NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 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, 2018.
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 collectability of accounts receivables, 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.
Earnings (Loss) Per Share
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.
Accounts Receivable, net
Accounts receivable are recognized at invoiced amounts and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company reviews its allowance for doubtful accounts receivable on an ongoing basis. In establishing the required allowance, management considers any historical losses, the customers financial condition, the accounts receivable aging, and the customers payment patterns. After all attempts to collect a receivable have failed and the potential for recovery is remote, the receivable is written off against the allowance.
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As of December 31, 2018 and 2017, the allowance for doubtful account balances are $0. The bad debt expense, including the direct written-off accounts receivables, incurred for the three months ended December 31, 2018 and December 31, 2017 respectively was $0.
Intangible Assets
In accordance with ASC 350, Intangibles - Goodwill and Other, we classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill. For intangible assets with definite lives, tests for impairment must be performed if conditions exist that indicate the carrying value may not be recoverable. For intangible assets with indefinite lives and goodwill, tests for impairment must be performed at least annually or more frequently if events or circumstances indicate that assets might be impaired.
When facts and circumstances indicate that the carrying value of intangible assets determined to have definite lives may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of future cash flows. If the sum of the expected future cash flows is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value which is estimated and calculated by discounted cash flow method. We test intangible assets determined to have indefinite useful lives, including trademarks, franchise rights and goodwill, for impairment annually, or more frequently if events or circumstances indicate that assets might be impaired.
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.
Financial instruments
The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 provides a fair value hierarchy used to classify the source of the information. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entitys own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level one - Quoted market prices in active markets for identical assets or liabilities;
Level two - Inputs other than level one inputs that are either directly or indirectly observable; and
Level three - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
All of the Companys financial instruments are level one and are carried at fair value, requiring no adjustment to book value. The financial instruments were deemed to qualify as that classification because their value was determined by the price of identical instruments traded on an active exchange.
Revenue Recognition
The Company recognizes revenue from the sales of goods and services under ASC 606 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. The Company has adopted the modified retrospective method for recording revenue. There was no impact on the Companys financial statements as a result of adopting Topic 606 for the three months ended December 31, 2018 and 2017.
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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.
Note 2. Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has recurring operating losses, limited funds and has accumulated deficits. These factors, among others, may indicate that the Company will be unable to continue as a going concern.
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 for the next twelve months after these financial statements are issued. 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 December 31, 2018 and June 30, 2018, the Company has recorded as "related party payables", $449,894 and $351,019, 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 ended December 31, 2018 and December 31, 2017, the Company recorded Interest - related party of $4,794 and $4,447 respectively. In the six months ended December 31, 2018 and December 31, 2017, the Company recorded Interest - related party of $9,512 and $8,695 respectively.
As of December 31, 2018 and June 30, 2018, 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.
In 2016, the Company acquired the BizjetMobile intellectual property from a related party for $450,000. In 2018, management re-assessed the net book value of the intellectual property, and as a result, wrote off $113,832 as a loss of impairment. As of December 31, 2018 and June 30, 2018, the Company has accumulated $260,607 and $240,000 respectively for amortization of the value of the intellectual property.
In the three months ended December 31, 2018 and December 31, 2017 respectively, the Company recorded revenue of $11,699 and $25,244 from entities affiliated through common stockholders and directors for BizjetMobile service fees. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company recorded revenue of $24,500 and $54,054 from entities affiliated through common stockholders and directors for BizjetMobile service fees. In the three months ended December 31, 2018 and December 31, 2017 respectively, the
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Company recorded revenue of $29,970 and $0 from entities affiliated through common stockholders and directors for BizjetMobile system sales. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company recorded revenue of $29,970 and $21,990 from entities affiliated through common stockholders and directors for BizjetMobile system sales.
In the three months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred expenses of approximately $24,000 and $24,000 respectively to entities affiliated through common stockholders and directors for management expenses. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred expenses of approximately $48,000 and $48,000 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 December 31, 2018 and December 31, 2017 respectively, the Company incurred marketing expense of $62,027 and $52,530 to entities affiliated through common stockholders and directors. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred marketing expense of $93,724 and $102,055 to entities affiliated through common stockholders and directors.
In the three months ended December 31, 2018 and December 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 six months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred expense of $24,000 and $24,000 to entities affiliated through common stockholders and directors for technical service support.
In the three months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred cost of sales, comprising commissions of $11,323 and $4,818, and hardware cost of sales, of $6,260 and $0 to entities affiliated through common stockholders and directors. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred cost of sales, comprising commissions of $13,475 and $16,363, and hardware cost of sales, of $6,260 and $2,087 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 December 31, 2018 and December 31, 2017 respectively, the Company incurred engineering service costs of $36,000 and $48,000 to entities affiliated through common stockholders and directors, on normal commercial terms in the course of the Companys normal business. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company incurred engineering service costs of $84,000 and $96,000 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 six-month period ended December 31, 2018, the Company issued 8,181,111 shares of common stock for cash and 338,056 shares of common stock for services.
The Company has Subscriptions payable of $26,186 which represents 1,422,389 shares of common stock to be issued when directed.
Note 5. Commitments and Contingencies
The Company does not have any arrangements to lease premises for its operations. The Company does not have any legal matters outstanding.
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Note 6. Loans
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 December 31, 2018 of $34,426 (June 30, 2018 $38,281). Interest is calculated at a rate of 20% per annum with interest of $1,775 and $2,128 taken up in the three months ended December 31, 2018 and December 31, 2017 respectively. In the six months ended December 31, 2018 and December 31, 2017 respectively, the Company took up interest of $3,646 and $4,334. 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 December 31, 2018 and June 30, 2018. 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 December 31, 2018, the Company had accumulated interest on the loans of $6,481 calculated at the Companys prevailing share price, which included $1,269 for the three months ended December 31, 2018. The interest will be converted to shares of common stock as stated above.
3. In 2018, the Company issued Convertible Notes which totalled $607,500 at December 31, 2018 (balance at June 30, 2018 $585,000) to fund production of its fflya systems. Two issues were made as follows:
The first convertible note for $337,500 finances the initial 15 system shipsets. Terms of the issue are:
-Interest rate: 20% per annum, payable monthly in arrears
-Conversion price: $0.03 per share.
-Maturity date: December 1, 2020
A second convertible note issue for $270,000 is to finance a further 12 system shipsets, on the following terms:
-Interest rate: 20% per annum, payable monthly in arrears
-Conversion price: $0.05 per share
-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 on terms to be agreed, based on the net revenue received once the systems commence operation,. To date, no systems have been installed and no royalties have been paid. None of the Notes have been converted to shares to date.
Note 7. Intangible Assets
In the year ended June 30, 2016, the Company took up Intangible Assets of $450,000 which represented the termination fee negotiated with the licensee of the Companys technology. In 2018, management re-assessed the net book value of the intellectual property, and as a result, has written off $113,832 as a Loss of impairment. On the basis that the technology has a useful life of 5 years, the Company has provided for amortization of $240,000 up to June 30, 2018 and $260,607 at December 31, 2018.
Note 8. Subsequent Events
Since December 31, 2018, the Company has continued to raise capital to fund its operations through the sale of shares and has received a total of $483,000 up to the date of this report.
There have not been any significant events since balance date, December 31, 2018 until the date of this report.
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