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, 2021
(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 substantially completed in March, 2019 and began generating power in April, 2019 (Note 3).
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.
Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. At August 31, 2021 the Company had an accumulated deficit of $5,631,953 and a working capital deficiency of $1,080,003. 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. Due to its inability to meet its debt obligation, the Company may have to forfeit ownership of the Solar Power System and thus lose its only revenue producing asset. 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. There has been no immediate impact on the Company and the future impact is currently not 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 useful life of fixed asset 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.
24
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.
25
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, loan payable, and amounts due to related parties. 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, 2021 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
None.
26
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 substantially 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
|
$
|
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 consist of the following:
|
Useful Life
|
|
Balance at
August 31, 2020
$
|
|
|
Additions
$
|
|
|
Accumulated Depreciation and Impairment
$
|
|
|
Balance at
August 31, 2021
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar Power System
|
20 years
|
|
829,456
|
|
|
-
|
|
|
(829,456
|
)
|
|
-
|
|
|
|
|
829,456
|
|
|
-
|
|
|
(829,456
|
)
|
|
-
|
|
On April 1, 2019, the Company acquired the solar power system through the acquisition of Edison Power. For the year ended August 31, 2021, the Company recognized an impairment loss of $729,780 relating to the Solar Power System (the "System"). The Company was in default of its payments to the note holder - Delaware Sustainable Energy Utility ("DSEU"). DSEU called for full payment of the note and took control of the System and all revenues generated by the System. The Company will not realize any future revenue from the System, is unable to bring the payments current and will not contest DSEU's action.
27
5. RELATED PARTY TRANSACTIONS
As at August 31, 2021, the Company owed $466,435 (August 31, 2020 - $nil) to a related party of the Company for cash provided to the Company. The debt is unsecured, bears no interest and is payable on demand.
As at August 31, 2021, the Company owed $43,615 (August 31, 2020 - $37,615) 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, 2021, the Company accrued $6,000 (August 31, 2020 - $6,000) in accounting fees to the Controller of the Company.
On April 2, 2021, the Company issued 500,000 common shares to the President of the Company in exchange for services rendered. The shares were valued at $0.10 per share.
6. LOAN PAYABLE
On June 15, 2019, the Company issued a promissory note to SEU in the amount of $981,500. As at August 31, 2021, SEU had advanced the principal 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 principal and interest for 240 months commencing January 1, 2020. The loan matures in January 2040. The funds were advanced to the Company for the construction of a solar power electricity generating system.
Loan payable as at August 31, 2020
|
$
|
833,100
|
|
Interest expense
|
|
17,827
|
|
Default interest expense
|
|
30,428
|
|
Late charge
|
|
24,786
|
|
Loan payable as at August 31, 2021
|
$
|
906,142
|
|
The loan is secured by a promissory note, a first priority security interest on the solar power system, an assignment of a Power Purchase Agreement and the corporate guarantee of Edison Power Company. On September 1, 2020, SEU called for full payment of the loan due to payment arrears and the loan is now in default. The Company does not expect to make any further payments and as such SEU will be exercising its right to take ownership of the pledged assets. As at the date of filing, the negotiation between the Company and SEU is in progress. The Company has reclassified the loan as a current liability.
7. COMMON STOCK
Share Issuances
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).
On April 2, 2021, the Company issued 500,000 common shares to the President of the Company in exchange for services rendered. The shares were valued at $0.10 per share.
28
8. 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, 2021
|
|
|
August 31, 2020
|
|
Net income (loss)
|
$
|
(917,437
|
)
|
$
|
(106,427
|
)
|
|
|
21.0%
|
|
|
21.0%
|
|
Expected income tax recovery
|
|
192,662
|
|
|
22,350
|
|
Effect of change in tax rates
|
|
-
|
|
|
-
|
|
Change in valuation allowance
|
|
(192,662
|
)
|
|
(22,350
|
)
|
Income tax recovery
|
$
|
-
|
|
$
|
-
|
|
The Company's tax-effected deferred tax assets and liabilities are estimated as follows:
|
|
August 31, 2021
|
|
August 31, 2020
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
$
|
1,142,542
|
|
$
|
225,105
|
|
Fixed assets
|
|
-
|
|
|
12,223
|
|
Less: Valuation allowance
|
|
((1,142,542
|
)
|
|
(237,328
|
)
|
Net deferred income tax assets
|
$
|
-
|
|
$
|
-
|
|
At August 31, 2021, 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, 2021, the Company has non-capital losses of approximately $1,071,931 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 2032 and 2040.
Tax attributes are subject to review, and potential adjustment by tax authorities.
10. SUBSEQUENT EVENT
On October 15, 2021, a majority of the shareholders of the Company consented in writing to effectuate a spin-off of Edison Power Corp. ("EPC"), the Company's wholly-owned subsidiary.
Once effectuated, the Spin-Off of EPC would result in the Company's Common stockholders, on October 22, 2021 (the "Record Date"), owning one half share of the Common Stock of EPC for each one share owned of the Common Stock of the Company. The Spin-Off will result in the issuance of 7,543,428 shares of the Company being issued at a par value of 7,543.
29