2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing these financial statements
in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported
amount of revenues and expenses during the reporting years. Actual results could differ from those estimates.
Fair Value Measurements
ASC 820, “Fair Value Measurements”,
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to
measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to
measure fair value: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2, inputs other than level one that are either directly or indirectly observable such as quoted prices for identical or similar
assets or liabilities on markets that are not active; and Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring an entity to develop its own assumptions. The Company had no assets or liabilities required to
be recorded at fair value on a recurring basis as of November 30, 2015 or August 31, 2015.
The estimated fair value of certain financial
instruments, including cash and cash equivalents, and accounts payable are carried at historical cost basis, which approximates
their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit
obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates
taken together with other features are comparable to rates of returns for instruments of similar credit risk.
Share Based Compensation
The Company applies ASC 718 Share-Based Compensation
and ASC 505 Equity to account for service provider share-based payments. In accordance with ASC 718 and ASC 505, the Company determines
whether a share based payment should be classified and accounted for as a liability award or equity award. All grants of share-based
payments to service providers are classified as equity awards and are recognized in the financial statements over the period in
which the services are received based on the fair value determined as of the measurement date. Included in prepaid expenses on
the accompanying balance sheet at November 30, 2015 and August 31, 2015 is the unamortized portion of share based payments for
services to be rendered of $728,247 and $791,962 respectively.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with
high quality banking institutions.
Income Taxes
Under ASC 740, "Income Taxes", deferred tax assets and
liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred
tax assets will not be realized.
In assessing the realization of deferred tax
assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment. Based on the assessment, the Company has established
a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all
of the deferred tax assets will not be realized.
The Company files income tax returns in Canada
and the United States with varying statutes of limitations. The Company's policy is to recognize interest expense and penalties
related to income tax matters as a component of our provision for income taxes.
Foreign Currency Translation
The Company's reporting and functional currency
is the U.S. dollar. The Company's Canadian operation's functional currency is the Canadian dollar. The Company's U.S. subsidiary's
functional currency is the U.S. dollar.
Transactions originating in Canadian dollars
are translated to the functional currency of the US dollar as follows: using period end rates of exchange for assets and liabilities,
average rates of exchange for the period of transactions for revenues and expenses and historical rates for equity.
The financial statements of the Company's Canadian
operations are translated from the functional currency of the Canadian dollar into the reporting currency of the United States
dollar in accordance with ASC 830, Foreign Currency Matters, using period end rates of exchange for assets and liabilities, average
rates of exchange for the period for revenues and expenses and historical rates for equity.
Translation adjustments resulting from the
process of translating the functional currency of Canadian dollar Canadian operation's financial statements into the reporting
currency of U.S. dollar financial statements are included in determining comprehensive income. As of November 30, 2015 and August
31, 2015, the cumulative translation adjustment of $161,916 and $103,432 respectively was classified as accumulated other comprehensive
income in the stockholders' deficit section of the balance sheet. For the periods ended November 30, 2015 and November 30, 2014,
the foreign currency translation adjustment to accumulated other comprehensive income was $58,484 and $(16,156) respectively.
Comprehensive Loss
Comprehensive loss is defined to include all
changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, Accounting
Standards Codification (ASC) 200, Comprehensive Income, requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same
prominence as other financial statements. For the year presented, the Company's comprehensive loss includes net loss and foreign
currency translation adjustments and is presented in the statement of comprehensive loss.
Research and Development Expenses
All research and development costs are expensed as incurred.
Convertible Instruments
The Company evaluates and accounts for conversion
options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of
the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts
for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host
instruments) as follows: To record when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are
amortized over the term of the related debt to their stated date of redemption.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. generally accepted
accounting principles (GAAP). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements
better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers Deferral of the Effective Date, which
defers the effective date of the new revenue recognition standard by one year, as a result, public entities would apply the new
revenue standard to annual reporting periods beginning after December 15, 2017 and interim periods therein, which is the Company's
first quarter of fiscal 2019. Early adoption is permitted for all entities only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting period. The guidance allows for the amendment to
be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment
as of the date of adoption. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Amendments to
the Consolidation Analysis (ASU 2015-02). ASU 2015-02 affects reporting entities that are required to evaluate whether they
should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal
entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner
should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs,
particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and
for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity
may apply the amendments in this guidance using a modified retrospective approach by recording a cumulative-effect adjustment
to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively.
The adoption of ASU 2015-02 in the first quarter of fiscal 2017 is not expected to have a material impact on the Company’s
financial condition or results of operations.
In June 2014, the FASB issued ASU 2014-12, Accounting
for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite
Service Period (ASU 2014-12), which requires that a performance target that affects vesting and that could be achieved after
the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods
within those annual periods beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-12 in the
first quarter of fiscal 2017 is not expected to have a material impact on the Company's financial condition or results of operations.
In August 2014, the FASB issued Accounting Standards Update 2014–15
(“ASU 2014-15), “Presentation of Financial Statements – Going Concern (Subtopic 205 – 40): Disclosure
of Uncertainties About an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to
evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a
going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as
they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around
certain disclosures to the financial statements, we anticipate no impact on our financial position or results of operations from
adopting this standard. We are currently assessing the additional disclosure requirements, if any, of ASU 2014-15. ASU 2014-15
is effective for the annual period ended December 31, 2016 and for annual periods and interim periods thereafter with early
adoption permitted.
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