NOTES
TO THE FINANCIAL STATEMENTS
(Audited)
December
31, 2019
Note
1 Nature and Continuance of Operations
The
Company was incorporated on June 15, 1998 in the State of Nevada, USA and the Company’s common shares are publicly traded
on the OTC Bulletin Board.
Up
until fiscal 2014, the Company was in the business of mineral exploration. On May 28, 2014, the Company formalized an agreement
whereby it purchased assets associated with a smokeless cannabis delivery system. The Company planned to develop this system for
commercial purposes. On December 14, 2014, this asset purchase agreement was terminated.
On
January 21, 2015, a majority of the Company’s stockholders approved a consolidation of the issued and outstanding shares
of common stock, on a 10 for 1 basis, thereby decreasing the issued and outstanding share capital from 113,020,000 to 11,302,000.
On March 11, 2015, the Company changed its name from Madison Explorations, Inc. to Madison Technologies Inc. and effected the
stock consolidation.
On
September 16, 2016, the Company entered into an exclusive distribution product license agreement with Tuffy Packs, LLC to distribute
products into the United Kingdom and 43 other essentially European countries. The Company will be selling ballistic panels which
are personal body armors, that conforms to the National Institute of Justice (NIJ) Level IIIA threat requirements. The Company’s
plan of operations and sales strategy include online and social media marketing, as well as attending various tradeshows and conferences.
As the Company failed to make specified payments as required, the agreement was amended to a non-exclusive basis.
Effective
December 31, 2016, the Company dissolved its wholly owned subsidiary, Scout Resources Inc. (“Scout”) and assumed all
the debt that Scout owed.
These
financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern,
which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization
values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments
that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue
as a going concern. At December 31, 2019, the Company had not yet achieved profitable operations, had accumulated losses of $574,279
since its inception and expects to incur further losses in the development of its business, all of which casts substantial
doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern
is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to
address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related
party advances. That said, there is no assurance of additional funding being available.
Note
2 Summary of Significant Accounting Policies
a)
Year end
The
Company has elected a December 31st fiscal year end.
Madison Technologies Inc.
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Form 10-K - 2019
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Page 22
|
b)
Cash and cash equivalents
The
Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
As at December 31, 2019, the Company did not have any cash equivalents in 2019. (2018 – $nil).
c)
Revenue Recognition
In
May 2014, the FASB issued guidance on the recognition of Revenue from Contracts with Customers. The core principle of the guidance
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration which the company expects to receive in exchange for those goods or services. To achieve this core
principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance
addresses several areas including transfer of control, contracts with multiple performance obligations, and costs to obtain and
fulfill contracts. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract.
The
Company adopted the ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective
method. Revenues for the year ended December 31, 2019 were not adjusted. The adoption of Topic 606 did not have a material impact
to the Company’s financial statements. Revenue from contracts with customers is generated primarily from selling products
online. The customer orders and pays for the products through an online portal. Once the payment goes through, a purchase order
is generated and submitted to the supplier. When the supplier ships the products to the customer, revenue is then recognized when
the performance obligation is completed.
The
Company recognizes revenue when a contract is in place, goods or services are delivered to the purchaser and collectability is
reasonably assured.
Madison Technologies Inc.
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Form 10-K - 2019
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d)
Basic and Diluted Net Income (Loss) per Share
The
Company reports basic loss per share in accordance FASB ASC Topic 260, “Earnings per share”. Basic net income
(loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per share on the potential exercise of the equity-based
financial instruments is not presented where anti-dilutive.
e)
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company
may undertake in the future, actual results may ultimately differ from the estimates. Management believes such estimates to be
reasonable.
f)
Fair Value Measurements
The
Company follows FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, for all financial instruments
and non-financial instruments accounted for at fair value on a recurring basis. This accounting standard establishes a single
definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurement and expands disclosures about fair value measurements required under other
accounting pronouncements. It does not change existing guidance as to whether or not an instrument is carried at fair value. The
Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities,
which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the
Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the
asset or liability, such as inherent risk, transfer restrictions and credit risk. The Company has adopted FASB ASC 825, “Financial
Instruments”, which allows companies to choose to measure eligible financial instruments and certain other items at
fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible
financial instruments.
Madison Technologies Inc.
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Form 10-K - 2019
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Page 24
|
g)
Income Taxes
The
Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements
or tax returns. In estimating future tax consequences, all expected future events other than enactment of changes in the tax laws
or rates are considered.
Due
to the uncertainty regarding the Company’s future profitability, the future tax benefits of its losses have been fully reserved.
h)
Impairment of Long-Lived Assets
Impairment
losses on long-lived assets, such as mining claims, are recognized when events or changes in circumstances indicate that the undiscounted
cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying
amounts.
i)
Foreign Currency Translation and Transactions
The
Company’s functional currency is US dollars. Foreign currency balances are translated into US dollars as follows:
Monetary
assets and liabilities are translated at the period-end exchange rate. Non-monetary assets are translated at the rate of exchange
in effect at their acquisition, unless such assets are carried at market or nominal value, in which case they are translated at
the period-end exchange rate. Revenue and expense items are translated at the average exchange rate for the period. Foreign exchange
gains and losses in the period are included in operations.
j)
Intangible Assets
Intangible
assets are non-monetary identifiable assets, controlled by the Company that will produce future economic benefits, based on reasonable
and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet
these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially
measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those
with a indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible
asset subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if
applicable, unscheduled amortization is considered.
Madison Technologies Inc.
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Form 10-K - 2019
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Page 25
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A
license agreement has been capitalized and recorded at cost. It will be amortized over the life of the contract, which is two
years.
m)
Recent Accounting Pronouncements
In December 2019, the FASB
issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. This new guidance
includes several provisions to simplify the accounting for income taxes. The standard removes certain exceptions for recognizing
deferred taxes for investments, performing intraperiod allocation, and calculating income taxes in interim periods. This standard
is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption
of this standard is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial
statements.
In August 2018, the FASB issued
ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. This new guidance requires
a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use
software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Also,
capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of
the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. This
standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early
adoption of this standard is permitted. The adoption of this guidance will not have a material impact on the Company’s financial
statements
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current
expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments
held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces
the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final
ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of
the adoption of this ASU on its financial statements.
In February 2016, the FASB issued
ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU
2018-20 and ASU 2019-01 (collectively, Topic 842). As the Company has no leases, this pronouncement did not affect the Company’s
financial statements.
The
Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued,
which may be in advance of their effective date. Management does not believe that any pronouncement not yet effective but recently
issued would, if adopted, have a material effect on the accompanying financial statements.
Note
3 License Agreement
The Company entered into an exclusive
product license agreement on September 16, 2016 with Tuffy Packs, LLC, a Texas corporation, to sell Ballistic Panels in certain
countries, essentially in Europe. The license was for a period of two years unless terminated and may be renewed for successive
terms of two years each. The payment terms for the license is as follows:
|
1.
|
$10,000
payable within seven days after the effective date;
|
|
2.
|
An
additional $15,000 payable within 30 days after the effective date; and
|
|
3.
|
A
final payment of $25,000 payable within 90 days of the effective date.
|
The Company initially recorded
an intangible asset and a license fee payable of $50,000.
As at December 31, 2019, the
Company had paid $16,500 to the Licensor, leaving an unpaid balance of $33,500. The Company has fully amortized the intangible
asset of $50,000.
As
a result of the failure to make payments as required under the agreement, the Company was informed on March 20, 2017, that going
forward, the agreement would be on a non-exclusive basis.
Madison Technologies Inc.
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Form 10-K - 2019
|
Page 26
|
Note
4 Demand Notes and Accrued Interest Payable
The
Company has three notes payable. Each note is unsecured and payable on demand.
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 8%
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Accrued interest there on
|
|
|
29,797
|
|
|
|
27,797
|
|
|
|
|
54,797
|
|
|
|
52,797
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Note payable bearing interest at 5%
|
|
|
|
|
|
|
|
|
(Debt is Canadian $30,000)
|
|
|
23,077
|
|
|
|
22,059
|
|
Accrued interest there on
|
|
|
14,712
|
|
|
|
12,960
|
|
|
|
|
37,789
|
|
|
|
35,019
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Note payable bearing interest at 12%
|
|
|
25,000
|
|
|
|
25,000
|
|
Accrued interest there on
|
|
|
16,690
|
|
|
|
13,682
|
|
|
|
|
41,690
|
|
|
|
38,682
|
|
|
|
|
|
|
|
|
|
|
Total debt and interest payable
|
|
$
|
134,276
|
|
|
$
|
126,498
|
|
Interest
accrued on the note bearing 8% interest was $2,000 for the twelve months ended December 31, 2019 (2018 - $2,000).
Interest
accrued on the note bearing 5% interest was $1,141 for the twelve months ended December 31, 2019 (2018 - $1,143).
Interest
accrued on the note bearing 12% interest was $3,000 for the twelve months ended December 31, 2019 (2018 - $2,992).
Note
5 Convertible Notes Payable
As
at December 31, 2019, there are nine convertible notes payable. All notes are non-interest bearing, unsecured and payable on demand.
The notes are convertible into common stock at the discretion of the holder at five different conversion rates: $0.01 debt to
1 common share, $0.005 to 1 common share; $0.15 to 1 common share; $0.05 to 1 common share; and $0.04 to 1 common share. The effect
that conversion would have on earnings per share has not been disclosed due to the anti-dilutive effect. A recap of convertible
debt outstanding based on conversion rates is as follow:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
Convertible at $0.01 debt to 1 common share
|
|
$
|
85,000
|
|
|
$
|
85.000
|
|
Convertible at $0.005 debt to 1 common share
|
|
|
10,000
|
|
|
|
10,000
|
|
Convertible at $0.015 debt to 1 common share
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible at $0.05 debt to 1 common share
|
|
|
23,490
|
|
|
|
23,490
|
|
Convertible at $0.04 debt to 1 common share
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
$
|
163,490
|
|
|
$
|
163,490
|
|
Madison Technologies Inc.
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Form 10-K - 2019
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Page 27
|
Note
6 Related Party Convertible Loan
In
2008, the current President advanced the Company $561 repayable without interest or any other terms. The unpaid balance as at
October 23, 2018 was $261. The President advanced a further $229 (CAD $300) to cover out of pocket expenditures. On October 23,
2018, the Company entered into a convertible note payable with the President by combining the two advances to the aggregate amount
of $490. The note payable is due on demand and may be convertible to common stock of the Company at $0.05 per share. There were
no other related party transactions during the period ended December 31, 2019 or the year ended December 31, 2018. The loan has
been included in Note 5 above.
Note
7 Common Stock
On
March 25, 2019, the Company completed a private placement of 600,000 shares of common stock at a per share price of $0.05 for
gross proceeds of $30,000. This was issued during the period ended December 31, 2019.
On
February 14, 2019, the Company completed a private placement of 400,000 shares of common stock at a per share price of $0.05 for
gross proceeds of $20,000. This was issued during the period ended December 31, 2019.
On March 2, 2018, the Company
completed a private placement of 150,000 shares of common stock at a per share price of $0.10 for gross proceeds of $15,000. The
shares were issued on June 16, 2019.
On February 16, 2018, the Company
completed a private placement of 150,000 shares of common stock at a per share price of $0.10 for gross proceeds of $15,000. The
shares were issued on June 16, 2019.
On
January 25, 2018, two convertible notes were converted into shares. One note for $25,000 was converted into 2,500,000 shares at
$0.01 per share and the other note for $10,000 was converted into 2,000,000 shares at $0.005 per share.
On
July 14, 2017, two convertible notes were converted into shares. One note for $25,000 was converted into 555,556 shares at $0.045
per share and the other note for $20,000 was converted to 400,000 shares at $0.05 per share.
On
January 21, 2015, a majority of the Company’s stockholders approved a consolidation of the issued and outstanding shares
of common stock, on a 10 for 1 basis, thereby decreasing the issued and outstanding share capital from 113,020,000 to 11,302,009.
This was effected on March 11, 2015.
On
March 30, 2006, the Company entered into a private placement agreement whereby the Company issued 20,000 Regulation-S shares in
exchange for $50,000. ($2.50 per share).
On
June 7, 2004, the Company issued 5,907,000 in consideration of $472 in cash. ($.00008 per share.)
On
June 14, 2001, the Company approved a forward stock split of 5,000:1.
Madison Technologies Inc.
|
Form 10-K - 2019
|
Page 28
|
On
June 15, 1998, the Company authorized and issued 5,375,000 shares of its common stock in consideration of $430 in cash. ($.00008
per share.)
There
are no shares subject to warrants or options as of December 31, 2019.
Note
8 Income Taxes
Income
tax recovery differs from that which would be expected from applying the effective tax rates to the net income (loss) as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss for the year
|
|
$
|
(42,263
|
)
|
|
$
|
(53,906
|
)
|
Statutory and effective tax rates
|
|
|
27.0
|
%
|
|
|
27.0
|
%
|
Income taxes expenses (recovery) at the effective rate
|
|
$
|
(11,406
|
)
|
|
$
|
(14,555
|
)
|
Effect of change in tax rates
|
|
|
|
|
|
|
(3,417
|
)
|
Tax benefit not recognized
|
|
|
11,406
|
|
|
|
17,972
|
|
Income tax expense (recovery) and income tax liability (asset)
|
|
$
|
-
|
|
|
$
|
-
|
|
As
at December 31, 2019 the tax effect of the temporary timing differences that give rise to significant components of deferred income
tax asset are noted below. A valuation allowance has been recorded as management believes it is more likely than not that the
deferred income tax asset will not be realized.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Tax loss carried forward
|
|
$
|
437,960
|
|
|
$
|
395,697
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
118,244
|
|
|
$
|
106,838
|
|
Valuation allowance
|
|
|
(118,244
|
)
|
|
|
(106,838
|
)
|
|
|
|
|
|
|
|
|
|
Deferred taxes recognized
|
|
$
|
-
|
|
|
$
|
-
|
|
The
tax losses will expire between 2028 and 2039.
Madison Technologies Inc.
|
Form 10-K - 2019
|
Page 29
|