NOTES
TO THE INTERIM FINANCIAL STATEMENTS
(Audited)
December
31, 2018
Note
1
Nature and Continuance of Operations
The
Company was incorporated on June 15, 1998 in the State of Nevada, USA and the Company’s common shares are publicly traded
on the OTC Bulletin Board.
On
January 21, 2015, a majority of the Company’s stockholders approved a consolidation of the issued and outstanding shares
of common stock, on a 10 for 1 basis, thereby decreasing the issued and outstanding share capital from 113,020,000 to 11,302,000.
These financial statements give retroactive effect to this change.
Effective
December 31, 2016, the Company dissolved its wholly owned subsidiary, Scout Resources Inc. (“Scout”) and assumed all
the debt that Scout owed.
Up
until fiscal 2014, the Company was in the business of mineral exploration. On May 28, 2014, the Company formalized an agreement
whereby it purchased assets associated with a smokeless cannabis delivery system. The Company planned to develop this system for
commercial purposes. On December 14, 2014, the smokeless cannabis delivery agreement was terminated.
On
September 16, 2016, the Company entered into an exclusive distribution product license agreement with Tuffy Packs, LLC to distribute
products into the United Kingdom and 43 other essentially European countries. The Company is selling ballistic panels which are
personal body armors, that conforms to the National Institute of Justice (NIJ) Level IIIA threat requirements. The Company’s
plan of operations and sales strategy include online and social media marketing, as well as attending various tradeshows and conferences.
As the Company failed to make specified payments as required, the agreement was amended to a non-exclusive basis.
On
March 11, 2015, the Company changed its name from Madison Explorations, Inc. to Madison Technologies Inc. and effected the stock
consolidation.
These
financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern,
which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization
values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments
that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue
as a going concern. At December 31, 2018, the Company had not yet achieved profitable operations, has accumulated losses of $532,016
since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt
about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is
dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations
and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to
address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related
party advances. That said, there is no assurance of additional funding being available.
Madison Technologies Inc.
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Form 10-K - 2018
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Page
23
|
Note
2
Summary of Significant Accounting Policies
a)
Year end
The
Company has elected a December 31st fiscal year end.
b)
Cash and cash equivalents
The
Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
As at December 31, 2018, the Company did not have any cash equivalents in 2018. (2017 – $nil).
c)
Revenue Recognition
The
Company recognizes revenue when a contract is in place, goods or services are delivered to the purchaser and collectability is
reasonably assured.
d)
Stock-Based Compensation
The
Company follows the guideline under FASB ASC Topic
718 “
Compensation-Stock Compensation
”
for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans
and stock appreciation rights. Stock compensation expenses are to be recorded using the fair value method. No stock options have
been issued.
e)
Basic and Diluted Net Income (Loss) per Share
The
Company reports basic loss per share in accordance FASB ASC Topic 260, “
Earnings per share
”. Basic net income
(loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per share on the potential exercise of the equity-based
financial instruments is not presented where anti-dilutive.
f)
Comprehensive Income
In
accordance with FASB ASC Topic 220 “
Comprehensive Income
,” comprehensive income consists of net income and
other gains and losses affecting stockholder’s equity that are excluded from net income, such as unrealized gains and losses
on investments available for sale, foreign currency translation gains and losses and minimum pension liability.
g)
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company
may undertake in the future, actual results may ultimately differ from the estimates. Management believes such estimates to be
reasonable.
h)
Fair Value Measurements
The
Company follows FASB ASC Topic 820, “
Fair Value Measurements and Disclosures”
, for all financial instruments
and non-financial instruments accounted for at fair value on a recurring basis. This accounting standard establishes a single
definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurement and expands disclosures about fair value measurements required under other
accounting pronouncements. It does not change existing guidance as to whether or not an instrument is carried at fair value. The
Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities,
which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the
Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the
asset or liability, such as inherent risk, transfer restrictions and credit risk. The Company has adopted FASB ASC 825, “
Financial
Instruments”,
which allows companies to choose to measure eligible financial instruments and certain other items at
fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible
financial instruments.
Madison Technologies Inc.
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Form 10-K - 2018
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24
|
i)
Financial Instruments and correction of error in previously issued financial statements
Fair
Value
The
Company’s financial instruments consisting of cash, account payable and accrued liabilities, notes payable and accrued interest
and related party advances are carried at face which approximates fair value because of their short-term nature.
During
the year ended 2017, the Company changed the accounting policy by which it accounts for its convertible debt. Previously, the
Company based its policy on the fact that the promissory notes have been issued without an interest component and, assuming the
reason for investing is the pursuit of profit, the total value of these instruments had been allocated to the equity component
as this is the only logical reason for investment. Promissory note issuances were included in additional paid-in capital and were
amortized and charged to interest on an effective interest rate basis.
During
the year, the Company corrected this policy and adopted FASB ASC Topic 470, “
Debt with Conversions and Other Options,
”
which requires that convertible debt with no beneficial conversion feature be allocated in totality to debt and that no amount
be allocated to equity. This change has been applied retroactively to the financial statements and the effect on the financial
statements is described in Note 8. None of the Company’s convertible notes had a beneficial conversion feature.
Risks:
Financial
instruments that potentially subject the Company to credit risk consist principally of cash. Management does not believe the Company
is exposed to significant credit risk.
Management,
as well, does not believe the Company is exposed to significant interest rate risks during the period resented in these financial
statements.
The
accompanying financial statements do not include any adjustments that might result from the eventual outcome of the risks and
uncertainties described above.
j)
Income Taxes
The
Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements
or tax returns. In estimating future tax consequences, all expected future events other than enactment of changes in the tax laws
or rates are considered.
Due
to the uncertainty regarding the Company’s future profitability, the future tax benefits of its losses have been fully reserved.
Madison Technologies Inc.
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Form 10-K - 2018
|
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25
|
k)
Impairment of Long-Lived Assets
Impairment
losses on long-lived assets, such as mining claims, are recognized when events or changes in circumstances indicate that the undiscounted
cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying
amounts.
l)
Foreign Currency Translation and Transactions
The
Company’s functional currency is US dollars. Foreign currency balances are translated into US dollars as follows:
Monetary
assets and liabilities are translated at the period-end exchange rate. Non-monetary assets are translated at the rate of exchange
in effect at their acquisition, unless such assets are carried at market or nominal value, in which case they are translated at
the period-end exchange rate. Revenue and expense items are translated at the average exchange rate for the period. Foreign exchange
gains and losses in the period are included in operations.
The
functional currency of the now dissolved wholly owned subsidiary was Canadian dollars. The assets and liabilities arising from
these operations were translated at current exchange rates and related revenues and expenses at the exchange rates in effect at
the time the revenue or expense was incurred. Resulting translation adjustments, if material, were accumulated as a separate component
of accumulated other comprehensive income in the statement of stockholders’ deficit.
m)
Intangible Assets
Intangible
assets are non-monetary identifiable assets, controlled by the Company that will produce future economic benefits, based on reasonable
and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet
these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially
measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those
with an indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible
assets subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if
applicable, unscheduled amortization is considered.
A
license agreement has been capitalized and recorded at cost. It has been amortized over the life of the contract, which is two
years.
n)
Recent Accounting Pronouncements
The
Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued,
which may be in advance of their effective date. Management does not believe that any pronouncement not yet effective but recently
issued would, if adopted, have a material effect on the accompanying financial statements.
Note
3
License Agreement
The
Company entered into an exclusive product license agreement on September 16, 2016 with Tuffy Packs, LLC, a Texas corporation,
to sell Ballistic Panels in certain countries, essentially in Europe. The license is for a period of two years unless terminated
and may be renewed for successive terms of two years each. The payment terms for the license is as follows:
|
1.
|
$10,000
payable within seven days after the effective date;
|
|
2.
|
An
additional $15,000 payable within 30 days after the effective date; and
|
|
3.
|
A
final payment of $25,000 payable within 90 days of the effective date.
|
Madison Technologies Inc.
|
Form 10-K - 2018
|
Page
26
|
At
December 31, 2018, the Company had paid $16,500 to the Licensor, leaving an unpaid balance of $33,500. To date, the Company has
recorded a total license amortization of $50,000.
As
a result of the failure to make payments as required under the agreement, the Company was informed on March 20, 2017, that going
forward, the agreement would be on a non-exclusive basis.
Note
4
Demand Notes and Accrued Interest Payable
The
Company has three notes payable. Each note is unsecured and payable on demand.
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Note
payable bearing interest at 8%
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Accrued
interest there on
|
|
|
27,797
|
|
|
|
25,797
|
|
|
|
|
52,797
|
|
|
|
50,797
|
|
|
|
|
|
|
|
|
|
|
Note
payable bearing interest at 5%
(Debt is Canadian $30,000)
|
|
|
22,059
|
|
|
|
23,809
|
|
Accrued
interest there on
|
|
|
12,960
|
|
|
|
12,798
|
|
|
|
|
35,019
|
|
|
|
36,607
|
|
|
|
|
|
|
|
|
|
|
Note
payable bearing at 12%
|
|
|
25,000
|
|
|
|
25,000
|
|
Accrued
interest there on
|
|
|
13,682
|
|
|
|
10,690
|
|
|
|
|
38,682
|
|
|
|
35,690
|
|
|
|
|
|
|
|
|
|
|
Total
debt and interest payable
|
|
$
|
126,498
|
|
|
$
|
123,094
|
|
Interest
accrued for the year ended December 31, 2018 were as follows:
Interest
accrued on the note bearing 8% interest was $2,000 (2017 - $2,00).
Interest
accrued on the note bearing 5% interest was $1,143 (2017 - $1,190).
Interest
accrued on the note bearing 12% interest was $2,992 (2017 - $2,992).
Madison Technologies Inc.
|
Form 10-K - 2018
|
Page
27
|
Note
5
Convertible Notes Payable
As
at December 31, 2018, there are nine convertible notes payable. Two notes were converted into shares during the year ended December
31, 2017 and two notes were converted into shares during the period ended March 31, 2018. All notes are non-interest bearing,
unsecured and payable on demand. The remaining notes are convertible into common stock at the discretion of the holder at five
different conversion rates: $0.01 debt to 1 common share, $0.005 to 1 common share; $0.15 to 1 common share; $0.05 to 1 common
share; and $0.04 to 1 common share. The effect that conversion would have on earnings per share has not been disclosed due to
the anti-dilutive effect. A recap of convertible debt outstanding based on conversion rates is as follow:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Convertible
at $0.01 debt to 1 common share
|
|
$
|
85,000
|
|
|
$
|
110,000
|
|
Convertible
at $0.005 debt to 1 common share
|
|
|
10,000
|
|
|
|
20,000
|
|
Convertible
at $0.015 debt to 1 common share
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible
at $0.05 debt to 1 common share
|
|
|
23,490
|
|
|
|
21,000
|
|
Convertible
at $0.04 debt to 1 common share
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
163,490
|
|
|
|
196,000
|
|
Less
related party convertible debt at $0.05 debt to 1 common share (Note 6)
|
|
|
(490
|
)
|
|
|
|
|
Total
convertible debt to third parties
|
|
$
|
163,000
|
|
|
$
|
196,000
|
|
Note
6
Related Party Advance
In
2008, the President advanced the Company $561 repayable without interest or any other terms. The unpaid balance as at October
23, 2018 was $261. The President advanced a further $229 (CAD $300) to cover out of pocket expenditures. On October 23, 2018,
the Company entered into a convertible note payable with the President by combining the two advances to the aggregate amount of
$490. The note payable is due on demand and may be convertible to common stock of the Company at $0.05 per share. There were no
other related party transactions during the period ended December 31, 2018 or the year ended December 31, 2017.
Note
7
Common Stock
On
March 2, 2018, the Company completed a private placement of 150,000 shares of common stock at a per share price of $0.10 for gross
proceeds of $15,000. As of the date of this report, the shares have not been issued.
On
February 16, 2018, the Company completed a private placement of 150,000 shares of common stock at a per share price of $0.10 for
gross proceeds of $15,000. As of the date of this report, the shares have not been issued.
On
January 25, 2018, two convertible notes were converted into shares. One note for $25,000 was converted into 2,500,000 shares at
$0.01 per share and the other note for $10,000 was converted into 2,000,000 shares at $0.005 per share.
On
July 14, 2017, two convertible notes were converted into shares. One note for $25,000 was converted into 555,556 shares at $0.045
per share and the other note for $20,000 was converted to 400,000 shares at $0.05 per share.
On
January 21, 2015, a majority of the Company’s stockholders approved a consolidation of the issued and outstanding shares
of common stock, on a 10 for 1 basis, thereby decreasing the issued and outstanding share capital from 113,020,000 to 11,302,009.
This was effected on March 11, 2015. This consolidation has been applied retroactively and all references to the number of shares
issued reflect this consolidation.
On
March 30, 2006, the Company entered into a private placement agreement whereby the Company issued 20,000 Regulation-S shares in
exchange for $50,000. ($2.50 per share).
On
June 7, 2004, the Company issued 5,907,000 in consideration of $472 in cash. ($.00008 per share.)
Madison Technologies Inc.
|
Form 10-K - 2018
|
Page
28
|
On
June 14, 2001, the Company approved a forward stock split of 5,000:1.
On
June 15, 1998, the Company authorized and issued 5,375,000 shares of its common stock in consideration of $430 in cash. ($.00008
per share.)
There
are no shares subject to warrants or options as of December 31, 2018.
Note
8 Income Taxes
Income
tax recovery differs from that which would be expected from applying the effective tax rates to the net income (loss) as follows:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Net
income (loss) for the year – as restated
|
|
$
|
(53,906
|
)
|
|
$
|
(53,273
|
)
|
Statutory
and effective tax rates
|
|
|
27.0
|
%
|
|
|
26.0
|
%
|
Income
taxes expenses (recovery) at the effective rate
|
|
$
|
(14,555
|
)
|
|
$
|
(13,851
|
)
|
Effect
of change in tax rates
|
|
|
(3,417
|
)
|
|
|
|
|
Tax
benefit not recognized
|
|
|
17,972
|
|
|
|
13,851
|
|
Income
tax expense (recovery) and income tax liability (asset)
|
|
$
|
-
|
|
|
$
|
-
|
|
As
at December 31, 2018 the tax effect of the temporary timing differences that give rise to significant components of deferred income
tax asset are noted below. A valuation allowance has been recorded as management believes it is more likely than not that the
deferred income tax asset will not be realized.
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Tax
loss carried forward
|
|
$
|
395,697
|
|
|
$
|
41,791
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
$
|
106,838
|
|
|
$
|
88,866
|
|
valuation
allowance
|
|
|
(106,838
|
)
|
|
|
(88,866
|
)
|
Deferred
taxes recognized
|
|
$
|
-
|
|
|
$
|
-
|
|
The
tax losses will expire between
2028 and 2039.
Note
9 Subsequent events
On
February 26, 2019 the Company completed a private placement of 400,000 at $0.05 per share for gross proceeds of $20,000. At the
date of this report, the shares have not been issued.
On
March 13, 2019, the Company completed a private placement of 600,000 at $0.05 per share for gross proceeds of $30,000. At the
date of this report, the shares have not been issued.
Madison Technologies Inc.
|
Form 10-K - 2018
|
Page
29
|