Nature
and Continuance of Operations (Note 1)
Contingent
Liabilities (Note 13)
The
accompanying notes are an integral part of these consolidated financial statements
VOIP-PAL.com
Inc.
CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
For
the Fiscal Years ending
(Expressed
in U.S. Dollars)
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
(Note 5)
|
|
$
|
138,191
|
|
|
$
|
129,368
|
|
Officers
and Directors fees (Note 6)
|
|
|
214,400
|
|
|
|
713,000
|
|
Legal
fees (Note 6)
|
|
|
911,003
|
|
|
|
201,065
|
|
Office
& general
|
|
|
291,988
|
|
|
|
187,424
|
|
Patent
consulting fees
|
|
|
227,390
|
|
|
|
853,060
|
|
Professional
fees & services (Note 6)
|
|
|
405,834
|
|
|
|
439,894
|
|
Stock-based
compensation (Note 10)
|
|
|
421,867
|
|
|
|
950,294
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
2,610,673
|
|
|
|
3,474,105
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR
|
|
$
|
(2,610,673
|
)
|
|
$
|
(3,474,105
|
)
|
Basic
and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
1,111,696,541
|
|
|
|
1,041,024,918
|
|
The
accompanying notes are an integral part of these consolidated financial statements
VOIP-PAL.com
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Fiscal Years
(Expressed
in U.S. Dollars)
|
September
30,
2017
|
|
September
30,
2016
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
Net
loss for the year
|
|
$
|
(2,610,673
|
)
|
|
$
|
(3,474,105
|
)
|
Add
items not affecting cash:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
421,867
|
|
|
|
950,294
|
|
Shares
issued for services
|
|
|
231,701
|
|
|
|
1,121,195
|
|
Amortization
|
|
|
138,191
|
|
|
|
129,368
|
|
|
|
|
|
|
|
|
|
|
Changes
in non-cash working capital:
|
|
|
|
|
|
|
|
|
Legal
retainer
|
|
|
—
|
|
|
|
(100,000
|
)
|
Accounts
payable and accrued liabilities
|
|
|
73,196
|
|
|
|
199,736
|
|
Prepaid
expense
|
|
|
14,250
|
|
|
|
(71,250
|
)
|
Cash
Flows Used in Operations
|
|
|
(1,731,468
|
)
|
|
|
(1,244,762
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Investment
in VoIP patents
|
|
|
—
|
|
|
|
(114,398
|
)
|
Cash
Flows Used in Investing Activities
|
|
|
—
|
|
|
|
(114,398
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from convertible debentures
|
|
|
32,500
|
|
|
|
326,000
|
|
Proceeds
from private placement
|
|
|
1,590,010
|
|
|
|
381,000
|
|
Cash
Flows Provided by Financing Activities
|
|
|
1,622,510
|
|
|
|
707,000
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash
|
|
|
(108,958
|
)
|
|
|
(652,160
|
)
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of the year
|
|
|
121,115
|
|
|
|
773,275
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of the year
|
|
$
|
12,157
|
|
|
$
|
121,115
|
|
Supplemental
cash flow information – Note 7
The
accompanying notes are an integral part of these consolidated financial statements
VOIP-PAL.com
Inc.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Expressed
in U.S. dollars)
|
|
Common
Shares
|
|
|
Shares
to be
Issued
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Value
|
|
|
Paid-in
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
at September 30, 2015
|
|
|
1,019,658,368
|
|
|
$
|
896,292
|
|
|
$
|
846,721
|
|
|
$
|
28,357,610
|
|
|
$
|
(28,162,038
|
)
|
|
$
|
1,938,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in a private placement
|
|
|
10,458,333
|
|
|
|
10,458
|
|
|
|
—
|
|
|
|
370,542
|
|
|
|
—
|
|
|
|
381,000
|
|
Shares issued as
share issuance costs
|
|
|
1,126,667
|
|
|
|
1,127
|
|
|
|
—
|
|
|
|
(1,127
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares
issued for debt conversion
|
|
|
8,873,333
|
|
|
|
8,873
|
|
|
|
(87,000
|
)
|
|
|
404,127
|
|
|
|
—
|
|
|
|
326,000
|
|
Shares
issued for services
|
|
|
16,357,500
|
|
|
|
16,358
|
|
|
|
303,320
|
|
|
|
801,517
|
|
|
|
—
|
|
|
|
1,121,195
|
|
Shares
to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share
purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
950,294
|
|
|
|
—
|
|
|
|
950,294
|
|
Net
loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,474,105
|
)
|
|
|
(3,474,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2016
|
|
|
1,056,474,201
|
|
|
|
933,108
|
|
|
|
1,063,041
|
|
|
|
30,882,963
|
|
|
|
(31,636,143
|
)
|
|
|
1,242,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in a private placement
|
|
|
73,067,166
|
|
|
|
73,067
|
|
|
|
—
|
|
|
|
1,516,943
|
|
|
|
—
|
|
|
|
1,590,010
|
|
Shares issued as
share issuance costs
|
|
|
4,336,667
|
|
|
|
4,337
|
|
|
|
—
|
|
|
|
(4,337
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares
issued for debt conversion
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
—
|
|
|
|
31,100
|
|
|
|
—
|
|
|
|
32,500
|
|
Shares
issued for services
|
|
|
7,747,500
|
|
|
|
7,748
|
|
|
|
—
|
|
|
|
223,953
|
|
|
|
—
|
|
|
|
231,701
|
|
Shares
cancelled on termination of services
|
|
|
(900,000
|
)
|
|
|
(900
|
)
|
|
|
—
|
|
|
|
(44,100
|
)
|
|
|
—
|
|
|
|
(45,000
|
)
|
Shares
to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share
purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
421,867
|
|
|
|
—
|
|
|
|
421,867
|
|
Net
loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,610,673
|
)
|
|
|
(2,610,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2017
|
|
|
1,142,125,534
|
|
|
$
|
1,018,760
|
|
|
$
|
1,063,041
|
|
|
$
|
33,028,389
|
|
|
$
|
(34,246,816
|
)
|
|
$
|
863,374
|
|
The
accompanying notes are an integral part of these consolidated financial statements
NOTE
1.
NATURE AND CONTINUANCE OF OPERATIONS
VOIP-PAL.com,
Inc. (the “Company”) was incorporated in the state of Nevada in September, 1997 as All American Casting International,
Inc. The Company’s registered office is located at 10900 NE 4
th
Street, Suite 2300, Bellevue, Washington in the
United States of America.
Since
March 2004, the Company has been developing technology and patents related to Voice-over-Internet Protocol (VoIP) processes. All
business activities prior to March 2004 have been abandoned and written off to deficit.
In
December 2013, the Company completed the acquisition of Digifonica (International) Limited, a private company based in Gibraltar,
whose assets included several patents and technology developed for the VoIP market.
These
consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets
and discharge of liabilities in the normal course of business. The Company is in various stages of product development and continues
to incur losses and, at September 30, 2017, had an accumulated deficit of $34,246,816 (September 30, 2016 - $31,636,143). The
ability of the Company to continue operations as a going concern is dependent upon raising additional working capital, settling
outstanding debts and generating profitable operations. These material uncertainties raise substantial doubt about the Company’s
ability to continue as a going concern. Should the going concern assumption not continue to be appropriate, further adjustments
to carrying values of assets and liabilities may be required. There can be no assurance that capital will be available as necessary
to meet these continued developments and operating costs or, if the capital is available, that it will be on the terms acceptable
to the Company. The issuances of additional stock by the Company may result in a significant dilution in the equity interests
of its current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s
liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable,
its business and future success may be adversely affected.
Additionally,
as the Company’s stated objective is to monetize its patent suite through the licensing or sale of its intellectual property
(“IP”), the Company being forced to litigate or to defend its IP claims through litigation casts substantial doubt
on its future to continue as a going concern. IP litigation is generally a costly process, and in the absence of revenue
the Company must raise capital to continue its own defense and to validate its claims – in the event of a failure to defend
its patent claims, either because of lack of funding, a court ruling against the Company or because of a protracted litigation
process, there can be no assurance that the Company will be able to raise additional capital to pay for an appeals process or
a lengthy trial. The outcome of any litigation process may have a significant adverse effect on the Company’s ability
to continue as a going concern.
NOTE
2.
BASIS OF PRESENTATION
The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”).
NOTE
3.
SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
These
consolidated financial statements have been prepared on a consolidated basis and include the accounts of the Company and its wholly
owned subsidiary Digifonica. All intercompany transactions and balances have been eliminated. As at September 30, 2017, Digifonica
had no activities.
Use
of Estimates
The
preparation of these consolidated financial statements required management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates. Where estimates have been used financial results as determined
by actual events could differ from those estimates.
Cash
Cash
consists of cash on hand and monies held in checking and savings accounts. The Company had $12,157 and $121,115 in cash on September
30, 2017 and September 30, 2016, respectively.
NOTE
3.
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Intangible
Assets
Intangible
assets, consisting of Intellectual VoIP communication patent properties are recorded at cost and amortized over the assets estimated
life on a straight-line basis. Costs to renew or extend patents are capitalized. Management considers factors such as remaining
life of the patents, technological usefulness and other factors in estimating the life of the assets.
The
carrying value of intangible assets are reviewed for impairment by management of the Company at least annually or upon the occurrence
of an event which may indicate that the carrying amount may be less than its fair value. If impaired, the Company will write-down
such impairment. In addition, the useful life of the intangible assets will be evaluated by management at least annually or upon
the occurrence of an event which may indicate that the useful life may have changed.
Fair
Value of Financial Instruments
FASB
ASC 820, Fair Value Measurement, defines fair value as the price that would be received upon sale of an asset or paid upon transfer
of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous
market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use
in pricing the asset or liability, not on assumptions specific to the entity.
The
Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables
or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value
on their initial recognition, except for those arising from certain related party transactions which are accounted for at the
transferor’s carrying amount or exchange amount.
Financial
assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income.
Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified
as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified
as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income
until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.
U.S.
GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined as the amount that would be received for an asset or paid to transfer a liability
(i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level
1: Quoted prices in active markets for identical assets and liabilities.
Level
2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
The
fair value of cash is classified as Level 1 at September 30, 2017 and September 30, 2016.
The
Company classifies its financial instruments as follows: Cash is classified as held for trading, and is measured at fair value.
Accounts payable and accrued expenses are classified as other financial liabilities, and have a fair value approximating their
carrying value, due to their short-term nature.
Income
Taxes
Deferred
income taxes have been provided for temporary differences between financial statement and income tax reporting under the asset
and liability method, using expected tax rates and laws that are expected to be in effect when the differences are expected to
reverse. A valuation allowance is provided when realization is not considered more likely than not.
The
Company’s policy is to classify income tax assessments, if any, for interest expense and for penalties in general and administrative
expenses. The Company’s income tax returns are subject to examination by the IRS and corresponding states, generally for
three years after they are filed.
NOTE
3.
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Loss
per Common Share
Basic
loss per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted income
per share includes potentially dilutive securities such as outstanding options and warrants outstanding during each period. To
calculate diluted loss per share the Company uses the treasury stock method and the If-converted method.
For
the period ended September 30, 2017 and the year ended September 30, 2016 there were no potentially dilutive securities included
in the calculation of weighted-average common shares outstanding.
Derivatives
We
account for derivatives pursuant to ASC 815,
Accounting for Derivative Instruments and Hedging Activities
. All derivative
instruments are recognized in the consolidated financial statements and measured at fair value regardless of the purpose or intent
for holding them. We determine fair value of warrants and other option type instruments based on option pricing models. The changes
in fair value of these instruments are recorded in income or expense.
Stock-based
compensation
The
Company recognizes compensation expense for all stock-based payments made to employees, directors and others based on the estimated
fair values of its common stock on the date of issuance.
The
Company determines the fair value of the share-based compensation payments granted as either the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity
instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either
the date at which a commitment for performance to earn the equity instrument is reached or the date the performance is complete.
The
Company recognizes compensation expense for stock awards with service conditions on a straight-line basis over the requisite service
period, which is included in operations. Stock option expense is recognized over the option’s vesting period.
Concentrations
of Credit Risk
The
Company maintains cash at financial institutions, which at times, may be in excess of insured limits. The Company has not experienced
any losses to date as a result of this policy and, in assessing its risk, the Company’s policy is to maintain cash only
with reputable financial institutions. As of September 30, 2017, the Company’s bank operating account balances were
less than the Federal Deposit Insurance Corporation Insurance Limit of $250,000.
Recent
Accounting Pronouncements
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17
requires companies to classify all deferred tax assets or liabilities as noncurrent on the balance sheet rather than separately
disclosing deferred taxes as current and noncurrent. This standard is effective for the Company beginning on October 1, 2017 and
can be applied either prospectively or retrospectively to all periods presented upon adoption. The standard did not have any impact
on the Company’s financial statements.
In
January 2016, FASB issued ASU 2016-01 to amend certain aspects of recognition, measurement, presentation, and disclosure of financial
instruments. Most prominent among the amendments is the requirement for changes in fair value of equity investments, with certain
exceptions, to be recognized through profit or loss rather than other comprehensive income. The new standard will be effective
for the Company beginning October 1, 2018. The standard is not expected to have any impact on the Company’s financial statements.
In
February 2016 FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides
principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and the lessors. The new
standard requires the lessees to apply a dual approach, classifying leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase by the lessee. The classification will determine whether
lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively.
A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve
months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance
for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption
permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its consolidated
financial statements.
NOTE
3.
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recent
Accounting Pronouncements (Cont’d)
In
March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting. Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional
paid in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense
or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement
that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess
tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09
will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability
classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a
statutory income tax withholding obligation will now be allowed to withhold shares with the fair value up to the amount of taxes
owed using the maximum statutory rate in the employee’s applicable jurisdiction(s). ASU 2016-09 requires a company to classify
the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing
activity on the statement of cash flows. Under current U.S. GAAP, it is not specified how these cash flows should be classified.
In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeiture
awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely
to change, as in currently required. The amendments of this ASU are effective for reporting periods beginning after December 15,
2016, with early adoption permitted but all of the guidance must be adopted in the same period. The adoption of this ASU had no
material impact on the Company’s consolidated financial statements.
In
June 2016, the FASB issued ASU 2016-13 to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
inform credit loss credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company
will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses
which reflects losses that are probable. Credit losses relating to available for sale debt securities will also be recorded through
an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard will
be effective for the Company beginning October 1, 2020, with early adoption permitted. Application of the amendments is through
a cumulative-effect adjustment to deficit as of the effective date. The Company is currently assessing the impact of the standard
on its consolidated financial statements.
In
August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”. The new guidance is intended
to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU No. 2016-15 is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted,
provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition
method. The Company is currently evaluating the impact of ASU No. 2016-15 on its financial position, results of operations and
liquidity.
NOTE
4.
PURCHASE OF DIGIFONICA
The
Company acquired Digifonica in December 2013. Pursuant to the terms in the Share Purchase Agreement (the “SPA”) the
Company acquired 100% of Digifonica from the seller (the “Seller”) for a cash payment of $800,000 and 389,023,561
common shares of the Company. The assets acquired through the acquisition were VoIP-related patented technology, including patents
for Lawful Intercept, routing, billing and rating, mobile gateway, advanced interoperability solutions, intercepting voice over
IP communications, and uninterrupted transmission of internet protocol transmissions during endpoint changes.
The
SPA included an anti-dilution clause (the “Anti-Dilution Clause”) that requires the Company to maintain the Seller’s
percentage ownership of the Company at 40% by issuing the Seller a proportionate number of common shares of any future issuance
of the Company’s common shares. Shares issued pursuant to the Anti-Dilution Clause are recorded as a share issuance cost
within the Additional Paid-in Capital account (Notes 6 and 9).
NOTE
5.
INTANGIBLE ASSETS
The
Company acquired certain patents and technology from Digifonica in December 2013 (See Note 4). These assets have been recorded
in the financial statements as intangible assets. These assets are being amortized over twelve (12) years on a straight-line basis.
A summary of intangible assets as of September 30, 2017 and September 30, 2016 is as follows:
|
|
September
30,
2017
|
|
|
September
30,
2016
|
|
VoIP
Intellectual property and patents
|
|
$
|
1,552,416
|
|
|
$
|
1,552,416
|
|
Accumulated
amortization
|
|
|
(496,666
|
)
|
|
|
(358,475
|
)
|
Net book value
|
|
$
|
1,055,750
|
|
|
$
|
1,193,941
|
|
There
were no disposals of any intangible assets in the years presented.
NOTE
6.
RELATED PARTY TRANSACTIONS
The
Company compensates certain of its key management personnel to operate its business in the normal course. Key management includes
the Company’s executive officers and members of its Board of Directors.
Compensation
paid or accrued to key management during the year ended September 30, 2017 includes:
|
|
September
30,
2017
|
|
|
September
30,
2016
|
|
Management
fees to the CEO
(1)
|
|
$
|
90,000
|
|
|
$
|
590,000
|
(1)
|
Management fees to
the CFO
|
|
|
86,400
|
|
|
|
60,000
|
|
Management fees to
the President
|
|
|
38,000
|
|
|
|
24,000
|
|
Directors fees
|
|
|
Nil
|
|
|
|
39,000
|
|
Fees to a director
as legal counsel
|
|
|
Nil
|
|
|
|
125,000
|
|
Fees to a director
for professional services
|
|
|
76,400
|
|
|
|
73,068
|
|
Stock-based
compensation
|
|
|
Nil
|
|
|
|
66,789
|
|
|
|
$
|
290,800
|
|
|
$
|
977,857
|
|
(1)
|
Of
the $590,000 in CEO fees for the year ended September 30, 2016, $500,000 was paid through
the issuance of 10,000,000 common shares (Note 9).
|
At
September 30, 2017 included in accounts payable and accrued liabilities is $186,700 (2016 – $Nil) owed to current officers
and directors. Amounts due to/from related parties are non-interest bearing, unsecured and have no fixed terms of repayment unless
otherwise noted.
As
at September 30, 2017, included in shares to be issued is $902,000 (September 30, 2016 - $902,000) for unpaid Officer and Director
fees and $80,000 (September 30, 2016 - $80,000) for professional fees & services paid to a director for consulting services
provided. Additionally, $994,548 (September 30, 2016 - $942,645) was accrued in the year to the Seller of Digifonica for the Anti-Dilution
Clause (Notes 4 and 9).
NOTE
7.
SUPPLEMENTAL CASH FLOW INFORMATION
During
the year ended September 30, 2017, the Company paid $nil (2016 - $nil) in interest or income taxes.
NOTE
8.
CONVERTIBLE DEBENTURES
The
Company from time-to-time issues convertible debentures that are due on demand. The convertible debentures are convertible at
fixed conversion rates and typically carry no interest. See Note 9 for details of common shares issued during the year from the
conversion of convertible debentures.
NOTE
9.
SHARE CAPITAL
Capital
Stock Authorized and Issued:
|
–
|
1,300,000,000
common voting shares authorized with a par value of $0.001 each, of which 1,142,125,534
(2016 – 1,056,474,201) shares are issued.
|
|
–
|
1,000,000
convertible preferred shares authorized with a par value of $0.01 each, of which nil
(2016 – nil) shares are issued.
|
Issues
during the year ended September 30, 2017
During
the year ended September 30, 2017, the Company issued 73,067,166 common shares between $0.02 and $0.03 per common share for cash
proceeds of $1,590,010 from private placements, as follows:
|
–
|
11,566,666
common shares issued at between $0.02 and $0.03 per common share for cash proceeds of
$340,000 from a private placement of common shares;
|
|
–
|
61,500,500
units at between $0.02 and $0.025 per unit for cash proceeds of $1,250,010. Each unit
consists of one common share and one common share purchase warrant. Each common share
purchase warrant allows the holder to purchase one common share for $0.04 or $0.05 for
a period of twelve months from the date of issuance; and
|
During
the year ended September 30, 2017, the Company issued 4,336,667 common shares priced at $0.02 and $0.03 per common share as share
issuance fees valued at $100,200.
During
the year ended September 30, 2017, the Company issued 1,400,000 common shares priced between $0.025 and $0.03 per common share
to convert $32,500 of convertible debentures.
NOTE
9.
SHARE CAPITAL (CONT’D)
During
the year ended September 30, 2017, the Company issued 7,747,500 common shares priced between $0.025 and $0.05 per common share
for services valued at $231,701.
During
the year ended September 30, 2017, 900,000 common shares priced at $0.05 per common share were cancelled. The shares had been
issued as an advance payment for the provision of services under a contract which was terminated prior to fulfillment.
Issues
during the year ended September 30, 2016
During
the year ended September 30, 2016, the Company issued 10,458,333 common shares at $0.04 per common share for cash proceeds of
$381,000 from private placements.
During
the year ended September 30, 2016, the Company issued 1,126,667 common shares priced between $0.03 - $0.04 per common share as
consulting fees valued at $39,800.
During
the year ended September 30, 2016, the Company issued 8,873,333 common shares priced between $0.03-$0.05 per common share to convert
$326,000 of convertible debentures.
During
the year ended September 30, 2016, the Company issued 16,357,500 common shares priced between $0.03-$0.05 per common share for
services received valued at $1,121,195.
During
the year ended September 30, 2016, the Company issued 10,000,000 common shares at $0.05 per common share to a director of the
Company, which issuance is included in Officers and Directors fees (Note 6).
Shares
to be Issued
As
at September 30, 2017, there are 23,353,846 (September 30, 2016 – 23,353,846) common shares to be issued that are accrued
for professional services provided to the Company valued at $1,058,320 (September 30, 2016 – $1,058,320), of which 21,281,903
(September 30, 2016 – 21,281,903) are accrued to management and related parties. As at September 30, 2017, $4,721 (September
30, 2016 – $4,721) was included in common shares to be issued for cash received in advance of common shares being issued.
As
at September 30, 2017, there are 57,826,653 (September 30, 2016 - 23,566,119) common shares to be issued that are accrued to the
seller of Digifonica pursuant to the Anti-Dilution Clause (see Notes 4 and 6), valued at $1,937,193 (September 30, 2016 - $942,645).
Warrants
During
the year ended September 30, 2017, the Company issued 61,500,500 common share purchase warrants to purchase 61,500,500 common
shares in the capital stock of the Company at a price of $0.04 or $0.05 per common share for a period of twelve months from date
of issue in private placements of units. As at September 30, 2017, the Company has 61,500,500 (2016 – Nil) warrants outstanding
to purchase 61,500,500 common shares at a weighted average price of $0.04 per common share expiring on dates ranging from February
2018 through September 2018. No warrants were issued or outstanding during the year ended September 30, 2016.
Subsequent
Issues
Subsequent
to the year ended September 30, 2017, the Company:
|
–
|
conducted
a private placement of units (common shares and common share purchase warrants) in its
common stock, issuing 6,306,000 units at between $0.0125 and $0.02 per unit for cash
proceeds of $98,120;
|
|
–
|
conducted
a private placement of shares in its common stock, issuing 78,731,663 common shares at
between $0.015 and $0.06 per common share for cash proceeds of $1,824,475;
|
|
–
|
issued
1,000,000 shares of its common stock at a price of $0.04 per common share on the exercise
of common share purchase warrants for gross proceeds of $40,000;
|
|
–
|
issued
158,000 shares of its common stock at a price of $0.015 per common share in payment of
consulting services valued at $2,370; and
|
|
–
|
issued
10,000,000 shares of its common stock at a price of $0.06 per common share in payment
of consulting services valued at $600,000.
|
NOTE
10.
STOCK-BASED COMPENSATION
Stock
Option Plan
In order to provide incentive to directors, officers, management, employees,
consultants and others who provide services to the Company or any subsidiary (the “Service Providers”)
to act in the best interests of the Company, and to retain such Service Providers, the Company has in place an incentive
Stock Option Plan (the “Plan”) whereby the Company is authorized to issue up to 10% of its issued and
outstanding share capital in options to purchase common shares of the Company. The maximum term of options granted under the Plan
cannot exceed ten years, with vesting terms determined at the discretion of the Board of Directors.
During
the year ended September 30, 2017, the Company granted options under the Plan to several of its consultants to purchase 11,850,000
common shares in the capital stock of the Company at exercise prices of $0.05 and $0.06 per common share for a period of five
years from the date of grant. 11,350,000 of the options granted during the period are vested and exercisable as at September 30,
2017, with the balance to vest within one year of the date of grant.
The
following table summarizes the Company’s stock option transactions:
|
|
Number
of options
|
|
Weighted
average
exercise
price
|
Balance September 30,
2015
|
|
|
|
Nil
|
|
|
$
|
N/A
|
|
Granted
|
|
|
|
28,000,000
|
|
|
|
0.06
|
|
Balance
September 30, 2016
|
|
|
|
28,000,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
|
11,850,000
|
|
|
|
0.05
|
|
Balance
September 30, 2107
|
|
|
|
39,850,000
|
|
|
$
|
0.06
|
|
The
following table summarizes the stock options outstanding at September 30, 2017:
Options
Outstanding
|
|
Exercise
Price
|
|
Remaining
Contractual Life (Yrs)
|
|
Number
of Options Currently Exercisable
|
|
14,000,000
|
|
|
$
|
0.06
|
|
|
|
3.73
|
|
|
|
14,000,000
|
|
|
14,000,000
|
|
|
|
0.06
|
|
|
|
3.94
|
|
|
|
14,000,000
|
|
|
3,450,000
|
|
|
|
0.06
|
|
|
|
4.07
|
|
|
|
2,950,000
|
|
|
8,400,000
|
|
|
|
0.05
|
|
|
|
4.55
|
|
|
|
8,400,000
|
|
|
39,850,000
|
|
|
$
|
0.06
|
|
|
|
4.01
|
|
|
|
39,350,000
|
|
The
following assumptions were used for the Black-Scholes valuation of stock options granted during the year ended September 30, 2017:
risk-free rate of 1.25% (2016 – 1.25%), expected life of 5 years (2016 – 5 years), annualized historical volatility
of 112.0% (2016 - 112.0%) and a dividend rate of 0% (2016 – 112%). Expected volatilities are based on historical volatility
of the Company’s stock and other factors. The compensation cost that has been charged against income from options vested
under the Plan was $421,867 for the year ended September 30, 2017 (2016 - $950,294).
The
weighted-average grant-date fair value of options granted during the year ended September 30, 2017 was $0.06 (2016 - $0.04). The
total intrinsic value of options exercised during the year ended September 30, 2017 was $nil (2016 - $nil).
NOTE
11.
INCOME TAXES
The
Company and its subsidiary file consolidated Federal and state income tax returns. The Company is registered in the State of Nevada
which has no corporate income tax.
Certain
tax years are subject to examination by the Internal Revenue Service and state taxing authorities. The Company does not believe
there would be any material adjustments upon such examination.
As
of September 30, 2017 and 2016, the Company had net operating loss carryforwards of approximately $24,857,000 and $20,446,000
respectively, to reduce Federal income tax liabilities through 2037.
NOTE
11.
INCOME TAXES (CONT’D)
A
reconciliation of income taxes at statutory rates with the reported taxes is as follows:
|
|
2017
|
|
2016
|
Loss
for the year
|
|
$
|
(2,610,673
|
)
|
|
$
|
(3,424,105
|
)
|
Expected income tax
(recovery)
|
|
$
|
(659,000
|
)
|
|
$
|
(877,000
|
)
|
Change in statutory,
foreign tax, foreign exchange rates and other
|
|
|
(1,030,000
|
)
|
|
|
(266,000
|
)
|
Permanent Difference
|
|
|
143,000
|
|
|
|
323,000
|
|
Change
in unrecognized deductible temporary differences
|
|
|
1,546,000
|
|
|
|
820,000
|
|
Total
income tax expense (recovery)
|
|
$
|
—
|
|
|
$
|
—
|
|
The
significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been
included on the consolidated statement of financial position are as follows:
|
|
2017
|
|
Expiry
Date Range
|
|
2016
|
Expiry
Date Range
|
Temporary
Differences
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
$
|
25,356,000
|
|
|
No
expiry date
|
|
$
|
25,218,000
|
|
|
No
expiry date
|
Non-capital
losses available for future period
|
|
$
|
24,857,000
|
|
|
2033
to 2037
|
|
$
|
20,446,000
|
|
|
2033
to 2036
|
Tax
attributes are subject to review, and potential adjustment, by tax authorities.
NOTE
12.
SEGMENTED INFORMATION
The
Company operates in one reportable segment being the acquisition and development of VoIP-related intellectual property including
patents and technology. All intangible assets are located in the United States of America.
NOTE
13.
CONTINGENT LIABILITIES
Litigation
The
Company is party to pending litigation cases as follows:
|
i)
|
Locksmith
Financial Corporation, Inc. et al. v Voip-Pal.com Inc. (Case No A-15-717491-C) filed
in Clark County District Court (the “State Case”)
|
On
March 24, 2014, the Company resolved to freeze 95,832,000 common shares that were issued to a company controlled by a former director
(the “defendant”) in fiscal 2013 and accounted for at a cost of $1,443,000. The Company resolved to freeze the common
shares as the Company believes that the shares were issued as settlement of a line of credit that the Company believes to have
been legally unsupported. The defendant alleges that the freeze and the Company’s actions constituted fraud and a breach
of securities laws. The Company denies any wrongdoing. Currently the State Case is entering the discovery phase of litigation
and the outcome is undeterminable.
|
ii)
|
Voip-Pal.com
Inc. v Richard Kipping, et al. (Case No. 2:15-cv-01258-JAD-VCF) filed in United States
District Court (the “Federal Case”)
|
On
July 2, 2015, the Company filed a case against a former director, a shareholder and the company controlled by a former director.
The Company alleges that the common shares issued in the State Case and an additional 7,200,000 common shares were fraudulently
obtained and that the shares have been unlawfully transferred to other entities. The proceedings in the Federal Case have been
stayed pending a final determination of the issues in the State Case. The outcome of the case is undeterminable.
NOTE
13.
CONTINGENT LIABILITIES (CONT’D)
Litigation
(Cont’d)
|
iii)
|
Voip-Pal.com
Inc. v Apple, Inc. (Case No. 2:16-CV-00260) & Verizon Wireless Services, LLC, Verizon
Communications Inc., AT&T Corp. (Case No. 2:16- VC-00271) in the United States District
Court, District of Nevada
|
In
February, 2016 the Company filed patent infringement lawsuits in the United States District Court, District of Nevada against
Apple, Inc, (Case No. 2:16-CV-00260), Verizon Wireless Services, LLC, Verizon Communications Inc., and AT&T Corp. (Case No.
2:16- VC-00271). These cases are seeking a combined $7,024,377,876 in damages. On May 9, 2016, the lawsuits were officially served
to these companies. The proceedings in these cases are currently stayed, by agreement with the parties thereto, pending the outcome
of two
Inter Partes
Reviews (“IPRs”), as noted below. The outcome of each of these legal actions is undeterminable.
|
iv)
|
Voip-Pal.com
Inc. v Twitter, Inc. (Case No. 2:16-CV-02338) in the United States District Court, District
of Nevada
|
During
the year ended September 30, 2017, on October 6, 2016, the Company filed a lawsuit in the United States District Court, District
of Nevada against Twitter, Inc, (Case No. 2:16- CV-02338) in which Voip-Pal.com alleges infringement of U.S. Patent No. 8,542,815
and its continuation patent, U.S. Patent No. 9,179,005, This case is seeking $2,699,256,418 in damages. On December 28, 2016,
the lawsuit was officially served to Twitter, Inc. It is anticipated that this case will also be stayed pending the Patent Trial
and Appeal Board (“PTAB”) of the United States Patent and Trademark Office’s (“USPTO”) issuance
of final written decisions in IPR proceedings concerning the patents-at-issue (see
Inter Partes Reviews
below). The outcome
of this case is undeterminable.
Inter
Partes Reviews
In
additional legal actions related to Item iii above, two of the Company’s patents are currently subject to several
Inter
Partes
Reviews (“IPR(s)”) before the PTAB. An IPR allows the PTAB to consider the validity of issued patents.
There are no damages awarded, but a portion or all of a patent instituted for IPR may be invalidated as a result of the review.
During
the year ended September 30, 2017, eight IPRs were in process at the PTAB, filed against Patent No. 8,542,815 and No. 9,179,005,
as follows:
|
–
|
Unified
Patents Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01082, reviewing
Patent No. 8,542,815. On December 8, 2016, this petition was not instituted by the PTAB;
|
|
–
|
Apple,
Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01198, reviewing Patent
No. 9,179,005 and Voip-Pal.com Inc. (Patent Owner) IPR2016-01201, reviewing Patent No.
8,542,815, both instituted for IPR on November 21, 2016;
|
|
–
|
AT&T
Inc. (Petitioner) filed IPR2017-01382 against Voip-Pal’s Patent No. 8,542,815,
IPR2017-01383 against Voip-Pal’s Patent No. 9,179,005, and IPR2017-01384 against
Voip-Pal’s Patent No. 9,179,005. Each of these three petitions were instituted
for IPR by the PTAB on May 8, 2017; and
|
|
–
|
Apple
Inc. (Petitioner) filed IPR2017-01399 against Voip-Pal’s Patent No. 8,542,815,
and IPR2017-01398 against Voip-Pal’s Patent No. 9,179,005, which were also both
instituted for IPR by the PTAB on May 8, 2017.
|
Subsequent
to the year ended September 30, 2017, on November 21, 2017 the PTAB issued its findings on the seven active IPRs being adjudicated,
denying all claims made by the Petitioners (Apple Inc, and AT&T Inc.) in all seven instituted IPRs.
Performance
Bonus Payable
During
the year ended September 30, 2016, the board of directors authorized the Company to provide a performance bonus of up to 3% of
the capital stock of the Company (the “Performance Bonus”) by way of the issuance of Common shares from its treasury
to an as yet undetermined group of related and non-related parties upon the successful completion of a purchase and sale of the
Company or a major licensing transaction, defined as a bonusable event. In order to provide maximum flexibility to the Company
with respect to determining what constitutes such a bonusable event, the level of Performance Bonus payable, and who may qualify
to receive a pro-rata share of such a Performance Bonus, the Company authorized full discretion to the Board in making such determinations.
Subsequent
to the year ended September 30, 2017, on November 23, 2017, the board of directors authorized the increase of the Performance
Bonus to up to 5% of the capital stock of the Company.
As
at September 30, 2017 and the date of this report, no bonusable event has occurred and there is as yet no Performance Bonus payable.