Company Quick10K Filing
Quick10K
Voip-Pal.com
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
8-K 2019-05-21 Officers
8-K 2018-12-03 Officers
8-K 2018-10-05 Officers
WF Woori Bank 18,983
SEP Spectra Energy Partners 17,364
DTIL Precision BioSciences 419
DUUO Duo World 0
TYGS TYG Solutions 0
WHEN World Health Energy Holdings 0
CFT Campbell Fund Trust 0
NHMD Nate's Food 0
TFLG Trafalgar Resources 0
TXG 10x Genomics 0
VPLM 2019-06-30
Part I&Mdash;Financial Information
Item 1.Financial Statements.
Note 1. Nature and Continuance of Operations
Note 2. Basis of Presentation
Note 3. Significant Accounting Policies
Note 3. Significant Accounting Policies (Cont'D)
Note 4. Purchase of Digifonica
Note 5. Fixed Assets
Note 6.Intangible Assets
Note 7.Related Party Transactions and Key Management Compensation
Note 8.Supplemental Cash Flow Information
Note 9.Share Capital
Note 9.Share Capital (Cont'D)
Note 10.Stock-Based Compensation
Note 11.Contingent Liabilities
Note 11.Contingent Liabilities (Cont'D)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 4.Controls and Procedures.
Part Ii&Mdash;Other Information
Item 1.Legal Proceedings.
Item 1A.Risk Factors.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3.Defaults Upon Senior Securities.
Item 4.Mine Safety Disclosures.
Item 5.Other Information.
Item 6.Exhibits.
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm

Voip-Pal.com Earnings 2019-06-30

VPLM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 vplm-10q_063019.htm QUARTERLY REPORT
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒  Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

For the quarterly period ended: June 30, 2019

 

or

 

☐  Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

Commission File Number: 000-55613

 

VoIP-PAL.COM INC.

(Exact name of Registrant as specified in its charter)

 

Nevada   980184110

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

10900 NE 4th Street, Suite 2300

Bellevue, WA, 98004

(Address of principal executive offices)

 

1-888-605-7780

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A

 

 

Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐     Non-accelerated filer ☒  
           
Smaller reporting company ☒   Emerging growth company ☐      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of August 12, 2019, there were 1,953,377,592 shares of Common Stock outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 20
     
PART II—OTHER INFORMATION  
     
Item 1. Legal Proceedings 21
Item 1A. Risk Factors 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Mine Safety Disclosures 22
Item 5. Other Information 22
Item 6. Exhibits 23

 

2

 

PART I—FINANCIAL INFORMATION

 

Item 1.Financial Statements.

 

VOIP-PAL.com Inc.

INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited – prepared by management)

As at

(Expressed in U.S. Dollars)

 

  

June 30,

2019

   September 30,
2018
 
         
ASSETS
 
CURRENT          
           
Cash  $1,941,889   $3,175,523 
Legal retainer   353,289    323,752 
Prepaid expense   25,000     
    2,320,178    3,499,275 
           
NON-CURRENT          
           
Fixed assets (Note 5)   11,353     
Intellectual VoIP communications patent properties, net (Note 6)   813,900    917,550 
           
TOTAL ASSETS  $3,145,431   $4,416,825 
           
LIABILITIES
           
CURRENT          
           
Accounts payable and accrued liabilities  $32,355   $112,935 
           
TOTAL LIABILITIES  $32,355   $112,935 
           
STOCKHOLDERS’ equity
           
SHARE CAPITAL (Note 9)  $1,429,844   $1,276,653 
ADDITIONAL PAID-IN CAPITAL (Note 9)   50,950,530    45,198,281 
SHARES TO BE ISSUED (Note 9)   603,320    477,320 
DEFICIT   (49,870,618)   (42,648,364)
    3,113,076    4,303,890 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $3,145,431   $4,416,825 

 

Nature and Continuance of Operations (Note 1)

Contingent Liabilities (Note 11)

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

3

 

VOIP-PAL.com Inc.

INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited – prepared by management)

(Expressed in U.S. Dollars)

                 
   Three Months Ended   Three Months Ended   Nine Months Ended   Nine Months Ended 
  

June 30,

2019

   June 30,
2018
  

June 30,

2019

   June 30,
2018
 
                 
EXPENSES                    
                     
Amortization & depreciation (Note 5 and 6)  $34,550   $34,550   $104,214   $103,650 
Officers and Directors Fees (Note 7)   107,354    55,300    553,683    161,500 
Legal fees (Note 6)   239,599    231,233    765,642    859,885 
Office & general   60,950    71,978    212,591    259,635 
Patent consulting fees   14,129    30,207    91,604    73,736 
Professional fees & services (Note 6)   142,275    187,976    414,520    3,215,823 
Stock-based compensation (Note 10 and 11)       120,825    5,080,000    2,771,875 
                     
Total expenses  $598,857   $732,069   $7,222,254   $7,446,104 
                     
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD  $(598,857)  $(732,069)  $(7,222,254)  $(7,446,104)
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   1,952,267,592    1,464,963,231    1,864,052,179    1,421,320,380 

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

4

 

VOIP-PAL.com Inc.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – prepared by management)

(Expressed in U.S. Dollars)

         
  

Nine Months

Ended

   Nine Months
Ended
 
  

June 30,

2019

   June 30,
2018
 
         
Cash Flows from Operating Activities          
Loss for the period  $(7,222,254)  $(7,446,104)
Add items not affecting cash:          
Stock-based compensation   5,080,000    2,771,875 
Shares issued for services   480,200    2,818,330 
Amortization   104,214    103,650 
           
           
Changes in non-cash working capital:          
Prepaid expense   (25,000)    
Accounts payable and accrued liabilities   (80,580)   25,337 
Legal retainer   (29,537)    
Cash Flows Used in Operating Activities   (1,692,957)   (1,726,912)
           
Cash Flows from Investing Activities          
Acquisition of Equipment   (11,917)    
Cash Flows Used in Investing Activities   (11,917)    
           
Cash Flows from Financing Activities          
Proceeds from private placement   219,000    2,936,060 
Proceeds from warrant exercise   252,240    1,576,000 
Cash Flows Provided by Financing Activities   471,240    4,512,060 
           
Increase / (Decrease) in cash   (1,233,634)   2,785,148 
           
Cash, beginning of the period   3,175,523    12,157 
           
Cash, end of the period  $1,941,889   $2,797,305 

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

5

 

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, 2017   1,142,125,534   $1,018,760   $1,063,041   $33,028,389   $(34,246,816)  $863,374 
Shares issued for private placement   85,037,663    85,038        1,845,055        1,930,093 
Shares issued for warrant exercise   1,000,000    1,000        39,000        40,000 
Shares issued for services   158,000    158        2,212        2,370 
Loss for the period                   (665,090)   (665,090)
Balance at December 31, 2017   1,228,321,197   $1,104,956   $1,063,041   $34,914,656   $(34,911,906)  $2,170,747 
Shares issued for private placement   16,766,086    16,766        989,201        1,005,967 
Shares issued for warrant exercise   22,650,000    22,650        883,350        906,000 
Shares issued for services   86,937,500    86,938    (1,063,041)   3,784,563        2,808,460 
Shares issued for Anti-Dilution Clause (Notes 4 & 9)   118,121,352                     
Share purchase options granted (Note 10)               2,651,050        2,651,050 
Loss for the period                   (6,048,945)   (6,048,945)
Balance at March 31, 2018   1,472,796,135   $1,231,310   $   $43,222,820   $(40,960,851)  $3,493,279 
Shares issued for warrant exercise   14,875,000    14,875    35,000    580,125        630,000 
Shares issued for services   250,000    250        7,250        7,500 
Share purchase options granted (Note 10)               120,825        120,825 
Loss for the period                   (732,069)   (732,069)
Balance at June 30, 2018   1,487,921,135   $1,246,435   $35,000   $43,931,020   $(41,692,920)  $3,519,535 
Shares issued for private placement   (3,225,000)   (3,225)       454,350        451,125 
Shares issued for warrant exercise   26,225,000    26,225    (35,000)   452,400        443,625 
Shares issued for services   17,218,333    17,218    477,320    569,578        1,064,116 
Shares issued for Anti-Dilution Clause (Notes 4 & 9)   56,862,333                     
Share purchase options granted (Note 10)               (219,067)       (219,067)
Shares returned (Note 9)   (10,000,000)   (10,000)       (21,542)       (31,542)
Forgiveness of debt by related party (Note 9)               31,542        31,542 
Loss for the period                   (955,444)   (955,444)
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   127,000,000    127,000        4,953,000        5,080,000 
Shares issued for Anti-Dilution Clause (Notes 4 & 9)   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   1,062,500    1,062    54,000    41,438        96,500 
Loss for the period                   (751,994)   (751,994)
Balance at March 31, 2019   1,952,267,592   $1,428,734   $549,320   $50,929,440   $(49,271,761)  $3,635,733 
Shares issued for services   1,110,000    1,110    54,000    21,090        76,200 
Loss for the period                   (598,857)   (598,857)
Balance at June 30, 2019   1,953,377,592   $1,429,844   $603,320   $50,950,530   $(49,870,618)  $3,113,076 

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

6

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 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.

 

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 defending its patents and continues to incur losses and, at June 30, 2019, had an accumulated deficit of $49,870,618 (September 30, 2018 - $42,648,364). 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”).

 

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 June 30, 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.

 

7

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

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 $1,941,889 and $3,175,523 in cash on June 30, 2019 and September 30, 2018, respectively.

 

Fixed Assets

 

Fixed assets are stated at cost less accumulated depreciation, and depreciated using the straight-line method over their useful lives; Furniture and equipment – 7 years; and Computers and Software – 3 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 June 30, 2019 and September 30, 2018.

 

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.

 

8

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 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 nine-month period ended June 30, 2019 and the year ended September 30, 2018 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 June 30, 2019, the Company’s bank operating account balances exceeded the Federal Deposit Insurance Corporation Insurance Limit of $250,000 by $1,691,889.

 

Recent Accounting Pronouncements

 

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.

 

In January 2016, FASB issued ASU 2016-01 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 was effective for the Company beginning October 1, 2018. The standard did not have any impact on the Company’s financial statements.

 

9

 

VOIP-PAL.COM INC. 

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

Recent Accounting Pronouncements (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. When adopted, the Company does not expect this guidance to have a material impact on its consolidated 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 7 and 9).

 

NOTE 5. FIXED ASSETS

 

A summary of the Company’s fixed assets as of June 30, 2019 and September 30, 2018 is as follows:

 

  

June 30,

2019

   September 30,
2018
 
Office furniture & computers  $11,917   $ 
Accumulated depreciation   (564)    
Net book value  $11,353   $ 

 

There were no retirements of any fixed assets in the periods presented.

 

10

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

NOTE 6.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 June 30, 2019 and September 30, 2018 is as follows:

 

  

June 30,

2019

   September 30,
2018
 
VoIP Intellectual property and patents  $1,552,416   $1,552,416 
Accumulated amortization   (738,516)   (634,866)
Net book value  $813,900   $917,550 

 

There were no disposals of any intangible assets in the periods presented.

 

NOTE 7.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 nine-month period ended June 30, 2019 includes:

 

  

June 30,

2019

   June 30,
2018
 
Management fees paid or accrued to the CEO  $108,000   $67,500 
Management fees paid or accrued to the CFO   64,800    64,800 
Management fees paid or accrued to the President   45,000    29,200 
Fees paid or accrued to Directors   54,000    54,000 
   $271,800   $215,500 

 

During the nine-month period ended June 30, 2019 the Company issued 2,510,000 (2018 – 3,542,500) common shares for a value of $113,200 (2018 - $141,700), accrued 2,700,000 (2018 – 1,350,000) common shares to be issued valued at $126,000 (2018 – $54,000) and paid cash of $32,600 (2018 - $19,800) for key management compensation as shown in the above table. The Company also issued 90,000,000 (2018 – nil) common shares as bonus compensation to three directors which were recorded as an expense to the Company of $3,600,000 (2018 – Nil) (Notes 9 and 11), and 10,000,000 (2018 – Nil) common shares at a value of $200,000 to the CEO as additional compensation.

 

As at June 30, 2019, included in shares to be issued is $603,320 (September 30, 2018 - $416,000) for unpaid Director fees. As at June 30, 2019, 3,598,333 (September 30, 2018 – 126,655,791) common shares are accrued to the Seller of Digifonica for the Anti-Dilution Clause. 225,184,791 common shares were issued during the nine-month period ended June 30, 2019 (June 30, 2018 – 118,121,352) to the Seller of Digifonica pursuant to the Anti-Dilution Clause (Notes 4 and 9).

 

During the year ended September 30, 2018, 10,000,000 common shares were returned to the treasury from an officer of the Company at a per share price of $0.003 ($31,542) on the unwinding of a loan conversion transaction and the associated forgiveness of a loan to the Company provided by the officer dating from 2014.

 

NOTE 8.SUPPLEMENTAL CASH FLOW INFORMATION

 

During the nine-month period ended June 30, 2019, the Company paid $nil (June 30, 2018 - $nil) in interest or income taxes.

 

There were no non-cash investing or financing transactions during the period ended June 30, 2019. During the period ended June 30, 2018, the Company re-classified $1,063,041 from shares to be issued into Additional paid-in capital upon the issuance of shares.

 

11

 

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

NOTE 9.SHARE CAPITAL

 

Capital Stock Authorized and Issued:

 

3,000,000,000 (September 30, 2018 – 2,000,000,000) common voting shares authorized with a par value of $0.001 each, of which 1,952,267,592 (September 30, 2018 – 1,575,001,801) 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.

 

During the nine-month period ended June 30, 2019, the board of directors of the Company authorized the increase of the Company’s capital stock to up to 3,000,000,000 common voting shares with a par value of $0.001 per share.

 

Issues during the nine-month period ended June 30, 2019

 

During the nine-month period ended June 30, 2019, the Company issued:

 

5,475,000 common shares priced at $0.04 per common share for cash proceeds of $219,000 from a private placement of common shares;

 

6,306,000 common shares priced at $0.04 per common share for cash proceeds of $252,240 from the exercise of 6,306,000 common share purchase warrants;

 

14,410,000 common shares priced between $0.02 and $0.04 per common share for services with an aggregate value of $354,200 (September 30, 2018 - $477,320), and accrued 2,700,000 shares to be issued valued at $126,000 for services received;

 

127,000,000 common shares issued as bonus compensation, recorded as an expense to the Company of $5,080,000 (Note 11); and

 

225,184,791 common shares priced between $0.003 and $0.04 per common share pursuant to the Anti-Dilution Clause for a value of $5,124,641 (Note 4 and 6).

 

Issues during the year ended September 30, 2018

 

During the year ended September 30, 2018, the Company issued:

 

113,453,749 common shares for cash proceeds of $3,402,060 from private placements, as follows;

 

107,147,749 common shares priced between $0.015 and $0.06 per common share for cash proceeds of $3,303,940 from a private placement of common shares; and

 

6,306,000 units at between $0.013 and $0.02 per unit for cash proceeds of $98,120. 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 a period of twelve months from the date of issuance;

 

50,125,000 common shares at $0.04 per common share for cash proceeds of $2,005,000 on the exercise of 50,125,000 common share purchase warrants;

 

104,313,833 common shares priced at between $0.02 and $0.06 per common share for services with an aggregate value of $4,467,917, of which $585,721 (September 30, 2017 - $Nil) was in settlement of Shares to be issued; and

 

174,983,685 common shares priced at $0.038 per common share pursuant to the Anti-Dilution Clause for a value of $6,649,380 (Note 4 and 6).

 

During the year ended September 30, 2018, 10,000,000 common shares were returned to the treasury at $0.003 per share with an aggregate value of $31,542 (Note 7).

 

Subsequent Issues

 

Subsequent to the nine-month period ended June 30, 2019, the Company issued nil common shares.

 

12

 

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

NOTE 9.SHARE CAPITAL (CONT’D)

 

Shares to be Issued

 

As at June 30, 2019, there are 17,317,523 (September 30, 2018 – 12,817,523) common shares to be issued that are accrued for services provided to the Company valued at $603,320 (September 30, 2018– $477,320), of which 15,340,000 (September 30, 2018– 10,840,000) valued at $542,000 (September 30, 2018 - $416,000) are accrued to management and related parties (see Note 7).

 

As at June 30, 2019, there are 5,716,667 (September 30, 2018 – 126,655,791) common shares to be issued that are accrued to the seller of Digifonica pursuant to the Anti-Dilution Clause (see Notes 4 and 7), valued at $171,500 (September 30, 2018 - $4,812,920).

 

Warrants

 

During the nine-month period ended June 30, 2019, the Company issued no new warrants.

 

During the nine-month period ended June 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.

 

As of June 30, 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 31, 2017    61,500,500   $0.04 
Issued    6,306,000    0.04 
Exercised    (50,125,000)   0.04 
Expired    (11,375,500)   0.04 
Balance September 31, 2018    6,306,000   $0.04 
Issued     Nil    N/A 
Exercised    (6,306,000)   0.04 
Expired    Nil              N/A 
Balance June 30, 2019    Nil             N/A 

 

13

 

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

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, 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, 2017    39,850,000   $0.058 
Granted     18,500,000    0.18 
Cancelled    (18,500,000)   (0.18)
Balance September 30, 2018    39,850,000   $0.058 
Granted     10,000,000    0.065 
Cancelled    —      —   
Balance June 30, 2019     49,850,000   $0.060 

 

The following table summarizes the stock options outstanding at June 30, 2019:

 

Options
Outstanding
   Exercise
Price
   Remaining
Contractual
Life (Yrs)
   Number of Options
Currently
Exercisable
 
 14,000,000   $0.060    1.99    14,000,000 
 14,000,000    0.060    2.19    14,000,000 
 3,450,000    0.060    2.32    3,450,000 
 8,400,000    0.050    2.80    8,400,000 
 10,000,000    0.065    4.48    —   
 49,850,000   $0.058    2.70    39,850,000 

 

The following assumptions were used for the Black-Scholes valuation of stock options granted during the nine-month period ended June 30, 2019: risk-free rate of 1.62% (2018 – 1.62%), expected life of 5 years (2018 – 5 years), annualized historical volatility of 138.8% (2018 – 138.8%) and a dividend rate of 0% (2018 – 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 was $nil for the nine-month period ended June 30, 2019 (June 30, 2018 – $2,651,050) as none of the options granted were currently vested.

 

The weighted-average grant-date fair value of options granted during the nine-month period ended June 30, 2019 was $0.07 (2018 - $0.14). The total intrinsic value of options exercised during the period ended June 30, 2019 was $nil (2018 - $1,538,525).

 

14

 

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

NOTE 11.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 this 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 (collectively, the “Defendants”). The proceedings in these cases were temporarily stayed, by agreement with the parties thereto, pending the outcome of two Inter Partes Reviews (“IPRs”), which were decided in Voip-Pal’s favor.

 

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. 18-cv-06177-LHK, 18-cv-06217-LHK, 18-cv-04523-LHK and 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 has appealed this Court decision. The outcome of the appeal process is undeterminable.

 

iv)Voip-Pal.com Inc. v. Twitter, Inc. (Case No. 2:16-CV-02338) in the United States District Court, District of Nevada

 

During the year ended September 30, 2017, 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 remains pending. The outcome of this case is undeterminable.

 

v)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.

 

15

 

 

VOIP-PAL.COM INC.

Notes to the Interim Consolidated Financial Statements

(Unaudited – prepared by management)

(Expressed in United States Dollars)

June 30, 2019

 

NOTE 11.CONTINGENT LIABILITIES (CONT’D)

 

Litigation (cont’d)

 

Inter Partes Reviews

 

In additional legal actions related to Item iii above, two of the Company’s patents have been subject to challenge in several 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.

 

More particularly, a total of eight IPRs, filed against Patent No. 8,542,815 and No. 9,179,005, were either in process before the PTAB or had been resolved, as follows:

 

Unified Patents Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner), IPR2016-01082, filed May 24, 2016, requesting inter partes review of U.S. Patent No. 8,542,815. On November 18, 2016, the PTAB denied institution of this petition;

 

Apple, Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner), IPR2016-01198, reviewing Patent No. 9,179,005 and Voip-Pal.com Inc. (Patent Owner), IPR2016-01201, reviewing Patent No. 8,542,815, both instituted for IPR on November 21, 2016;

 

AT&T Inc. (Petitioner) filed IPR2017-01382 against Voip-Pal’s Patent No. 8,542,815, IPR2017-01383 against Voip-Pal’s Patent No. 9,179,005, and IPR2017-01384 against Voip-Pal’s Patent No. 9,179,005 on May 8, 2017, each of which was subsequently denied institution; and

 

Apple Inc. (Petitioner) filed IPR2017-01399 against Voip-Pal’s Patent No. 8,542,815, and IPR2017-01398 against Voip-Pal’s Patent No. 9,179,005 on May 9, 2017, each of which was subsequently denied institution.

 

During the year ended September 30, 2018, the PTAB considered the aforesaid IPRs, and on November 20, 2017, the PTAB issued its findings on the seven active IPRs being adjudicated, denying institution of the IPRs with respect to all claims challenged by the Petitioners (Apple Inc, and AT&T Inc.). Subsequent to that ruling, 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.

 

On December 21, 2018, a new panel of 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.

 

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 period ended September 30, 2018, the board of directors authorized the increase of the Performance Bonus to up to 10% of the capital stock of the Company.

 

During the nine-month period ended June 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 9). 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 June 30, 2019, no bonusable event had occurred and there was no Performance Bonus payable.

 

16

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following management’s discussion and analysis (MD&A) should be read in conjunction with our interim consolidated financial statements for the quarterly period ended June 30, 2019 and notes thereto, and our audited consolidated financial statements for the year ended September 30, 2018 and notes thereto.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This MD&A for the three- and nine-months ending June 30, 2019 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amending, and Section 21E of the Securities Exchange Act of 1934, as amending. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and are considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

 

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements

 

CORPORATE HISTORY, OVERVIEW AND PRINCIPAL BUSINESS

 

VOIP-PAL.com Inc. (“Voip-Pal”, the “Company”) was incorporated in the state of Nevada in September 1997 as All American Casting International, Inc. and changed its name to VOIP MDI.com in 2004 and subsequently to Voip-Pal.Com Inc. in 2006. Since March 2004, the Company has been in the development stage of becoming a Voice-over-Internet Protocol (“VoIP”) re-seller, a provider of a proprietary transactional billing platform tailored to the points and air mile business, and a provider of anti-virus applications for smartphones. All business activities prior to March 2004 have been abandoned and written off to deficit.

 

In 2013, Voip-Pal acquired Digifonica International (DIL) Limited (“Digifonica”), to fund and co-develop Digifonica’s patent suite. Digifonica had been founded in 2003 with the vision that the internet would be the future of all forms of telecommunications - a team of twenty top engineers with expertise in Linux and Internet telephony developed and wrote a software suite with applications that provided solutions for several core areas of internet connectivity. In order to properly test the applications, Digifonica built and operated three production nodes in Vancouver, Canada (Peer 1), London, UK (Teliasonera), and Denmark. Upon successfully developing the technology, Digifonica filed for patents with the United States Patent and Trademark Office (“USPTO”).

 

The Digifonica patents formed the basis for Voip-Pal’s current intellectual property, now a worldwide portfolio of twenty-nine issued and pending patents primarily designed for the broadband VoIP market.

 

Voip-Pal’s intellectual property value is derived from its issued and pending patents. Voip-Pal inventions described in these patents, among other things, provide the means to integrate VoIP services with legacy telecommunications systems such as the public switched telephone network (PSTN) to create a seamless service using either legacy telephone numbers or IP addresses, and enhance the performance and value of VoIP implementations worldwide.

 

VoIP has been and continues to be a green field for innovation that has spawned numerous inventions, greatly benefitting consumers large and small across the globe. VoIP is used in many places and by every modern telephony system vendor, network supplier, and retail and wholesale carrier.

 

Results of Operations

 

The Company’s operating costs consist of expenses incurred to monetizing, selling and licensing its VoIP patents. Other operating costs include expenses for legal, accounting and other professional fees, financing costs, and other general and administrative expenses.

 

 17

 

 

Comparison of the Three Months and Nine Months Ending June 30, 2019 and 2018

 

     

Three months ending

June 30

      Increase/           
      2019       2018        (Decrease)       Percent   
Revenue    $       $       $           
Cost of Revenue                                
Gross Margin                               
General and administrative expenses       (564,307)            (697,519)         (133,212 )       -19%  
Amortization and depreciation     (34,550)               (34,550)             0%  
Net loss    $ (598,857)      $ (732,069)      $ (133,212 )       -19%  

 

     

Nine months ending

June 30

 

      Increase/           
      2019       2018          (Decrease)       Percent   
Revenue    $       $       $           
Cost of Revenue                                
Gross Margin                               
General and administrative expenses       (7,118,040)         (7,342,454)         (224,414 )       -3%  
Amortization and depreciation     (104,214)       (103,650)       564       0.54%  
Net loss    $ (7,222,254)      $ (7,446,104)      $ (223,850 )       -3%  

  

REVENUES, COST OF REVENUES AND GROSS MARGIN

 

The Company had no revenues, cost of revenues or gross margin for the three and nine month periods ending June 30, 2019 and 2018.

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

General and administrative expenses for the three months ending June 30, 2019 totaled $564,307 compared to $697,519 during the same period in 2018. The decrease in general and administrative expenses of $133,212, or 19% less than the previous year, was primarily due to lower legal fees and stock-based compensation expenses incurred during the current period as compared to the same period in the previous year.

 

General and administrative expenses for the nine months ending June 30, 2019 totaled $7,118,040 compared to $7,342,454 during the same period in 2018. The decrease in general and administrative expenses of $224,414 or 3% less than the previous year, was primarily due to lower legal fees and a decrease in stock-based compensation.

 

AMORTIZATION AND DEPRECIATION

 

Amortization of intellectual VoIP communications patent properties and depreciation of fixed assets for the three months ending June 30, 2019 totaled $34,550 compared to $34,550 during the same period in 2018. There was no material difference between the amortization or depreciation for the three months ending June 30, 2019 as compared to the same period in 2018.

 

Amortization of the intellectual VoIP communications patent properties and depreciation of fixed assets for the nine months ending June 30, 2019 totaled $104,214 compared to $103,650 during the same period in 2018. There was a small increase of $564 for depreciation on computers and furniture purchased during the nine-month period. There was no material difference between the amortization expenses for the nine months ending June 30, 2019 as compared to the same period in 2018.

 

The Company follows GAAP (FAS 142) and is amortizing its intangibles over the remaining patent life of twelve (12) years. The Company evaluates its intangible assets annually and determines if the fair market value is less than its historical cost. If the fair market value is less, then impairment expense is recorded on the Company’s financial statements. The intangible assets on the financial statements of the Company relate primarily to the Company’s acquisition of Digifonica (International) Limited.

 

INTEREST EXPENSE

 

The Company had no financing or interest costs for the three or nine month periods ending June 30, 2019 and 2018.

 

 18

 

 

NET LOSS

 

The Company reported a net loss of $598,857 for the three months ended June 30, 2019 compared to a net loss of $732,069 for the same period in 2018. The net loss decrease of $133,212, or 19% over the same period in 2018 was due primarily to a decrease in legal fees and stock-based compensation.

 

The Company reported a net loss of $7,222,254 for the nine months ended June 30, 2019 compared to a net loss of $7,446,104 for the same period in 2018. The net loss decrease of $223,850, or 3% over the same period in 2018 was due primarily to a decrease in legal fees and stock-based compensation.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2019, the Company had an accumulated deficit of $49,870,618 as compared to an accumulated deficit of $41,692,920 at June 30, 2018. As of June 30, 2019, the Company had a working capital surplus of $2,287,823 as compared to a working capital surplus of $2,567,435 at June 30, 2018. The increase in the Company's working capital surplus of $279,612 was primarily due to an increase in cash proceeds from private placements and warrant exercises.

 

Net cash used by operations for the nine months ending June 30, 2019 and 2018 was $1,692,957 and $1,726,912, respectively. The decrease in net cash used for the nine months ending June 30, 2019 as compared to the nine months ending June 30, 2018 was primarily due to a decrease in cash expenditures for legal expenses during the period.

 

Net cash used in investing activities for the nine months ending June 30, 2019 and 2018 was $11,917 and $Nil, respectively.

 

Net cash provided in financing activities for the nine months ending June 30, 2019 and 2018 was $471,240 and $4,512,060 respectively. The decrease in net cash provided by financing activities of $4,040,820 was primarily due to a decrease in cash proceeds from private placements and warrant exercises.

 

Liquidity

 

The Company primarily finances its operations from cash received through equity private placements of common stock and through the payment of stock-based compensation. The Company believes its resources are adequate to fund its operations for the next 12 months.

 

Off Balance Sheet Arrangements

 

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 period ended September 30, 2018, the board of directors authorized the increase of the Performance Bonus to up to 10% of the capital stock of the Company.

 

During the nine-month period ended June 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 9). 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 June 30, 2019, no bonusable event had occurred and there was no Performance Bonus payable.

 

Impact of Inflation

 

We believe that inflation has not had a material impact on our results of operations for the three- and nine-months ending June 30, 2019. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

 19

 

 

Item 4.Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q that our internal control over financial reporting has not been effective. The company intends, as the company’s finances improve, to hire additional accounting staff and implement additional controls.

 

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that results more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of June 30, 2019:

 

1)Lack of segregation of duties. At this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. Management will periodically reevaluate this situation.

 

2)Lack of an independent audit committee. Although the Board of Directors serves as an audit committee it is not comprised solely of independent directors. We may establish an audit committee comprised solely of independent directors when we have sufficient capital resources and working capital to attract qualified independent directors and to maintain such a committee.

 

3)Insufficient number of independent directors. At the present time, our Board of Directors does not consist of a majority of independent directors, a factor that is counter to corporate governance practices as set forth by the rules of various stock exchanges.

 

Our management determined that these deficiencies constituted material weaknesses. Due to a lack of financial resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until we acquire sufficient financing to do so. We will implement further controls as circumstances, cash flow, and working capital permit. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2019 that have materially affected or are reasonably likely to materially affect such controls.

 

 20

 

 

PART II—OTHER INFORMATION

 

Item 1.Legal Proceedings.

 

Other than noted below, there have been no material developments during the current quarter for our legal proceedings that were disclosed in our registration statement on Form 10 filed on April 22, 2016. For a full disclosure of legal proceedings, please reference our Form 10 registration or Note 11 of the Financial Statements contained in this report.

 

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 this 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 (collectively, the “Defendants”). The proceedings in these cases were temporarily stayed, by agreement with the parties thereto, pending the outcome of two Inter Partes Reviews (“IPRs”), which were decided in Voip-Pal’s favor.

 

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. 18-cv-06177-LHK, 18-cv-06217-LHK, 18-cv-04523-LHK and 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 has appealed this Court decision. The outcome of the appeal process is undeterminable.

 

iv)Voip-Pal.com Inc. v. Twitter, Inc. (Case No. 2:16-CV-02338) in the United States District Court, District of Nevada

 

During the year ended September 30, 2017, 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 remains pending. The outcome of this case is undeterminable.

 

v)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.

 

 21

 

 

Inter Partes Reviews

 

In additional legal actions related to Item iii above, two of the Company’s patents have been subject to challenge in several 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.

 

More particularly, a total of eight IPRs, filed against Patent No. 8,542,815 and No. 9,179,005, were either in process before the PTAB or had been resolved, as follows:

 

Unified Patents Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner), IPR2016-01082, filed May 24, 2016, requesting inter partes review of U.S. Patent No. 8,542,815. On November 18, 2016, the PTAB denied institution of this petition;

 

Apple, Inc. (Petitioner) vs. Voip-Pal.com Inc. (Patent Owner), IPR2016-01198, reviewing Patent No. 9,179,005 and Voip-Pal.com Inc. (Patent Owner), IPR2016-01201, reviewing Patent No. 8,542,815, both instituted for IPR on November 21, 2016;

 

AT&T Inc. (Petitioner) filed IPR2017-01382 against Voip-Pal’s Patent No. 8,542,815, IPR2017-01383 against Voip-Pal’s Patent No. 9,179,005, and IPR2017-01384 against Voip-Pal’s Patent No. 9,179,005 on May 8, 2017, each of which was subsequently denied institution; and

 

Apple Inc. (Petitioner) filed IPR2017-01399 against Voip-Pal’s Patent No. 8,542,815, and IPR2017-01398 against Voip-Pal’s Patent No. 9,179,005 on May 9, 2017, each of which was subsequently denied institution.

 

During the year ended September 30, 2018, the PTAB considered the aforesaid IPRs, and on November 20, 2017, the PTAB issued its findings on the seven active IPRs being adjudicated, denying institution of the IPRs with respect to all claims challenged by the Petitioners (Apple Inc, and AT&T Inc.). Subsequent to that ruling, 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.

 

On December 21, 2018, a new panel of 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.

 

Item 1A.Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

 

The transactions described in this section were exempt from securities registration as provided by Section 4(a)(2) of the Securities Act for transactions not involving a public offering for sales within the United States and by Regulation S of the Securities Act for sales made outside of the United States.

 

During the period ended June 30, 2019, the Company issued 1,110,000 common shares priced at $0.02 per common share for services with an aggregate value of $22,000.

 

Item 3.Defaults Upon Senior Securities.

 

None.

 

Item 4.Mine Safety Disclosures.

 

Not applicable.

 

Item 5.Other Information.

 

None.

 

 22

 

 

Item 6.Exhibits.

 

Exhibit Number   Description of Exhibits    
         
31.1   Rule 13a-14(a) Certification of CEO   Filed herewith
31.2   Rule 13a-14(a) Certification of CFO   Filed herewith
32.1   Section 1350 Certification   Filed herewith
101.INS   XBRL Instance Document   Filed herewith
101.SCH   XBRL Taxonomy Extension Schema Document   Filed herewith
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document   Filed herewith
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document   Filed herewith
101.LAB   XBRL Taxonomy Extension Label Linkbase Document   Filed herewith
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document   Filed herewith

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DATED: August 13, 2019 By: /s/Emil Malak  
   Emil Malak
   Chief Executive Officer
          
DATED: August 13, 2019 By: /s/D. Barry Lee  
   D. Barry Lee
   Chief Financial Officer

 

 23