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
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
June 30,
2017
|
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
34,548
|
|
|
$
|
25,168
|
|
|
$
|
103,643
|
|
|
$
|
75,540
|
|
Officers and Directors Fees (Note 6)
|
|
|
55,100
|
|
|
|
8,571
|
|
|
|
161,300
|
|
|
|
51,000
|
|
Legal fees (Note 6)
|
|
|
218,572
|
|
|
|
59,722
|
|
|
|
591,130
|
|
|
|
290,358
|
|
Office & general
|
|
|
90,220
|
|
|
|
42,024
|
|
|
|
269,938
|
|
|
|
152,163
|
|
Patent consulting fees
|
|
|
30,000
|
|
|
|
186,975
|
|
|
|
160,000
|
|
|
|
362,289
|
|
Professional fees & services (Note 6)
|
|
|
189,607
|
|
|
|
256,630
|
|
|
|
343,882
|
|
|
|
346,002
|
|
Stock-based compensation (Note 10)
|
|
|
304,777
|
|
|
|
398,044
|
|
|
|
421,867
|
|
|
|
448,044
|
|
Total expenses
|
|
$
|
922,824
|
|
|
$
|
977,134
|
|
|
$
|
2,051,760
|
|
|
$
|
1,725,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AND COMPREHENSIVE
LOSS FOR THE PERIOD
|
|
$
|
(922,824
|
)
|
|
$
|
(977,134
|
)
|
|
$
|
(2,051,760
|
)
|
|
$
|
(1,725,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number
of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
1,092,945,507
|
|
|
|
1,050,830,868
|
|
|
|
1,085,800,101
|
|
|
|
1,050,830,868
|
|
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
|
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
June
30,
2017
|
|
|
June
30,
2016
|
|
|
June
30,
2017
|
|
|
June
30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(922,824
|
)
|
|
$
|
(977,134
|
)
|
|
$
|
(2,051,760
|
)
|
|
$
|
(1,725,396
|
)
|
Add items not affecting
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
304,777
|
|
|
|
398,044
|
|
|
|
421,867
|
|
|
|
398,044
|
|
Shares
issued for services and finder’s fees
|
|
|
94,700
|
|
|
|
92,400
|
|
|
|
195,200
|
|
|
|
147,400
|
|
Amortization
|
|
|
34,548
|
|
|
|
25,168
|
|
|
|
103,643
|
|
|
|
75,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working
capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expense
|
|
|
—
|
|
|
|
(67,500
|
)
|
|
|
26,250
|
|
|
|
(67,500
|
)
|
Accounts
payable
|
|
|
(43,102
|
)
|
|
|
(43,897
|
)
|
|
|
(102,437
|
)
|
|
|
(26,070
|
)
|
Subscriptions
receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cash
Flows Used in Operating Activities
|
|
|
(531,901
|
)
|
|
|
(572,919
|
)
|
|
|
(1,407,237
|
)
|
|
|
(1,197,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(144,408
|
)
|
Cash
Flows Used in Investing Activities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(144,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible debentures
|
|
|
—
|
|
|
|
241,974
|
|
|
|
32,500
|
|
|
|
482,975
|
|
Proceeds
from private placement
|
|
|
451,000
|
|
|
|
269,000
|
|
|
|
1,263,000
|
|
|
|
269,000
|
|
Cash
Flows Provided by Financing Activities
|
|
|
451,000
|
|
|
|
510,974
|
|
|
|
1,295,500
|
|
|
|
751,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(80,902
|
)
|
|
|
(61,945
|
)
|
|
|
(111,737
|
)
|
|
|
(590,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning
of the period
|
|
|
90,279
|
|
|
|
244,801
|
|
|
|
121,115
|
|
|
|
773,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end
of the period
|
|
$
|
9,378
|
|
|
$
|
182,856
|
|
|
$
|
9,378
|
|
|
$
|
182,856
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Par Value
|
|
|
Shares to
be Issued
|
|
|
Additional
Paid-in
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at September 30, 2015
|
|
|
1,019,658,368
|
|
|
$
|
896,292
|
|
|
$
|
846,721
|
|
|
$
|
28,357,610
|
|
|
$
|
(28,162,038
|
)
|
|
$
|
1,938,585
|
|
Shares issued in a private placement
|
|
|
10,458,333
|
|
|
|
10,458
|
|
|
|
—
|
|
|
|
370,542
|
|
|
|
—
|
|
|
|
381,000
|
|
Shares issued as 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
|
|
Shares issued in private placements
|
|
|
56,716,666
|
|
|
|
56,717
|
|
|
|
—
|
|
|
|
1,206,283
|
|
|
|
—
|
|
|
|
1,263,000
|
|
Shares issued as finder’s fees
|
|
|
4,336,667
|
|
|
|
4,337
|
|
|
|
—
|
|
|
|
(4,337
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares issued for debt conversion
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
—
|
|
|
|
31,100
|
|
|
|
—
|
|
|
|
32,500
|
|
Shares issued for services
|
|
|
6,035,000
|
|
|
|
6,035
|
|
|
|
—
|
|
|
|
189,165
|
|
|
|
—
|
|
|
|
195,200
|
|
Shares cancelled on termination of services (Note 9)
|
|
|
(900,000
|
)
|
|
|
(900
|
)
|
|
|
—
|
|
|
|
(44,100
|
)
|
|
|
—
|
|
|
|
(45,000
|
)
|
Shares to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
421,867
|
|
|
|
—
|
|
|
|
421,867
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,051,760
|
)
|
|
|
(2,051,760
|
)
|
Balance at June 30, 2017
|
|
|
1,124,062,534
|
|
|
$
|
1,000,697
|
|
|
$
|
1,063,041
|
|
|
$
|
32,682,941
|
|
|
$
|
(33,687,903
|
)
|
|
$
|
1,058,776
|
|
The accompanying
notes are an integral part of these consolidated financial statements
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
NOTE
1. NATURE AND CONTINUANCE OF OPERATIONS
VOIP-PAL.com,
Inc. (the “Company”) was incorporated in the state of Nevada in September, 1997 as All American Casting International,
Inc. The Company’s registered office is located at 10900 NE 4
th
Street, Suite 2300, Bellevue, Washington in the
United States of America.
Since
March 2004, the Company has been developing technology and patents related to Voice-over-Internet Protocol (VoIP) processes. All
business activities prior to March 2004 have been abandoned and written off to deficit.
In
December 2013, the Company completed the acquisition of Digifonica (International) Limited, a private company based in Gibraltar,
whose assets included several patents and technology developed for the VoIP market.
These
consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets
and discharge of liabilities in the normal course of business. The Company is in various stages of product development and continues
to incur losses and, at June 30, 2017, had an accumulated deficit of $33,687,903 (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 June 30, 2017, Digifonica
had no activities.
Use
of Estimates
The
preparation of these consolidated financial statements required management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates. Where estimates have been used financial results as determined
by actual events could differ from those estimates.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
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 $9,378 and $121,115 in cash on June
30, 2017 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 June 30, 2017 and September 30, 2016.
The
Company classifies its financial instruments as follows: Cash is classified as held for trading, and is measured at fair value.
Accounts payable and accrued expenses are classified as other financial liabilities, and have a fair value approximating their
carrying value, due to their short-term nature.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
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 June 30, 2017 and the year ended September 30, 2016 there were no potentially dilutive securities included in
the calculation of weighted-average common shares outstanding.
Derivatives
We
account for derivatives pursuant to ASC 815,
Accounting for Derivative Instruments and Hedging Activities
. All derivative
instruments are recognized in the consolidated financial statements and measured at fair value regardless of the purpose or intent
for holding them. We determine fair value of warrants and other option type instruments based on option pricing models. The changes
in fair value of these instruments are recorded in income or expense.
Stock-based
compensation
The
Company recognizes compensation expense for all stock-based payments made to employees, directors and others based on the estimated
fair values of its common stock on the date of issuance.
The
Company determines the fair value of the share-based compensation payments granted as either the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity
instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either
the date at which a commitment for performance to earn the equity instrument is reached or the date the performance is complete.
The
Company recognizes compensation expense for stock awards with service conditions on a straight-line basis over the requisite service
period, which is included in operations. Stock option expense is recognized over the option’s vesting period.
Concentrations
of Credit Risk
The Company maintains cash at financial institutions, which at times, may be in excess of insured limits.
The Company has not experienced any losses to date as a result of this policy and, in assessing its risk, the Company’s policy
is to maintain cash only with reputable financial institutions. As of June 30, 2017, the Company’s bank operating account
balances were less than the Federal Deposit Insurance Corporation Insurance Limit of $250,000.
Recent
Accounting Pronouncements
In
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 Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
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 adoption of this ASU had no
material impact on the Company’s 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 Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
NOTE
4. PURCHASE OF DIGIFONICA
The
Company acquired Digifonica in December 2013. Pursuant to the terms in the Share Purchase Agreement (the “SPA”) the
Company acquired 100% of Digifonica from the seller (the “Seller”) for a cash payment of $800,000 and 389,023,561
common shares of the Company. The assets acquired through the acquisition were VoIP-related patented technology, including patents
for Lawful Intercept, routing, billing and rating, mobile gateway, advanced interoperability solutions, intercepting voice over
IP communications, and uninterrupted transmission of internet protocol transmissions during endpoint changes.
The
SPA included an anti-dilution clause (the “Anti-Dilution Clause”) that requires the Company to maintain the Seller’s
percentage ownership of the Company at 40% by issuing the Seller a proportionate number of common shares of any future issuance
of the Company’s common shares. Shares issued pursuant to the Anti-Dilution Clause are recorded as a share issuance cost
within the Additional Paid-in Capital account (Notes 6 and 9).
NOTE
5. INTANGIBLE ASSETS
The
Company acquired certain patents and technology from Digifonica in December 2013 (See Note 4). These assets have been recorded
in the financial statements as intangible assets. These assets are being amortized over twelve (12) years on a straight-line basis.
A summary of intangible assets as of June 30, 2017 and September 30, 2016 is as follows:
|
|
June
30,
2017
|
|
|
September
30,
2016
|
|
VoIP
Intellectual property and patents
|
|
$
|
1,552,416
|
|
|
$
|
1,552,416
|
|
Accumulated
amortization
|
|
|
(462,118
|
)
|
|
|
(358,475
|
)
|
Net book value
|
|
$
|
1,090,298
|
|
|
$
|
1,193,941
|
|
There
were no disposals of any intangible assets in the periods presented.
NOTE
6. RELATED PARTY TRANSACTIONS
The
Company compensates certain of its key management personnel to operate its business in the normal course. Key management includes
the Company’s executive officers and members of its Board of Directors.
Compensation
paid to key management during the nine-month period ended June 30, 2017 includes:
|
|
June
30,
2017
|
|
|
June
30,
2016
|
|
Management
fees accrued to the CEO
|
|
$
|
67,500
|
|
|
$
|
67,500
|
|
Management fees
paid or accrued to the CFO
|
|
|
64,800
|
|
|
|
64,800
|
|
Management fees
paid or accrued to the President
|
|
|
29,000
|
|
|
|
24,000
|
|
Fees paid to the
directors
|
|
|
Nil
|
|
|
|
15,200
|
|
Fees
paid to a director as legal counsel
|
|
|
Nil
|
|
|
|
13,958
|
|
|
|
$
|
161,300
|
|
|
$
|
185,458
|
|
These
transactions were in the normal course of operations and were measured at the exchange value, which represented the amount of
consideration established and agreed to by the related parties.
At
June 30, 2017 included in accounts payable and accrued liabilities is $139,500 (2016 – $Nil) owed to current officers and
directors. Amounts due to/from related parties are non-interest bearing, unsecured and have no fixed terms of repayment unless
otherwise noted.
As
at June 30, 2017, included in shares to be issued is $902,000 (September 30, 2016 - $902,000) for unpaid Officer and Director
fees and $80,000 (September 30, 2016 - $80,000) for professional fees & services paid to a director for consulting services
provided. Additionally, $1,559,405 (September 30, 2016 - $942,645) is accrued to the Seller of Digifonica for the Anti-Dilution
Clause (Notes 4 and 9).
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
NOTE
7. SUPPLEMENTAL CASH FLOW INFORMATION
During
the period ended June 30, 2017, the Company paid $nil (2016 - $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.
NOTE
9. SHARE CAPITAL
Capital
Stock Authorized and Issued:
|
–
|
1,300,000,000
common voting shares authorized with a par value of $0.001, of which 1,124,062,534 shares
are issued
|
|
–
|
1,000,000
convertible preferred shares authorized with a par value of $0.01, of which nil shares
are issued
|
Issues
during the nine-month period ended June 30, 2017
During
the nine-month period ended June 30, 2017, the Company issued 56,716,666 common shares at between $0.02 and $0.03 per common share
for cash proceeds of $1,263,000 from private placements, as follows:
|
–
|
12,766,666
common shares issued at between $0.02 and $0.03 per common share for cash proceeds of
$364,000 from a private placement of common shares;
|
|
–
|
43,950,000
units at between $0.02 and $0.025 per unit for cash proceeds of $899,000 in private placements
of units. Each unit consists of one common share and one common share purchase warrant.
Each common share purchase warrant allows the holder to purchase one common share for
$0.04 or $0.05 for a period of twelve months from the date of issuance; and
|
During
the nine-month period ended June 30, 2017, the Company issued 4,336,667 common shares priced at $0.02 and $0.03 per common share
as finder’s fees valued at $100,200 in connection with the private placements.
During
the nine-month period ended June 30, 2017, the Company issued 1,400,000 common shares priced between $0.025 and $0.03 per common
share to convert $32,500 of convertible debentures.
During
the nine-month period ended June 30, 2017, the Company issued 6,035,000 common shares priced between $0.025 and $0.05 per common
share for services valued at $195,200.
During
the nine-month period ended June 30, 2017, 900,000 common shares priced at $0.05 per common share were cancelled and returned
to the Company treasury. The shares had been issued as an advance payment for the provision of services under a contract which
was terminated prior to fulfillment.
2016
Issues
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 and $0.04 per common share as
finder’s fees valued at $39,800.
During
the year ended September 30, 2016, the Company issued 8,873,333 common shares priced between $0.03 and $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 and $0.05 per common share
for services received valued at $1,121,195.
During
the year ended September 30, 2016, the Company issued 10,000,000 common shares at $0.05 per common share to a director of the
Company, which issuance is included in Officers and Directors fees (Note 6).
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
NOTE
9. SHARE CAPITAL (CONT’D)
Shares
to be Issued
As
at June 30, 2017, there are 23,353,846 (September 30, 2016 – 23,353,846) common shares to be issued that are accrued for
professional services provided to the Company valued at $1,058,320 (September 30, 2016 – $1,058,320), of which 21,281,903
(September 30, 2016 – 21,281,903) common shares are accrued to management and related parties. As at June 30, 2017, $4,721
(September 30, 2016 – $4,721) was included in common shares to be issued for cash received in advance of common shares being
issued.
As at June 30, 2017 there are 60,601,453 (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 $1,559,405 (September 30, 2016 - $942,645).
Warrants
During
the nine-month period ended June 30, 2017, the Company issued 43,950,000 common share purchase warrants to purchase 43,950,000
common shares in the capital stock of the Company at a price of $0.04 or $0.05 per common share for a period of twelve months
from date of issue in private placements of units. As at June 30, 2017, the Company has 43,950,000 (2016 – Nil) warrants
outstanding to purchase 43,950,000 common shares at a weighted average price of $0.04 per common share, expiring on dates ranging
from February, 2018 through June, 2018.
Subsequent
Issue
Subsequent
to the period ended June 30, 2017, the Company conducted a private placement of units of its common stock, issuing 5,800,000 units
(common shares and common share purchase warrants) at $0.02 per unit for cash proceeds of $116,000.
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 nine-month period ended June 30, 2017, the Company granted options under the Plan to several of its consultants to purchase
11,850,000 common shares in the capital stock of the Company at exercise prices of $0.05 and $0.06 per common share for a period
of five years from the date of grant. 11,350,000 of the options granted during the period are vested and exercisable as at June
30, 2017, with the balance to vest within one year of the date of grant.
The
following table summarizes the Company’s stock option transactions:
|
|
Number
of options
|
|
|
Weighted
average
exercise
price
|
|
Balance September 30, 2015
|
|
|
Nil
|
|
|
$
|
N/A
|
|
Granted
|
|
|
28,000,000
|
|
|
|
0.06
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
/ Cancelled
|
|
|
—
|
|
|
|
—
|
|
Balance September 30, 2016
|
|
|
28,000,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
11,850,000
|
|
|
|
0.05
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
/ Cancelled
|
|
|
—
|
|
|
|
—
|
|
Balance
June 30, 2107
|
|
|
39,850,000
|
|
|
$
|
0.06
|
|
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
NOTE
10. STOCK-BASED COMPENSATION (CONT’D)
The
following table summarizes the stock options outstanding at June 30, 2017:
Options
Outstanding
|
|
Exercise
Price
|
|
Remaining
Contractual
Life (Yrs)
|
|
Number
of Options
Currently
Exercisable
|
|
|
14,000,000
|
|
$
|
0.06
|
|
|
4.25
|
|
|
8,000,000
|
|
|
14,000,000
|
|
|
0.06
|
|
|
4.5
|
|
|
8,000,000
|
|
|
3,450,000
|
|
|
0.06
|
|
|
4.55
|
|
|
2,950,000
|
|
|
8,400,000
|
|
|
0.05
|
|
|
4.75
|
|
|
8,400,000
|
|
|
39,850,000
|
|
$
|
0.0575
|
|
|
4.55
|
|
|
27,350,000
|
|
The
following assumptions were used for the Black-Scholes valuation of stock options granted during the nine-month period ended June
30, 2017: 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 $304,777 and $421,867 for the three and nine-month
period ended June 30, 2017, respectively ($nil – 2016).
The
weighted-average grant-date fair value of options granted during the nine-month period ended June 30, 2017 was $0.0575 (2016 -
$nil). The total intrinsic value of options exercised during the nine-month period ended June 30, 2017 was $nil (2016 - $nil).
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.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
June
30, 2017
NOTE
12. CONTINGENT LIABILITIES (CONT’D)
Litigation
(Cont’d)
|
iii)
|
Voip-Pal.com
Inc. v Apple, Inc. (Case No. 2:16-CV-00260) & Verizon Wireless Services, LLC, Verizon
Communications Inc., AT&T Corp. (Case No. 2:16- VC-00271) in the United States District
Court, District of Nevada
|
In
February, 2016 the Company filed patent infringement lawsuits in the United States District Court, District of Nevada against
Apple, Inc, (Case No. 2:16-CV-00260), Verizon Wireless Services, LLC, Verizon Communications Inc., and AT&T Corp. (Case No.
2:16- VC-00271). These cases are seeking a combined $7,024,377,876 in damages. On May 9, 2016, the lawsuits were officially served
to these companies. The proceedings in these cases are currently stayed, by agreement with the parties thereto, pending the outcome
of two
Inter Partes
Reviews (“IPRs”), as noted below.
|
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 June 30, 2017, on October 6, 2016, the Company filed a lawsuit in the United States District Court, District
of Nevada against Twitter, Inc, (Case No. 2:16- CV-02338) in which Voip-Pal.com alleges infringement of U.S. Patent No. 8,542,815
and its continuation patent, U.S. Patent No. 9,179,005, This case is seeking $2,699,256,418 in damages. On December 28, 2016,
the lawsuit was officially served to Twitter, Inc. It is anticipated that this case will also be stayed pending the Patent Trial
and Appeal Board (“PTAB”) of the United States Patent and Trademark Office’s (“USPTO”) issuance
of final written decisions in IPR proceedings concerning the patents-at-issue (see
Inter Partes Reviews
below). The outcome
of each of the patent actions is undeterminable.
Inter
Partes Reviews
An
Inter Partes
Review or 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.
In
additional legal actions related to Item iii above, the Company’s patents are currently subject to three IPRs before the
PTAB. The three IPRs and their outcomes are:
|
–
|
In
early 2016, Unified Patents Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01082,
reviewing Patent No. 8,542,815. On December 8, 2016, the petition by Unified Patents
Inc. was not instituted by the PTAB; and
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In
early 2016, Apple, Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01198,
Reviewing Patent No. 9,179,005 and Voip-Pal.com Inc. (Patent Owner) IPR2016-01201, reviewing
Patent No. 8,542,815. On November 21, 2016, these two Apple petitions were instituted
for IPRs. The outcome of these IPRs is undeterminable.
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During
the nine-month period ended June 30, 2017, on May 8, 2017, the following five additional petitions for IPR were filed against
the Company’s patents:
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AT&T
Inc. filed IPR2017-01382 against Voip-Pal’s Patent No. 8,542,815, IPR2017-01383
against Voip-Pal’s Patent No. 9,179,005, and IPR2017-01384 against Voip-Pal’s
Patent No. 9,179,005. The outcome of these IPRs is undeterminable.
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Apple
Inc. filed IPR2017-01399 against Voip-Pal’s Patent No. 8,542,815, and IPR2017-01398
against Voip-Pal’s Patent No. 9,179,005. The outcome of these IPRs is undeterminable.
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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 June 30, 2017 and the date of this report, no bonusable event has occurred and there is no Performance Bonus currently payable.