NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 2018
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principles used in the United States of America and with the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operations.
The functional currency of the Company is the United States dollar. The unaudited financial statements are expressed in United States dollars. It is management's opinion that any material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
For further information, refer to the financial statements and footnotes included in the Company's Form 10-K for the year ended June 30, 2017.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Such estimates and assumptions impact, among others, the valuation allowance for deferred tax assets, due to continuing and expected future losses, and share-based payments.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
Per Share Data
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, "Earnings per Share". Basic earnings per common share ("EPS") calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
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Income taxes
The Company accounts for its income taxes in accordance with FASB ASC Topic 740-10, "Income Taxes", which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. 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. 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.
Fair value of financial instruments
The carrying value of cash equivalents and accounts payable and accrued expenses approximates fair value due to the short period of time to maturity.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sales of goods and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 - Revenue Recognition. There was no impact on the Companys financial statements as a result of adopting Topic 606 for the three months ended March 31, 2018 and 2017.
Long-lived Assets
In accordance with the Financial Accounting Standards Board ("FASB") Accounts Standard Codification (ASC) ASC 360-10, "Property, Plant and Equipment," the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Capitalized costs are amortized based on current and future revenue for each asset with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the asset.
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718, which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
ASC 505, "Compensation-Stock Compensation", establishes standards for the accounting for transactions in which an entity exchanges its equity instruments to non employees for goods or services. Under this transition method, stock compensation expense includes compensation expense for all stock-based compensation awards granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 505.
Recent pronouncements
Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.
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Note 2. Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company had an Accumulated Deficit of $10,912,141 at March 31, 2018 and will be required to make significant expenditures in connection with development of the BizjetMobile and fflya businesses, seeking additional funding through investments and general and administrative expenses. The Company's ability to continue its operations is dependent upon its raising of capital through debt or equity financing in order to meet its working capital needs.
These conditions raise substantial doubt about the Company's ability to continue as a going concern, and if substantial additional funding is not acquired or alternative sources developed, management will be required to curtail its operations.
The Company may raise additional capital by the sale of its equity securities, through an offering of debt securities, or from borrowing from a financial institution. The Company does not have a policy on the amount of borrowing or debt that the Company can incur. Management believes that actions presently being taken to obtain additional funding provides the additional opportunity for the Company to continue as a going concern. However, there is no assurance of additional funding being available or on acceptable terms, if at all. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Note 3. Related Party Transactions
As of March 31, 2018 and June 30, 2017, the Company has recorded as "related party payables", $325,246 and $273,717, respectively, which are due mainly to advances made by the CFO to pay for operating expenses. From July 1, 2016, interest has accrued on amounts due to the CFO calculated quarterly at a rate of 6.5% per annum. As a result, in the three months ending March 31, 2018 and March 31, 2017, the Company recorded Interest - related party of $4,568 and $4,109 respectively, and in the nine months ending March 31, 2018 and March 31, 2017, the Company recorded Interest - related party of $13,263 and $12,104 respectively.
As of March 31, 2018 and June 30, 2017, the Company had "due to related parties" of $228,811 and $228,811 respectively which are advances made by related parties to provide capital and outstanding directors fees. These amounts are non-interest bearing, unsecured and due on demand.
As of March 31, 2018 and June 30, 2017, the Company had Accounts receivable - related parties of $46,894 and $60,871 due from entities affiliated through common stockholders and directors.
In 2016, the Company acquired the BizjetMobile intellectual property from a related party for $450,000. As of March 31, 2018 and June 30, 2017, the Company has accumulated $217,500 and $150,000 respectively for amortization of the value of the intellectual property.
In the three months ended March 31, 2018 and March 31, 2017 respectively, the Company recorded revenue of $20,803 and $19,151 from entities affiliated through common stockholders and directors for BizjetMobile service fees. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company recorded revenue of $74,857 and $76,175 from entities affiliated through common stockholders and directors for BizjetMobile service fees. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company recorded revenue of $21,990 and $29,970 from entities affiliated through common stockholders and directors for BizjetMobile system sales.
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In the three months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred expenses of approximately $24,000 and $23,000 respectively to entities affiliated through common stockholders and directors for management expenses. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred expenses of approximately $72,000 and $53,000 respectively to entities affiliated through common stockholders and directors for management expenses. These expenses have been classified as officers management fees in the accompanying financial statements.
In the three months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred marketing expense of $80,454 and $83,202 to entities affiliated through common stockholders and directors. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred marketing expense of $182,509 and $158,967 to entities affiliated through common stockholders and directors.
In the three months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred expense of $12,000 and $12,000 to entities affiliated through common stockholders and directors for technical service support. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred expense of $36,000 and $36,000 to entities affiliated through common stockholders and directors for technical service support.
In the three months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred cost of sales, comprising commissions of $4,578 and $4,570 to entities affiliated through common stockholders and directors. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company incurred cost of sales, comprising commissions and hardware costs of $23,028 and $38,545 to entities affiliated through common stockholders and directors. Sales commissions are normally 30% of the sale price of services or systems, but are negotiable on a case by case basis.
In the three months ended March 31, 2018 and March 31, 2017 respectively, the Company reimbursed communications and data costs incurred of $6,837 and $14,510 to entities affiliated through common stockholders and directors. In the nine months ended March 31, 2018 and March 31, 2017 respectively, the Company reimbursed communications and data costs incurred of $18,255 and $51,316 to entities affiliated through common stockholders and directors.
In the nine months ended March 31, 2017, the Company incurred engineering service costs of $14,300 to entities affiliated through common stockholders and directors, on normal commercial terms in the course of the Companys normal business.
Note 4. Stockholders' Deficit
During the three-month period ended March 31, 2018, the Company did not issue any shares of common stock.
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Note 5. Commitments and Contingencies
Loans in the Companys balance sheet is made up of:
1.
The Company has an unsecured loan from a third party with balance outstanding at March 31, 2018 of $40,069 (March 31, 2017 $47,490). Interest is calculated at a rate of 20% per annum with interest of $2,048 and $2,351 taken up in the three months ended March 31, 2018 and March 31, 2017 respectively. The Company is making principal and interest payments for the loan of $1,250 per month, which will increase when cash flow allows.
2.
The Company has outstanding unsecured loans totalling $70,295 from shareholders at March 31, 2018 and March 31, 2017. The terms of the loans provide that if they are not repaid by the loan anniversary (December 31 each year), the Company will issue 16,667 shares of common stock for each $5,000 of the loan outstanding in lieu of interest. At March 31, 2018, the Company had accumulated interest on the loans of $11,200 calculated at the Companys prevailing share price, which included $1,587 for the three months ended March 31, 2018. The interest will be converted to shares of common stock as stated above.
3.
On February 16, 2018, the Company announced that it will convert advances of $562,500 (of which $472,279 was recorded as Advances at December 31, 2017) received from shareholders for funding production of its fflya systems, to two convertible note issues as follows:
The first convertible note for $337,500 finances the initial 15 system shipsets. Terms of the issue are:
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Interest rate: 20% per annum, payable monthly in arrears
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Conversion price: $0.03 per share.
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Maturity date: December 1, 2020
A second convertible note issue for $225,000 is to finance a further 10 system shipsets, on the following terms:
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Interest rate: 20% per annum, payable monthly in arrears
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Conversion price: $0.05 per share
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Maturity date: December 1, 2020
In return for providing system funding, each investor will receive a royalty for a period of three years on each shipset, once the systems commence operation, on terms to be agreed.
Note 6. Subsequent Events
The Company has issued 250,005 shares of its common stock to meet the interest due up until December 31, 2017 on shareholder loans referred to in Note 5.
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