Notes to the Consolidated Financial Statements
(Expressed in US dollars)
1.
Nature of Operations and Continuance of Business
Appiphany Technologies Holdings Corp. (“The Company”) was incorporated in the State of Nevada on February 24, 2010. On May 1, 2010, the Company entered into a share exchange agreement with Appiphany Technologies Corporation (“ATC”) to acquire all of the outstanding common shares of ATC in exchange for 1,500,000 common shares of the Company. As the acquisition involved companies under common control, the acquisition was accounted for in accordance with ASC 805-50, Business Combinations – Related Issues, and the consolidated financial statements reflect the accounts of the Company and ATC since inception. On November 18, 2015, ATC was dissolved. Currently, the Company is in the business of online fraud protection services.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at April 30, 2018, the Company has not recognized significant revenue, has a working capital deficit of $1,524,336, and has an accumulated deficit of $5,409,251. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company’s future operations.
The Company will continue to rely on equity sales of its common shares in order to continue to fund business operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern
for a period of one year from the date these financial statements are issued. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2.
Summary of Significant Accounting Policies
(a)
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The consolidated financial statements are comprised of the records of the Company and its wholly owned subsidiaries, IP Risk Control Inc., a company incorporated in the State of Nevada, and Appiphany Technologies Corp., a company incorporated in British Columbia, Canada, up through November 18, 2015, when it was dissolved. All intercompany transactions have been eliminated on consolidation. The Company’s fiscal year end is April 30.
(b)
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the fair value and estimated useful life of long-lived assets, fair value of convertible debentures, derivative liabilities, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(c)
Cash and cash equivalents
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The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at April 30, 2018 and 2017, the Company had no items representing cash equivalents.
(d)
Accounts Receivable
Accounts receivable represents amounts owed from customers for services. Amounts are presented net of the allowance for doubtful accounts, which represents the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis. As of April 30, 2018, the Company had $7,245 (2017 - $9,893) in allowances for doubtful accounts.
(e)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of April 30, 2018, the Company had 569,554,940 (2017 – 5,691,592) potentially dilutive common shares outstanding.
(f) Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash, accounts receivable and other receivables, accounts payable and accrued liabilities, notes payable, convertible debentures and amounts due to related parties. The fair value of cash is determined based on Level 1 inputs. There were no transfers into or out of “Level 3” during the years ended April 30, 2018, and 2017. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
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The following table presents assets and liabilities that are measured and recognized at fair value as of April 30, 2018 and 2017 on a recurring basis:
April 30, 2018
Description
|
|
Level 1
$
|
|
Level 2
$
|
|
Level 3
$
|
|
Total Gains and (Losses)
$
|
Derivative liability
|
|
|
-
|
|
|
-
|
|
|
(928,252)
|
|
|
(601,635)
|
|
|
|
-
|
|
|
-
|
|
|
(928,252)
|
|
|
(601,635)
|
April 30, 2017
Description
|
|
Level 1
$
|
|
Level 2
$
|
|
Level 3
$
|
|
Total Gains and (Losses)
$
|
Derivative liability
|
|
|
-
|
|
|
-
|
|
|
(1,082,050)
|
|
|
(1,379,942)
|
|
|
|
-
|
|
|
-
|
|
|
(1,082,050)
|
|
|
(1,379,942)
|
(h)
Revenue Recognition
The Company recognizes revenue from online fraud protection services. Revenue will be recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is reasonably assured. The Company is not exposed to any credit risks as amounts are prepaid prior to performance of services.
(i)
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718,
Compensation – Stock Compensation
and ASC 505,
Equity Based Payments to Non-Employees,
which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees and directors, including stock options.
ASC 718 requires company to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option pricing model as its method of determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviours. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
(j)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards.
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Deferred income tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is believed more likely than not to be realized.
As of April 30, 2018, and 2017, the Company did not have any amounts recorded pertaining to uncertain tax positions.
The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2015 to 2018. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not examined any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
(k)
Reclassifications
Certain of the figures presented for comparative purposes have been reclassified to conform to the presentation adopted in the current period.
(l)
Recent Accounting Pronouncements
In February 2016, Topic 842, Leases was issued to replace the leases requirements in Topic 840, Leases. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied. Earlier application is permitted. The adoption of this standard is not expected to have a material impact on the Company´s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods and is to be retrospectively applied. The adoption of this standard is not expected to have a material impact on the Company´s consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Related Party Transactions
During the year ended April 30, 2018, the Company incurred $56,337 (2017 - $7,096) in management fees to the President and Director of the Company.
4.
Notes Payable
(a)
As at April 30, 2018, the Company owed $4,616 (2017 - $4,616) in notes payable to non-related parties. Under the terms of the notes, the amounts are unsecured, bear interest at 6% per annum, and were due on July 31, 2016. The notes bear a default interest rate of 18% per annum.
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(b)
As at April 30, 2018, the Company owed $10,000 (2017 – $10,000) in a note payable to a non-related party. Under the terms of the note, the amount is unsecured, bears interest at 5% per annum, and was due on July 6, 2017. The note bears a default interest rate of 12% per annum.
(c)
As at April 30, 2018, the Company owed $2,500 (2017 – $2,500) in a note payable to a non-related party. Under the terms of the note, the amount is unsecured, bears interest at 5% per annum, and was due on February 1, 2018. The note bears a default interest rate of 12% per annum.
(d)
As at April 30, 2018, the Company owed $15,000 (2017 – $15,000) in a note payable to a non-related party. The note payable was issued as a commitment fee and was recorded to additional paid-in capital during the year ended April 30, 2017. Under the terms of the note, the amount is unsecured, bears interest at 8% per annum, and was due on September 15, 2017. The note bears a default interest rate of 20% per annum.
5.
Convertible Debentures
(a)
On May 21, 2014, the Company issued a convertible debenture, to a non-related party, for proceeds of $37,500. Under the terms of the debenture, the amount is unsecured, bears interest at 8% per annum, and is due on February 23, 2015. After 180 days or November 17, 2014, the debenture is convertible into common shares of the Company at a conversion price equal to 51% of the lowest two trading prices of the Company’s common shares for the past 30 trading days prior to notice of conversion.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $37,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $37,500. During the year ended April 30, 2015, the Company issued 3,600 shares of common stock for the conversion of $2,920. During the year ended April 30, 2016, the Company issued 18,500 shares of common stock for the conversion of $8,772 of the note. During the year ended April 30, 2017, the Company issued 101,790 shares of common stock for the conversion of $16,889 of the note. During the year ended April 30, 2018, the Company issued 256,937 shares of common stock for the conversion of $8,919 of the note and $6,418 of accrued interest. As at April 30, 2018, the carrying value of the note was $nil (2017 - $8,919).
(b)
On May 23, 2014, the Company issued a convertible debenture, to a non-related party, for proceeds of $40,000. Under the terms of the debenture, the amount is unsecured, bears interest at 8% per annum, and is due on May 23, 2015. After 180 days or November 19, 2014, the debenture is convertible into common shares of the Company at a conversion price equal to 55% of the lowest trading price of the Company’s common shares for the past 15 trading days prior to notice of conversion.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $25,215. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $40,000. During the year ended April 30, 2015, the Company issued 1,277 shares of common stock for the conversion of $1,335 of the note and $69 of accrued interest. During the year ended April 30, 2016, the Company issued 918 shares of common stock for the conversion of $188 of the note and $19 of accrued interest. During the year ended April 30, 2018, the Company issued 1,314,451 shares of common stock for the conversion of $38,477 of the note and $10,545 of accrued interest. As at April 30, 2018, the carrying value of the note was $nil (2017 - $38,477).
(c)
On July 21, 2016, the Company issued a convertible debenture, to a non-related party, for proceeds of $56,750. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on April 21, 2017. The debenture is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading price of the Company’s common stock of either (i) the twenty-five prior trading days immediately preceding the issuance of the note or (ii) the twenty-five prior trading days including the day upon which a notice of conversion is received by the Company.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $56,750, of which $6,250 of the discount resulted from debt issuance costs. The carrying value
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of the convertible note will be accreted over the term of the convertible note up to the face value of $56,750. During the year ended April 30, 2017, the Company issued 766,800 shares of common stock for the conversion of $48,508 of the note and $4,757 of accrued interest. During the year ended April 30, 2018, the Company issued 481,298 shares of common stock for the conversion of $8,242 of the note and $15,056 of accrued interest. As at April 30, 2018, the carrying value of the note was $nil (2017 - $7,367), and the unamortized total discount was $nil (2017 - $875).
(d)
On February 13, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $105,000. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $94,500. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on November 13, 2017. The debenture is convertible into common shares of the Company at a conversion price equal to 60% of the lowest trading price of the Company’s common stock of the ten prior trading days immediately preceding the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $105,000, of which $20,000 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $105,000. During the year ended April 30, 2018, the Company issued 29,327,000 shares of common stock for the conversion of $97,030 of the note and $30,321 of accrued interest. As at April 30, 2018, the carrying value of the note was $7,970 (2017 - $29,231), and the unamortized total discount was $nil (2017 - $75,769).
(e)
On February 24, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $33,000. Under the terms of the debenture, the amount is unsecured, bears interest at 12% per annum pre-default and 20% per annum thereafter, and is due on November 30, 2017. The debenture is convertible into common shares of the Company at a conversion price equal to 58% of the average of the lowest two trading prices of the Company’s common stock of the fifteen prior trading days immediately preceding the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging. During the year ended April 30, 2018, the Company incurred a $22,000 default fee on the note. As at April 30, 2018, the carrying value of the note was $55,000 (2017 - $33,000).
(f)
On April 21, 2017, the Company issued a $57,411 convertible debenture to a non-related party in extinguishment of a convertible debenture originally issued on November 4, 2016 of $55,000 and $2,411 of accrued interest as at April 21, 2017 as noted in Note 6(i). Due to the change of conversion terms, the fair value of the derivative liability increased from $95,302 to $97,264, resulting in a loss in extinguishment of $1,962. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on January 21, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading prices of the Company’s common shares for the past twenty-five trading days prior to notice of conversion.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. During the year ended April 30, 2018, the Company issued 2,366,131 shares of common stock for the conversion of $57,411 of the note and $1,342 of accrued interest. As at April 30, 2018, the carrying value of the note was $nil (2017 - $57,411).
(g)
On April 28, 2017, the Company issued a $50,000 convertible debenture to a non-related party in extinguishment of a convertible debenture originally issued on November 4, 2016 of $50,000 as noted in Note 6(j). Due to the change of conversion terms, the fair value of the derivative liability increased from $192,604 to $197,630, resulting in a loss in extinguishment of $5,026. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on November 4, 2017. The debenture is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading prices of the Company’s common shares for the past twenty-five trading days prior to notice of conversion.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. During the year ended April 30, 2018, the Company issued 1,055,371 shares of common stock for the conversion of $50,000 of the note. As at April 30, 2018, the carrying value of the note was $nil (2017 - $50,000).
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(h)
On May 9, 2017, the Company issued a convertible debenture, to a non-related party, totaling $36,450. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $30,000. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on February 9, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to 60% of the lowest trading price of the Company’s common stock of the past ten trading days prior to notice of conversion.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $36,450, of which $6,450 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $36,450. As at April 30, 2018, the carrying value of the note was $36,450 (2017 - $nil).
(i)
On June 28, 2017, the Company issued a convertible debenture, to a non-related party, totaling $57,250. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price and proceeds received was $49,500. Under the terms of the debenture, the amount is unsecured, bears interest at 12% per annum, and is due on March 28, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to the lesser of the 50% of the lowest trading price of the Company’s common stock of the past twenty-five trading days prior to notice of conversion or the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $57,250, of which $7,750 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $57,250. During the year ended April 30, 2018, the Company issued 9,637,404 shares of common stock for the conversion of $340 of the note and $8,874 of accrued interest, penalties, and financing costs. As at April 30, 2018, the carrying value of the note was $56,910 (2017 - $nil).
(j)
On July 19, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $33,333. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $28,000. Under the terms of the debenture, the amount is unsecured, bears interest at 12% per annum, and is due on July 19, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading price of the Company’s common stock of the past twenty-five trading days prior to notice of conversion or the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $33,333, of which $5,333 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $33,333. During the year ended April 30, 2018, the Company issued 15,689,698 shares of common stock for the conversion of $11,593 of the note and $928 of accrued interest. As at April 30, 2018, the carrying value of the note was $5,948 (2017 - $nil), and the unamortized total discount was $15,792 (2017 - $nil).
Included in the convertible debenture agreement is a $30,000 collateralized secured promissory note and a $33,333 back end note (with the same terms as the convertible debenture mentioned above). As of April 30, 2018, and at the date of filing, no proceeds have been received on the collateralized secured promissory note or the back-end note.
(k)
On September 19, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $36,000, which was the first tranche of a convertible debenture totaling $102,000. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $25,000. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on June 19, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to the lesser of the 50% of the lowest trading price of the Company’s common stock of the past ten trading days prior to notice of conversion or the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $36,000, of which $11,000 of the discount resulted from debt issuance costs. The carrying value
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of the convertible note will be accreted over the term of the convertible note up to the face value of $36,000. As at April 30, 2018, the carrying value of the note was $862 (2017 - $nil), and the unamortized total discount was $35,138 (2017 - $nil).
(l)
On September 28, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $33,333. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $25,500. Under the terms of the debenture, the amount is unsecured, bears interest at 12% per annum, and is due on September 28, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to the lesser of the 50% of the lowest trading price of the Company’s common stock of the past twenty-five trading days prior to notice of conversion or the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $33,333, of which $7,833 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $33,333. As at April 30, 2018, the carrying value of the note was $118 (2017 - $nil), and the unamortized total discount was $33,215 (2017 - $nil).
Included in the convertible debenture agreement is a back end note for up to $33,333 (with the same amount of proceeds, original issue discount, maturity date, interest rate and conversion terms as the convertible debenture mentioned above). As of April 30, 2018, and at the date of filing, no proceeds have been received on the back-end note.
(m)
On November 8, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $33,000, which was the second tranche of the September 19, 2017 agreement. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $30,000. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on August 8, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to the lesser of the 50% of the lowest trading price of the Company’s common stock of the past ten trading days prior to notice of conversion or the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $33,000, of which $3,000 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $33,000. As at April 30, 2018, the carrying value of the note was $30 (2017 - $nil), and the unamortized total discount was $32,970 (2017 - $nil).
(n)
On December 26, 2017, the Company issued a convertible debenture, to a non-related party, for proceeds of $33,000, which was the final tranche of the September 19, 2017 agreement. Pursuant to the agreement, the note was issued with an original issue discount and as such the purchase price was $30,000. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on September 26, 2018. The debenture is convertible into common shares of the Company at a conversion price equal to the lesser of the 50% of the lowest trading price of the Company’s common stock of the past ten trading days prior to notice of conversion or the issuance of the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a discount to the note payable of $33,000, of which $3,000 of the discount resulted from debt issuance costs. The carrying value of the convertible note will be accreted over the term of the convertible note up to the face value of $33,000. As at April 30, 2018, the carrying value of the note was $17 (2017 - $nil), and the unamortized total discount was $32,983 (2017 - $nil).
6.
Derivative Liability
The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 5 in accordance with ASC 815,
Derivatives and Hedging
. The fair value of the derivative was calculated using a Binomial model. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the year ended
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April 30, 2018, the Company recorded a loss on the change in fair value of derivative liability of $601,635 (2017 – loss of $1,379,942). As at April 30, 2018, the Company recorded a derivative liability of $928,252 (2017 - $1,082,050).
A summary of the activity of the derivative liability is shown below:
|
|
|
|
|
$
|
|
|
|
|
|
|
Balance, April 30, 2016
|
|
|
|
|
140,196
|
Derivative loss due to new issuances
|
|
|
|
|
1,827,694
|
Debt discount
|
|
|
|
|
178,500
|
Adjustment for conversion
|
|
|
|
|
(862,290)
|
Mark to market adjustment at April 30, 2017
|
|
|
|
|
(202,050)
|
|
|
|
|
|
|
Balance, April 30, 2017
|
|
|
|
|
1,082,050
|
Derivative loss due to new issuances
|
|
|
|
|
378,522
|
Debt discount
|
|
|
|
|
262,366
|
Adjustment for conversion
|
|
|
|
|
(1,017,798)
|
Mark to market adjustment at April 30, 2018
|
|
|
|
|
223,112
|
|
|
|
|
|
|
Balance, April 30, 2018
|
|
|
|
|
928,252
|
7.
Common Shares
Share Transactions for the Year Ended April 30, 2018
During the year ended April 30, 2018, the Company issued an aggregate of 60,128,290 common shares with a fair value of $1,506,541 upon the conversion of $280,481 of convertible debentures, $61,531 of accrued interest and $3,500 in conversion fees, as noted in Note 5.
On November 17, 2017, the Company effected a reverse stock split on a basis of 1 new common share for every 100 old common shares. The impact of the reverse stock split has been applied on a retroactive basis for all periods presented.
Share Transactions for the Year Ended April 30, 2017
During the year ended April 30, 2017, the Company issued an aggregate of 135,500 common shares with a fair value of $174,370 for professional services and consulting fees. Fair value was based on the closing market price on the date of issuance.
During the year ended April 20, 2017, the Company issued an aggregate of 2,269,584 common shares with a fair value of $953,338 upon the conversion of $211,151 of convertible debentures and $9,643 of accrued interest.
8.
Preferred Shares
Authorized: 10,000,000 preferred shares with a par value of $0.001 per share
Convertible Preferred Series A stock
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14
On April 18, 2017, the Company designated 500,000 shares of preferred stock as Series A. The holders of Series A preferred shares are entitled to receive dividends equal to the amount of the dividend or distribution per share of common stock payable multiplied by the number of shares of common stock the shares of Series A preferred shares held by such holder are convertible into. Each Series A preferred shares is convertible into one common share. Each holder of Series A preferred shares is entitled to cast 10,000 votes for every one Series A preferred share held.
On April 21, 2017, a company controlled by the President and Director of the Company converted 500,000 common shares to 500,000 shares of Series A preferred shares. The addition of new shares required the Company to fair value the new instrument. The 500,000 Series A preferred shares were deemed to have a fair value of $48,786 based upon the market control premium valuation estimated by management. The incremental value of the fair value of the Series A preferred shares over the carrying value of the previously held common shares at the date of the conversion in the amount of $48,786 is presented on the Statement of Operations as a deemed dividend. Additionally, the Company recorded a reduction to common stock and additional paid-in capital of $500 and recorded $500 in par value to the Convertible Preferred Series A shares.
9.
Subscriptions Receivable
As at April 30, 2017, 9,000 common shares with a fair value of $13,410 had been recorded in excess of the original agreements in error. Due to the fact that the shares were issued in error and that the Company intended on cancelling these shares, the amount receivable has been recorded in subscription receivable. During the year ended April 30, 2018, it was determined that the shares were not recoverable, and the amount receivable was written off in full.
10.
Commitments
On August 26, 2016, the Company entered in consulting agreements with five consultants. Pursuant to the agreements, each consultant is to be compensated by the following:
i)
10% commission on all net revenues derived by the Company through the consultant in the first year
ii)
5% commission on all net revenues derived by the Company through the consultant in year two and three
iii)
180,000 common shares payable on the date of the agreement (see Note 8(d))
iv)
180,000 common shares payable on February 26, 2016 (see Note 8(h))
v)
180,000 common shares payable on August 26, 2017 (see Note 8(h))
vi)
180,000 common shares payable on February 26, 2018 (see Note 8(h))
Either party may terminate the agreement by providing written thirty days’ notice.
As at April 30, 2018 and April 30, 2017, no commission has been earned, paid, or accrued.
11.
Revision of Prior Year Financial Statements
While preparing the financial statements for quarterly period ending July 31, 2017, the Company noted that there was an error with the calculation of the conversion price of the February 13, 2017 convertible debenture as described in Note 5(d) and accordingly, has revised its consolidated financial statements as at April 30, 2017 and for the year then ended to reflect the change in fair value of derivative liability during the period and the fair value of the derivative liability as at April 30, 2017. This revision resulted in a decrease to net loss of $169,730 and no change to net loss per share.
In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99,
Materiality
and Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
the Company has determined that the impact of adjustments relating to the correction of this accounting error are not material to previously issued annual
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15
audited consolidated financial statements. Accordingly, these changes are disclosed herein and will be disclosed prospectively.
The impact of the error as at April 30, 2017 and for the year then ended is summarized below:
Consolidated Balance Sheet
|
As at April 30, 2017
|
|
As previously reported
|
Adjustment
|
As revised
|
|
$
|
$
|
$
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Derivative liability
|
1,251,750
|
(169,700)
|
1,082,050
|
|
|
|
|
Total Current Liabilities
|
1,776,376
|
(169,700)
|
1,606,676
|
|
|
|
|
Total Liabilities
|
1,776,376
|
(169,700)
|
1,606,676
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
Deficit
|
(4,083,949)
|
169,700
|
(3,914,249)
|
|
|
|
|
Total Stockholders’ Equity
|
(1,718,985)
|
169,700
|
(1,549,285)
|
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16
Consolidated Statement of Operations and Comprehensive Loss
|
Year ended April 30, 2017
|
|
As previously reported
|
Adjustment
|
As revised
|
|
$
|
$
|
$
|
|
|
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
Loss on change in fair value of derivative liability
|
(1,549,642)
|
169,700
|
(1,379,942)
|
|
|
|
|
Total Other Income (Expenses)
|
(1,836,332)
|
169,700
|
(1,666,632)
|
|
|
|
|
Net loss for the year
|
(2,292,458)
|
169,700
|
(2,122,758)
|
|
|
|
|
Net loss attributable to common shareholders
|
(2,243,672)
|
169,700
|
(2,073,972)
|
|
|
|
|
Basic and diluted loss per share
|
(3.21)
|
0.24
|
(2.97)
|
Consolidated Statement of Stockholders’ Equity
|
Year ended April 30, 2017
|
|
As previously reported
|
Adjustment
|
As revised
|
|
$
|
$
|
$
|
|
|
|
|
Deficit
|
(4,083,949)
|
169,700
|
(3,914,249)
|
|
|
|
|
Stockholders’ Equity
|
(1,718,985)
|
169,700
|
(1,549,285)
|
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17
Consolidated Statement of Cash Flows
|
Year ended April 30, 2017
|
|
As previously reported
|
Adjustment
|
As revised
|
|
$
|
$
|
$
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
Net loss for the year
|
(2,292,458)
|
169,700
|
(2,122,758)
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Loss on change in fair value of derivative liability
|
(1,549,642)
|
169,700
|
(1,379,942)
|
12. Income Taxes
The Company has $1,960,918 of net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2030. The income tax benefit differs from the amount computed by applying the US federal income tax rate of 21% and the Canada federal and provincial tax rate of 26% to net loss before income taxes for the year ended April 30, 2018 and 2017 as a result of the following:
|
|
2018
$
|
2017
$
|
Net loss before taxes
|
|
(1,495,002)
|
(2,122,758)
|
Statutory rate
|
|
30%
|
34%
|
Computed expected tax recovery
|
|
(448,501)
|
(721,738)
|
Permanent differences and other
|
|
280,138
|
555,408
|
Effect of change in rate
|
|
249,203
|
–
|
Change in valuation allowance
|
|
(80,840)
|
166,330
|
Income tax provision
|
|
–
|
–
|
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18
The significant components of deferred income tax assets and liabilities as at April 30, 2018 and 2017 after applying enacted corporate income tax rates are as follows:
|
|
2018
$
|
2017
$
|
Net operating losses carried forward
|
|
438,822
|
519,662
|
Total gross deferred income tax assets
|
|
438,822
|
519,662
|
Valuation allowance
|
|
(438,822)
|
(519,662)
|
Net deferred tax asset
|
|
–
|
–
|
Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been offset by a valuation allowance. As at April 30, 2018, the Company has no uncertain tax positions.
13.
Subsequent Events
Subsequent to the year ended April 30, 2018, the Company has issued a total of 44,559,139 common shares for the conversion of $14,765 of convertible debentures, $4,107 of accrued interest, and $2,500 in conversion fees.
On February 19, 2019, Mr. Sargent entered into a Stock Purchase Agreement to sell his shares of Series A Preferred Stock, the closing of which is pending certain closing conditions, including, but not limited to the Company getting current with its SEC filings and restricting some of its outstanding debt
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