The accompanying notes are an integral part of these condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2022
(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. The Company receives revenue share from sales by distributors of products and serviced developed from its intellectual property.
Basis of Presentation
The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The Company has early adopted ASU2020-06 on its twelve months ended June 30, 2022 unaudited interim condensed financial statements (See Convertible Financial Instruments and New Accounting Pronouncements). Operating results for the six months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the year ending June 30, 2023. Notes to the unaudited interim condensed financial statements that would substantially duplicate the disclosures contained in the audited financial statements for fiscal year 2022 have been omitted. This report should be read in conjunction with the audited financial statements and the footnotes thereto for the fiscal year ended June 30, 2022 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on October 12, 2022.
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, 2022.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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.
New Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt-Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging-Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope
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exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature (“CCF”) and (2) convertible instruments with a beneficial conversion feature (“BCF”). With the adoption of ASU2020-06, entities will not separately present in equity an embedded conversion feature these debts. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company has chosen to early adopt this standard on its year ended June 30, 2022 financial statements and did not record BCF on the issuance of convertible notes with conversion rate below the Company’s market stock price on the date of note issuance.
The Company has evaluated other recent accounting pronouncements and believes that none of them have a material effect on the Company’s financial statements.
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 December 31, 2022 and June 30, 2022, the Company has recorded as “related party payables”, $862,964 and $484,938, respectively. A 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 December 31, 2022 and December 31, 2021, the Company recorded Interest - related party of $3,113 and $2,919 respectively. In the six months ended December 31, 2022 and December 31, 2021, the Company recorded Interest - related party of $6,176 and $5,791 respectively. The increase of “Related party payables” at December 31, 2022 is due to the transfer of an amount of $228,811, previously categorised as “Due to related parties” to “Related party payables”. As a result, as at December 31, 2022 and June 30, 2022 respectively, the Company had “Due to related parties” of $0 and $228,811.
In the three months ended December 31, 2022 and December 31, 2021 respectively, the Company recorded commission revenue of $29,982 and $0 from the BizjetMobile licensee, an entity affiliated through common stockholders and directors. In the six months ended December 31, 2022 and December 31, 2021 respectively, the Company recorded commission revenue of $53,876 and $0 from the BizjetMobile licensee.
In the three months ended December 31, 2022 and December 31, 2021 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, 2022 and December 31, 2021 respectively, the Company incurred expenses of approximately $48,000 and $48,000 respectively to entities affiliated through common stockholders and directors for management expenses.
In the three months ended December 31, 2022 and December 31, 2021 respectively, the Company incurred marketing expense of $57,000 and $89,786 to entities affiliated through common stockholders and directors. In the
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six months ended December 31, 2022 and December 31, 2021 respectively, the Company incurred marketing expense of $114,000 and $149,614 to entities affiliated through common stockholders and directors.
In the three months ended December 31, 2022 and December 31, 2021 respectively, the Company incurred expense of $45,000 and $30,000 to entities affiliated through common stockholders and directors for program service support. In the six months ended December 31, 2022 and December 31, 2021 respectively, the Company incurred expense of $100,000 and $54,000 to entities affiliated through common stockholders and directors for program service support.
In the three months ended December 31, 2022 and December 31, 2021 respectively, the Company incurred engineering service costs of $40,030 and $44,342 to entities affiliated through common stockholders, on normal commercial terms in the course of the Company’s normal business. In the six months ended December 31, 2022 and December 31, 2021 respectively, the Company incurred engineering service costs of $81,950 and $89,301 to entities affiliated through common stockholders, on commercial terms in the course of the Company’s normal business.
Note 4. Stockholders’ Deficit
As of December 31, 2022, the Company had 500,000,000 shares of authorized common stock, $0.0001 par value, with 280,208,353 shares issued and outstanding, and 50,000 shares in treasury. Treasury shares are accounted for by the par value method.
As of December 31, 2022, the Company had 50,000,000 shares of authorized preferred stock, $0.0001 par value, with no shares issued and outstanding.
During the six month period ended December 31, 2022, the Company received subscriptions for capital of $128,083, and together with the subscriptions for capital outstanding as of June 30, 2022 of $1,196, has issued 209,280 shares of common stock at $0.10 per share, 277,800 shares of common stock at $0.09 per share, 1,023,700 shares of common stock at $0.05 per share, and will issue a further 643,740 shares of common stock at $0.05 per share from the Subscriptions for capital account.
Note 5. Loans
Loans in the Company’s balance sheet are made up of:
Unsecured loans
The Company has an unsecured loan from a third party with balance outstanding at December 31, 2022 of $40,417 (June 30, 2022 $36,601). Interest is calculated at a rate of 20% per annum with interest of $1,955 and $1,604 taken up in the three months ended December 31, 2022 and 2021 respectively and $3,816 and $3,130 in the six months ended December 31, 2022 and 2021 respectively. The Company makes principal and interest payments for the loan when funds are available.
The Company has an outstanding unsecured loan from a shareholder totalling $11,583 at December 31, 2022 and $10,000 at June 30, 2022. The terms of the loan provides that if it is not repaid by the loan anniversary (December 31 each year), the Company will issue 33,334 shares of common stock in lieu of interest. Interest of $1,583 and $2,250 was taken up in the six months ended December 31, 2022 and 2021 based on the share price on balance dates.
Convertible notes
The Company has convertible notes totalling $1,672,041 and $1,537,585 as of December 31, 2022, and June 30, 2022 respectively. The holders of the convertible notes have the right of conversion from the date of issuance.
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Convertible notes outstanding as of December 31, 2022 and June 30, 2022 are summarized below:
Details
| Maturity
Date
| Balance at
Dec. 31,
2022
| Balance at
June 30,
2022
|
20% Convertible Notes totalling $337,500 plus accrued interest
| Dec. 31,2023
| $728,045
| $659,293
|
20% Convertible Notes totalling $22,500 plus accrued interest
| At call
| 32,252
| 31,126
|
20% Convertible Notes totalling $200,000 plus accrued interest
| Dec. 31,2023
| 286,744
| 259,666
|
20% Related Party Convertible Notes totalling $375,000 plus accrued interest
| Dec. 31,2023
| 525,000
| 487,500
|
0% Convertible Notes totalling $100,000
| Dec. 31,2023
| 100,000
| 100,000
|
Total convertible notes
|
| 1,672,041
| 1,537,585
|
In 2018, the Company issued Convertible Notes which totalled $607,500, to fund the development of its fflya systems. Two issues were made as follows:
The first convertible note for $337,500. Terms of the issue are:
-Interest rate: 20% per annum.
-Conversion price: $0.03 per share.
-Maturity date: December 1, 2020, which has now been extended to December 31, 2023, conditional on the holders advancing an additional $200,000 on terms set out under 4 below, and outstanding interest to be compounded.
In July 2021, related party contractors agreed to accept convertible notes totalling $375,000 to reduce the debts they are owed, as follows:
-Interest rate: 20% per annum, payable monthly in arrears in shares
-Conversion price: $0.015 per share
-Maturity date: December 31, 2023
Two convertible notes for $200,000. Terms of the issue are:
-Interest rate: 20% per annum.
-Conversion price: $0.015 per share.
-Maturity date: December 1, 2023, and outstanding interest to be compounded.
In June 2022, $100,000 of related party debt was switched to two Convertible Notes, as follows:
-Interest rate: 0% per annum
-Conversion price: $0.015 per share
-Maturity date: December 31, 2023
Note 6. Subsequent Events
On October 27, 2022 the Company issued a Form 8-K to announce that as noted in the June 30, 2022 10-K, it had renegotiated the terms of arrangements with ASiQ Pty. Ltd., the original developers of the Company’s BizjetMobile technology and the airline version of the technology designated fflya.
Subsequent to December 31, 2022, the Company has received cash of $120,000 as Subscription for capital and for which it will issue 2,400,000 shares of common stock at $0.05 per share.
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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 Company’s Form 10-K for the fiscal year ended June 30, 2022.
OVERVIEW
The Company’s inflight connectivity technology is targeted at two distinct markets. BizjetMobile and CrewX 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. Further details of BizjetMobile and fflya are included in the Form10-K for the year ended June 30, 2022.
As noted above, the Company’s arrangements in regard to BizjetMobile have been re-negotiated and as a result, revenue has re-commenced in the six months ended December 31, 2022.
The Company has continued investing in the development and marketing of the airline versions of its fflya and CrewX technology. As previously noted, the Company has secured its launch fleet, Wizz Air Hungary Airlines Limited, to provide its fflya system for 19 of its United Kingdom based A320 and A321 aircraft for a minimum three years under a previously agreed revenue sharing arrangement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2022 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2021
In the three months period ended December 31, 2022, the Company recorded revenue of $29,982, compared to revenue of $0 in the corresponding three-month period ended December 31, 2021, from commissions under the new license arrangements with ASiQ Pty. Ltd.
The Company incurred operating costs of $205,770 in the three months ended December 31, 2022 and $494,678 in the three months ended December 31, 2021. Main components are engineering, installation, technical support and marketing expenses. In the three months ended December 31, 2022, the Company recorded an Operating Loss of $175,788 compared to an Operating Loss of $494,678 in the three months ended December 31, 2021.
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 $74,797 in the three months ended December 31, 2022, compared to interest cost of $214,778 in the three months ended December 31, 2021. The decreased expense was a result of some of the convertible notes being replaced with shares of the Company’s common stock, effective June 30, 2022. After interest costs, the Company recorded a Net Losses of $250,585 and $739,831 in the three months ended December 31, 2022 and 2021 respectively.
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SIX MONTHS ENDED DECEMBER 31, 2022 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2021
In the six months period ended December 31, 2022, the Company recorded revenue of $53,876, compared to revenue of $0 in the corresponding six-month period ended December 31, 2021, as the Company received the first commissions under the new license arrangements with ASiQ Pty. Ltd.
The Company incurred operating costs of $436,827 in the six months ended December 31, 2022 and $697,985 in the six months ended December 31, 2021. Main components are engineering, installation, technical support and marketing expenses. In the six months ended December 31, 2022, the Company recorded an Operating Loss of $382,951 compared to an Operating Loss of $697,985 in the six months ended December 31, 2021.
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 $147,157 in the six months ended December 31, 2022, compared to interest cost of $301,798 in the six months ended December 31, 2021. The decreased expense was a result of some of the convertible notes being replaced with shares of the Company’s common stock, effective June 30, 2022. After interest costs, the Company recorded a Net Losses of $530,108 and $1,030,158 in the six months ended December 31, 2022 and 2021 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 $17,380 at December 31, 2022. The Company reported revenue of $53,876 in the six months ended December 31, 2022 compared to $0 in the six month period ended December 31, 2021 as a result of revenue from BizjetMobile re-commencing. The Company incurred a loss of $530,108 from operating activities for the six months to December 31, 2022, compared to a loss of $1,030,158 from operating activities for the six months to December 31, 2021. Net cash used in operating activities for the six months ended December 31, 2022 was $218,801 compared to $808,746 during the six months ended December 31, 2021. Operating cash requirement in the six months ended December 31, 2022 decreased mainly through higher related party payables and decreased directors fees and prepaid expenses.
The cash flow of the Company from financing activities for the six months ended December 31, 2022 was $128,083 as a result of funds received for issuance of common stock. In the six months ended December 31, 2021, the cash flow from financing activities was $1,001,715 mainly from funds received for issuance of common stock and shares issued in lieu of interest.
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.