The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
Notes to Consolidated Financial Statements
Note 1. Organization and Description of Business
Novagen Ingenium Inc. (referred to herein collectively with its subsidiaries as "Novagen" and the "Company"), was incorporated in the State of Nevada, U.S.A., on June 22, 2005 under the name of Pickford Minerals, Inc. The Company's fiscal year end is December 31. On May 12, 2009, the Company changed its name to Novagen Solar Inc. The Company was originally engaged in the exploration of mineral deposits in Labrador, Newfoundland, but was unable to implement its exploration program. In April 2009, the Company began to pursue business opportunities relating to photovoltaic solar energy.
On December 7, 2011, there was a change in control of the Company when Twenty Second Trust, a trust organized under the laws of the State of Queensland, Australia acquired control of the Company by purchasing 67% of the issued and outstanding shares of the Company's common stock from shareholders of the Company. Following the change in control, the board of directors determined that the Company should expand its business to include the development of environmentally sustainable energy solutions through innovative and eco-friendly products and technologies.
On January 3, 2012, the Company formed Novagen Pty Ltd under the laws of Australia, as a wholly owned operating subsidiary. On January 17, 2012, the Company formed Novagen Productions Pty Ltd. under the laws of Australia, as a wholly owned operating subsidiary. On March 2, 2012, the Company formed Novagen Finance Pty Ltd under the laws of Australia, as a wholly owned non-operating subsidiary.
On June 25, 2012 the Company acquired R Urban Streetwear Pty Ltd. (formally Renegade Streetwear Pty Ltd, "Renegade"), under the laws of Australia as a wholly owned operating subsidiary. Prior to the acquisition of Renegade Streetwear Pty Ltd the Company was a shell company. After acquiring Renegade, the Company's name was changed to Renegade Engine Company, Pty Ltd. At the time of the acquisition, Renegade was in the business of designing, manufacturing and distributing V-Twin engines, custom motorcycles and related urban clothing under the Renegade brand. Renegade operated from leased premises situated at Helensvale, Queensland for use as a workshop, prototype machine shop and engine assembly shop. In late 2013, Renegade abandoned its custom motorcycle business and now concentrates on development of the Renegade V-Twin engine line as its core business. On March 26, 2015, Novagen sold R Urban Streetwear Pty Ltd. to a related party for AU$1, but retained the Renegade trademark, engine manufacturing design, development and manufacturing operations.
On September 27, 2012, the Company acquired all the issued and outstanding shares of Y Engine Developments Pty Ltd, a development stage Australian company (hereunder "Y Engine Developments"), from Michael Nugent, who is also the President and a director of the Company. The Company issued one common share to Mr. Nugent as the total aggregate consideration for Y Engine Developments.
On April 15, 2013, the Company filed Articles of Merger with the Nevada Secretary of State in order to merge with Novagen Ingenium Inc. (the "Subsidiary"), a wholly-owned subsidiary of the Company that was incorporated on April 2, 2013 under the laws of the State of Nevada (the "Merger"). Effective April 30, 2013, the Subsidiary merged with and into the Company, with the Company being the surviving entity. As a result of the Merger, effective April 30, 2013, the Articles of Incorporation of the Company were amended to change the name of the Registrant to Novagen Ingenium Inc.
Summary of Significant Accounting Policies
The financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates that have been made using careful judgment. The financial statements have, in management's opinion been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Accounting Method
The Company's financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and reported in US Dollars.
Revenue Recognition
Revenue from the sale of goods is recognised by the company in accordance with Accounting Standards Codification "(ASC") 605, when all the following conditions have been satisfied:
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1.
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persuasive evidence of an arrangement exists;
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2.
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product delivery has occurred;
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3.
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title and risk of loss has transferred to the buyer;
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4.
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sales price to the customer is fixed and determinable and;
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5.
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collectability is assured.
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Cash received prior to the revenue recognition criteria above being met is recorded as deferred revenue until all criteria have been met.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. The Company reviews its estimates on an ongoing basis. The estimates were based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from these estimates. The Company believes the judgments and estimates required in its accounting policies to be critical in the preparation of the Company's financial statements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Property and Equipment
The Company has property and equipment that was being depreciated over the period between two to ten years. At January 1, 2014, we impaired all of our property, plant and equipment (see Note 3).
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of manufactured products includes direct materials, direct labor and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.
Concentration of Credit Risk
The Company places its cash and cash equivalents with high credit quality financial institutions in uninsured accounts.
Consolidation Policy
The consolidated financial statements include the accounts of Novagen Ingenium Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.
Our Corporate Structure
All of our business operations are conducted through our Australian subsidiaries, Novagen Precision Engineering Pty Ltd. and Novagen Finance Pty Ltd which are both wholly-owned.
Foreign Currency Translations
Novagen maintains its accounting records in US Dollars. The Company's subsidiaries are located and operating outside of the United States of America and they maintain their accounting records in Australian Dollars. For reporting purposes the Company reports its financial information in US Dollars.
Transactions in a currency other than the functional currency are measured in the respective functional currencies of the Company and its subsidiaries and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Exchange gains and losses are recorded in the statements of income and comprehensive income.
Assets and liabilities of the Company and its subsidiaries are translated into the U.S. dollars at exchange rates at the balance sheet date, equity accounts are translated at historical exchange rate and revenues and expenses are translated by using the average exchange rates. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statements of stockholders' equity.
The following table provides the exchange rates used to translate the balances in the accounts from Australian Dollars to US Dollars:
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Australian Dollar / US Dollar
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Item
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Rate Used
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|
2015
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|
|
2014
|
|
Assets and liabilities
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Year-end
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0.7284
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|
|
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0.8156
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Revenues and expenses
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Average
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0.7507
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0.9022
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Fair Value of Financial Instruments
The Company's financial instruments as defined by Accounting Standards Codification ("ASC") 825, "Disclosures about Fair Value of Financial Instruments," include accounts payable and accrued liabilities and notes payable. Fair values were assumed to approximate carrying value for these financial instruments, except where noted. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The Company is operating outside the United States of America and has significant exposure to foreign currency risk due to the fluctuation of currency in which the Company operates and U.S. dollars.
Long-lived assets impairment
Long-lived assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets.
Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.
Stock-Based Compensation
The Company adopted ASC 718, "Share-Based Payment", to account for its stock options and similar equity instruments issued. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period. ASC 718 requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. The Successor Company did not grant any stock options during 2014 or 2015.
Comprehensive Income
The Company adopted ASC 220, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity and its Statements of Operations and Comprehensive Income. The Company's comprehensive income consists of net earnings for the period and currency translation adjustments.
Income Taxes
The Company has adopted ASC 740, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Basic and Diluted Loss Per Share
In accordance with ASC 260 - "Earnings Per Share", the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At December 31, 2015 and 2014, the basic loss per share was equal to diluted loss per share as there were no dilutive instruments.
Business Combinations
ASC 805 applies the acquisition method of accounting for business combinations established in ASC 805 to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
Recently Adopted and Recently Enacted Accounting Pronouncements
Recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Note 2. Going Concern
The Company has an accumulated deficit of $3,169,154 at December 31, 2015, and does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
These factors raise substantial doubt about the Company's ability to continue as a going concern.
In addition to operational expenses, as the Company executes its business plan, it is incurring expenses related to complying with its public reporting requirements. In order to finance these expenditures, the Company has raised capital in the form of debt, which will have to be repaid, as discussed in detail below.
The Company has depended on loans from private investors and related parties for much of its operating capital. The Company will need to raise capital or have positive cash flows from operations in the next twelve months in order to remain in business.
Management anticipates that significant dilution will occur as a result of any future sales of the Company's common stock and this will reduce the value of its outstanding shares. The Company cannot project the future level of dilution that will be experienced by investors as a result of its future financings, but it will significantly affect the value of its shares.
The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
Note 3. Property and Equipment
On October 11, 2013, the Company acquired certain plant and equipment in exchange for a promissory note in the amount of AU$270,000 (approximately US$239,563) plus 270,000 shares of the Company common stock. An independent valuation of the fair value of the equipment was performed in Australia and determined that its fair value, before considering the Australian Goods and Services Tax ("GST"), was AU$203,060 (or approximately US$180,169). 10% of the amount was considered to be GST tax and not allocated to the purchase price, but held as future input GST payments. We valued the shares promised as consideration at their fair values on the date of the acquisition and added US$17,550 to the total amount of consideration given. Therefore, the total amount of consideration given, including the promissory note and promised stock, was US$257,113 and US$18,085 was allocated to input GST to be applied against future tax payments.
Because the asset purchase in 2013 failed to produce positive cash flows for 2013 or 2014, management elected to impair 100% of the carrying value of the property plant and equipment. At December 31, 2013, property, plant and equipment historical cost, accumulated depreciation and net carrying values were $237,118, $10,080 and $227,038, respectively. We charged asset impairments with $229,736. The difference between the impairment value in 2014 and the net carrying value at December 31, 2013 was due to exchange rate differences.
Note 4. Notes Payable
Borrowings from related parties
We began 2014 with $103,842 (AU$116,597) of related-party debt.
During the year ended December 31, 2014, we received $138,889 (AU$154,125) in loan proceeds, made principal payments of $125,266 (AU$139,008) and adopted $112,697 (AU$125,060) in related-party debt from the third-party notes payable section when several of our creditors joined our board of directors.
In addition, we reduced the US Dollar equivalent of our Australian related-party debts from $244,421 to $223,184 due to changes in exchange rates from the strengthening US Dollar.
During the year ended December 31, 2015, we received $231,631 (AU$247,583) in loan proceeds from related parties and made principal payments to related parties of $13,260 (AU$17,664). Additionally, we had certain other downward adjustments totaling $1,489 to the related party debt accounts arising from the sale of Renegade Engine Company.
Finally, at December 31, 2015, we reduced the US Dollar equivalent of our Australian related-party debts from $397,268 to $367,483 due to changes in exchange rates from the strengthening US Dollar.
Borrowings from third parties
We began 2014 with $449,806 (AU$505,060) in amounts owed to third parties for borrowings.
2014 Activity
During the year ended December 31, 2014, we borrowed an additional $243,309 (AU$270,000), ("the 2014 Third-Party Borrowings"), made no principal payments on these debts, and transferred $112,697 (AU$125,060) to the related-party section of the financial statements when certain creditors became related parties by joining our board of directors. We also reduced the recorded debt in US Dollars from $580,418 to $532,176 due to changes in exchange rates from the strengthening US Dollar.
Of the 2014 Third-Party Borrowings:
On April 24, 2014, we borrowed US$18,023 (AU$20,000) from an unrelated party. The debt is not evidenced by a promissory note.
We issued a promissory note on September 22, 2014 for $18,023 (AU$20,000) which is callable by the maker at any time, and which bears interest at 5% (10% on matured, unpaid amounts). The note may be converted at any time at AU$0.25 per share (which, at December 31, 2015, was equal to about US$0.182). We paid no interest or principal on this note during 2014, but accrued interest of $247 (AU$274). During the year ended December 31, 2015, we accrued an additional $898 (AU$997) in interest and made no interest or principal payments.
We issued an additional promissory note on September 22, 2014 for $27,034 (AU$30,000) which is callable by the maker at any time, and which bears interest at 5% (10% on matured, unpaid amounts). The note may be converted at any time at AU$0.25 per share (which, at December 31, 2015, was equal to about US$0.182). We paid no interest or principal on this note during 2014, but accrued interest of $385 (AU$427). During the year ended December 31, 2015, we accrued an additional $1,348 (AU$1,496) in interest and made no interest or principal payments.
On November 24, 2014, we issued a promissory note in the amount of $180,229 (AU$200,000). The note is callable by the maker at any time, bears interest at 4.5%, and is convertible into 2,000,000 shares of common stock. We paid no interest or principal on this note during 2014, but accrued interest of $2,877 (AU$3,193). Additionally, during the year ended December 31, 2015, we accrued $8,088 (AU$8,975), and made no interest or principal payments.
On third-party borrowings in total, we accrued $32,822 (AU$36,422) and paid $15,615 (AU$17,328) in interest and transferred $112,697 (AU$125,060) of principal and $14,104 (AU$15,651) of interest to the related-party section when certain creditors joined our board of directors.
In addition to the convertible promissory notes issued to creditors during 2014, one promissory note from before 2014 for AU$50,000 (US$45,057) can be converted into common stock at the rate of AU$0.10.
2015 Activity
During the year ended December 31, 2015, we borrowed an additional $60,054 (AU$80,000), ("the 2015 Third-Party Borrowings") and made no principal payments on these debts. We also reduced the recorded debt in US Dollars from $592,230 to $531,741 due to changes in exchange rates from the strengthening US Dollar.
Of the 2015 Third-Party Borrowings:
We issued a promissory note on April 2, 2015 for $7,507 (AU$10,000) which is callable by the maker at any time, and which bears interest at 4% (10% on matured, unpaid amounts). The note may be converted at any time at AU$0.25 per share (which, at December 31, 2015, was equal to about US$0.182). We paid no interest or principal on this note during 2015, but accrued interest of $270 (AU$300).
During the year ended December 31, 2015, we borrowed an additional $37,534 (AU$50,000) on an already-existing promissory note on which we had previously borrowed during 2013. We applied the same terms to the new borrowing as existed on that obtained in 2013: callable at any time, interest at 5% (10% on matured, unpaid amounts) and convertible at AU$0.10 (about US$0.073 at December 31, 2015). We accrued $4,082 (AU$4,530) on this entire promissory note during the year ended December 31, 2015 and made no interest or principal payments.
Lastly, on June 29, 2015, we borrowed $15,013 (AU$20,000) on which no promissory note was issued. We imputed $901 in interest expense for the year ended December 31, 2015, increasing Additional Paid in Capital by that amount.
The Company evaluated the terms of the above third-party and related-party notes in accordance with ASC Topic No. 815 - 40,
Derivatives and Hedging - Contracts in Entity's Own Stock
and determined that the underlying common stock is indexed to the Company's common stock. We determined that the conversion features did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company further analyzed the convertible debts for a beneficial conversion feature under ASC 470-20 on the date of the notes and determined that no beneficial conversion feature exists.
Note 5. Capital Stock
Preferred stock
The Company has 50,000,000 shares of preferred stock authorized and none issued.
Common stock
The Company has 100,000,000 shares of common stock authorized.
During the years ended December 31, 2015 and 2014, we issued no common shares.
Imputed Interest
During the years ended December 31, 2015 and 2014, we imputed $6,144 and $7,704, respectively, on certain debts which were not evidenced by an interest-bearing promissory note.
Note 6. Related Party Transactions
All transactions referenced in this note represent transactions between the Company and officers and directors of the Company except for references to foreign exchange adjustments.
During the year ended December 31, 2014, we received $138,889 (AU$154,125) in loan proceeds, made principal payments of $125,266 (AU$139,008) and adopted $112,697 (AU$125,060) in related-party debt from the third-party notes payable section when several of our creditors joined our board of directors.
In addition, we reduced the US Dollar equivalent of our Australian related-party debts from $244,421 to 223,184 due to changes in exchange rates from the strengthening US Dollar at December 31, 2014.
At December 31, 2014, since-inception cumulative net interest and principal payments to the Twenty-Second Trust exceeded borrowings from, and interest accruals to, the Twenty Second Trust by $14,259 (AU$15,823) and $103 (AU$114), respectively. At December 31, 2014, we fully reserved these amounts and included them in compensation expense.
During the year ended December 31, 2015, we borrowed $190,344 from the 22
nd
Trust and made $773 in principal payments. Also during 2015, we borrowed $41,287 from other related parties and made principal payments of $12,487. Additionally, we had certain downward adjustments of $1,489 to related party debt accounts resulting from the sale of Renegade Engine.
During the year ended December 31, 2015, we accrued $29,336 in interest and made $21,586 in interest payments to related parties.
Note 7. Business Combinations and Dispositions
Sale of R Urban Streetwear Pty Ltd
On March 26, 2015, we sold our subsidiary, R Urban Streetwear Pty Ltd. to a related party for AU$1, but retained the Renegade trademark and engine operations. The effect on the financial statements was to reduce assets by US$248, reduce liabilities by US$151,811, increase the foreign exchange effect by $4,259, and to record a gain of $155,822 on the sale as follows:
Financial Statement Item
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Financial Effect
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Assets
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|
|
|
Cash and equivalents
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|
$
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248
|
|
Total assets
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|
|
248
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(151,811
|
)
|
Total current liabilities
|
|
|
(151,811
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)
|
|
|
|
|
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Foreign exchange effect
|
|
|
(4,259
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)
|
|
|
|
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Gain on sale of Novagen Pty Ltd to related party
|
|
$
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155,822
|
|
Because the sale was to a related party, we included the gain in Additional Paid in Capital.
Note 8. Income Taxes
At December 31, 2015 and 2014, the Company had deferred tax assets of approximately $805,246 and $698,396, respectively, principally arising from net operating loss carry-forwards for income tax purposes. As our management cannot determine that it is more likely than not that we will realize the benefit of the deferred tax asset, a valuation allowance equal to the deferred tax asset has been established at December 31, 2015 and 2014. The significant component of the deferred tax asset at December 31, 2015 and 2014 was as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Deferred tax asset at 30%
|
|
$
|
805,246
|
|
|
$
|
698,396
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Valuation allowance
|
|
|
(805,246
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)
|
|
|
(698,396
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
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|
At December 31, 2015 and 2014, the Company had net operating loss carry forwards of approximately $3,169,000 and $2,328,000, respectively, which will begin to expire in the year 2026.
Note 9. Commitments and Contingencies
Our principal facilities are located in Queensland, Australia, where we lease approximately 3,300 square feet of commercial space and 2,500 square feet of office space through our subsidiary, Novagen Pty Ltd. We pay approximately $2,300 per month which runs through July 1, 2018.
Payouts through the end of the lease are expected to be approximately $27,474 for both 2016 and 2017, and $13,737 for 2018.