NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020
(UNAUDITED)
Note 1. Organization, Business and Summary of Significant Accounting Policies
Organization and Description of Business
AS-IP Tech, Inc. (the “Company”) was formed on April 29, 1998 as a Delaware corporation.
The Company’s technology comprises two product lines called BizjetMobile and fflya. The products deliver inflight connectivity for business aviation and commercial airlines respectively.
Basis of Presentation
The accompanying unaudited condensed financial statements of AS-IP Tech, Inc., (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. The Company uses the same accounting policies in preparing quarterly and annual financial statements. 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 condensed 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, 2020.
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.
Reclassifications
Certain amounts in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net income.
Recent pronouncements
The company has evaluated the recent accounting pronouncements and believes that none of them have a material effect on the Company’s financial statements.
8
Note 2. Going Concern
The accompanying unaudited condensed 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 raised substantial doubt about the Company’s ability 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 September 30, 2020 and June 30, 2020, the Company has recorded as “related party payables”, $824,381 and $826,716, respectively. As these related party payables have become core debt of the Company, the terms on which they are provided are currently being renegotiated. A large component of the payables is 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 September 30, 2020 and September 30, 2019, the Company recorded Interest - related party of $4,266 and $3,999 respectively.
As of September 30, 2020 and June 30, 2020, 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 September 30, 2020 and June 30, 2020, the Company has accumulated $332,735 and $322,431 respectively for amortization of the value of the intellectual property.
In the three months ended September 30, 2020 and September 30, 2019 respectively, the Company recorded net revenue of $8,031 and $7,357 from entities affiliated through common stockholders and directors for BizjetMobile service fees. In the three months ended September 30, 2020 and September 30, 2020 respectively, the Company recorded revenue of $8,001 and $7,653 from entities affiliated through common stockholders and directors for BizjetMobile system sales.
In the three months ended September 30, 2020 and September 30, 2019 respectively, the Company incurred expenses of approximately $8,000 and $24,000 respectively to entities affiliated through common stockholders and directors for management expenses.
In the three months ended September 30, 2020 and September 30, 2019 respectively, the Company incurred marketing expense of $164,000 and $39,065 to entities affiliated through common stockholders and directors. The marketing expense in the three months ended September 30, 2020 included a fee to related parties of $110,000 following the successful negotiation for the evaluation of the Company’s fflya system on the UK fleet of Wizz Air This will be satisfied with the issue of 11,000,000 shares of the Company’s common stock.
In the three months ended September 30, 2020 and September 30, 2019 respectively, the Company incurred expense of $12,000 and $12,000 to entities affiliated through common stockholders and directors for technical service support.
9
In the three months ended September 30, 2020 and September 30, 2019 respectively, the Company incurred cost of sales of commissions of $6,060 and $6,374 and hardware cost of sales of $0 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 September 30, 2020 and September 30, 2019 respectively, the Company incurred engineering service costs of $18,000 and $48,000 to entities affiliated through common stockholders and directors, on normal commercial terms in the course of the Company’s normal business.
Note 4. Stockholders' Deficit
As of September 30, 2020, the Company had 500,000,000 shares of authorized common stock, $0.0001 par value, with 218,931,125 shares issued and outstanding, and 50,000 shares in treasury. Treasury shares are accounted for by the par value method.
As of September 30, 2020, the Company had 50,000,000 shares of authorized preferred stock, $0.0001 par value, with no shares issued and outstanding.
During the period to September 30, 2020, the Company received subscriptions for capital of $163,920, for which it has issued 2,130,000 shares of common stock at $0.01 per share and 14,251,100 shares of common stock at $0.01 per share, subsequent to September 30, 2020.
The Company has Subscriptions payable of $26,186, included in Stockholders’ Deficit, 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.
Note 6. Loans
Due to the impact of Covid19, which has delayed the implementation of the Company’s fflya program, it has been renegotiating its outstanding loans, as well as raising additional funding. As a result, over the past 6 months the Company has been able to commission its first A321 installations.
Loans in the Company’s balance sheet are made up of:
1. The Company has an unsecured loan from a third party with balance outstanding at September 30, 2020 of $17,569 (June 30, 2020 $20,348). Interest is calculated at a rate of 20% per annum with interest of $971 and $1,458 taken up in the three months ended September 30, 2020 and September 30, 2019, respectively. The Company is making or accruing principal and interest payments for the loan of $1,250 per month.
2. The Company has outstanding unsecured loans totalling $70,295 from shareholders at September 30, 2020 and June 30, 2020. 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 September 30, 2020 the Company had accumulated interest on the loans of $7,831 calculated at the Company’s prevailing share price. The interest will be converted to shares of common stock as stated above.
10
Effective July 1, 2021, shareholders with $60,295 of the loans have agreed to change their loans to convertible notes on the following basis:
-Conversion price: $0.05 per share
-Interest rate 20% per annum, which at the Company’s election, can be satisfied either in cash or shares at the Conversion Price
-Maturity date: December 31 2023
3. In 2018, the Company issued Convertible Notes which totalled $607,500 at September 30, 2020 (balance at June 30, 2020 $607,500) to fund the development of its fflya systems.
Two issues were made as follows:
The first convertible note for $337,500 on the following terms:
-Interest rate: 20% per annum, payable monthly in arrears
-Conversion price: $0.03 per share.
-Maturity date: December 1, 2020, which has now been extended to December 31, 2023. Conditional on the extension of the term, the holders agreed to advance an additional $200,000 on the same terms above, except the conversion price is to be $0.015 per share on the additional amount.
A second convertible note issued for $270,000, on the following terms:
-Interest rate: 20% per annum, payable monthly in arrears
-Conversion price: $0.05 per share
-Maturity date: December 1, 2020, which has now been extended to December 31, 2023. In negotiating the extension of the term, the holders agreed to advance an additional $155,000 on the same terms above.
In return for providing the original Convertible Note funding, investors will receive commissions on Viatour tours and attractions for the first 27 system installations. Each investor will receive a commission for three years 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 commissions 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 Company’s 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 $332,735 at September 30, 2020 and $322,431 at June 30, 2020.
Note 8. Subsequent Events
In the period since September 30, 2020, the Company has received cash of $77,129 as Subscriptions for capital and for which it has issued 7,712,900 shares.
In the period since September 30, 2020, the Company has received cash of $325,000 as advances for convertible notes. Terms of the issue are being finalised.
There have not been any other significant events since balance date, September 30, 2020 until the date of this report.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report on Form 10-Q includes “forward-looking statements” as defined by the Securities and Exchange Commission. These statements may involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could”, “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect. Actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. The company undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
The following discussion should be read in conjunction with the accompanying unaudited condensed financial statements for the three months ended September 30, 2020 and the Form 10-K for the fiscal year ended June 30, 2020
OVERVIEW
The Company’s inflight connectivity technology is targeted at two distinct markets. BizjetMobile and Chiimp are designed for business jets and has been sold in North America, Europe and the Middle East. The Company’s fflya system is designed for, and marketed to, low-cost airlines in Europe and Asia.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019
In the three months period ended September 30, 2020, the Company recorded revenue of $16,032, compared to revenue of $15,010 in the corresponding three-month period ended September 30, 2019, as a result of lower Chiimp service fees and system sales.
The Company continued investing in the development and marketing of the airline versions of its fflya and CrewX technology. As a result, the product is now in production and has received favourable responses from potential airline customers and strategic partners. In addition, the airline product will be used to upgrade the business jet offering which is expected to open new marketing opportunities for the Company. The Company incurred operating costs of $284,331 in the three months ended September 30, 2020 and $195,461 in the three months ended September 30, 2019. Main components are engineering and marketing expenses. In the three months ended September 30, 2020, the Company recorded an Operating Loss of $268,299 compared to an Operating Loss of $180,451 in the three months ended September 30, 2019.
The development and marketing costs have been funded in part through interest bearing convertible notes. As a result, the Company’s Other Expenses, included interest of $41,862 and $36,770 in the three months ended September 30, 2020 and 2019 respectively. This resulted in Net Losses of $310,161 and $213,937 in the three months ended September 30, 2020 and 2019 respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are cash received from issue of common stock and accounts payable for expenses incurred with related parties. Without the continuation of these sources of funding, as stated in Note 2 above, the Company’s ability to continue as a going concern is in substantial doubt. This will continue until the company is able to generate sufficient cash flow from its operations.
The cash and cash equivalents balance was $66,201 at September 30, 2020 and $8,958 at June 30, 2020.
12
The Company reported revenue of $16,032 in the three months ended September 30, 2020 compared to $15,010 in the three month period ended September 30, 2019. The Company incurred a loss of $268,299 from operating activities for the three months to September 30, 2020, compared to a loss of $180,451 from operating activities for the three months to September 30, 2019. Net cash used in operating activities for the three months ended September 30, 2020 was $110,148 compared to $80,406 during the three months ended September 30, 2019. Operating cash requirement in the three months ended September 30, 2020 was reduced mainly through increased accounts payable and issuance of stock for marketing.
The cash flow of the Company from financing activities for the three months ended September 30, 2020 was $167,391 as a result of funds received pending issue of common stock and proceeds from issuance of common stock. In the three months ended September 30, 2019, the cash flow from financing activities was $80,580 mainly from funds received pending issue of common stock.
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 or other funding sources. The Company does not have a policy on the amount of borrowing or debt that the Company can incur. There are no guarantees on the company’s ability to raise additional capital and hence its ability to continue as a going concern.