| Summary of Significant Accounting Policies | 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 The preparation of financial statements for any period involves
the use of estimates as the precise determination of assets and liabilities, and revenues and expenses, depends on future events.
Actual amounts may differ from these estimates. Significant estimates include the valuation of allowances for deferred tax assets.
c) Financial Instruments The Company’s financial instruments
consist of cash, accounts payable and accrued liabilities, and loans payable to related party and to director. Unless otherwise
noted, it is management’s 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 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 1—Inputs are unadjusted,
quoted prices in active markets for identical assets or liabilities at the measurement date. ● Level 2—Inputs (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 instrument’s anticipated life. ● Level 3—Unobservable inputs
reflect management’s 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. Assets and liabilities measured at fair
value as of December 31, 2017 and 2016 are classified below based on the three fair value hierarchy tiers described above:
2017 2016
Carrying Fair Carrying Fair
Value Value Value Value
Cash 644 644 1,059 1,059
Accounts payable and accrued liabilities 36,118 36,118 44,456 44,456
Loan payable to director 149,716 149,716 125,117 125,117
Loan payable to related party 540,000 540,000 540,000 540,000 Cash has been measured using Level 1 of the fair value hierarchy.
Accounts payable and accrued liabilities, loans payable to related party and director have been measured using Level 3 of the fair
value hierarchy.
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. 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 during a period from non-owner sources.
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 previously written down to a nominal value, no amortization was recognized during the year for accounting purposes.
g) 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, 2017, there were no common stock equivalents.
h) Stock-Based Compensation The Company accounts for equity instruments
issued in exchange for the receipt of goods or services from parties 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, 2017, there was $nil of unrecognized
expense related to stock-based compensation, and stock based compensation expense relating to all employees and non-employees were
$125,000 and $nil for the years ended December 31, 2017 and 2016.
i) Foreign Currency The parent Company maintains its books
and records in U.S. dollars which is its functional and reporting currency. One of the Company’s operating subsidiary is
a foreign private company and maintains its books in Canadian dollars (the functional currency). The subsidiary’s financial
statements are converted to US dollars for consolidation purposes. The translation method used is the current rate method, where
the functional currency of the subsidiary 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 dormant status of the wholly owned subsidiary, there have been no adjustments for the
past years.
j) Recent Accounting Pronouncements The Company has reviewed all recently
issued, but not yet effective, accounting pronouncements and other than the below, does not expect the future adoption of any such
pronouncements to have a significant impact on its results of operations, financial condition or cash flow. FASB ASU 2017-11 “Earnings Per
Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815)” - In July
2017, the FASB issued 2017-11. The guidance eliminates the requirement to consider “down round” features when determining
whether certain equity-linked financial instruments or embedded features are indexed to an entity’s own stock. Our warrants
issued with our convertible notes are treated as derivative instruments, because they include a “down round” feature.
The ASU is effective for annual periods beginning after December 15, 2018, and for interim periods within those years, with early
adoption permitted. Early adoption of this guidance could have a significant impact on our financial statements, as it would effectively
eliminate the warrant derivative liability and the gain or loss from changes in the fair value of the warrant derivative liability.
We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures. FASB ASU 2017-09 “Scope of Modification
Accounting (Topic 718)” - In May 2017, the FASB issued 2017-09. The guidance clarifies the accounting for when the terms
of a share-based award are modified. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for
interim periods within those years, with early adoption permitted. This new guidance would only impact our consolidated financial
statements if, in the future, we modified the terms of any of our share-based awards. FASB ASU2018-05, “Amendments to
SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.118” – In March 2018, the amendments provide guidance on
when to record and disclose provisional amounts for certain income tax effects of the Tax Cuts and Jobs Act, and also require any
provisional amounts or subsequent adjustments to be included in net income. Additionally, ASU 2018-05 discusses required disclosures
that an entity must make with regard to the Tax Reform Act. ASU2018-05 is effective immediately as new information is available
to adjust provisional amounts that were previously recorded. We do not expect this ASU to have a significant impact on our consolidated
financial statements and related disclosures.
k) Non-controlling Interest Non-controlling interests in the Company’s
subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from
the Company’s equity. |
