NOTES
TO THE INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
June
30, 2017
Note
1
Interim Reporting
While
the information presented in the accompanying interim three months consolidated financial statements is unaudited, it includes
all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations
and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States
of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s
December 31, 2016 annual consolidated financial statements. All adjustments are of a normal recurring nature. It is suggested
that these interim financial statements be read in conjunction with the Company’s December 31, 2016 annual financial statements.
Operating results for the six months ended June 30, 2017 are not necessarily indicative of the results that can be expected for
the year ended December 31, 2017.
Note
2
Nature and Continuance of Operations
The
Company was incorporated on June 15, 1998 in the State of Nevada, USA and the Company’s common shares are publicly traded
on the OTC Bulletin Board.
Up
until fiscal 2014, the Company was in the business of mineral exploration. On May 28, 2014, the Company formalized an agreement
whereby it purchased assets associated with a smokeless cannabis delivery system. The Company planned to develop this system for
commercial purposes. On December 14, 2014, this asset purchase agreement was terminated.
On
January 21, 2015, a majority of the Company’s stockholders approved a consolidation of the issued and outstanding shares
of common stock, on a 10 for 1 basis, thereby decreasing the issued and outstanding share capital from 113,020,000 to 11,302,000.
On March 11, 2015, the Company effectively changed its name from Madison Explorations, Inc. to Madison Technologies Inc. and effected
the stock consolidation. These financial statements give retroactive effect to both these changes.
On
September 16, 2016, the Company entered into an exclusive distribution product license agreement with Tuffy Packs, LLC to distribute
products into the United Kingdom and 43 other essentially European countries. The Company will be selling ballistic panels which
are personal body armors, that conforms to the National Institute of Justice (NIJ) Level IIIA threat requirements. The Company’s
plan of operations and sales strategy include online and social media marketing, as well as attending various tradeshows and conferences.
Effective
December 31, 2016, the Company dissolved its wholly owned subsidiary, Scout Resources Inc. (“Scout”) and assumed all
the debt that Scout owed.
These
financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern,
which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization
values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments
that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue
as a going concern. At June 30, 2017, the Company had not yet achieved profitable operations, had accumulated losses of $608,823
since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt
about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is
dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to
address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related
party advances. That said, there is no assurance of additional funding being available.
Form 10-Q – Q3
|
Madison Technologies Inc.
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Page
8
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Note
3
Summary of Significant Accounting Policies
T
here
have been no changes in accounting policies from those disclosed in the notes to the audited consolidated financial statements
for the year ended December 31, 2016.
Note
4
Recent Accounting Pronouncements
The
Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued,
which may be in advance of their effective date. Management does not believe that any pronouncement not yet effective but recently
issued would, if adopted, have a material effect on the accompanying financial statements.
Note
5
License Agreement
The
Company entered into an exclusive product license agreement on September 16, 2016 with Tuffy Packs, LLC, a Texas corporation,
to sell Ballistic Panels in certain countries, essentially in Europe. The license is for a period of two years unless terminated
and may be renewed for successive terms of two years each. The payment terms for the license is as follows:
|
1.
|
$10,000
payable within seven days after the effective date;
|
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2.
|
An
additional $15,000 payable within 30 days after the effective date; and
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3.
|
A
final payment of $25,000 payable within 90 days of the effective date.
|
At
June 30, 2017, the Company had paid $16,500 to the Licensor, leaving an unpaid balance of $33,500. To Date, the Company has recorded
a total license amortization of $13,490.
As
a result of the failure to make payments as required under the agreement, the Company was informed on March 20, 2017, that going
forward, the agreement would be on a non-exclusive basis.
Note
6
Notes and Accrued Interest Payable
The
Company has two notes payable to Paleface Holdings Inc. Each note is unsecured and payable on demand.
|
a)
|
$25,000
note with annual interest payable at 8%.
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As
at June 30, 2017, accrued interest on the note was $24,797 (June 30, 2016 - $22,797). The note payable balance including accrued
interest was $49,797 as at June 30, 2017 (June 30, 2016 - $47,797). Interest on the debt for each of the six months ended
June 30 was $1,000.
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|
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b)
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$23,077
($30,000 CDN) with annual interest payable at 5%
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As
at June 30, 2017, accrued interest on the note was $11,827 (June 30, 2016 - $10,708). The note payable balance including accrued
interest was $34,904 as at June 30, 2017 (June 30, 2016 - $33,857). Interest on debt for the six months ended June 30 was
$577 in 2017 and $578 in 2016.
|
The
company also has an unsecured note payable on demand to Gens Incognito Inc. for $25,000, bearing interest at 12%. As at June 30,
2017, accrued interest on the note was $9,194 (June 30, 2016 - $6,202). The note payable balance including accrued interest was
$34,194 as at June 30, 2017 (June 30, 2016 - $31,202).
Form 10-Q – Q3
|
Madison Technologies Inc.
|
Page
9
|
Note
7
Related Party Advance
In
2008, the former President advanced the Company $561 repayable without interest or any other terms. The unpaid balance as at June
30, 2017 is $261. There were no related party transactions during the six-month periods ended June 30, 2017 or 2016.
Note
8
Common Stock
On
January 21, 2015, a majority of the Company’s stockholders approved a consolidation of the issued and outstanding shares
of common stock, on a 10 for 1 basis, thereby decreasing the issued and outstanding share capital from 113,020,000 to 11,302,000.
This was effected on March 11, 2015. This consolidation has been applied retroactively and all references to the number of shares
issued reflect this consolidation.
On
March 30, 2006, the Company entered into a private placement agreement whereby the Company issued 20,000 Regulation-S shares in
exchange for $50,000. ($2.50 per share).
On
June 7, 2004, the Company issued 5,907,000 in consideration of $472 in cash. ($.00008 per share.)
On
June 14, 2001, the Company approved a forward stock split of 5,000:1. These financial statements have been retroactively adjusted
to effect this split.
On
June 15, 1998, the Company authorized and issued 5,375,000 shares of its common stock in consideration of $430 in cash. ($.00008
per share.)
There
are no shares subject to warrants or options as of June 30, 2017.
Note
9
Convertible Notes Payable
In
total, there are eleven convertible notes payable. All notes are non-interest bearing, unsecured and payable on demand. The notes
are convertible into common stock at the discretion of the holder at six different conversion rates: $0.01 debt to 1 common share,
$0.045 to 1 common share; $0.005 to 1 common share; $0.15 to 1 common share; $0.05 to 1 common share; and $0.04 to 1 common share.
The effect that conversion would have on earnings per share has not been disclosed due to the anti-dilutive effect.
There
are four convertible notes payable convertible on the basis of $0.01 of debt to 1 common share
.
The
balance of the first convertible note payable convertible on the basis of $0.01 of debt to 1 common share is as follows:
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Jun 30, 2017
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|
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Dec 31, 2016
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Balance
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|
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|
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|
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Proceeds from promissory note
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$
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40,000
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|
|
$
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40,000
|
|
Value allocated to additional paid-in capital
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|
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40,000
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|
|
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40,000
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|
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|
|
|
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Balance allocated to convertible note payable
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-
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-
|
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Amortized discount
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|
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40,000
|
|
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|
40,000
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|
Balance, convertible note payable
|
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$
|
40,000
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|
|
$
|
40,000
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|
Form 10-Q – Q3
|
Madison Technologies Inc.
|
Page
10
|
The
total discount of $40,000 was amortized over 5 years (20%) starting April 2008 and was fully amortized as at April 2013.
The
balance of the second convertible note payable convertible on the basis of $0.01 of debt to 1 common share is as follows:
|
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Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
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|
|
|
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|
Proceeds from promissory note
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$
|
20,000
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|
|
$
|
20,000
|
|
Value allocated to additional paid-in capital
|
|
|
20,000
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|
|
20,000
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|
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|
|
|
|
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Balance allocated to convertible note payable
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|
|
-
|
|
|
|
-
|
|
Amortized discount
|
|
|
20,000
|
|
|
|
20,000
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|
Balance, convertible note payable
|
|
$
|
20,000
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|
|
$
|
20,000
|
|
The
total discount of $20,000 was amortized over 5 years (20%) starting June 2010 and was fully amortized as at June 2015.
The
balance of the third convertible note payable convertible on the basis of $0.01 of debt to 1 common share is as follows:
|
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Jun 30, 2016
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|
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Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Value allocated to additional paid-in capital
|
|
|
25,000
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|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
-
|
|
|
|
-
|
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Amortized discount
|
|
|
25,000
|
|
|
|
22,500
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Balance, convertible note payable
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|
$
|
25,000
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|
|
$
|
22,500
|
|
The
total discount of $25,000 is being amortized over 5 years starting July 2012. Accordingly, the annual interest rate is 20% and
for the six months ended June 30, 2017 and 2016, $2,500 was recorded as interest expense. As at June 30, 2017 the note was fully
amortized.
Form 10-Q – Q3
|
Madison Technologies Inc.
|
Page
11
|
The
balance of the fourth convertible note payable convertible on the basis of $0.01 of debt to 1 common share at is as follows:
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Jun 30, 2017
|
|
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Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Value allocated to additional paid-in capital
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Amortized discount
|
|
|
21,250
|
|
|
|
18,750
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|
Balance, convertible note payable
|
|
$
|
21,250
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|
|
$
|
18,750
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|
The
total discount of $25,000 is being amortized over 5 years starting April 2013. Accordingly, the annual interest rate is 20% and
for the six months ended June 30, 2017 and 2016, $2,500 was recorded as interest expense. As at June 30, 2017 the unamortized
discount is $3,750.
There
are two convertible notes payable convertible on the basis of $0.005 of debt to 1 common share
The
balance of the first convertible note payable convertible on the basis of $0.005 of debt to 1 common share is as follows:
|
|
Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
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|
Proceeds from promissory note
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Value allocated to additional paid-in capital
|
|
|
10,000
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|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Amortized discount
|
|
|
10,000
|
|
|
|
10,000
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|
Balance, convertible note payable
|
|
$
|
10,000
|
|
|
$
|
10,000
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|
The
total discount of $10,000 was amortized over 5 years (20%) starting April 2011 and was fully amortized as at April 2016.
The
balance of the second convertible note payable convertible on the basis of $0.005 of debt to 1 common share is as follows:
|
|
Jun 30 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Value allocated to additional paid-in capital
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Amortized discount
|
|
|
10,000
|
|
|
|
9,250
|
|
Balance, convertible note payable
|
|
$
|
10,000
|
|
|
$
|
9,250
|
|
The
total discount of $10,000 was amortized over 5 years (20%) starting May 2011 and was fully amortized as at May 2016.
Form 10-Q – Q3
|
Madison Technologies Inc.
|
Page
12
|
There
is one convertible notes payable convertible on the basis of $0.045 of debt to 1 common share
The
balance of this convertible note payable is as follows:
|
|
Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Value allocated to additional paid-in capital
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
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Balance allocated to convertible note payable
|
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|
-
|
|
|
|
|
|
Amortized discount
|
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|
15,833
|
|
|
|
13,333
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Balance, convertible note payable
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|
$
|
15,833
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|
|
$
|
13,333
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The
total discount of $25,000 is being amortized over 5 years starting May 2014. Accordingly, the annual interest rate is 20% and
for the six months ended June 30, 2017 and 2016, $2,500 was recorded as interest expense. As at June 30, 2017 the unamortized
discount is $9,167.
There
is one convertible notes payable convertible on the basis of $0.15 of debt to 1 common share
The
balance of this convertible note payable is as follows:
|
|
Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Value allocated to additional paid-in capital
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
|
|
|
|
|
|
Amortized discount
|
|
|
11,250
|
|
|
|
8,750
|
|
Balance, convertible note payable
|
|
$
|
11,250
|
|
|
$
|
8,750
|
|
The
total discount of $25,000 is being amortized over 5 years starting April 2015. Accordingly, the annual interest rate is 20% and
for the six months ended Jun 30, 2017 and 2016, $2,500 was recorded as interest expense. As at June 30, 2017 the unamortized discount
was $13,750.
There
are two convertible notes payable convertible on the basis of $0.05 of debt to 1 common share
Form 10-Q – Q3
|
Madison Technologies Inc.
|
Page
13
|
The
balance of the first convertible note payable is as follows:
|
|
Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
21,000
|
|
|
$
|
21,000
|
|
Value allocated to additional paid-in capital
|
|
|
21,000
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Amortized discount
|
|
|
2,940
|
|
|
|
1,680
|
|
Balance, convertible note payable
|
|
$
|
2,940
|
|
|
$
|
1,680
|
|
The
total discount of $21,000 is being amortized at 12% starting May 2016. For the six months ended Jun 30, 2017, $1,260 was recorded
as interest expense, and $1,680 was recorded as interest expense during year ended December 31, 2016. As at Jun 30, 2017 the unamortized
discount is $18,060.
The
balance of the second convertible note payable convertible on the basis of $0.05 of debt to 1 common share is as follows:
|
|
Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Value allocated to additional paid-in capital
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
-
|
|
|
|
-
|
|
Amortized discount
|
|
|
1,600
|
|
|
|
400
|
|
Balance, convertible note payable
|
|
$
|
1,600
|
|
|
$
|
400
|
|
The
total discount of $20,000 is being amortized at 12% starting November 2016. For the six months ended June 30, 2017, $1,200 was
recorded as interest expense, and $400 was recorded as interest expense during the year ended December 31, 2016. As at June 30,
2017 the unamortized discount is $18,400.
There
is one convertible notes payable convertible on the basis of $0.04 of debt to 1 common share
The
balance of this convertible note payable is as follows:
|
|
Jun 30, 2017
|
|
|
Dec 31, 2016
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from promissory note
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Value allocated to additional paid-in capital
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Balance allocated to convertible note payable
|
|
|
|
|
|
|
-
|
|
Amortized discount
|
|
|
1,800
|
|
|
|
600
|
|
Balance, convertible note payable
|
|
$
|
1,800
|
|
|
$
|
600
|
|
The
total discount of $20,000 is being amortized at 12% starting October 2016. For the six months ended June 30, 2017, $1,200 was
recorded as interest expense, and $600 was recorded as interest expense during the year ended December 31, 2016. As at June 30,
2017 the unamortized discount is $18,200.
Form 10-Q – Q3
|
Madison Technologies Inc.
|
Page
14
|