Nature and Continuance of Operations
(Note 1)
Contingent Liabilities (Note 12)
The
accompanying notes are an integral part of these 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
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
34,548
|
|
|
$
|
25,186
|
|
|
$
|
69,095
|
|
|
$
|
50,371
|
|
Officers and Directors Fees (Note 6)
|
|
|
53,100
|
|
|
|
24,429
|
|
|
|
106,200
|
|
|
|
542,429
|
|
Legal fees (Note 6)
|
|
|
282,941
|
|
|
|
216,678
|
|
|
|
372,560
|
|
|
|
230,636
|
|
Office & general
|
|
|
134,754
|
|
|
|
28,522
|
|
|
|
179,717
|
|
|
|
110,141
|
|
Patent consulting fees
|
|
|
40,000
|
|
|
|
175,314
|
|
|
|
130,000
|
|
|
|
175,314
|
|
Professional fees & services (Note 6)
|
|
|
125,194
|
|
|
|
65,957
|
|
|
|
154,274
|
|
|
|
139,372
|
|
Stock-based compensation (Note 10)
|
|
|
—
|
|
|
|
—
|
|
|
|
117,090
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
670,537
|
|
|
|
536,086
|
|
|
|
1,128,936
|
|
|
|
1,248,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AND COMPREHENSIVE LOSS
FOR THE PERIOD
|
|
$
|
(670,537
|
)
|
|
$
|
(536,086
|
)
|
|
$
|
(1,128,936
|
)
|
|
$
|
(1,248,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,082,812,451
|
|
|
|
1,040,455,868
|
|
|
|
1,074,164,201
|
|
|
|
1,040,455,868
|
|
The
accompanying notes are an integral part of these 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
|
|
|
Three Months
Ended
|
|
|
Six
Months
Ended
|
|
|
Six Months
Ended
|
|
|
|
March
31,
2017
|
|
|
March 31,
2016
|
|
|
March
31,
2017
|
|
|
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(670,537
|
)
|
|
$
|
(536,086
|
)
|
|
$
|
(1,128,936
|
)
|
|
$
|
(1,248,263
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
117,090
|
|
|
|
—
|
|
Shares issued for services and finder’s fees
|
|
|
17,300
|
|
|
|
—
|
|
|
|
100,500
|
|
|
|
555,000
|
|
Amortization
|
|
|
34,547
|
|
|
|
25,186
|
|
|
|
69,095
|
|
|
|
50,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
48,750
|
|
|
|
—
|
|
|
|
26,250
|
|
|
|
—
|
|
Accounts payable and accrued liabilities
|
|
|
96,100
|
|
|
|
39,710
|
|
|
|
(59,335
|
)
|
|
|
17,825
|
|
Subscriptions receivable
|
|
|
—
|
|
|
|
(157,875
|
)
|
|
|
—
|
|
|
|
(157,875
|
)
|
Cash Flows Used in Operating Activities
|
|
|
(473,840
|
)
|
|
|
(629,065
|
)
|
|
|
(875,336
|
)
|
|
|
(782,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual VoIP properties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(144,409
|
)
|
Cash Flows Used in Investing Activities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(144,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible debentures
|
|
|
—
|
|
|
|
392,876
|
|
|
|
32,500
|
|
|
|
485,876
|
|
Proceeds from private placement
|
|
|
497,000
|
|
|
|
—
|
|
|
|
812,000
|
|
|
|
—
|
|
Shares to be issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(87,000
|
)
|
Cash Flows Provided by Financing Activities
|
|
|
497,000
|
|
|
|
392,876
|
|
|
|
844,500
|
|
|
|
398,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash
|
|
|
23,160
|
|
|
|
(236,189
|
)
|
|
|
(30,836
|
)
|
|
|
(528,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of the period
|
|
|
67,119
|
|
|
|
480,990
|
|
|
|
121,115
|
|
|
|
773,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the period
|
|
$
|
90,279
|
|
|
$
|
244,801
|
|
|
$
|
90,279
|
|
|
$
|
244,801
|
|
Supplemental
cash flow information – Note 7
The
accompanying notes are an integral part of these consolidated financial statements
VOIP-PAL.com
Inc.
INTERIM
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited
– prepared by management)
(Expressed
in U.S. dollars)
|
|
Common
Shares
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Par
Value
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at September 30, 2015
|
|
|
1,019,658,368
|
|
|
$
|
896,292
|
|
|
$
|
846,721
|
|
|
$
|
28,357,610
|
|
|
$
|
(28,162,038
|
)
|
|
$
|
1,938,585
|
|
Shares issued in a private placement
|
|
|
10,458,333
|
|
|
|
10,458
|
|
|
|
—
|
|
|
|
370,542
|
|
|
|
—
|
|
|
|
381,000
|
|
Shares issued as finder’s fees
|
|
|
1,126,667
|
|
|
|
1,127
|
|
|
|
—
|
|
|
|
(1,127
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares issued for debt conversion
|
|
|
8,873,333
|
|
|
|
8,873
|
|
|
|
(87,000
|
)
|
|
|
404,127
|
|
|
|
—
|
|
|
|
326,000
|
|
Shares issued for services
|
|
|
16,357,500
|
|
|
|
16,358
|
|
|
|
303,320
|
|
|
|
801,517
|
|
|
|
—
|
|
|
|
1,121,195
|
|
Shares to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
950,294
|
|
|
|
—
|
|
|
|
950,294
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,474,105
|
)
|
|
|
(3,474,105
|
)
|
Balance at September 30, 2016
|
|
|
1,056,474,201
|
|
|
$
|
933,108
|
|
|
$
|
1,063,041
|
|
|
$
|
30,882,963
|
|
|
$
|
(31,636,143
|
)
|
|
$
|
1,242,969
|
|
Shares issued in private placements
|
|
|
35,166,666
|
|
|
|
35,167
|
|
|
|
—
|
|
|
|
776,833
|
|
|
|
—
|
|
|
|
812,000
|
|
Shares issued as finder’s fees
|
|
|
3,710,000
|
|
|
|
3,710
|
|
|
|
—
|
|
|
|
(3,710
|
)
|
|
|
—
|
|
|
|
—
|
|
Shares issued for debt conversion
|
|
|
1,400,000
|
|
|
|
1,400
|
|
|
|
—
|
|
|
|
31,100
|
|
|
|
—
|
|
|
|
32,500
|
|
Shares issued for services
|
|
|
2,826,667
|
|
|
|
2,826
|
|
|
|
—
|
|
|
|
97,674
|
|
|
|
—
|
|
|
|
100,500
|
|
Shares cancelled on termination of services (Note 9)
|
|
|
(900,000
|
)
|
|
|
(900
|
)
|
|
|
—
|
|
|
|
(44,100
|
)
|
|
|
—
|
|
|
|
(45,000
|
)
|
Shares to be issued for Anti-Dilution Clause (Notes 4 & 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share purchase options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
117,090
|
|
|
|
—
|
|
|
|
117,090
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,128,936
|
)
|
|
|
(1,203,136
|
)
|
Balance at March 31, 2017
|
|
|
1,098,677,534
|
|
|
$
|
975,311
|
|
|
$
|
1,063,041
|
|
|
$
|
31,857,850
|
|
|
$
|
(32,765,079
|
)
|
|
$
|
1,131,123
|
|
The
accompanying notes are an integral part of these consolidated financial statements
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
March
31, 2017
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 4
th
Street, Suite 2300, Bellevue, Washington in the
United States of America.
Since
March 2004, the Company has been developing 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.
In
December 2013, the Company completed the acquisition of Digifonica (International) Limited (“Digifonica”), a private
company incorporated on September 7, 2004 in Gibraltar.
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 March 31, 2017, had an accumulated deficit of $32,765,079 (September 30, 2016 - $31,636,143). 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 may cast significant 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 significant 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”).
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 March 31, 2017, 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)
March
31, 2017
NOTE
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Cash
Cash
consists of cash on hand and monies held in checking and savings accounts. The Company had $90,279 in cash on March 31, 2017 (September
30, 2016 - $121,115).
Intangible
Assets
Intangible
assets, consisting of Intellectual VoIP communication patent properties 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 that are 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 March 31, 2017 and September 30, 2016.
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 expenses 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)
March
31, 2017
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 March 31, 2017 and the year ended September 30, 2016 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 maintains cash at financial institutions, which at times, may be in excess of insured limits. The Company has not experienced
any losses to date as a result of this policy and, in assessing its risk, the Company’s policy is to maintain cash only
with reputable financial institutions. As of March 31, 2017 the Company’s bank operating account balances were less
than the Federal Deposit Insurance Corporation Insurance Limit of $250,000.
Recent
Accounting Pronouncements
In
August 2014, the FASB issued ASU No. 2014-15 “Presentation of Financial Statements-Going Concern.” The provisions of
ASU No.2014-15 require management to assess an entity’s liability to continue as a going concern by incorporating and expanding
upon certain principles that are currently in U.S. audit standards. Specifically, the amendments: (1) provide a definition of
the term substantial doubt; (2) require evaluation of every reporting period including interim periods; (3) provide principles
for considering the mitigating effect of management’s plans; (4) require certain disclosures when substantial doubt is alleviated
as a result of consideration of management’s plans; (5) require an express statement and other disclosures when substantial
doubt in not alleviated; and (6) require an assessment for a period of one year after the date that the financial statements are
issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December
15, 2016, and for annual periods and interim periods thereafter. The Company is currently evaluating the impact of adopting this
ASU on it’s consolidated financial statements.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
March
31, 2017
NOTE
3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recent
Accounting Pronouncements (cont’d)
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17
requires companies to classify all deferred tax assets or liabilities as noncurrent on the balance sheet rather than separately
disclosing deferred taxes as current and noncurrent. This standard is effective for the Company beginning on October 1, 2017 and
can be applied either prospectively or retrospectively to all periods presented upon adoption. The standard is not expected to
have any impact on the Company’s financial statements.
In
January 2016, FASB issued a new standard 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 new standard will
be effective for the Company beginning October 1, 2018. The standard is not expected to have any impact on the Company’s
financial statements.
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 and interim periods beginning after December 15, 2018, with early adoption
permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its consolidated
financial statements.
In
March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting. Under ASU 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional
paid in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense
or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU 2016-09 eliminates the requirement
that excess tax benefits be realized before companies can recognize them. ASU 2016-09 also requires companies to present excess
tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU 2016-09
will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability
classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer with a
statutory income tax withholding obligation will now be allowed to withhold shares with the fair value up to the amount of taxes
owed using the maximum statutory rate in the employee’s applicable jurisdiction(s). ASU 2016-09 requires a company to classify
the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing
activity on the statement of cash flows. Under current U.S. GAAP, it is not specified how these cash flows should be classified.
In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeiture
awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely
to change, as in currently required. The amendments of this ASU are effective for reporting periods beginning after December 15,
2016, with early adoption permitted but all of the guidance must be adopted in the same period. The adoption of this ASU had no
material impact on the Company’s consolidated financial statements.
In
June 2016, the FASB issued a new standard 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.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
March
31, 2017
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 “Seller”) for a cash payment of $1,000,000 ($800,000 paid
at closing) 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 6 and 9).
NOTE
5. INTANGIBLE ASSETS
The
Company acquired certain patents and technology from Digifonica in December 2013 (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 March 31, 2017 and September 30, 2016 is as follows:
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
VoIP Intellectual property and patents
|
|
$
|
1,552,416
|
|
|
$
|
1,552,416
|
|
Accumulated amortization
|
|
|
(427,570
|
)
|
|
|
(358,475
|
)
|
Net book value
|
|
$
|
1,124,846
|
|
|
$
|
1,193,941
|
|
There
were no disposals of any intangible assets in the periods presented.
NOTE
6. RELATED PARTY TRANSACTIONS
Included
in accounts payable of $184,002 is $93,000 (September 30, 2016 - $Nil) due to officers and directors. During the six-month period
ended March 31, 2017, the Company paid or accrued $106,200 (2016 - $542,429) to Officers and Directors, of which $Nil (2016 -
$500,000) was paid to the CEO by the issuance of Nil (2016 - 10,000,000) common shares. The balance was paid or accrued as follows:
CEO fees of $45,000 (2016 - $Nil), CFO fees of $43,200 (2016 - $18,529), President fees of $18,000 (2016 - $9,000) and other Director
fees of $Nil (2016 - $14,900). During the period ended March 31, 2017, the Company paid $Nil (2016 - $Nil) for professional fees
and services and $Nil (2016 - $13,598) in legal fees paid to a Director in his capacity as legal counsel.
Included
in Shares to be issued as at March 31, 2017 is $902,000 (September 30, 2016 - $902,000) for unpaid Officer and Director fees and
$80,000 (September 30, 2016 - $80,000) for professional fees & services paid to a director for consulting services provided.
Additionally, $1,332,325 (September 30, 2016 - $942,645) is accrued to the Seller of Digifonica for the Anti-Dilution Clause (Note
4).
NOTE
7. SUPPLEMENTAL CASH FLOW INFORMATION
During
the six-month period ended March 31, 2017, the Company paid $nil (2016 - $nil) in interest.
During
the six-month period ended March 31, 2017, the Company cancelled $45,000 in Capital Stock that was originally recorded as a prepaid
expense.
NOTE
8. CONVERTIBLE DEBENTURES
The
Company routinely issues convertible debentures with no interest rates that are due on demand. The convertible debentures are
convertible at fixed conversion rates. See Note 9 for details of common shares issued during the period from the conversion of
convertible debentures.
VOIP-PAL.COM
INC.
Notes
to the Interim Consolidated Financial Statements
(Unaudited
– prepared by management)
(Expressed
in United States Dollars)
March
31, 2017
NOTE
9. SHARE CAPITAL
Capital
Stock Authorized and Issued:
|
–
|
1,300,000,000
common voting shares authorized with a par value of $0.001, of which 1,098,677,534 shares
are issued
|
|
–
|
1,000,000
convertible preferred shares authorized with a par value of $0.01, of which nil shares
are issued
|
Issues during the six-month period
ended March 31, 2017
During the six-month period ended March
31, 2017, the Company issued 12,766,666 common shares at between $0.02 and $0.03 per common share for cash proceeds of $364,000
from a private placement of common shares, and 22,400,000 units at $0.02 per unit for cash proceeds of $448,000 in a private placement
of units. Each unit consists of one common share and one common share purchase warrant. Each common share purchase warrant allows
the holder to purchase one common share for $0.04 for six months from the date of issuance. In connection with the private placements,
the Company issued 3,710,000 common shares priced at $0.02 per common share as finder’s fees valued at $74,200.
During the six-month period ended March
31, 2017, the Company issued 1,400,000 common shares priced between $0.025 and $0.03 per common share to convert $32,500 of convertible
debentures.
During the six-month period ended March
31, 2017, the Company issued 2,826,667 common shares priced between $0.025 and $0.05 per common share for services valued at $100,500.
During the six-month period ended March
31, 2017, 900,000 common shares priced at $0.05 per common share were cancelled and returned to the Company treasury. The shares
had been issued as an advance payment for the provision of services under a contract which was terminated prior to fulfillment.
2016 Issues
During the year ended September 30, 2016,
the Company issued 10,458,333 common shares at $0.04 per common share for cash proceeds of $381,000 from private placements. The
Company issued 1,126,667 common shares priced between $0.03 and $0.04 per common share as finder’s fees valued at $39,800.
During the year ended September 30, 2016,
the Company issued 8,873,333 common shares priced between $0.03 and $0.05 per common share to convert $326,000 of convertible debentures.
During the year ended September 30, 2016,
the Company issued 16,357,500 common shares priced between $0.03 and $0.05 per common share for services received valued at $1,121,195.
During the year ended September 30, 2016, the
Company issued 10,000,000 common shares at $0.05 per common share to a director of the Company, which issuance is included in Officers
and Directors fees (Note 6).
Shares to be Issued
As at March 31, 2017, there are 23,353,846
(September 30, 2016 – 23,353,846) common shares to be issued that are accrued for services provided to the Company valued
at $1,058,320 (September 30, 2016 – $1,058,320), of which 21,281,903 (September 30, 2016 – 21,281,903) common shares
are accrued to management and related parties. As at March 31, 2017, $4,721 (September 30, 2016 – $4,721) was included in
common shares to be issued for cash received in advance of common shares being issued.
As at March 31, 2017 there are 40,447,452 (September
30, 2016 - 23,566,119) common shares to be issued that are accrued to the seller of Digifonica pursuant to the Anti-Dilution Clause
(see Notes 4 and 6), valued at $1,332,325 (September 30, 2016 - $942,645).
Warrants
During the six-month period ended March 31,
2017, the Company issued 22,400,000 common share purchase warrants to purchase 22,400,000 common shares in the capital stock of
the Company at a price of $0.04 per common share for a period of six months from date of issue in a private placement of units.
As at March 31, 2017, the Company has 22,400,000 (2016 – Nil) warrants outstanding to purchase 22,400,000 common shares at
a price of $0.04 per common share expiring in August and September, 2017.
Subsequent Issue
Subsequent to the period ended March 31, 2017, the Company issued 10,100,000 common shares priced between
$0.02 and $0.025 per common share for cash proceeds of $222,000 from private placements.
VOIP-PAL.COM INC.
Notes to the Interim Consolidated Financial
Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
March
31, 2017
NOTE 10. 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, it was determined by the board
of directors that the Company requires a stock option plan under which it is able to grant incentive stock options to such
Service Providers. The Company put 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.
During the period ended March 31, 2017,
the Company granted options under the Plan to several of its consultants to purchase 3,450,000 common shares in the capital stock
of the Company at an exercise price of $0.06 per common share for a period of five years from the date of grant. 2,700,000 of the
options granted vest immediately and are exercisable as at March 31, 2017, with the balance to vest within one year of the date
of grant.
The following table summarizes the Company’s stock option
transactions:
|
|
Number of options
|
|
|
Weighted average
exercise price
|
|
Balance September 30, 2015
|
|
|
Nil
|
|
|
$
|
N/A
|
|
Granted
|
|
|
28,000,000
|
|
|
|
0.06
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired / Cancelled
|
|
|
—
|
|
|
|
—
|
|
Balance September 30, 2016
|
|
|
28,000,000
|
|
|
$
|
0.06
|
|
Granted
|
|
|
3,450,000
|
|
|
|
0.06
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired / Cancelled
|
|
|
—
|
|
|
|
—
|
|
Balance March 31, 2017
|
|
|
31,450,000
|
|
|
$
|
0.06
|
|
The following table summarizes the stock options outstanding
at March 31, 2017:
Options Outstanding
|
|
|
Exercise Price
|
|
|
Remaining
Contractual
Life (Yrs)
|
|
|
Number of Options
Currently
Exercisable
|
|
|
14,000,000
|
|
|
$
|
0.06
|
|
|
|
4.50
|
|
|
|
8,000,000
|
|
|
14,000,000
|
|
|
|
0.06
|
|
|
|
4.75
|
|
|
|
8,000,000
|
|
|
3,450,000
|
|
|
|
0.06
|
|
|
|
4.80
|
|
|
|
2,700,000
|
|
|
31,450,000
|
|
|
$
|
0.06
|
|
|
|
4.68
|
|
|
|
18,700,000
|
|
The following assumptions were used for
the Black-Scholes valuation of stock options granted during the period ended March 31, 2017: risk-free rate of 1.25%, expected
life of 5 years, annualized historical volatility of 112.0% and a dividend rate of 0%. Expected volatilities are based on historical
volatility of the Company’s stock and other factors. The compensation cost that has been charged against income from options
vested under the Plan for the period ended March 31, 2017 was $117,090 (2016 - $nil).
The weighted-average grant-date fair value
of options granted during the period ended March 31, 2017 was $0.04 (2016 - $nil). The total intrinsic value of options exercised
during the period ended March 31, 2017 was $nil (2016 - $nil).
VOIP-PAL.COM INC.
Notes to the Interim Consolidated Financial
Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
March
31, 2017
NOTE 11. SEGMENTED INFORMATION
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.
NOTE 12. CONTINGENT LIABILITIES
Litigation
The Company is party to pending litigation cases as follows:
|
i)
|
Locksmith Financial Corporation, Inc. et al. v Voip-Pal.com Inc. (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 (the “defendant”)
in fiscal 2013 and accounted for at a cost of $1,443,000. The Company resolved to freeze the 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 defendant
alleges that the freeze and the Company’s actions constituted fraud and a breach of securities laws. The Company denies any
wrongdoing. Currently the State Case is entering the discovery phase of litigation and the outcome is undeterminable.
|
ii)
|
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 the 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. The proceedings in the Federal Case have been stayed pending a final determination
of the issues in the State Case. The outcome of the case is undeterminable.
|
iii)
|
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- VC-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- VC-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. The proceedings in
these cases are currently stayed, by agreement with the parties thereto, pending the outcome of two
Inter Partes
Reviews
(“IPR”), as follows:
- Apple, Inc.
(Petitioner) vs. Voip-Pal.com, Inc. (Patent Owner) IPR2016-01198, Reviewing Patent No. 9,179,005
- Apple, Inc. (Petitioner) vs. Voip-Pal.com,
Inc. (Patent Owner) IPR2016-01201, Reviewing Patent No. 5,542,815
|
iv)
|
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 $2,699,256,418 in damages. On December 28, 2016, the lawsuit was officially served to Twitter, Inc. It is anticipated
that this case will also be stayed pending the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and
Trademark Office’s (“USPTO”) issuance of final written decisions in IPR proceedings concerning the patents-at-issue
(see
Inter Partes Reviews
below). The outcome of each of the patent actions is undeterminable.
VOIP-PAL.COM INC.
Notes to the Interim Consolidated Financial
Statements
(Unaudited – prepared by management)
(Expressed in United States Dollars)
March 31, 2017
NOTE 12. CONTINGENT LIABILITIES (CONT’D)
Inter Partes Reviews
In other legal actions related to Item
iii above, the Company is involved in three
Inter Partes
Reviews (“IPRs”) before the PTAB. An IPR allows the
PTAB to consider the validity of issued patents. There are no damages awarded, but a portion or all of a patent may be invalidated.
The reviews are:
- Unified
Patents Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01082, Reviewing Patent No. 8,542,815
- Apple,
Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01198, Reviewing Patent No. 9,179,005
- Apple,
Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner) IPR2016-01201, Reviewing Patent No. 8,542,815
On December 8, 2016, the petition by Unified
Patents Inc. was not instituted by the PTAB.
On November 21, 2016, the two Apple petitions
were instituted for IPRs. The outcome of these IPRs is undeterminable.
Performance Bonus Payable
The board of directors has authorized the
Company to provide a performance bonus of up to 3% of the capital stock of the Company (the “Performance Bonus”) 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 successful completion of a purchase and sale of the Company or a major licensing transaction, defined as a bonusable event.
In order to provide maximum flexibility to the Company with respect to determining what constitutes such a bonusable event, 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. As at March 31, 2017 and the date of this report, no bonusable event
has occurred and there is no Performance Bonus currently payable.