(Expressed in U.S. Dollars)
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,
2016
|
|
|
September
30,
2015
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization (Note 5)
|
|
$
|
129,368
|
|
|
$
|
106,390
|
|
Officers and Directors fees (Note 6)
|
|
|
713,000
|
|
|
|
815,528
|
|
Legal fees (Note 6)
|
|
|
201,065
|
|
|
|
103,235
|
|
Office & general
|
|
|
187,424
|
|
|
|
104,815
|
|
Patent consulting fees
|
|
|
853,060
|
|
|
|
—
|
|
Professional fees & services (Note 6)
|
|
|
439,894
|
|
|
|
481,800
|
|
Stock-based compensation (Note 10)
|
|
|
950,294
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,474,105
|
|
|
|
1,611,768
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR
|
|
$
|
(3,474,105
|
)
|
|
$
|
(1,611,768
|
)
|
Basic and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,041,024,918
|
|
|
|
988,567,485
|
|
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,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,474,105
|
)
|
|
$
|
(1,611,768
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
950,294
|
|
|
|
—
|
|
Shares issued for services
|
|
|
1,121,195
|
|
|
|
1,113,889
|
|
Amortization
|
|
|
129,368
|
|
|
|
106,390
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Legal retainer
|
|
|
(100,000
|
)
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
199,736
|
|
|
|
(13,299
|
)
|
Prepaid expense
|
|
|
(71,250
|
)
|
|
|
—
|
|
Cash Flows Used in Operations
|
|
|
(1,244,762
|
)
|
|
|
(404,788
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in VoIP patents
|
|
|
(114,398
|
)
|
|
|
(289,591
|
)
|
Cash Flows Used in Investing Activities
|
|
|
(114,398
|
)
|
|
|
(289,591
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from convertible debentures
|
|
|
326,000
|
|
|
|
1,384,904
|
|
Proceeds from private placement
|
|
|
381,000
|
|
|
|
—
|
|
Cash Flows Provided by Financing Activities
|
|
|
707,000
|
|
|
|
1,384,904
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) in cash
|
|
|
(652,160
|
)
|
|
|
690,525
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of the year
|
|
|
773,275
|
|
|
|
82,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the year
|
|
$
|
121,115
|
|
|
$
|
773,275
|
|
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
Paid-in
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
at September 30, 2014
|
|
|
986,500,570
|
|
|
$
|
863,134
|
|
|
$
|
—
|
|
|
$
|
26,738,696
|
|
|
$
|
(26,550,270
|
)
|
|
$
|
1,051,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for debt conversion
|
|
|
26,030,930
|
|
|
|
26,031
|
|
|
|
91,721
|
|
|
|
1,267,152
|
|
|
|
—
|
|
|
|
1,384,904
|
|
Shares
issued for services
|
|
|
7,126,868
|
|
|
|
7,127
|
|
|
|
755,000
|
|
|
|
351,762
|
|
|
|
—
|
|
|
|
1,113,889
|
|
Shares
to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,611,768
|
)
|
|
|
(1,611,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
finder’s fees
|
|
|
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
|
|
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 (“Digifonica”), a private company incorporated on September 7, 2004 in Gibraltar.
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,
2016, had an accumulated deficit of $31,636,143 (September 30, 2015 - $28,162,038). 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 may cast significant 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 significant 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, 2016, 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 $121,115 and $773,275 in cash on September 30, 2016 and 2015, respectively.
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. 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, 2016 and 2015.
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.
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 years ended September 30, 2016 and 2015
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 record our interest rate
and foreign currency swaps at fair value based on discounted cash flow analysis and for 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 vesting period of the options.
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, 2016 the Company’s bank operating account balances were less than the Federal Deposit Insurance Corporation
Insurance Limit of $250,000.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15
“Presentation of Financial Statements-Going Concern.” The provisions of ASU No.2014-15 require management to assess
an entity’s liability to continue as a going concern by incorporating and expanding upon certain principles that are currently
in U.S. audit standards. Specifically, the amendments: (1) provide a definition of the term substantial doubt; (2) require evaluation
of every reporting period including interim periods; (3) provide principles for considering the mitigating effect of management’s
plans; (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s
plans; (5) require an express statement and other disclosures when substantial doubt in not alleviated; and (6) require an assessment
for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments
in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
The Company is currently assessing the impact of ASU No. 2014-15 on the Company’s consolidated financial statements.
Management does not believe that any recently issued,
but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial
statements.
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 $1,000,000 ($800,000 paid at closing) 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 (Note 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, 2016 and 2015 is as follows:
|
|
2016
|
|
|
2015
|
|
VoIP
Intellectual property and patents
|
|
$
|
1,552,416
|
|
|
$
|
1,438,018
|
|
Accumulated
amortization
|
|
|
(358,475
|
)
|
|
|
(229,107
|
)
|
Net
book value
|
|
$
|
1,193,941
|
|
|
$
|
1,208,911
|
|
There were no disposals of any intangible assets in the years presented.
NOTE 6. RELATED PARTY TRANSACTIONS
During the year ended September 30, 2016 the Company
paid or accrued $713,000 (2015 - $815,528) to Officers and Directors, of which $500,000 was paid to the CEO by the issuance of
10,000,000 common shares (Note 9). The balance was paid or accrued as follows: CEO fees of $90,000 (2015 - $250,000), CFO fees
of $60,000 (2015 - $50,000), President fees of $24,000 (2015 - $220,000), Chairman fees of $12,000 (2015 - $18,000) and other Directors
fees of $27,000 (2015 - $277,528). During the year ended September 30, 2016, the Company paid or accrued $73,068 (2015 - $21,900)
for professional fees and services and $125,000 (2015 - $22,975) in legal fees paid or accrued to a Director in his capacity as
legal counsel. The Company granted 2,000,000 stock options to the CFO of the Company, resulting in $66,789 (2015 - $Nil) of stock-based
compensation.
Included in Shares to be issued as at September
30, 2016 is $902,000 (2015 - $650,000) for unpaid Officer and Director fees, $80,000 (2015 - $90,000) for professional fees &
services paid to a director for consulting services provided. Also, $942,645 (2015 - $941,989) is accrued to the Seller of Digifonica
for the Anti-Dilution Clause (Note 4).
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended September 30, 2016, the Company
paid $nil (2015 - $nil) in income taxes and $nil (2015 - $nil) in interest.
NOTE 8. CONVERTIBLE DEBENTURES
The Company routinely issues convertible debentures
with no interest rates that are due on demand. The convertible debentures are convertible at fixed conversion rates. 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:
– 1,200,000,000
common voting shares authorized with a par value of $0.001 each of which 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 shares are issued
2016 Issues
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 10,458,333 common shares at $0.04 per common share for cash proceeds of $381,000 from private placements. The Company issued
1,126,667 common shares priced between $0.03 - $0.04 per common share as finder’s fees valued at $39,800.
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 and is included in Officers and Directors
fees (Note 6).
2015 Issues
During the year ended September 30, 2015, the Company
issued 26,030,930 common shares priced between $0.05 - $0.08 per common share to convert $1,293,183 of convertible debentures.
During the year ended September 30, 2015, the Company
issued 7,126,868 common shares priced between $0.05 - $0.06 per common share for services received valued at $358,889.
Shares to be Issued
During the year ended September 30, 2016, the Company
accrued 8,159,426 of Shares to be Issued valued between $0.03-$0.07 per share for services and consulting, valued at $303,320.
As at September 30, 2016, there are 23,353,846
(2015 – 14,800,000) common shares to be issued that are accrued for professional services provided to the Company valued
at $1,058,320 (2015 - $755,000), of which 21,281,903 (2015 – 14,800,000) common shares are accrued to management and related
parties. As at September 30, 2016, $4,721 (2015 - $91,721) was included in common shares to be issued for cash received in advance
of common shares being issued.
As at September 30, 2016 there are 23,566,119 (2015
– 18,839,736) common shares to be issued that are accrued to the seller of Digifonica pursuant to the Anti-Dilution Clause
(see Note 4 and 6), valued at $942,645 (2015 - $941,989).
Subsequent Issues
Subsequent to the year ended September 30, 2016 the Company:
- Issued 9,233,333
common shares at $0.03 per common share to raise gross proceeds of $275,000 from private placements.
- Issued 333,333
common shares at $0.03 per common share to convert $10,000 of convertible debentures.
- Issued 3,746,667
common shares at $0.03 per common share as finder’s fees.
NOTE 10. STOCK-BASED COMPENSATION
Stock Option Plan
During the year ended September 30, 2016, 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, it was determined by the board
of directors that the Company requires a stock option plan under which it is able to grant incentive stock options to such
Service Providers. The Company put 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, 2016, the Company
granted options under the Plan to several of its consultants to purchase 28,000,000 common shares in the capital stock of the Company
at an exercise price of $0.06 per common share for a period of five years from the date of grant. 16,000,000 of the options granted
vest immediately and are exercisable as at September 30, 2016, with the balance to vest within one year of the date of grant. 14,000,000
options expire on June 24, 2021 and 14,000,000 expire on September 6, 2021. There were no other stock options outstanding or granted.
The following assumptions were used for the Black-Scholes
valuation of stock options granted during the year ended September 30, 2016: risk-free rate of 1.25%, expected life of 5 years,
annualized historical volatility of 112.0% and a dividend rate of 0%. 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 issued
under the plan was $950,294 ($nil – 2015).
The weighted-average grant-date fair value of options
granted during the year ended September 30, 2016 was $0.04 (2015 - $nil). The total intrinsic value of options exercised during
the year ended September 30, 2016 was $nil (2015 - $nil).
Subsequent to the year ended September 30, 2016,
the Company granted 3,450,000 stock options to various consultants of the Company exercisable at $0.06 each for a period of 5 years.
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, 2016 and 2015, the
Company had net operating loss carryforwards of approximately $20,546,000 and $15,637,000 respectively, to reduce Federal income
tax liabilities through 2036.
A reconciliation of income taxes at statutory rates with the
reported taxes is as follows:
|
|
2016
|
|
|
2015
|
|
Loss for the year
|
|
$
|
(3,424,105
|
)
|
|
$
|
(1,611,768
|
)
|
Expected income tax (recovery)
|
|
$
|
(877,000
|
)
|
|
$
|
(407,000
|
)
|
Change in statutory, foreign tax, foreign exchange rates and other
|
|
|
(266,000
|
)
|
|
|
(140,000
|
)
|
Permanent Difference
|
|
|
323,000
|
|
|
|
(324,000
|
)
|
Change in unrecognized deductible temporary differences
|
|
|
820,000
|
|
|
|
871,000
|
|
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:
|
|
2016
|
|
Expiry Date Range
|
|
2015
|
|
Expiry Date Range
|
Temporary Differences
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
25,218,000
|
|
No expiry date
|
|
$
|
30,033,000
|
|
No expiry date
|
Non-capital losses available for future period
|
|
$
|
20,446,000
|
|
2033 to 2036
|
|
$
|
15,637,000
|
|
2033 to 2035
|
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.
|
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 outcome of the
cases is undeterminable. The proceedings in these cases are currently stayed, by agreement with the parties thereto, pending the
resolution of two
Inter Partes
Reviews (“IPR”), as follows:
- Apple, Inc.
(Petitioner) vs. Voip-Pal.com, Inc. (Patent Owner) IPR2016-01198, Reviewing Patent No. 9,179,005
- Apple, Inc. (Petitioner) vs. Voip-Pal.com,
Inc. (Patent Owner) IPR2016-01201, Reviewing Patent No. 5,542,815
|
iv)
|
Voip-Pal.com Inc. v Twitter, Inc. (Case No. 2:16-CV-02338) in the United States District Court,
District of Nevada
|
Subsequent to the year ended
September 30, 2016, 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 each of the patent actions is undeterminable.
Inter Partes Reviews
In other legal actions related to Item
iii above, the Company is involved in three
Inter Partes
Reviews (“IPR”) 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 may be invalidated.
The reviews are:
- Unified
Patents Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01082, Reviewing Patent No. 8,542,815
- Apple,
Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01198, Reviewing Patent No. 9,179,005
- Apple,
Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01201, Reviewing Patent No. 8,542,815
Subsequent to the year ended September
30, 2016, on December 8, 2016, the petition by Unified Patents Inc. was not instituted by the PTAB.
With respect to the two Apple petitions,
the IPRs were instituted on November 21, 2016. The outcome of these IPRs is undeterminable.
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. As at September 30, 2016 and the date
of this report, no bonusable event has occurred and there is no Performance Bonus currently payable.