| 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | a) Basis of Consolidation The consolidated financial statements include the accounts of First
National Energy Corporation, its wholly-owned subsidiary First National Energy (Canada) Corporation and its 99.99% owned subsidiary
Pavana Power Corporation. All material inter-company amounts have been eliminated.
b) Use of Estimates These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America. As the precise determination of assets and liabilities,
and revenues and expenses, depends on future events, the preparation of financial statements for any period necessarily involves
the use of estimates. Actual amounts may differ from these estimates. Significant estimates include the recording of accruals,
the useful life of intangible assets, and the determination of the valuation of allowances for deferred tax assets.
c) Financial Instruments The Companys financial instruments consist of cash, accounts
payable and accrued liabilities, and loans payable. Unless otherwise noted, it is of managements opinion that the Company
is not exposed to significant interest, or credit risks arising from these financial instruments. The fair values of these financial
instruments approximate their carrying values due to the relatively short period to maturity for these instruments. The Companys financial assets and liabilities are generally
classified and measured as follows:
Assets / Liabilities Classification Measurement
Cash Held for trading Fair value
Accounts Payable and Accrued Liabilities Other liability Amortized Cost
Loan payable to director Other liability Amortized Cost
Loan Payable to related party Other liability Amortized cost The Company follows ASC 820-10, Fair Value Measurements and
Disclosures (ASC 820-10), which among other things, defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring
basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows: ● Level 1Inputs are unadjusted, quoted prices in active
markets for identical assets or liabilities at the measurement date. Fair valued assets that are generally included in this category are
cash and cash equivalents comprised of money market funds, restricted cash and short-term investments. ● Level 2Inputs (other than quoted prices included in
Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement
date and for the duration of the instruments anticipated life. ● Level 3Unobservable inputs reflect managements
best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. At December 31, 2014 and 2013, the only assets measured at fair value
using level 1 of the three fair value hierarchy tiers described above was cash of $2,237 ($1,096 2013), and accounts payable,
loan payable to director, and loan payable to related party are measured using amortized cost at level 2. The Company did not have
any fair value assets or liabilities classified as level 3.
2014 2013
Carrying Value Fair Value Carrying Value Fair Value
Cash 2,237 2,237 1,096 1,096
Accounts payable and accrued liabilities 59,500 59,500 44,500 44,500
Loan payable to director 76,275 76,275 78,042 78,042
Loan payable to related party 540,000 540,000 540,000 540,000 Foreign exchange risk: The Companys subsidiary conducts its opening activities in
Canadian dollars. The Company is therefore subject to gains or losses due to fluctuations in Canadian currency relative to the
US dollar. The Company has no exposure to this given its limited activity and assets through the year. Liquidity risk: The Company monitors its liquidity position regularly to assess whether
it has the funds necessary to fulfill planned commitments on its alternative energy technology or viable options are available
to fund such commitments from new equity issuance or alternative sources such as debt financing. However, as a development stage
company and without significant internally generated cash flow, there are inherent liquidity risks, including the possibility that
additional financing may not be available to the Company, or that actual development expenditures may exceed those planned. The
current uncertainty in global markets could have an impact on the Companys future ability to access capital on terms that
are acceptable to the Company. The company has so far been able to raise the required financing to meet its obligations on time.
The Company has no exposure to this given its limited activity through the year.
d) Income Taxes The Company accounts for income taxes under FASB Codification Topic
740-10-25 (ASC 740-10-25). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to 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. Under ASC 740-10-25, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets
likely. The Company did not incur any material impact to its financial condition or results of operations due to the financial
statement recognition and measurement of a tax position tax or expected to be taken in a tax return. Deferred income taxes are established for all temporary differences
between the book and the tax basis of assets and liabilities. In addition, deferred tax balances must reflect tax rates expected
to be in effect in years in which the temporary differences reverse. Canadian taxes are calculated at rates expected to be in effect
in Canada. U.S. deferred tax liabilities are not recognized on profits that are expected to be permanently reinvested in Canada
and thus not considered available for distribution to the parent company. It is not practicable to determine our unrecognized deferred
tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration.
Net operating loss carry-forwards and other deferred tax assets are reviewed annually for recoverability, and, if necessary, are
recorded net of a valuation allowance. Note 7 contains additional discussion regarding income taxes.
e) Comprehensive loss Comprehensive loss includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in comprehensive loss, which are excluded from net loss, include
foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.
f) Intangible Assets Intangible assets include the technology licenses which are amortized
over the estimated useful life of 10 years on a straight line basis. However, since these licenses were written to nominal value,
no amortization was recognized during the year for accounting purposes.
g) Impairment of Long-Lived Assets Long-lived assets to be held and used are analyzed for impairment
whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates
at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications
of impairment, the Company uses future undiscounted cash flows of the related asset or asset group over the remaining life in measuring
whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value.
h) Loss per share Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding plus common stock equivalents (if dilutive). As of December 31, 2014, there were no
common stock equivalents.
i) Stock-Based Compensation The Company accounts for equity instruments issued in exchange for
the receipt of goods or services from other than employees using the estimated fair market value of the consideration received
or estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of
performance by the provider of goods or services. As of December 31, 2014, there was $nil of unrecognized expense related to stock-based
compensation, and stock based compensation expense relating to all employees and non-employees were $nil for the years ended December
31, 2014 and 2013.
j) Foreign Currency The parent Company maintains its books and records in U.S. dollars
which is its functional and reporting currency. One of the Companys operating subsidiary is a foreign private company and
maintains its books in Canadian dollars (the functional currency). The subsidiarys
financial statements are converted to US dollars for consolidation purposes. The translation method used is the current rate method,
where the functional currency is the foreign currency. Under the current rate method all assets and liabilities are translated
at the current rate, stockholders equity are translated at historical rates and revenues and expenses are translated at
average rates for the year. Due to the fact that items in the financial statements are being
translated at different rates according to their nature, a translation adjustment is created. This translation adjustment has been
included in Other Comprehensive Loss.
k) Recent Accounting Pronouncements In June 2014, the FASB issued ASU 2014-10, Development Stage
Entities (Topic 915): Elimination of Certain Financial Reporting Requirements (ASU 2014-10), which eliminates
the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date
information on the statements of operations, cash flows and changes in stockholders equity. The amendments in ASU 2014-10
are effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual
periods; however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 early for the current period presented. In April 2014, the FASB issued ASU 2014-08, Presentation of Financial
Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity (ASU 2014-08), which includes amendments that change the requirements for reporting
discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals
representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have
a major effect on the organizations operations and financial results. Additionally, ASU 2014-08 requires expanded disclosures
about discontinued operations that will provide financial statement users with more information about the assets, liabilities,
income, and expenses of discontinued operations. The new standard is effective for annual reporting periods beginning on or after
December 15, 2014. Early application is permitted. The Company is evaluating the effect that ASU 2014-08 will have on its consolidated
financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning
on or after December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial
statements and related disclosures. In August 2014, the FASB issued ASU 2014-15 Presentation of Financial
StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a
Going Concern (ASU 2014-15), which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys
ability to continue as a going concern within one year after the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going
concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim
periods thereafter, with early adoption permitted. The Company is currently assessing the impact of this guidance. On January 9, 2015, FASB issued ASU 2015-01, Income Statement- Extraordinary
and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.
The ASU eliminates the concept of extraordinary items and the uncertainty in determining when an item is both unusual
in nature and infrequent in occurrence. Presently, an event or transaction is presumed to be ordinary activity unless evidence
supports the transaction as unusual in nature and infrequent in occurrence. If an event or transaction is determined to be unusual
and infrequent, it is deemed to be extraordinary, and is required to be segregated from the results of ordinary operations
on the face of the income statement, net of tax, after income from continuing operations, along with other financial statement
disclosures. ASU 2015-01 eliminates the concept of extraordinary items from the income statement presentation. Eliminating
this concept removes the uncertainty in determining when a transaction is both unusual in nature and infrequent in occurrence.
However, the presentation and disclosure guidance for items that are unusual in nature OR occur infrequently will be retained and
will be expanded to include items that are both unusual in nature and infrequently occurring. This ASU aligns US
GAAP with IAS 1, which prohibits presentation and disclosure of extraordinary items. This ASU is effective for years beginning
after December 15, 2015, with early adoption permitted. The Company is currently assessing the impact of this guidance.
l) Non-controlling Interest Non-controlling interests in the Companys subsidiaries are
recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parents
equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions.
Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and,
upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or
loss recognized in earnings. | a) Basis of Consolidation The consolidated financial statements include the accounts of First
National Energy Corporation, its wholly-owned subsidiary First National Energy (Canada) Corporation and its 99.9% owned subsidiary
Pavana Power Corporation. All material inter-company amounts have been eliminated.
b) Use of Estimates These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America. As the precise determination of assets and liabilities,
and revenues and expenses, depends on future events, the preparation of financial statements for any period necessarily involves
the use of estimates. Actual amounts may differ from these estimates. Significant estimates include the recording of accruals,
the useful life of intangible assets, and the determination of the valuation of allowances for deferred tax assets.
c) Financial Instruments The Companys financial instruments consist of cash, accounts
payable and accrued liabilities, and loans payable. Unless otherwise noted, it is of managements opinion that the Company
is not exposed to significant interest, or credit risks arising from these financial instruments. The fair values of these financial
instruments approximate their carrying values due to the relatively short period to maturity for these instruments. The Companys financial assets and liabilities are generally
classified and measured as follows:
Assets / Liabilities Classification Measurement
Cash Held for trading Fair Value
Accounts Payable and Accrued Liabilities Other liability Amortized Cost
Loan payable to Director Other liability Amortized Cost
Loan Payable to Related Party Other liability Amortized cost The Company follows ASC 820-10, Fair Value Measurements and
Disclosures (ASC 820-10), which among other things, defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring
basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows: ● Level 1Inputs are unadjusted, quoted prices in active
markets for identical assets or liabilities at the measurement date. Fair valued assets that are generally included in this category are
cash and cash equivalents comprised of money market funds, restricted cash and short-term investments. ● Level 2Inputs (other than quoted prices included in
Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement
date and for the duration of the instruments anticipated life. ● Level 3Unobservable inputs reflect managements
best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. At December 31, 2013 and 2012, the only assets measured at fair value
using level 1 of the three fair value hierarchy tiers described above was cash of $1,096 ($2,799 2012), and accounts payable,
loan payable to director, and loan payable to related party are measured using amortized cost at level 2. The Company did not have
any fair value assets or liabilities classified as level 3.
2013 2012
Carrying Value Fair Value Carrying Value Fair Value
Cash 1,096 1,096 2,799 2,799
Accounts payable and accrued liabilities 44,500 44,500 48,000 48,000
Loan payable to director 78,042 78,042 60,898 60,898
Loan payable to related party 540,000 540,000 540,000 540,000 Foreign exchange risk: The Companys subsidiary conducts its opening activities in
Canadian dollars. The Company is therefore subject to gains or losses due to fluctuations in Canadian currency relative to the
US dollar. The Company has no exposure to this given its limited activity and assets through the year. Liquidity risk: The Company monitors its liquidity position regularly to assess whether
it has the funds necessary to fulfill planned commitments on its alternative energy technology or viable options are available
to fund such commitments from new equity issuance or alternative sources such as debt financing. However, as a development stage
company and without significant internally generated cash flow, there are inherent liquidity risks, including the possibility that
additional financing may not be available to the Company, or that actual development expenditures may exceed those planned. The
current uncertainty in global markets could have an impact on the Companys future ability to access capital on terms that
are acceptable to the Company. The company has so far been able to raise the required financing to meet its obligations on time.
The Company has no exposure to this given its limited activity through the year.
d) Income Taxes The Company accounts for income taxes under FASB Codification Topic
740-10-25 (ASC 740-10-25). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to 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. Under ASC 740-10-25, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets likely.
The Company did not incur any material impact to its financial condition or results of operations due to the financial
statement recognition and measurement of a tax position tax or expected to be taken in a tax return. Deferred income taxes are established for all temporary differences
between the book and the tax basis of assets and liabilities. In addition, deferred tax balances must reflect tax rates expected
to be in effect in years in which the temporary differences reverse. Canadian taxes are calculated at rates expected to be in effect
in Canada. U.S. deferred tax liabilities are not recognized on profits that are expected to be permanently reinvested in Canada
and thus not considered available for distribution to the parent company. It is not practicable to determine our unrecognized deferred
tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration.
Net operating loss carry-forwards and other deferred tax assets are reviewed annually for recoverability, and, if necessary, are
recorded net of a valuation allowance. Note 7 contains additional discussion regarding income taxes.
e) Comprehensive loss Comprehensive loss includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in comprehensive loss, which are excluded from net loss, include
foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.
f) Intangible Assets Intangible assets include the technology licenses which are amortized
over the estimated useful life of 10 years on a straight line basis. However, since these licenses were written to nominal value,
no amortization was recognized for accounting purposes.
g) Impairment of Long-Lived Assets Long-lived assets to be held and used are analyzed for impairment
whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates
at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications
of impairment, the Company uses future undiscounted cash flows of the related asset or asset group over the remaining life in measuring
whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value.
h) Loss per share Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding plus common stock equivalents (if dilutive). As of December 31, 2013, there were no
common stock equivalents.
i) Stock-Based Compensation The Company accounts for equity instruments issued in exchange for
the receipt of goods or services from other than employees using the estimated fair market value of the consideration received
or estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of
performance by the provider of goods or services. As of December 31, 2013, there was $nil of unrecognized expense related to stock-based
compensation, and stock based compensation expense relating to all employees and non-employees were $nil for the years ended December
31, 2013 and 2012.
j) Foreign Currency The parent Company maintains its books and records in U.S. dollars
which is its functional and reporting currency. One of the Companys operating subsidiary is a foreign private company and
maintains its books in Canadian dollars (the functional currency). The subsidiarys financial statements are converted to
US dollars for consolidation purposes. The translation method used is the current rate method, where the functional currency is the foreign currency. Under the current rate method all
assets and liabilities are translated at the current rate, stockholders equity are translated at historical rates and revenues
and expenses are translated at average rates for the year. Due to the fact that items in the financial statements are being
translated at different rates according to their nature, a translation adjustment is created. This translation adjustment has been
included in Other Comprehensive Loss.
k) Recent Accounting Pronouncements In June 2014, the FASB issued ASU 2014-10, Development Stage
Entities (Topic 915): Elimination of Certain Financial Reporting Requirements (ASU 2014-10), which eliminates
the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date
information on the statements of operations, cash flows and changes in stockholders equity. The amendments in ASU 2014-10
are effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual
periods; however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 early for the current period presented. In April 2014, the FASB issued ASU 2014-08, Presentation of Financial
Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity (ASU 2014-08), which includes amendments that change the requirements for reporting
discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals
representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have
a major effect on the organizations operations and financial results. Additionally, ASU 2014-08 requires expanded disclosures
about discontinued operations that will provide financial statement users with more information about the assets, liabilities,
income, and expenses of discontinued operations. The new standard is effective for annual reporting periods beginning on or after
December 15, 2014. Early application is permitted. The Company is evaluating the effect that ASU 2014-08 will have on its consolidated
financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning
on or after December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial
statements and related disclosures. In August 2014, the FASB issued ASU 2014-15 Presentation of Financial
StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a
Going Concern (ASU 2014-15), which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys
ability to continue as a going concern within one year after the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going
concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim
periods thereafter, with early adoption permitted. The Company is currently assessing the impact of this guidance. On January 9, 2015, FASB issued ASU 2015-01, Income Statement- Extraordinary
and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.
The ASU eliminates the concept of extraordinary items and the uncertainty in determining when an item is both unusual
in nature and infrequent in occurrence. Presently, an event or transaction is presumed to be ordinary activity unless evidence
supports the transaction as unusual in nature and infrequent in occurrence. If an event or transaction is determined to be unusual
and infrequent, it is deemed to be extraordinary, and is required to be segregated from the results of ordinary operations
on the face of the income statement, net of tax, after income from continuing operations, along with other financial statement
disclosures. ASU 2015-01 eliminates the concept of extraordinary items from the income statement presentation. Eliminating
this concept removes the uncertainty in determining when a transaction is both unusual in nature and infrequent in occurrence.
However, the presentation and disclosure guidance for items that are unusual in nature OR occur infrequently will be retained and
will be expanded to include items that are both unusual in nature and infrequently occurring. This ASU aligns US
GAAP with IAS 1, which prohibits presentation and disclosure of extraordinary items. This ASU is effective for years beginning
after December 15, 2015, with early adoption permitted. The Company is currently assessing the impact of this guidance.
l) Non-controlling Interest Non-controlling interests in the Companys subsidiaries are
recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parents
equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions.
Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and,
upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or
loss recognized in earnings. | a) Basis of Consolidation The consolidated financial statements include the accounts of First
National Energy Corporation, its wholly-owned subsidiary First National Energy (Canada) Corporation and its 99.99% owned subsidiary
Pavana Power Corporation. All material inter-company amounts have been eliminated.
b) Use of Estimates These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America. As the precise determination of assets and liabilities,
and revenues and expenses, depends on future events, the preparation of financial statements for any period necessarily involves
the use of estimates. Actual amounts may differ from these estimates. Significant estimates include the recording of accruals,
the useful life of intangible assets, and the determination of the valuation of allowances for deferred tax assets.
c) Financial Instruments The Companys financial instruments consist of cash, accounts
payable and accrued liabilities, and loans payable. Unless otherwise noted, it is of managements opinion that the Company
is not exposed to significant interest, or credit risks arising from these financial instruments. The fair values of these financial
instruments approximate their carrying values due to the relatively short period to maturity for these instruments. The Companys financial assets and liabilities are generally
classified and measured as follows:
Assets / Liabilities Classification Measurement
Cash Held for trading Fair Value
Accounts Payable and Accrued Liabilities Other liability Amortized Cost
Loan payable to Director Other liability Amortized Cost
Loan Payable to Boreas Research Other liability Amortized cost The Company follows ASC 820-10, Fair Value Measurements and
Disclosures (ASC 820-10), which among other things, defines fair value, establishes a consistent framework for measuring
fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring
basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,
a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows: ● Level 1Inputs are unadjusted, quoted prices in active
markets for identical assets or liabilities at the measurement date. Fair valued assets that are generally included in this category are
cash and cash equivalents comprised of money market funds, restricted cash and short-term investments. ● Level 2Inputs (other than quoted prices included in
Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement
date and for the duration of the instruments anticipated life. ● Level 3Unobservable inputs reflect managements
best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. At December 31, 2012 and 2011, the only assets measured at fair value
using level 1 of the three fair value hierarchy tiers described above was cash of $2,799 ($4,563 2011), and accounts payable,
loan payable to director, and loan payable to related party are measured using amortized cost at level 2. The Company
did not have any fair value assets or liabilities classified as level 3.
2012 2011
Carrying Value Fair Value Carrying Value Fair Value
Cash 2,799 2,799 4,563 4,563
Accounts payable and accrued liabilities 48,000 48,000 23,125 23,125
Loan payable to director 60,898 60,898 39,961 39,961
Loan payable to related party 540,000 540,000 540,000 540,000 Foreign exchange risk: The Companys subsidiary conducts its opening activities in
Canadian dollars. The Company is therefore subject to gains or losses due to fluctuations in Canadian currency relative to the
US dollar. The Company has no exposure to this given its limited activity and assets through the year. Liquidity risk: The Company monitors its liquidity position regularly to assess whether
it has the funds necessary to fulfill planned commitments on its alternative energy technology or viable options are available
to fund such commitments from new equity issuance or alternative sources such as debt financing. However, as a development stage
company and without significant internally generated cash flow, there are inherent liquidity risks, including the possibility that
additional financing may not be available to the Company, or that actual development expenditures may exceed those planned. The
current uncertainty in global markets could have an impact on the Companys future ability to access capital on terms that
are acceptable to the Company. The company has so far been able to raise the required financing to meet its obligations on time.
The Company has no exposure to this given its limited activity through the year.
d) Income Taxes The Company accounts for income taxes under FASB Codification Topic
740-10-25 (ASC 740-10-25). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to 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. Under ASC 740-10-25, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets
likely. The Company did not incur any material impact to its financial condition or results of operations due to the financial
statement recognition and measurement of a tax position tax or expected to be taken in a tax return. Deferred income taxes are established for all temporary differences
between the book and the tax basis of assets and liabilities. In addition, deferred tax balances must reflect tax rates expected
to be in effect in years in which the temporary differences reverse. Canadian taxes are calculated at rates expected to be in effect
in Canada. U.S. deferred tax liabilities are not recognized on profits that are expected to be permanently reinvested in Canada
and thus not considered available for distribution to the parent company. It is not practicable to determine our unrecognized deferred
tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration.
Net operating loss carry-forwards and other deferred tax assets are reviewed annually for recoverability, and, if necessary, are
recorded net of a valuation allowance. Note 7 contains additional discussion regarding income taxes.
e) Comprehensive loss Comprehensive loss includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in comprehensive loss, which are excluded from net loss, include
foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities.
f) Intangible Assets Intangible assets include the technology licenses which are amortized
over the estimated useful life of 10 years on a straight line basis. However, since these licenses were written to nominal value,
no amortization was recognized for accounting purposes.
g) Impairment of Long-Lived Assets Long-lived assets to be held and used are analyzed for impairment
whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates
at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications
of impairment, the Company uses future undiscounted cash flows of the related asset or asset group over the remaining life in measuring
whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value.
h) Loss per share Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding plus common stock equivalents (if dilutive). As of December 31, 2012, there were no
common stock equivalents.
i) Stock-Based Compensation The Company accounts for equity instruments issued in exchange for
the receipt of goods or services from other than employees using the estimated fair market value of the consideration received
or estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of
performance by the provider of goods or services. As of December 31, 2012, there was $nil of unrecognized expense related to stock-based
compensation, and stock based compensation expense relating to all employees and non-employees were $nil for the years ended December
31, 2012 and 2011.
j) Foreign Currency The parent Company maintains its books and records in U.S. dollars
which is its functional and reporting currency. One of the Companys operating subsidiary is a foreign private company and
maintains its books in Canadian dollars (the functional currency). The subsidiarys financial statements are converted to
US dollars for consolidation purposes. The translation method used is the current rate method, where the functional currency is
the foreign currency. Under the current rate method all assets and liabilities are translated at the current rate, stockholders
equity are translated at historical rates and revenues and expenses are translated at average rates for the year. Due to the fact that items in the financial statements are being
translated at different rates according to their nature, a translation adjustment is created. This translation adjustment has been
included in Other Comprehensive Loss.
k) Recent Accounting Pronouncements In June 2014, the FASB issued ASU 2014-10, Development Stage
Entities (Topic 915): Elimination of Certain Financial Reporting Requirements (ASU 2014-10), which eliminates
the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date
information on the statements of operations, cash flows and changes in stockholders equity. The amendments in ASU 2014-10
are effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual
periods; however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 early for the current period presented. In April 2014, the FASB issued ASU 2014-08, Presentation of Financial
Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity (ASU 2014-08), which includes amendments that change the requirements for reporting
discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals
representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have
a major effect on the organizations operations and financial results. Additionally, ASU 2014-08 requires expanded disclosures
about discontinued operations that will provide financial statement users with more information about the assets, liabilities,
income, and expenses of discontinued operations. The new standard is effective for annual reporting periods beginning on or after
December 15, 2014. Early application is permitted. The Company is evaluating the effect that ASU 2014-08 will have on its consolidated
financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014- 09), which requires an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning
on or after December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial
statements and related disclosures. In August 2014, the FASB issued ASU 2014-15 Presentation of Financial
StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a
Going Concern (ASU 2014-15), which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys
ability to continue as a going concern within one year after the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going
concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim
periods thereafter, with early adoption permitted. The Company is currently assessing the impact of this guidance. On January 9, 2015, FASB issued ASU 2015-01, Income Statement- Extraordinary
and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.
The ASU eliminates the concept of extraordinary items and the uncertainty in determining when an item is both unusual
in nature and infrequent in occurrence. Presently, an event or transaction is presumed to be ordinary activity unless evidence
supports the transaction as unusual in nature and infrequent in occurrence. If an event or transaction is determined to be unusual
and infrequent, it is deemed to be extraordinary, and is required to be segregated from the results of ordinary operations
on the face of the income statement, net of tax, after income from continuing operations, along with other financial statement
disclosures. ASU 2015-01 eliminates the concept of extraordinary items from the income statement presentation. Eliminating
this concept removes the uncertainty in determining when a transaction is both unusual in nature and infrequent in occurrence.
However, the presentation and disclosure guidance for items that are unusual in nature OR occur infrequently will be retained and
will be expanded to include items that are both unusual in nature and infrequently occurring. This ASU aligns US
GAAP with IAS 1, which prohibits presentation and disclosure of extraordinary items. This ASU is effective for years beginning
after December 15, 2015, with early adoption permitted. The Company is currently assessing the impact of this guidance.
l) Non-controlling Interest Non-controlling interests in the Companys subsidiaries are
recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parents
equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions.
Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and,
upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or
loss recognized in earnings. |
