The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2019
(Stated in U.S. Dollars)
1. ORGANIZATION AND NATURE OF BUSINESS
Indigenous Roots Corp. (the "Company") was incorporated in the State of Nevada on July 20, 2006 and is listed on the OTCQB under the symbol “IRCC”.
On April 1, 2019, the Company acquired 100% of the issued and outstanding shares of Edison Power Company (‘Edison Power”), a Nevada corporation, in exchange for 6,849,239 common shares of the Company. Edison Power owns a 100% interest in Edison Delaware 2 LLC, a Delaware registered limited liability corporation that owns and operates a 140 kW/h solar power generating facility in Georgetown, Delaware. The facility was completed in March, 2019 and began generating power in April, 2019 (Note 3).
Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. At August 31, 2019 the Company had an accumulated deficit of $4,608,089 and a working capital deficiency of $122,439. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. The impact on the Company is not currently determinable but management continues to monitor the situation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States and are expressed in U.S. dollars.
(b) Principles of Consolidation
These financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are all entities (including structured entities) which the Company controls. For accounting purposes, control is established by an investor when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All inter-company balances and transactions are eliminated upon consolidation.
(c) Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires 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 amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance and trust funds to be cash equivalents.
(e) Impairment of Long-Lived Assets
The Company evaluates the recoverability of its fixed assets and other assets in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.
(f) Related Party Transactions
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions. In accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well as transactions that are eliminated in the preparation of financial statements.
(g) 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 provide that deferred 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 carry-forwards. Deferred 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 tax assets to the amount that is believed more likely than not to be realized.
(h) Foreign Currency Translation
The Company and its subsidiaries’ functional and reporting currency is the U.S. dollar. Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in the statement of operations.
(i) Financial Instruments and Fair Value Measures
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Financial Instruments and Fair Value Measures (continued)
Level 3 - applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, loans payable, amounts due to related parties and convertible loan payable. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
(j) 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”, using the fair value method. 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.
(k) Revenue
Pursuant to ASC 606, Revenue is derived from the generation of electricity utilizing the solar power generating system and collectivity is reasonably assured.
(l) Leases
Pursuant to ASC 842, transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. As of the date of this report, the Company has no material leases to report.
(m) Loss Per Share
The Company computes earnings (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 earnings (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 at August 31, 2019 the Company does not have any potentially dilutive shares.
(n) Comprehensive Loss
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.
(o) Recent Accounting Pronouncements
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2018-10 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(o) Recent Accounting Pronouncements (continued)
Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2018-10 is effective for private companies and emerging growth public companies for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. During the year ended August 31, 2019 the Company assessed the impact this guidance had on its financial statements and concluded that at present ASU No. 2018-10 has no impact on its financial statements.
3. ACQUISITION
On April 1, 2019, the Company acquired 100% of the issued and outstanding shares of Edison Power, a Nevada corporation, in exchange for 6,849,239 common shares of the Company. Edison Power owns a 100% interest in Edison Delaware 2 LLC, a Delaware registered limited liability corporation that owns and operates a 140 kW/h solar power generating facility in Georgetown, Delaware. The facility was completed in March, 2019 and began generating power in April, 2019. The transaction has been accounted for as an asset acquisition as Edison Power did not have inputs, processes and outputs in place that constituted a business under ASC 805 Business Combinations. The total consideration paid was allocated to the assets and liabilities acquired based on relative fair values:
Consideration:
|
|
|
|
Issuance of 6,849,239 common shares (Note 8)
|
|
$
|
63,450
|
|
|
|
|
63,450
|
|
Fair value of assets and liabilities acquired:
|
|
|
|
|
Accounts receivable
|
|
|
63,450
|
|
Solar power system (Note 4)
|
|
|
809,300
|
|
Loan payable (Note 6)
|
|
|
(809,300
|
)
|
|
|
$
|
63,450
|
|
4. FIXED ASSETS
Fixed assets are recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.
Fixed assets consist of the following:
|
|
Useful
Life
|
|
Balance at
August 31, 2018
$
|
|
|
Additions
$
|
|
|
Accumulated Depreciation
$
|
|
|
Balance at
August 31,
2019
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar Power System
|
|
20 years
|
|
|
-
|
|
|
|
816,085
|
|
|
|
(16,993
|
)
|
|
|
799,092
|
|
|
|
|
|
|
-
|
|
|
|
816,085
|
|
|
|
(16,993
|
)
|
|
|
799,092
|
|
4. FIXED ASSETS (continued)
On April 1, 2019, the Company acquired the solar power system through the acquisition of Edison Power at a fair value of $809,300 (Note 3). The Company capitalized accrued interest on the loan payable of $6,785 to the solar power system during construction (Note 6).
5. RELATED PARTY TRANSACTIONS
As at August 31, 2019, the Company owed $58,914 (August 31, 2018 - $53,960) to a former President of the Company for cash advances made to the Company. The debt is unsecured, bears no interest and is payable on demand.
As at August 31, 2019, the Company owed $27,323 (August 31, 2018 - $21,323) to the Controller of the Company for cash and services provided to the Company. The debt is unsecured, bears no interest and is payable on demand.
During the year ended August 31, 2019, the Company accrued $6,000 (August 31, 2018 - $Nil) in accounting fees to the Controller of the Company.
6. LOAN PAYABLE
On June 15, 2018, the Company issued a promissory note to Sustainable Energy Utility Inc. (“SEU”) in the amount of $981,500. As at August 31, 2019, SEU had advance the principle amount of $803,520. The promissory note bears an interest rate of 2% per annum and is payable in monthly installments of $4,161 including principle and interest for 240 months commencing January 1, 2020. The funds were advanced to the Company for the construction of a solar power electricity generating system. The loan is secured by a promissory note, a first priority security interest on the system and an assignment of a Power Purchase Agreement.
Loan payable (Note 3)
|
|
$
|
809,300
|
|
Capitalized interest
|
|
|
6,785
|
|
Loan payable as at August 31, 2019
|
|
$
|
816,085
|
|
|
|
|
|
|
Current portion of loan payable
|
|
$
|
33,293
|
|
Long term portion of loan payable
|
|
$
|
782,792
|
|
As at August 31, 2019, principal amount of $803,520 was advanced to the Company and $12,565 in interest was accrued on the loan, due and payable in January 2040. The loan is secured by a promissory note, a first priority security interest on the system, an assignment of a Power Purchase Agreement and the corporate guarantee of Edison Power Company.
7. CONVERTIBLE LOAN
On April 22, 2010, and as amended December 17, 2010, the Company entered into an agreement with Monaco Capital Inc. (“the Lender”), a majority shareholder at the time, for a principal amount of up to $5,000,000. The loan is unsecured and bears interest at the rate of 10% per annum calculated on the principal balance. The Company may at any time during the term of the loan prepay any sum up to the full amount of the loan and accrued interest then outstanding at any time for the sum plus an additional 10% of such amount. The loan (including accrued interest) is convertible into securities of the Company at a conversion price calculated as the mean volume weighted average price for the Company’s common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. At any time after the advancement date, if the Company has not paid the loan and accrued interest in full, the Lender may, by providing written notice to the Company, exercise its rights of conversion in respect of either a portion of the total outstanding amount of the loan as of that date into shares of the Company. The amounts advanced plus accrued interest are due one year following the date advanced.
During the year ended August 31, 2019, the Company incurred $48,350 (2018 - $97,773) in interest on the loan. On February 28, 2019, the obligation to repay the debt reached the Statute of Limitations, the Company reversed the debt and the corresponding accrued interest of $1,756,938.
8. STOCKHOLDERS’ DEFICIT
Share Issuances
During the year ended August 31, 2018, the Company issued 125,000 common shares at a price of CDN $4 per share pursuant to share subscriptions previously received in 2012 for the amount of $476,191.
During the year ended August 31, 2018, the Company issued 300,000 common shares at a price of $0.10 per share, for cash proceeds of $30,000
During the year ended August 31, 2018, the Company issued 200,000 common shares with a fair value of $210,000 to a company owned by a former officer and director for services.
The Company issued 6,739,739 common shares on April 1, 2019 and 109,500 on July 3, 2019 pursuant to the terms of a Share Exchange Agreement with the shareholders of Edison Power Company (Note 3).
9. INCOME TAXES
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
|
August 31,
2019
|
|
|
August 31,
2018
|
|
Net income (loss)
|
|
$
|
1,677,096
|
|
|
$
|
(425,387
|
)
|
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Expected income tax recovery
|
|
|
352,190
|
|
|
|
(89,331
|
)
|
Effect of change in tax rates
|
|
|
-
|
|
|
|
318,163
|
|
Change in valuation allowance
|
|
|
(352,190
|
)
|
|
|
(228,832
|
)
|
Income tax recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s tax-effected deferred tax assets and liabilities are estimated as follows:
|
|
August 31,
2019
|
|
|
August 31,
2018
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
211,410
|
|
|
$
|
567,168
|
|
Fixed assets
|
|
|
3,569
|
|
|
|
-
|
|
Less: Valuation allowance
|
|
|
(214,978
|
)
|
|
|
(567,168
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At August 31, 2019, the Company has a deferred tax asset. A full valuation allowance has been established as management believes it is more likely that not that the deferred tax asset will not be realized.
As at August 31, 2019, the Company has non-capital losses of approximately $1,006,713 that may be carried forward and applied against federal and state taxable income of future years. The non-capital losses may be carried forward and expire between 2027 and 2038.
Tax attributes are subject to review, and potential adjustment by tax authorities.
10. SUBSEQUENT EVENT
On December 1, 2019, the Company acquired all of the issued and outstanding shares of Edison Power Corporation (“EPC”) in exchange for cash of $10. EPC was federally incorporated in Canada on April 13, 2015. EPC has no equity and has not generated any revenue since inception.