(Expressed in U.S. Dollars)
Nature and Continuance of Operations (Note 1)
|
|
|
|
|
|
|
|
|
Contingent Liabilities (Note 12)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated financial statements
VOIP-PAL.com Inc.
INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Unaudited – prepared by management)
(Expressed in U.S. Dollars)
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2016
|
|
|
Three Months Ended December 31, 2015
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
34,548
|
|
|
$
|
25,186
|
|
Officers and Directors Fees (Note 6)
|
|
|
53,100
|
|
|
|
568,000
|
|
Legal fees (Note 6)
|
|
|
89,619
|
|
|
|
13,959
|
|
Office & general
|
|
|
67,362
|
|
|
|
81,617
|
|
Patent consulting fees
|
|
|
90,000
|
|
|
|
—
|
|
Professional fees & services (Note 6)
|
|
|
80,880
|
|
|
|
23,415
|
|
Stock-based compensation (Note 10)
|
|
|
117,090
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
532,599
|
|
|
|
712,177
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
|
|
$
|
(532,599
|
)
|
|
$
|
(712,177
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1, 064,989,925
|
|
|
|
1,001,004,451
|
|
The accompanying notes are an integral part of these
consolidated financial statements
VOIP-PAL.com Inc.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – prepared by management)
(Expressed in U.S. Dollars)
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(532,599
|
)
|
|
$
|
(712,177
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
117,090
|
|
|
|
—
|
|
Shares issued for services and finder’s fees
|
|
|
112,400
|
|
|
|
555,000
|
|
Amortization
|
|
|
34,548
|
|
|
|
25,186
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
22,500
|
|
|
|
—
|
|
Accounts payable
|
|
|
(155,435
|
)
|
|
|
(21,885
|
)
|
Cash Flows Used in Operating Activities
|
|
|
(401,496
|
)
|
|
|
(153,876
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Investment in Intangible assets
|
|
|
—
|
|
|
|
(174,222
|
)
|
Cash Flows Used in Investing Activities
|
|
|
—
|
|
|
|
(174,222
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from convertible debentures
|
|
|
72,500
|
|
|
|
35,814
|
|
Proceeds from private placement
|
|
|
275,000
|
|
|
|
—
|
|
Cash Flows Provided by Financing Activities
|
|
|
347,500
|
|
|
|
35,814
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(53,996
|
)
|
|
|
(292,284
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of the year
|
|
|
121,115
|
|
|
|
773,275
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the year
|
|
$
|
67,119
|
|
|
$
|
480,991
|
|
Supplemental cash flow information – Note 7
The accompanying notes are an integral part of these
consolidated financial statements
VOIP-PAL.com Inc.
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited – prepared by management)
(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, 2015
|
|
|
1,019,658,368
|
|
|
$
|
896,292
|
|
|
$
|
846,721
|
|
|
$
|
28,357,610
|
|
|
$
|
(28,162,038
|
)
|
|
$
|
1,938,585
|
|
Shares issued for debt conversion
|
|
|
1,840,000
|
|
|
|
1,840
|
|
|
|
(87,000
|
)
|
|
|
91,160
|
|
|
|
—
|
|
|
|
6,000
|
|
Shares issued for services
|
|
|
11,100,000
|
|
|
|
11,100
|
|
|
|
—
|
|
|
|
543,900
|
|
|
|
—
|
|
|
|
555,000
|
|
Shares to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(712,177
|
)
|
|
|
(712,177
|
)
|
Balance at December 31, 2015
|
|
|
1,032,598,368
|
|
|
$
|
909,232
|
|
|
$
|
759,721
|
|
|
$
|
28,992,670
|
|
|
$
|
(28,874,215
|
)
|
|
$
|
1,787,408
|
|
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
|
|
|
7,033,333
|
|
|
|
7,033
|
|
|
|
—
|
|
|
|
312,967
|
|
|
|
—
|
|
|
|
320,000
|
|
Shares issued for services
|
|
|
5,257,500
|
|
|
|
5,258
|
|
|
|
303,320
|
|
|
|
257,617
|
|
|
|
—
|
|
|
|
566,195
|
|
Shares to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
950,294
|
|
|
|
—
|
|
|
|
950,294
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,761,928
|
)
|
|
|
(2,761,928
|
)
|
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 for private placement
|
|
|
9,233,333
|
|
|
|
9,233
|
|
|
|
—
|
|
|
|
265,767
|
|
|
|
—
|
|
|
|
275,000
|
|
Shares issued for debt conversion
|
|
|
2,733,333
|
|
|
|
2,733
|
|
|
|
—
|
|
|
|
69,767
|
|
|
|
—
|
|
|
|
72,500
|
|
Shares issued for services & finder’s fees
|
|
|
3,746,667
|
|
|
|
3,747
|
|
|
|
—
|
|
|
|
108,653
|
|
|
|
—
|
|
|
|
112,400
|
|
Shares to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
117,090
|
|
|
|
—
|
|
|
|
117,090
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(532,599
|
)
|
|
|
(532,599
|
)
|
Balance at December 31, 2016
|
|
|
1,072,187,534
|
|
|
$
|
948,821
|
|
|
$
|
1,063,041
|
|
|
$
|
31,444,240
|
|
|
$
|
(32,168,742
|
)
|
|
$
|
1,287,360
|
|
The accompanying notes are an integral part of these
consolidated financial statements
VOIP-PAL.COM INC.
Notes to the Consolidated Financial Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
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 December 31, 2016, had
an accumulated deficit of $32,168,742 (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 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 December 31, 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.
VOIP-PAL.COM INC.
Notes to the Consolidated Financial Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Cash
Cash consists of cash on hand and monies held in checking
and savings accounts. The Company had $67,119 and $121,115 in cash on December 31, 2016 and September 30, 2016, 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
December 31, 2016 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.
VOIP-PAL.COM INC.
Notes to the Consolidated Financial Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
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 period ended December 31, 2016 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 December
31, 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 adoption of this ASU had no impact on the Company’s consolidated financial statements.
VOIP-PAL.COM INC.
Notes to the Consolidated Financial Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recent Accounting Pronouncements (cont’d)
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 is not expected to have any impact on the Company’s financial statements.
In January 2016, FASB issued a new standard 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.
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 Company is currently assessing the impact the standard will have on its consolidated
financial statements.
In June 2016, the FASB issued a new standard 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.
VOIP-PAL.COM INC.
Notes to the Consolidated Financial Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
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 (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 December
31, 2016 and September 30, 2016 is as follows:
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
VoIP Intellectual property and patents
|
|
$
|
1,552,416
|
|
|
$
|
1,552,416
|
|
Accumulated amortization
|
|
|
(393,023
|
)
|
|
|
(358,475
|
)
|
Net book value
|
|
$
|
1,159,393
|
|
|
$
|
1,193,941
|
|
There were no disposals of any intangible assets in the periods presented.
NOTE 6. RELATED PARTY TRANSACTIONS
Included in accounts payable of $87,902 is $46,500
(September 30, 2016 - $Nil) due to related parties. During the period ended December 31, 2016, the Company paid or accrued $53,100
(2015 - $568,000) to Officers and Directors, of which $Nil (2015 - $500,000) was paid to the CEO by the issuance of Nil (2015 -
10,000,000) common shares. The balance was paid or accrued as follows: CEO fees of $22,500 (2015 – $22,500), CFO fees of
$21,600 (2015 - $21,600), President fees of $9,000 (2015 - $9,000) and other Director fees of $Nil (2015 - $14,900). During the
period ended December 31, 2016, the Company paid $Nil (2015 - $Nil) for professional fees and services and $Nil (2015 - $13,598)
in legal fees paid to a Director in his capacity as legal counsel.
Included in Shares to be issued as at December 31,
2016 is $948,500 (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, $1,126,605 (September 30,
2016 - $942,645) is accrued to the Seller of Digifonica for the Anti-Dilution Clause (Note 4).
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
During the period ended December 31, 2016, the Company
paid $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 period from the conversion of convertible debentures.
VOIP-PAL.COM
INC.
Notes
to the Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2016
Capital
Stock Authorized and Issued:
– 1,200,000,000
common voting shares authorized with a par value of $0.001 each of which 1,072,187,534 shares are issued
– 1,000,000
convertible preferred shares authorized with a par value of $0.01 each of which nil shares are issued
Subsequent
to the period ended December 31, 2016, the Company increased its authorized common voting shares to 1,300,000,000 with a par value
of $0.001.
Issues
during the period ended December 31, 2016
During
the period ended December 31, 2016, the Company issued 2,733,333 common shares priced between $0.025-$0.03 per common share to
convert $72,500 of convertible debentures.
During
the period ended December 31, 2016, the Company issued 3,746,667 common shares priced between $0.025-$0.03 per common share for
services valued at $90,000 and finder’s fee valued at $22,400.
During
the period ended December 31, 2016, the Company issued 9,233,333 common shares at $0.03 per common share for cash proceeds of
$275,000 from private placements.
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).
Shares
to be Issued
As
at December 31, 2016, 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) common shares are accrued to management and related parties. As at December 31, 2016,
$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 December 31, 2016 there are 29,851,452 (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 $1,126,605 (September 30, 2016 - $942,645).
Subsequent
Issue
Subsequent
to the period ended December 31, 2016 the Company issued 8,125,000 units at $0.02 per unit to raise gross proceeds of $162,500
in a private placement, each unit consisting of one Common share and one Common share purchase warrant, each warrant exercisable
to purchase one additional Common share at a price of $0.04 per share for a period of six months from the date of issue.
VOIP-PAL.COM
INC.
Notes
to the Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2016
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 period ended December 31, 2016, the Company granted options under the Plan to several of its consultants to purchase 3,450,000
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. 2,700,000 of the options granted vest immediately and are exercisable as at December 31, 2016, 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
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
/ Cancelled
|
|
|
—
|
|
|
|
—
|
|
Balance September
30, 2016
|
|
|
28,000,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
3,450,000
|
|
|
|
0.06
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
/ Cancelled
|
|
|
—
|
|
|
|
—
|
|
Balance
December 31, 2016
|
|
|
31,450,000
|
|
|
$
|
0.06
|
|
The following
table summarizes the stock options outstanding at December 31, 2016:
Options
Outstanding
|
|
Exercise Price
|
|
Remaining
Contractual
Life (Yrs)
|
|
Number of Options
Currently
Exercisable
|
|
14,000,000
|
|
|
$
|
0.06
|
|
|
|
4.50
|
|
|
|
8,000,000
|
|
|
14,000,000
|
|
|
|
0.06
|
|
|
|
4.75
|
|
|
|
8,000,000
|
|
|
3,450,000
|
|
|
|
0.06
|
|
|
|
4.80
|
|
|
|
2,700,000
|
|
|
31,450,000
|
|
|
$
|
0.06
|
|
|
|
4.68
|
|
|
|
18,700,000
|
|
The
following assumptions were used for the Black-Scholes valuation of stock options granted during the period ended December 31,
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 vested under the plan was $117,090 ($nil – 2015).
The
weighted-average grant-date fair value of options granted during the period ended December 31, 2016 was $0.04 (2015 - $nil). The
total intrinsic value of options exercised during the period ended December 31, 2016 was $nil (2015 - $nil).
VOIP-PAL.COM
INC.
Notes
to the Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2016
NOTE 11.
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 12. 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 proceedings in these cases are currently stayed, by agreement with the parties thereto, pending the outcome
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
|
During
the period ended December 31, 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.
VOIP-PAL.COM
INC.
Notes
to the Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2016
NOTE 12. CONTINGENT
LIABILITIES (CONT’D)
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
During
the period ended December 31, 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 December 31, 2016 and the date of this report, no bonusable event has occurred and there is no Performance Bonus currently
payable.