Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
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. Currently, the Company is in the business of online fraud protection services.
Going Concern
These condensed 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 of July 31, 2018, the Company has not recognized significant revenue, has a working capital deficit of $1,143,723, and has an accumulated deficit of $5,083,354. 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 condensed consolidated 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 accompanying unaudited interim condensed consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and accompany notes filed with the U.S. Securities and Exchange Commission for the year ended April 30, 2018. These interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The condensed consolidated financial statements are comprised of the records of the Company and its wholly owned subsidiary, IP Control Risk Inc., a company incorporated in the State of Nevada, United States. 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 collectability of accounts receivable, fair value and estimated useful life of long-lived assets, fair value of convertible debentures, derivative liabilities, 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.
8
APPIPHANY TECHNOLOGIES HOLDINGS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
2.Summary of Significant Accounting Policies (continued)
(c)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 July 31, 2018, the Company had 811,425,000 (April 30, 2018 – 569,554,940) potentially dilutive common shares outstanding. Diluted EPS was calculated based on net income less interest expense and change in fair value of derivative liabilities.
(d)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 did not 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 three months ended July 31, 2018, the Company incurred $nil (2018 - $56,337) in management fees to the President and Director of the Company.
4. Notes Payable
(a) As of July 31, 2018, the Company owed $4,616 (April 30, 2018 - $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.
9
APPIPHANY TECHNOLOGIES HOLDINGS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
4. Notes Payable (continued)
(b)As of July 31, 2018, the Company owed $10,000 (April 30, 2018 - $10,000) in notes payable to non-related parties. 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 of July 31, 2018, the Company owed $2,500 (April 30, 2018 - $2,500) in notes payable to non-related parties. Under the terms of the note, the amount is unsecured, bears interest at 5% per annum, and is due on February 1, 2018. The note bears a default interest rate of 12% per annum.
(d)As of July 31, 2018, the Company owed $15,000 (April 30, 2018 - $15,000) in notes payable to a non-related party. The note payable was issued as a commitment fee and was recorded to additional paid-in capital. 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 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 of July 31, 2018, the carrying value of the note was $7,970 (April 30, 2018 - $7,970).
(b)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, 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.During the year ended April 30, 2018, the Company incurred a $22,000 default fee on the note.
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging. As of July 31, 2018, the carrying value of the note was $55,000 (April 30, 2018 - $55,000).
(c)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 was 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.
10
APPIPHANY TECHNOLOGIES HOLDINGS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
5. Convertible Debentures (continued)
(c)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 of July 31, 2018, the carrying value of the note was $36,450 (April 30, 2018 - $36,450).
(d)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 was 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. During the three months ended July 31, 2018, the Company issued 16,793,000 shares of common stock for the conversion of $1,569 of the note,$2,712 of accrued interest and $2,500 of conversion penalties. As of July 31, 2018, the carrying value of the note was $55,341 (April 30, 2018 - $56,910).
(e)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 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 $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. During the three months ended July 31, 2018, the Company issued 27,766,139 shares of common stock for the conversion of $13,196 of the note and $1,395 of accrued interest. As of July 31, 2018, the carrying value of the note was $8,544 (April 30, 2018 - $5,948), and the unamortized total discount was $nil (April 30, 2018 - $15,792).
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 July 31. 2018 and at the date of filing, no proceeds have been received on the collateralized secured promissory note or the back-end note.
11
APPIPHANY TECHNOLOGIES HOLDINGS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
5. Convertible Debentures (continued)
(f)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 of the convertible note will be accreted over the term of the convertible note up to the face value of $36,000. As of July 31, 2018, the carrying value of the note was $36,000 (April 30, 2018 - $862), and the unamortized total discount was $nil (April 30, 2018 - $35,138).
(g) 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 of July 31, 2018, the carrying value of the note was $1,960 (April 30, 2018 - $118), and the unamortized total discount was $31,373 (April 30, 2018 - $33,215).
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 July 31, 2018, and at the date of filing, no proceeds have been received on the back-end note.
(h) 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 of July 31, 2018, the carrying value of the note was $999 (April 30, 2018 - $30), and the unamortized total discount was $32,001 (April 30, 2018 - $32,970).
12
APPIPHANY TECHNOLOGIES HOLDINGS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
5. Convertible Debentures (continued)
(i) 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 of July 31, 2018, the carrying value of the note was $757 (April 30, 2018 - $17), and the unamortized total discount was $32,243 (April 30, 2018 - $32,983).
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 three months ended July 31, 2018, the Company recorded a gain on the change in fair value of derivative liability of $402,247 (2017 – $133,752). As of July 31, 2018, the Company recorded a derivative liability of $483,685 (April 30, 2018 - $928,252).
A summary of the activity of the derivative liability is shown below:
|
|
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|
|
|
$
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|
|
|
|
|
|
|
|
Balance, April 30, 2018
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|
|
|
|
928,252
|
|
Adjustment for conversion
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|
|
|
|
(42,320)
|
|
Mark to market adjustment at July 31, 2018
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|
|
|
|
(402,247)
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|
|
|
|
|
|
|
|
Balance, July 31, 2018
|
|
|
|
|
483,685
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7.Common Shares
During the three months ended July 31, 2018, the Company issued an aggregate of 44,559,139 common shares with a fair value of $54,716 upon the conversion of $14,765 of convertible debentures, $42,320 of derivative liabilities, $4,108 of accrued interest, and $2,500 in conversion fees resulting in a gain on settlement of debt of $8,977.
13
APPIPHANY TECHNOLOGIES HOLDINGS CORP.
Notes to the Condensed Consolidated Interim Financial Statements
(Expressed in US dollars)
(unaudited)
8.Preferred Shares
Authorized: 10,000,000 preferred shares with a par value of $0.001 per share
Convertible Preferred Series A stock
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.
9.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 years two and three;
iii)1,800 common shares payable on the date of the agreement;
iv)1,800 common shares payable on February 26, 2016;
v)1,800 common shares payable on August 26, 2017; and
vi)1,800 common shares payable on February 26, 2018.
Either party may terminate the agreement by providing written thirty days’ notice.
As of July 31, 2018, the Company has issued 1,800 common shares to each consultant and has $1,828 (April 30, 2018 - $8,619) of prepaid expenses remaining relating to the consulting agreements. During the three months ended July 31, 2018 and 2017, there has been no commissions earned, paid, or accrued in relation to these consulting agreements.
10.Subsequent Events
(a)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.
(b)Subsequent to July 31, 2018, the Company issued 22,782,942 common shares upon the conversion of $2,885 of convertible debentures, $10,008 of accrued interest, and $1,000 of conversion fee penalties.
14
Cash Flows
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July 31, 2018
$
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July 31,2017
$
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Cash Flows used in Operating Activities
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(4,630)
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(94,832)
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Cash Flows from (used in) Investing Activities
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-
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-
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Cash Flows from Financing Activities
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-
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107,500
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Net increase (decrease) in Cash During Period
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(4,630)
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|
12,668
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Operating Revenues
For the three months ended July 31, 2018, the Company earned revenues of $nil compared with $11,100 during the three months ended July 31, 2017 from the sale of online fraud protection services. The Company had gross profit of $nil for the three months ended July 31, 2018 compared to $6,093 for the three months ended July 31, 2017. The decrease in gross profit was due to the fact that the Company did not have any further revenue sales during the current year.
Operating Expenses and Net Income (Loss)
For the three months ended July 31, 2018, the Company incurred operating expenses of $20,226 compared to $179,950 during the three months ended July 31, 2017. The decrease in operating expenses was due to the fact that the Company decreased its level of operating activity during the current period as it contemplated further financing and restructuring of its current operations. As such, there were significant declines in consulting fees, professional fees, and management fees, as well as a decrease in general and administration fees.
During the three months ended July 31, 2018, the Company recorded a net income of $325,897 compared to a net loss of $84,532 during the three months ended July 31, 2017. In addition to operating expenses, the Company recorded a gain on the change in the fair value of the derivative liability of $402,247, a gain on extinguishment of debt of $8,977 relating to the issuance of common shares to settle outstanding convertible notes and was offset by interest expense of $65,101. During the period ended July 31, 2017, the Company recorded a gain on the change in fair value of derivative liability of $133,752 offset by interest expense of $44,427. The gain on the change in fair value of derivative liability was due to a decrease in the share price and the spread between the conversion price and the fair value of the common shares as of July 31, 2018 and 2017 as compared to April 30, 2018 and 2017.
The Company recorded income per share of $0.00 on both a basic and diluted basis during the three months ended July 31, 2018
15
compared to basic and diluted loss per share of $0.03 during the three months ended July 31, 2017.
Liquidity and Capital Resources
As of July 31, 2018, the Company had cash of $5,499 and total assets of $7,327 compared to cash of $10,129 and total assets of $23,799 at April 30, 2018. The decrease in cash and total assets was due to the fact that the Company did not receive any proceeds from operations or funding from investing or financing activities during the period to support operating expenditures. Furthermore, the Company recognized the period expenses relating to the prepaid common shares issued to five consultants in fiscal 2017 and recorded a loss of $5,051 for the non-collection of outstanding accounts receivable.
As of July 31, 2018, the Company had total liabilities of $1,151,050 compared to $1,548,135 at April 30, 2018. The decrease in total liabilities is due to a decrease in derivative liability of $444,567 offset by an increase in convertible debenture of $39,716 (due to accretion of debt discount), and $7,766 in accounts payable and accrued liabilities as the Company did not have sufficient cash flow to pay outstanding obligations as they became due.
As of July 31, 2018, the Company had a working capital deficit of $1,143,723 compared with a working capital deficit of $1,524,336 as of April 30, 2018. The decrease in working capital deficit was due to a decrease in total liabilities due to the decrease in derivative liability.
Cash Flow from Operating Activities
During the period ended July 31, 2018, the Company used $4,630 of cash for operating activities as compared to $94,832 during the three months ended July 31, 2017. The decrease in the use of cash for operating activities was due to the fact that the Company had minimal operations during the current period and had limited cash balances which limited the amount of cash used for operating activities.
Cash Flow from Investing Activities
During the periods ended July 31, 2018 and 2017, the Company did not have any investing activities.
Cash Flow from Financing Activities
During the period ended July 31, 2018, the Company did not have any financing activities. During the period ended July 31, 2017, the Company received $107,500 of net cash from financing activities which was from the issuance of convertible debentures.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our Common Shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
16
expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued 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 did not 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.
