Nature
and Continuance of Operations (Note 1)
Contingent
Liabilities (Note 12)
The
accompanying notes are an integral part of these interim consolidated financial statements
VOIP-PAL.com
Inc.
INTERIM
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Unaudited
– prepared by management)
(Expressed
in U.S. Dollars)
|
|
Three
Months Ended
December
31, 2019
|
|
|
Three
Months Ended December 31, 2018
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
(Note 6 & 7)
|
|
$
|
34,739
|
|
|
$
|
34,739
|
|
Officers
and Directors fees (Note 8)
|
|
|
82,080
|
|
|
|
290,600
|
|
Legal
fees
|
|
|
376,938
|
|
|
|
237,408
|
|
Office
& general
|
|
|
43,263
|
|
|
|
74,287
|
|
Patent
consulting fees
|
|
|
8,307
|
|
|
|
43,675
|
|
Professional
fees & services
|
|
|
429,100
|
|
|
|
110,694
|
|
Stock-based
compensation (Note 11)
|
|
|
-
|
|
|
|
5,080,000
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
974,427
|
|
|
|
5,871,403
|
|
|
|
|
|
|
|
|
|
|
LOSS
AND COMPREHENSIVE LOSS FOR THE PERIOD
|
|
$
|
(974,427
|
)
|
|
$
|
(5,871,403
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
1,962,475,418
|
|
|
|
1,690,841,578
|
|
The
accompanying notes are an integral part of these interim consolidated financial statements
VOIP-PAL.com
Inc.
INTERIM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited
– prepared by management)
(Expressed
in U.S. Dollars)
|
|
Three
Months Ended December 31, 2019
|
|
|
Three
months Ended December 31, 2018
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(974,427
|
)
|
|
$
|
(5,871,403
|
)
|
Add items not affecting
cash:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
5,080,000
|
|
Shares issued for
services
|
|
|
330,000
|
|
|
|
307,500
|
|
Amortization
|
|
|
34,739
|
|
|
|
34,739
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Retainer
|
|
|
520,139
|
|
|
|
(13,701
|
)
|
Accounts payable
and accrued liabilities
|
|
|
(486,666
|
)
|
|
|
(18,779
|
)
|
Prepaid
expense
|
|
|
5,750
|
|
|
|
-
|
|
Cash Flows Used
in Operations
|
|
|
(570,465
|
)
|
|
|
(481,644
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Acquisition
of fixed assets
|
|
|
-
|
|
|
|
(11,917
|
)
|
Cash Flows Used
in Investing Activities
|
|
|
-
|
|
|
|
(11,917
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from private
placement
|
|
|
-
|
|
|
|
90,000
|
|
Proceeds
from warrant exercise
|
|
|
-
|
|
|
|
252,240
|
|
Cash Flows Provided
by Financing Activities
|
|
|
-
|
|
|
|
342,240
|
|
|
|
|
|
|
|
|
|
|
Increase / (Decrease) in cash
|
|
|
(570,465
|
)
|
|
|
(151,321
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of the period
|
|
|
960,490
|
|
|
|
3,175,523
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the period
|
|
$
|
390,025
|
|
|
$
|
3,024,202
|
|
Supplemental
cash flow information (Note 9)
The
accompanying notes are an integral part of these interim consolidated financial statements
VOIP-PAL.com
Inc.
INTERIM
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited
– prepared by management)
(Expressed
in U.S. dollars)
|
|
Common
Shares
|
|
|
Shares
to be Issued
|
|
|
Additional
Paid-in
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
at September 30, 2018
|
|
|
1,575,001,801
|
|
|
$
|
1,276,653
|
|
|
$
|
477,320
|
|
|
$
|
45,198,281
|
|
|
$
|
(42,648,364
|
)
|
|
$
|
4,303,890
|
|
Shares issued for private
placement
|
|
|
2,250,000
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
87,750
|
|
|
|
-
|
|
|
|
90,000
|
|
Shares issued for warrant exercise
|
|
|
6,306,000
|
|
|
|
6,306
|
|
|
|
-
|
|
|
|
245,934
|
|
|
|
-
|
|
|
|
252,240
|
|
Shares issued for services
|
|
|
12,237,500
|
|
|
|
12,238
|
|
|
|
18,000
|
|
|
|
277,262
|
|
|
|
-
|
|
|
|
307,500
|
|
Shares issued for bonus
compensation (Note 11)
|
|
|
127,000,000
|
|
|
|
127,000
|
|
|
|
-
|
|
|
|
4,953,000
|
|
|
|
-
|
|
|
|
5,080,000
|
|
Shares issued for Anti-Dilution
Clause (Notes 4,8 & 10)
|
|
|
225,184,791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,871,403
|
)
|
|
|
(5,871,403
|
)
|
Balance
at December 31, 2018
|
|
|
1,947,980,092
|
|
|
$
|
1,424,447
|
|
|
$
|
495,320
|
|
|
$
|
50,762,227
|
|
|
$
|
(48,519,767
|
)
|
|
$
|
4,162,227
|
|
Shares issued for private
placement
|
|
|
3,225,000
|
|
|
|
3,225
|
|
|
|
-
|
|
|
|
125,775
|
|
|
|
-
|
|
|
|
129,000
|
|
Shares issued for services
|
|
|
5,172,500
|
|
|
|
5,172
|
|
|
|
(18,000
|
)
|
|
|
654,778
|
|
|
|
-
|
|
|
|
641,950
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,201,929
|
)
|
|
|
(3,201,929
|
)
|
Balance
at September 30, 2019
|
|
|
1,956,377,592
|
|
|
$
|
1,432,844
|
|
|
$
|
477,320
|
|
|
$
|
51,542,780
|
|
|
$
|
(51,721,696
|
)
|
|
$
|
1,731,248
|
|
Shares issued for services
|
|
|
13,000,000
|
|
|
|
13,000
|
|
|
|
-
|
|
|
|
317,000
|
|
|
|
-
|
|
|
|
330,000
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(974,427
|
)
|
|
|
(974,427
|
)
|
Balance
at December 31, 2019
|
|
|
1,969,377,592
|
|
|
$
|
1,445,844
|
|
|
$
|
477,320
|
|
|
$
|
51,689,780
|
|
|
$
|
(52,696,123
|
)
|
|
$
|
1,086,821
|
|
The
accompanying notes are an integral part of these interim consolidated financial statements
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
1. NATURE AND CONTINUANCE OF OPERATIONS
VOIP-PAL.com,
Inc. (the “Company”) was incorporated in the state of Nevada in September 1997 as All American Casting International,
Inc. The Company’s registered office is located at 10900 NE 4th Street, Suite 2300, Bellevue, Washington in the
United States of America.
Since
March 2004, the Company has developed technology and patents related to Voice-over-Internet Protocol (VoIP) processes. All business
activities prior to March 2004 have been abandoned and written off to deficit. The Company operates in one reportable segment
being the acquisition and development of VoIP-related intellectual property including patents and technology. All intangible assets
are located in the United States of America
In
December 2013, the Company completed the acquisition of Digifonica (International) Limited, a private company controlled by the
CEO of the Company, whose assets included several patents and technology developed for the VoIP market.
These
consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets
and discharge of liabilities in the normal course of business. The Company is in various stages of product development and continues
to incur losses and, at December 31, 2019, had an accumulated deficit of $52,696,123 (September 30, 2019 - $51,721,696). The ability
of the Company to continue operations as a going concern is dependent upon raising additional working capital, settling outstanding
debts and generating profitable operations. These material uncertainties raise substantial doubt about the Company’s ability
to continue as a going concern. Should the going concern assumption not continue to be appropriate, further adjustments to carrying
values of assets and liabilities may be required. There can be no assurance that capital will be available as necessary to meet
these continued developments and operating costs or, if the capital is available, that it will be on the terms acceptable to the
Company. The issuances of additional stock by the Company may result in a significant dilution in the equity interests of its
current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s liabilities
and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, its business
and future success may be adversely affected.
Additionally,
as the Company’s stated objective is to monetize its patent suite through the licensing or sale of its intellectual property
(“IP”), the Company being forced to litigate or to defend its IP claims through litigation casts substantial doubt
on its future to continue as a going concern. IP litigation is generally a costly process, and in the absence of revenue the Company
must raise capital to continue its own defense and to validate its claims – in the event of a failure to defend its patent
claims, either because of lack of funding, a court ruling against the Company or because of a protracted litigation process, there
can be no assurance that the Company will be able to raise additional capital to pay for an appeals process or a lengthy trial.
The outcome of any litigation process may have a significant adverse effect on the Company’s ability to continue as a going
concern.
NOTE
2. BASIS OF PRESENTATION
The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“US GAAP”). Certain comparable balances have been reclassified to conform to current
year presentation.
NOTE
3. SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
These
consolidated financial statements have been prepared on a consolidated basis and include the accounts of the Company and its wholly
owned subsidiary Digifonica. All intercompany transactions and balances have been eliminated. As at December 31, 2019, Digifonica
had no activities.
Use
of Estimates
The
preparation of these consolidated financial statements required management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates. Where estimates have been used, financial results as determined
by actual events could differ from those estimates.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Cash
Cash
consists of cash on hand, cash held in trust, and monies held in checking and savings accounts. The Company had $390,025 in cash
on December 31, 2019 (September 30, 2019 - $960,490).
Fixed
Assets
Fixed
assets are stated at cost less accumulated depreciation, and depreciated using the straight-line method over their useful lives;
Furniture and computers – 7 years.
Intangible
Assets
Intangible
assets, consisting of VoIP communication patent intellectual properties (IP) are recorded at cost and amortized over the assets
estimated life on a straight-line basis. Management considers factors such as remaining life of the patents, technological usefulness
and other factors in estimating the life of the assets.
The
carrying value of intangible assets are reviewed for impairment by management of the Company at least annually or upon the occurrence
of an event which may indicate that the carrying amount may be less than its fair value. If impaired, the Company will write-down
such impairment. In addition, the useful life of the intangible assets will be evaluated by management at least annually or upon
the occurrence of an event which may indicate that the useful life may have changed.
Fair
Value of Financial Instruments
FASB
ASC 820, Fair Value Measurement, defines fair value as the price that would be received upon sale of an asset or paid upon transfer
of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous
market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use
in pricing the asset or liability, not on assumptions specific to the entity.
The
Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables
or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value
on their initial recognition, except for those arising from certain related party transactions which are accounted for at the
transferor’s carrying amount or exchange amount.
Financial
assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income.
Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified
as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified
as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income
until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.
U.S.
GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures
about fair value measurements. Fair value is defined as the amount that would be received for an asset or paid to transfer a liability
(i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Level
1: Quoted prices in active markets for identical assets and liabilities.
Level
2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
Level
3: Unobservable inputs supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The
fair value of cash is classified as Level 1 at December 31, 2019 and September 30, 2019.
The
Company classifies its financial instruments as follows: Cash is classified as held for trading and is measured at fair value.
Accounts payable and accrued liabilities are classified as other financial liabilities, and have a fair value approximating their
carrying value, due to their short-term nature.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Income
Taxes
Deferred
income taxes have been provided for temporary differences between financial statement and income tax reporting under the asset
and liability method, using expected tax rates and laws that are expected to be in effect when the differences are expected to
reverse. A valuation allowance is provided when realization is not considered more likely than not.
The
Company’s policy is to classify income tax assessments, if any, for interest expense and for penalties in general and administrative
expenses. The Company’s income tax returns are subject to examination by the IRS and corresponding states, generally for
three years after they are filed.
Loss
per Common Share
Basic
loss per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted income
per share includes potentially dilutive securities such as outstanding options and warrants outstanding during each period. To
calculate diluted loss per share the Company uses the treasury stock method and the If-converted method.
For
the period ended December 31, 2019 and the year ended September 30, 2019 there were no potentially dilutive securities included
in the calculation of weighted-average common shares outstanding.
Derivatives
We
account for derivatives pursuant to ASC 815, Accounting for Derivative Instruments and Hedging Activities. All derivative
instruments are recognized in the consolidated financial statements and measured at fair value regardless of the purpose or intent
for holding them. We determine fair value of warrants and other option type instruments based on option pricing models. The changes
in fair value of these instruments are recorded in income or expense.
Stock-based
compensation
The
Company recognizes compensation expense for all stock-based payments made to employees, directors and others based on the estimated
fair values of its common stock on the date of issuance.
The
Company determines the fair value of the share-based compensation payments granted as either the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity
instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either
the date at which a commitment for performance to earn the equity instrument is reached or the date the performance is complete.
The
Company recognizes compensation expense for stock awards with service conditions on a straight-line basis over the requisite service
period, which is included in operations. Stock option expense is recognized over the option’s vesting period.
Concentrations
of Credit Risk
The
Company’s policy is to maintain cash with reputable financial institutions or in retainers with trusted vendors. The Company
has at times had cash balances at financial institutions in excess of the Federal Deposit Insurance Corporation (FDIC) Insurance
Limit of $250,000, but has not experienced any losses to date as a result. As of December 31, 2019, the Company’s bank operating
account balances did not exceed the FDIC Insurance Limit.
Recent
Accounting Pronouncements and Adoption
In
January 2016, FASB issued an ASU, Subtopic 825-10, to amend certain aspects of recognition, measurement, presentation, and disclosure
of financial instruments. Most prominent among the amendments is the requirement for changes in fair value of equity investments,
with certain exceptions, to be recognized through profit or loss rather than other comprehensive income. The Company adopted the
standard October 1, 2018. There was no impact on the Company’s financial statements from the adoption of this amendment.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recent
Accounting Pronouncements and Adoption (cont’d)
In
February 2016 FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides
principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and the lessors. The new
standard requires the lessees to apply a dual approach, classifying leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase by the lessee. The classification will determine whether
lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively.
A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve
months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance
for operating leases. The standard is effective for annual periods beginning after December 15, 2018, with early adoption permitted
upon issuance. The adoption of this guidance had no material impact on the financial statements.
In
June 2016, the FASB issued ASU 2016-13 to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
inform credit loss credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company
will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses
which reflects losses that are probable. Credit losses relating to available for sale debt securities will also be recorded through
an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard will
be effective for the Company beginning October 1, 2020, with early adoption permitted. Application of the amendments is through
a cumulative-effect adjustment to deficit as of the effective date. The Company is currently assessing the impact of the standard
on its consolidated financial statements.
NOTE
4. PURCHASE OF DIGIFONICA
The
Company acquired Digifonica in December 2013. Pursuant to the terms in the Share Purchase Agreement (the “SPA”) the
Company acquired 100% of Digifonica from the seller, the CEO of the Company (the “Seller”), for a cash payment of
$800,000 and 389,023,561 common shares of the Company. The assets acquired through the acquisition were VoIP-related patented
technology, including patents for Lawful Intercept, routing, billing and rating, mobile gateway, advanced interoperability solutions,
intercepting voice over IP communications, and uninterrupted transmission of internet protocol transmissions during endpoint changes.
The
SPA included an anti-dilution clause (the “Anti-Dilution Clause”) that requires the Company to maintain the Seller’s
percentage ownership of the Company at 40% by issuing the Seller a proportionate number of common shares of any future issuance
of the Company’s common shares. Shares issued pursuant to the Anti-Dilution Clause are recorded as a share issuance cost
within the Additional Paid-in Capital account (Notes 8 and 10).
NOTE
5. RETAINER
The
Company has retainers with several of its professional service providers. The balance due on these prepaid retainers was $277,542
as of December 31, 2019 and $797,681 for the year ended September 30, 2019. The Company recognizes the expense from these retainers
as they are invoiced and the invoiced charges are deducted from the various providers’ prepaid retainer balances.
NOTE
6. FIXED ASSETS
A
summary of the Company’s fixed assets as of December 31, 2019 and September 30, 2019 is as follows:
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
Office
furniture & computers
|
|
$
|
11,917
|
|
|
$
|
11,917
|
|
Accumulated
depreciation
|
|
|
(941
|
)
|
|
|
(752
|
)
|
Net
book value
|
|
$
|
10,976
|
|
|
$
|
11,165
|
|
There
were no retirements of any fixed assets in the periods presented.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
7. INTANGIBLE ASSETS
The
Company acquired certain patents and technology from Digifonica in December 2013 (see Note 4). These assets have been recorded
in the financial statements as intangible assets. These assets are being amortized over twelve (12) years on a straight-line basis.
A summary of intangible assets as of December 31, 2019 and September 30, 2019 is as follows:
|
|
December
31, 2019
|
|
|
September
30, 2019
|
|
VoIP
Intellectual property and patents
|
|
$
|
1,552,416
|
|
|
$
|
1,552,416
|
|
Accumulated
amortization
|
|
|
(807,616
|
)
|
|
|
(773,066
|
)
|
Net
book value
|
|
$
|
774,800
|
|
|
$
|
779,350
|
|
There
were no disposals of any intangible assets in the periods presented.
NOTE
8. RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT COMPENSATION
The
Company compensates certain of its key management personnel to operate its business in the normal course. Key management includes
the Company’s executive officers and members of its Board of Directors.
Compensation
paid or accrued to key management for services during the three-month period ended December 31, 2019 includes:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Management
fees paid or accrued to the CEO
|
|
$
|
36,000
|
|
|
$
|
36,000
|
|
Management
fees paid or accrued to the CFO
|
|
|
28,080
|
|
|
|
21,600
|
|
Management
fees paid or accrued to the President
|
|
|
-
|
|
|
|
15,000
|
|
Fees
paid or accrued to Directors
|
|
|
18,000
|
|
|
|
18,000
|
|
|
|
$
|
82,080
|
|
|
$
|
90,600
|
|
During
the three-month period ended December 31, 2019 the Company issued $Nil (2018 – 1,650,000) common shares for a value of $Nil
(2018 - $66,000), accrued nil (2018 – 450,000) common shares to be issued valued at $nil (2018 – $18,000), accrued
$54,000 (2018 - $nil) and paid cash of $28,080 (2018 - $6,600) for key management compensation totaling $82,080 (2018 - $90,600)
as shown in the above table. At December 31, 2019, included in accounts payable and accrued liabilities is $234,000 (September
30, 2019 - $180,000) owed to current officers and directors.
As
at December 31, 2019, included in shares to be issued is $416,000 (September 30, 2019 - $416,000) for unpaid Director fees. As
at December 31, 2019, 14,265,000 (September 30, 2019 – 5,598,333) common shares are accrued to the Seller of Digifonica
for the Anti-Dilution Clause. Nil common shares were issued during the period ended December 31, 2019 (September 30, 2019 –
225,184,791) to the Seller of Digifonica pursuant to the Anti-Dilution Clause (Notes 4 and 10).
NOTE
9. SUPPLEMENTAL CASH FLOW INFORMATION
During
the period ended December 31, 2019, the Company paid $nil (September 30, 2019 - $nil) in interest or income taxes.
There
were no non-cash investing or financing transactions during the period ended December 31, 2019.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
10. SHARE CAPITAL
Capital
Stock Authorized and Issued:
|
—
|
3,000,000,000
(September 30, 2019 – 3,000,000,000) common voting shares authorized with a par
value of $0.001 each, of which 1,969,377,592 (September 30, 2019 – 1,956,377,592)
shares are issued.
|
|
|
|
|
—
|
1,000,000
convertible preferred shares authorized with a par value of $0.01 each, of which nil
(2018 – nil) shares are issued.
|
Issues
during the three-month period ended December 31, 2019
During
the three-month period ended December 31, 2019, the Company issued 13,000,000 common shares for services with a value of $330,000.
Issues
during the year ended September 30, 2019
During
the year ended September 30, 2019, the Company issued:
|
—
|
5,475,000
common shares priced at $0.04 per share for cash proceeds of $219,000 from a private
placement of common shares;
|
|
|
|
|
—
|
6,306,000
common shares priced at $0.04 per share for cash proceeds of $252,240 from the exercise
of 6,306,000 warrants;
|
|
|
|
|
—
|
17,410,000
common shares priced between $0.02 and $0.04 per common share for services with an aggregate
value of $949,450.
|
|
|
|
|
—
|
127,000,000
common shares issued as bonus compensation, recorded as an expense to the Company of
$5,080,000 (Note 13); and
|
|
|
|
|
—
|
225,184,791
common pursuant to the Anti-Dilution Clause (Note 4 and 8).
|
Subsequent
Issues
None.
Shares
to be Issued
As
at December 31, 2019, there are 12,817,523 (September 30, 2019 – 12,817,523) common shares to be issued that are accrued
for services provided to the Company valued at $477,320 (September 30, 2019– $477,320), of which 10,840,000 (September 30,
2019– 10,840,000) valued at $416,000 (September 30, 2019 - $416,000) are accrued to management and related parties (see
Note 8).
As
at December 31, 2019, there are 14,265,000 (September 30, 2019 – 5,598,333) common shares to be issued that are accrued
to the seller of Digifonica pursuant to the Anti-Dilution Clause (see Notes 4 and 8).
Warrants
During
the year ended September 30, 2019, 6,306,000 common share purchase warrants were exercised to purchase 6,306,000 common shares
in the capital stock of the Company at a price of $0.04 per common share.
During
the period ended December 31, 2019, the Company issued no new warrants.
As
of December 31, 2019, there were no outstanding warrants to be exercised.
The
following table summarizes the Company’s share purchase warrant transactions:
|
|
Number
of
warrants
|
|
|
Weighted
average
exercise price
|
|
Balance
September 30, 2018
|
|
|
6,306,000
|
|
|
$
|
0.04
|
|
Issued
|
|
|
Nil
|
|
|
|
N/A
|
|
Exercised
|
|
|
(6,306,000
|
)
|
|
|
0.04
|
|
Expired
|
|
|
Nil
|
|
|
|
N/A
|
|
Balance
September 30, 2019
|
|
|
Nil
|
|
|
|
N/A
|
|
Issued
|
|
|
Nil
|
|
|
|
N/A
|
|
Exercised
|
|
|
Nil
|
|
|
|
N/A
|
|
Expired
|
|
|
Nil
|
|
|
|
N/A
|
|
Balance
December 31, 2019
|
|
|
Nil
|
|
|
|
N/A
|
|
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
11. STOCK-BASED COMPENSATION
Stock
Option Plan
In
order to provide incentive to directors, officers, management, employees, consultants and others who provide services to the Company
or any subsidiary (the “Service Providers”) to act in the best interests of the Company, and to retain such Service
Providers, the Company has in place an incentive Stock Option Plan (the “Plan”) whereby the Company is authorized
to issue up to 10% of its issued and outstanding share capital in options to purchase common shares of the Company. The maximum
term of options granted under the Plan cannot exceed ten years, with vesting terms determined at the discretion of the Board of
Directors.
The
following table summarizes the Company’s stock option transactions:
|
|
Number
of options
|
|
|
Weighted
average
exercise
price
|
|
Balance
September 30, 2018
|
|
|
39,850,000
|
|
|
$
|
0.058
|
|
Granted
|
|
|
10,000,000
|
|
|
|
0.065
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Balance
September 30, 2019
|
|
|
49,850,000
|
|
|
$
|
0.060
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Balance
December 31, 2019
|
|
|
49,850,000
|
|
|
$
|
0.060
|
|
The
following table summarizes the stock options outstanding at December 31, 2019:
Options
Outstanding
|
|
|
Exercise
Price
|
|
|
Remaining
Contractual
Life (Yrs)
|
|
|
Number
of Options
Currently
Exercisable
|
|
|
14,000,000
|
|
|
$
|
0.060
|
|
|
|
1.48
|
|
|
|
14,000,000
|
|
|
14,000,000
|
|
|
|
0.060
|
|
|
|
1.69
|
|
|
|
14,000,000
|
|
|
3,450,000
|
|
|
|
0.060
|
|
|
|
1.82
|
|
|
|
3,450,000
|
|
|
8,400,000
|
|
|
|
0.050
|
|
|
|
2.3
|
|
|
|
8,400,000
|
|
|
10,000,000
|
|
|
|
0.065
|
|
|
|
3.98
|
|
|
|
-
|
|
|
49,850,000
|
|
|
$
|
0.059
|
|
|
|
2.20
|
|
|
|
39,850,000
|
|
There
were no stock options granted or exercised or that vested during the three-month periods ended December 31, 2019 and 2018.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
12. CONTINGENT LIABILITIES
Patent
Litigation
The
Company is party to patent and patent-related litigation cases as follows:
i)
|
Voip-Pal.com
Inc. v. Apple, Inc. (Case No. 2:16-CV-00260) & Verizon Wireless Services, LLC, Verizon
Communications Inc., AT&T Corp. (Case No. 2:16-CV-00271) in the United States District
Court, District of Nevada
|
In
February 2016 the Company filed patent infringement lawsuits in the United States District Court, District of Nevada against Apple,
Inc, (Case No. 2:16-CV-00260), Verizon Wireless Services, LLC, Verizon Communications Inc., and AT&T Corp. (Case No. 2:16-CV-00271).
These cases are seeking a combined $7,024,377,876 in damages. On May 9, 2016, the lawsuits were officially served to these companies
(collectively, the “Defendants”).
In
August, 2018, the cases were consolidated under one lawsuit, and transferred to the U.S. District Court for the Northern District
of California, where they were renamed as Case Nos. 5:18-cv-06217-LHK and 5:18-cv-06054-LHK. The Defendants filed a Motion to
Dismiss the cases, asserting an “Alice 101” motion that Voip-Pal’s ‘005 and ‘815 patents do not
claim patentable subject matter.
On
March 25, 2019, the U.S. District Court for the Northern District of California granted the Defendants’ “Alice 101”
Motion to Dismiss in all of the cases. The Company appealed the district court decision to the US Court of Appeals for the Federal
Circuit and the appeal remains pending.
ii)
|
Voip-Pal.com
Inc. v. Twitter, Inc. (Case No. 2:16-CV-02338) in the United States District Court, District
of Nevada
|
On
October 6, 2016, the Company filed a lawsuit in the United States District Court, District of Nevada against Twitter, Inc, (Case
No. 2:16- CV-02338) in which Voip-Pal.com alleges infringement of U.S. Patent No. 8,542,815 and its continuation patent, U.S.
Patent No. 9,179,005, This case is seeking $3,200,000,000 in damages. On December 28, 2016, the lawsuit was officially served
to Twitter, Inc. On February 28, 2018, Twitter filed a motion to transfer its case based on improper venue and the case was subsequently
transferred to the U.S. District Court for the Northern District of California, where it was renamed as Case No. 5:18-cv-4523
and consolidated with Case Nos. 5:18-cv-06217-LHK and 5:18-cv-066054-LHK. The Defendants filed a Motion to Dismiss the cases,
asserting an “Alice 101” motion that Voip-Pal’s ‘005 and ‘815 patents do not claim patentable subject
matter. On March 25, 2019, the U.S. District Court for the Northern District of California granted the Defendants’ “Alice
101” Motion to Dismiss in all of the cases. The Company appealed the district court decision to the U.S. Court of Appeals
for the Federal Circuit. The appeal is fully briefed but oral argument has not yet been scheduled.
iii)
|
Voip-Pal.com
Inc. v. Amazon.com, Inc. et al. (Case No. 2:18-CV-01076) in the United States District
Court, District of Nevada
|
In
June 2018, the Company filed a lawsuit in the United States District Court, District of Nevada, against Amazon.com, Inc. and certain
related entities, alleging infringement of U.S. Patent Nos. 9,537,762, 9,813,330, 9,826,002 and 9,948,549. In November 2018, the
case was transferred to the U.S. District Court for the Northern District of California, where it remains pending. The outcome
of this case is undeterminable.
iv)
|
Voip-Pal.com
Inc. v. Apple, Inc. et al. (Case No. 2:18-CV-00953) in the United States District Court,
District of Nevada
|
In
May 2018, the Company filed a lawsuit in the United States District Court, District of Nevada, against Apple, Inc., alleging infringement
of U.S. Patent Nos. 9,537,762, 9,813,330, 9,826,002 and 9,948,549. In November 2018, the case was transferred to the U.S. District
Court for the Northern District of California, where it was renamed Case No. 5:18-cv-06216-LHK and consolidated with Case No.
5:18-cv-07020. The Defendants filed a Motion to Dismiss the cases, asserting an “Alice 101” motion that Voip-Pal’s
‘762, ’330, ’002, and ‘549 patents do not claim patentable subject matter. On November 1, 2019, the U.S.
District Court for the Northern District of California granted the Defendants’ “Alice 101” Motion to Dismiss
in all of the cases. The Company appealed the district court decision to the U.S. Court of Appeals for the Federal Circuit and
the appeal remains pending.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
12. CONTINGENT LIABILITIES (CONT’D)
Patent
Litigation (cont’d)
Inter
Partes Reviews
In
additional legal actions related to Item iii above, several of the Company’s patents have been subject to challenge in Inter
Partes Review (“IPR”) petitions filed before the Patent Trial and Appeal Board (“PTAB”) of the United
States Patent and Trademark Office (“USPTO”). An IPR is a post-grant patent review process allowing the PTAB to consider
the validity of issued patents. There are no damages awarded, but a portion or all of a patent’s claims instituted for IPR
may be invalidated as a result of the review.
Through
2016 and 2017, eight IPRs filed against Patents No. 8,542,815 and No. 9,179,005 by either Apple Inc., AT&T Inc. or Unified
Patents Inc. as Petitioner(s) were resolved by the PTAB by denial of their institution. Subsequent to those rulings, in December
2017, Apple filed a post-judgment motion in IPR2016-01198 and IPR2016-01201, seeking invalidation of the challenged claims as
sanctions against the Company for its having participated in ex parte communications during the PTAB proceedings.
During
the year ended September 30, 2019, on December 21, 2018, the PTAB ruled on Apple’s sanctions motion, declining to grant
Apple’s request to invalidate the challenged claims and declining to grant Apple’s request for entirely new proceedings
to replace the existing panel of judges with a new panel or with judges that would consider any request for rehearing by Apple
as a sanction against VoIP-Pal. On January 23, 2019, Apple appealed the PTAB’s ruling to the U.S. Court of Appeals for the
Federal Circuit. The appeal remains pending.
During
the year ended September 30, 2019, Apple Inc. petitioned the PTAB to have an additional four IPRs instituted against the Company’s
patents numbered 9,537,762, 9,813,330 B2, 9,826,002 B2, and 9,948,549 B2.
During
the three-month period ended December 31, 2019, all four Apple petitions were denied institution by the PTAB.
Non-Patent
Litigation
The
Company is party to non-patent litigation cases as follows:
v)
|
Locksmith
Financial Corporation, Inc. et al. (Plaintiff) v Voip-Pal.com Inc. et al. (Defendant(s))
(Case No A-15-717491-C) filed in Clark County District Court (the “State Case”)
|
On
March 24, 2014, the Company resolved to freeze 95,832,000 common shares that were issued to a company controlled by a former director
in fiscal 2013 and accounted for at a cost of $1,443,000. The Company resolved to freeze said common shares as the Company believes
that the shares were issued as settlement of a line of credit that the Company believes to have been legally unsupported. The
Plaintiff alleged that the freeze and the Company’s actions constituted fraud and a breach of securities laws. The Defendant
denied any wrongdoing.
In
August, 2019, the State Case was heard in Nevada District Court in a jury trial. In a judgment rendered August 26, 2019, the jury
ruled that certain of the Defendants (namely the directors of the Company in 2014) had breached their fiduciary duty to the shareholder
and awarded monetary relief to the Plaintiff in the amount of $355,000, plus pre-judgment interest in the amount of $91,306. On
a concurrent counter-claim, the jury found a claim of Unjust Enrichment against Third-Party Plaintiff TK Investment, Ltd. to be
unsubstantiated and awarded monetary relief to the Third-Party Plaintiff of $84,000 plus pre-judgment interest of $3,459.
During
the three-month period ended December 31, 2019, the Plaintiff and the Defendant waived their rights to appeal in this case. Following
such waiver, both of the above-noted judgments and accrued interest were paid in full.
vi)
|
Voip-Pal.com
Inc. v. Richard Kipping, et al. (Case No. 2:15-cv-01258-JAD-VCF) filed in United States
District Court (the “Federal Case”)
|
On
July 2, 2015, the Company filed a case against a former director, a shareholder and a company controlled by a former director.
The Company alleges that the common shares issued in the State Case and an additional 7,200,000 common shares were fraudulently
obtained and that the shares have been unlawfully transferred to other entities.
During
the year ended September 30, 2019, the parties agreed to dismiss the claims in the Federal Case without prejudice.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
December
31, 2019
NOTE
12. CONTINGENT LIABILITIES (CONT’D)
Performance
Bonus Payable
In
2016, the board of directors authorized the Company to provide a performance bonus (the “Performance Bonus”) of up
to 3% of the capital stock of the Company by way of the issuance of Common shares from its treasury to an as yet undetermined
group of related and non-related parties upon the occurrence of a bonusable event, defined as the successful completion of a sale
of the Company or substantially all its assets, or a major licensing transaction. In order to provide maximum flexibility to the
Company with respect to determining the level of Performance Bonus payable, and who may qualify to receive a pro-rata share of
such a Performance Bonus, the Company authorized full discretion to the Board in making such determinations.
During
the year ended September 30, 2019, the board of directors authorized the increase of the Performance Bonus to up to 10% of the
capital stock of the Company.
During
the year ended September 30, 2019, the board of directors resolved to reduce the Performance Bonus from 10% to 3.33% of the issued
and outstanding capital stock of the Company. Concurrently, the board of directors authorized the payment of Common shares (“Bonus
Shares”) in an equivalent percentage to the 6.67% reduction to the Performance Bonus to a group of related and non-related
parties, which included members of management, a director and several consultants, who received an aggregate 127,000,000 Bonus
Shares (Note 10). The Bonus Shares are restricted from trading under Rule 144 and are also subject to voluntary lock-up agreements,
pursuant to which they cannot be traded, pledged, hypothecated, transferred or sold by the holders until such time as the Company
has met the requirements of the bonusable event as described above.
As
at December 31, 2019, no bonusable event had occurred and there was no Performance Bonus payable.