be identified
by the use of terms such as “believe,” “expect,” “anticipate,” “intend,” “plan,”
“foresee,” “may,” “guidance,” “estimate,” “potential,” “outlook,”
“target,” “forecast,” “likely” or other similar words or phrases. Similarly, statements that describe
our objectives, plans or goals are, or may be, forward-looking statements. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results,
performance and achievements expressed or implied by these statements. We cannot guarantee that our forward-looking statements will turn
out to be correct or that our beliefs and goals will not change. Our actual results could be very different from and worse than our expectations
for various reasons. You should review carefully all information, including the discussion of risk factors under “Part I. Item 1A:
Risk Factors” and “Part II. Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations”
of the Form 10-K for the year ended September 30, 2021. Any forward-looking statements in the Form 10-Q are made only as of the date hereof
and, except as may be required by law, we do not have any obligation to publicly update any forward-looking statements contained in this
Form 10-Q to reflect subsequent events or circumstances.
Throughout this
Quarterly Report on Form 10-Q, the terms “CLIS,” ”we,” “us,” ”our,” “the
company” and “our company” refer to Clickstream Corporation, a Nevada corporation and its subsidiaries.
Our corporate history
We were incorporated in Nevada on September 30, 2005,
and previously operated under the name of Peak Resource Incorporated. In August 2008, we changed our name to “Mine Clearing Corporation”.
We had been operating as an exploration division in the mining sector until May 2014. On May 2, 2014, we acquired all of the shares of
Clickstream Corporation, a Nevada corporation. Subsequent to the acquisition, we were operating as a data analytics tool developer and
had sought to further develop and exploit our data analytics technology and proprietary algorithms. Currently, we are a
technology company focused on developing apps and digital platforms that disrupt conventional industries. We’re currently marketing
and developing WinQuik™, HeyPal™, Nifter™
and Joey’s Animal Kingdom™, respectively.
The address of our virtual executive office is 8549
Wilshire Blvd., Suite 2181, Beverly Hills, California 90211, and our telephone number is (213) 205-0684.
Overview
Over the last few years, there has been a substantial
increase in the availability and quality of applications readily available from sources such as Google Play Store and Apple Play Store
for various types of gaming. The initial objective of the Company is to develop apps and digital platforms that disrupt conventional industries.
The Company is currently marketing and developing WinQuik™, HeyPal™, Nifter™ and Joey’s Animal Kingdon™,
respectively. WinQuik™ is a free-to-play synchronized mobile app and digital gaming platform. The platform is designed to enable
WinQuik™ users to have fun, interact and compete in order to win real money and prizes. Due
to a security breach compromising WinQuikTM, WinQuikTM was removed from the App Store and Play Store.
No decision has been made as to the future of WinQuikTM. HeyPal™, a unit of our subsidiary Nebula Software Corp., is
a language learning app that focuses on “language exchanging” between users around the world. Nifter™, by way of ClickStream
subsidiary Rebel Blockchain Inc., is a music NFT marketplace that allows artists to create, sell and discover unique music and sound NFTs
on the Nifter™ marketplace. Joey’s Animal Kingdom™ is a children’s entertainment and education app that takes
kids all around this amazing planet to see incredible animals and creatures.
In September 2021, the Company acquired approximately
53% of Winners, Inc. (WNRS) which, together with its prior holdings, gives an approximate 55% interest in the common stock of WNRS. Due
to the existence of super-voting preferred stock of WNRS, the Company has a vote of approximately 5%. However, management has concluded
that Winners, Inc. and its subsidiary VegasWinners, Inc. should be considered as an investment in equity method investee.
Recent Developments
Issuance of Common Shares for Services
During the nine months ended June 30, 2022, the Company
agreed to issue a total of 24,387,257 shares of common stock, of which 21,299,430 shares were issued and 3,087,827 are to be issued, to
consultants with a fair value of $795,000 for services rendered. The common shares issued were valued at the trading price at the respective
date of issuances.
Issuance of Common Shares for Licensing and Marketing
Fees
Effective March 29, 2022,
the Company entered into a Collaboration Agreement (the “Agreement”) with The Stan Lee Estate (“SLE”) and Roc
Nation LLC (“Roc Nation”) pursuant to which the parties will collaborate in the mining, marketing and distributing of non-fungible
tokens (“NFTs) of among other things data, art, assets, expressions and any other information, expressions and renderings of or
related to SLE that SLE owns, controls or otherwise has the right to use and distribute on a non-exclusive and exclusive basis including
147 original art drawings by Stan Lee and autographed by Stan Lee as one NFT, Stan Lee original drawings of Spiderman Circa 1940’s,
Stan Lee/Charles Schultz collaboration painting of Snoopy and Spiderman, Silver Surfer artwork original and Spiderman woven tapestry original.
For its compensation under
the Agreement, the Company will receive 10% of net revenues from original issue NFT’s and 20% of all resale net revenues. In turn,
the Company will issue to SLE: (a) 15,000,000 restricted shares of the Company’s common stock upon execution of the Agreement; and
(b) 10,000,000 restricted shares of the Company’s Common Stock after in each case NFT gross sales reach $1,000,000, $10,000,000
and $20,000,000. Additionally, SLE is to receive a series of 5% equity interests in Rebel after in each case NFT gross sales reach $1,000,000,
$5,000,000, $75,000,000 and $100,000,000. Also, Roc Nation is to receive 15,000,000 restricted shares of the Company’s Common Stock
upon execution of this Agreement and 5,000,000 restricted shares when NFT gross sales reach $10,000,000.
During the nine months ended
June 30, 2022, the 15,000,000 common shares required to be issued to SLE upon execution of the Agreement resulted in prepaid licensing
fees of $390,000, which is being amortized to expense over the one-year term of the Agreement. As of June 30, 2022, the amount remaining
in prepaid expense was $283,000. As of June 30, 2022, the 15,000,000 common shares to SLE are shown as common stock to be issued on the
accompanying consolidated balance sheet. The 15,000,000 common shares required to be issued to Roc Nation upon execution of the Agreement
resulted in prepaid marketing fees of $390,000, which is being amortized to advertising expense over the one-year term of the Agreement.
As of June 30, 2022, the amount remaining in prepaid expense was $283,000. Effective March 29, 2022, the 15,000,000 common shares to Roc
Nation were issued.
Issuance of Common Shares for Settlement of Employment
Agreement
On October 14, 2021, the Company issued a total of
1,550,000 shares of common stock as settlement of an employment agreement with a former employee. The common shares were valued at the
trading price of $0.10 on the settlement date or $155,000. As there was $9,000 accrued to the employee, the Company recognized a loss
on the settlement of $146,000.
Issuance of Common Shares for Cash
During the nine months ended June 30, 2022, the Company
issued a total of 15,000,000 shares of common stock in a private placement offering for cash proceeds of $750,000.
Issuance of Common Shares Upon Conversions of Convertible
Notes Payable
During the nine months ended June 30, 2022, a noteholder
converted an aggregate of $45,000 of principal into 5,756,396 shares of common stock, resulting in a reduction in convertible notes payable
by $45,000 and debt premium by $15,000, with a corresponding increase in common stock of $1,000 and additional paid-in capital of $59,000.
Issuance of Common Shares to be Issued
On May 13, 2022, the Company issued 140,000 common
shares that were previously to be issued as of September 30, 2021.
Results of Operations—Comparison of the Three
Months Ended June 30, 2022 and 2021
Research and Development Expenses
Research and development expenses for the three months
ended June 30, 2022 decreased to $189,000 from $230,000 in the comparative prior period, a decrease of $41,000 or 18%. This is mainly
due to the research and development expenses incurred for the HeyPal™ app and Nifter™
music NFT.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the
three months ended June 30, 2022 decreased to $741,000 from $1,027,000 in the comparative prior period, a decrease of $286,000, or 28%.
The decrease in selling, general, and administrative expenses in 2022 was due to shutting down the WinQuik™ app.
Interest Expense
Interest expense for the three months ended June 30,
2022 decreased to $60,000 from $74,000 in the comparative prior period, an decrease of $14,000 or 19%. The decrease is primarily the result
of the amortization of the remaining debt discount on a $600,000 convertible note payable during the three months ended June 30, 2022.
Interest Income
Interest income for the three months ended June 30,
2022 decreased to $0 from $13,000 in the comparative prior period, a decrease of $13,000 or 100%. The Company received the remaining principal
amount due under the notes receivable from Winners, Inc. in January 2022. Thus, interest expense fell to $0 for the three months ended
June 30, 2022.
Results of Operations—Comparison of the Nine
Months Ended June 30, 2022 and 2021
Research and Development Expenses
Research and development expenses for the nine months
ended June 30, 2022 decreased to $484,000 from $521,000 in the comparative prior period, a decrease of $37,000 or 7%. This is mainly due
to the research and development expenses incurred for the HeyPal™ app and Nifter™
music NFT.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the
nine months ended June 30, 2022 decreased to $3,582,000 from $5,389,000 in the comparative prior period, a decrease of $1,807,000, or
34%. The decrease in selling, general, and administrative expenses in 2022 was due to shutting down the WinQuik™ app.
Settlement of Employment Agreement
During the nine months ended June 30, 2022, the Company
recorded a loss on settlement of employment agreement of $146,000 related to an employment agreement with a former employee that was settled
with shares of common stock. There was no such loss in nine months ended June 30, 2021.
Interest Expense
Interest expense for the nine months ended June 30,
2022 increased to $267,000 from $90,000 in the comparative prior period, an increase of $177,000 or 197%. The increase is primarily due
to an increase in non-cash amortization of $40,000 of debt discount and recognition of debt premium of $105,000 associated with convertible
notes payable during the nine months ended June 30, 2022. There was no debt premium recognized in the comparative prior period.
Interest Income
Interest income for the nine months ended June 30,
2022 decreased to $21,000 from $41,000 in the comparative prior period, a decrease of $20,000 or 49%. The Company received all principal
due under the notes receivable from Winners, Inc. from October 2021 through January 2022. Thus, interest expense fell to $21,000 for the
nine months ended June 30, 2022.
Liquidity and Capital Resources
As of June 30, 2022, we had cash of $1,000. The Company’s
current operations have focused on business planning, raising capital, continued research and development and sales and marketing. The
Company has not generated any revenue from product sales. The Company has sustained operating losses since inception and expects such
losses to continue over the foreseeable future. During the nine months ended June 30, 2022, the Company raised $754,000 in cash (net of
OID and issuance costs of $131,000) from the issuances of convertible notes payable. In addition, the Company raised $750,000 from the
sale of common shares in a private placement. The Company also received $515,000 in principal and $62,000 of accrued interest receivable
in cash from the repayment of its notes receivable and accrued interest due from Winners, Inc. We anticipate that cash utilized for selling,
general, and administrative expenses will range between $1,000,000 and $1,500,000 for the remainder of calendar 2022, while research and
development expenses will continue and is expected to range between $200,000 and $400,000 for the remainder of calendar 2022. The Company
is pursuing several alternatives to address this situation, including the raising of additional funding through equity and/or debt financings.
In order to finance existing operations and pay current liabilities over the next twelve months, the Company will need to raise an additional
$2,500,000 of capital.
Application of Critical Accounting Policies
We believe that our critical accounting policies are
as follows:
| |
● |
Research and Development Costs; |
| |
|
|
| |
● |
Share-Based Compensation; |
| |
|
|
| |
● |
Fair Value Measurements; |
| |
|
|
| |
● |
Equity Method Investments; and |
| |
|
|
| |
● |
Asset Acquisitions. |
Research and Development Costs
Research and development costs consist of expenditures
for the research and development of new products and technology. These costs are primarily expenses to vendors contracted to perform research
projects and develop technology for the Company’s mobile gaming applications. Costs incurred for research and development are expensed
as incurred.
Share-Based Compensation
We account for our stock-based compensation to employees
and non-employees under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under
this method, compensation cost is measured at the grant date based on the value of the award
and is recognized over the requisite service period, which is usually the vesting period. This guidance establishes standards for the
accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments
or that may be settled by the issuance of those equity instruments.
Fair Value Measurements
We use fair value measurements to record fair value
adjustments to certain assets and liabilities and to determine fair value disclosures. We base our fair values on the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Additionally, from time to time, we may be required to record certain assets at fair value on a non-recurring basis, such as certain
impaired loans held for investment and securities held to maturity that are other-than-temporarily impaired or goodwill. These non-recurring
fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting or
other accounting standards.
We have established and documented a process for determining
fair value. We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.
Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these
estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been
used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For
detailed information on our use of fair value measurements and our related valuation methodologies, see Note 3 to the Consolidated Financial
Statements of this report.
Equity Method Investments
The equity method is applied to investments in affiliated
companies and joint ventures. An affiliated company is an entity which is not controlled by the Company but for which the Company is able
to exert significant influence over the decisions on financial and operating business policies. If the Company has 20% or more but not
more than 50% of the voting rights of another entity, the Company is presumed to have significant influence over that entity however,
if a company has less than 20% of the voting rights and is able to exert significant influence the equity method should be applied. Under
the equity method, the investment in an affiliated company or joint venture is initially recognized at cost and the carrying amount is
increased or decreased to recognize the Company’s share of the net income or loss of the affiliated company or joint venture. When
the Company’s share of losses of an affiliated company equals or exceeds it interest in the affiliated company or joint venture,
the Company discontinues recognizing its share of further losses. All intercompany profits have been eliminated in proportion to interests
in affiliated companies or joint ventures.
Asset Acquisitions
The Company accounts for acquisitions of legal entities
that do not meet the definition of a business under ASC 805 as asset acquisitions. Assets acquired and liabilities assumed are recorded
at their relative fair value and no goodwill is recorded. Contingent consideration for assets acquired is measured and is recognized as
an expense on the date the contingency occurs.
Recently
Issued Accounting Standards
See discussion
in Note 3 to the condensed consolidated financial statements.
Inflation
We believe that
inflation has not had a material adverse impact on our business or operating results during the periods presented.
Off-balance
Sheet Arrangements
The Company does not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
