UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THESECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedSeptember 30, 20202021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ________________________
Commission file number: 0001070050000-27569
AppTech Corp.
(Exactname of registrant as specifiedin its charter)
| 65-0847995 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
5876 Owens Ave.Ave. Suite 100
Carlsbad,California92008
Carlsbad, California 92008
(Addressof Principal Executive Offices& Zip Code)
(760)707-5959
(Registrant’s telephone number,including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, | APCX | OTC Pink Open Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicateby check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934during the preceding 12 months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Yes☒ No ☐
Indicate bycheck mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuantto Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, a smallerreporting company, or emerging growth company. See the definitions of “large accelerated filer,” ”“ accelerated filer” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated | ☐ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No☒
As of November 13, 2020, the latest practicable date,11, 2021, the registrant had 87,865,075 shares of common stock (par value 0.001). issued and outstanding.
AppTech Corp.
Form 10-Q
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this Quarterly on Form 10-Q of AppTech Corp. (we, our, AppTech or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include:
| ● | our going concern and history of losses; | |
| ● | uncertaintyassociated with anticipated launch of our | |
| ● | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | |
| ● | dependence on third-party channeland referral partners, who comprisea significant portion of our sales force, for gaining new clients; | |
| ● | a slowdownor reduction in our sales in dueto a reduction inend user demand, unanticipated competition, regulatory issues, or other unexpected circumstances; |
| ● | uncertaintyregarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer in the future; | |
| ● | dependence on third-party payment processors to facilitate our merchantservices capabilities; | |
| ● | delay in or failureto obtain regulatory approval of our | |
| ● | ourability to operate our business while timely makingpayments pursuant to ourloan agreements; | |
| ● | our needto raise additional financing to fund daily operations and successfully grow our Company; | |
| ● | ourability to retain and recruitappropriate employees,in particular a productivesales force; | |
| ● | current and future lawsand regulations; | |
| ● | general economic uncertainty associated with the Covid-19 pandemic; | |
| ● | the adverse effects of COVID-19, and its unpredictable duration, in regions where we have customers, employees and distributors; | |
| ● | the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of customers to visit our merchants’ businesses; and | |
| ● | the possibility that the economic impact of COVID-19 will lead to changes in how consumers make purchases, and we are unable to monetize such changes; | |
All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically declineany obligation, to update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise. Please see, however,anyfurther disclosures wemake on related subjects in any annual, quarterly or current reports thatwemay file withtheSecurities and Exchange Commission (SEC).
We encourage you to read the discussion and analysis of our financial condition and our consolidated financial statements contained in this Quarterly Report on Form 10-Q. There can be no assurance thatwe will in fact achieve the actual results or developments we anticipate or, evenifwe do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we cangive no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates.
Unless the context otherwise requires, throughout this Quarterly Report on Form 10-Q, the words “AppTech” “we,” “us,” the “registrant” or the “Company” refer to AppTech Corp.
PART I – FINANCIAL INFORMATION
Item1. Financial Statements
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
46
APPTECH CORP. AND SUBSIDIARIES
SEPTEMBER 30, 2020 and2021 AND DECEMBER 31, 20192020
(UNAUDITED)
| September 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 46,316 | $ | 24,159 | ||||
| Accounts receivable | 38,227 | 29,836 | ||||||
| Deposit escrow | — | 25,000 | ||||||
| Security deposit | — | 5,948 | ||||||
| Total current assets | 84,543 | 84,943 | ||||||
| Right of use asset | 265,120 | — | ||||||
| Security deposit | 7,536 | — | ||||||
| TOTAL ASSETS | $ | 357,199 | $ | 84,943 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 1,862,643 | $ | 1,707,878 | ||||
| Accrued liabilities | 2,552,712 | 2,334,480 | ||||||
| Right of use liability | 50,035 | — | ||||||
| Stock repurchase liability | 430,000 | 430,000 | ||||||
| Loans payable related parties | 51,401 | 93,401 | ||||||
| Convertible notes payable | 620,000 | 620,000 | ||||||
| Convertible notes payable related parties | 372,000 | 372,000 | ||||||
| Notes payable | 1,172,281 | 1,104,081 | ||||||
| Notes payable related parties | 708,493 | 708,493 | ||||||
| Total current liabilities | 7,819,565 | 7,370,333 | ||||||
| Long-term liabilities | ||||||||
| Accounts payable | — | 160,000 | ||||||
| Right of use liability | 238,174 | — | ||||||
| Total long-term liabilities | 238,174 | 160,000 | ||||||
| TOTAL LIABILITIES | 8,057,739 | 7,530,333 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Deficit | ||||||||
| Series A preferred stock; $0.001 par value; 100,000 shares authorized; 14 shares issued and outstanding at September 30, 2020 and December 31, 2019 | — | — | ||||||
| Common stock, $0.001 par value; 1,000,000,000 shares authorized; 87,821,825 and 84,153,825 and outstanding at September 30, 2020 and December 31, 2019, respectively | 87,822 | 84,154 | ||||||
| Additional paid-in capital | 35,870,457 | 33,230,869 | ||||||
| Accumulated deficit | (43,658,819 | ) | (40,760,413 | ) | ||||
| Total stockholders’ deficit | (7,700,540 | ) | (7,445,390 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 357,199 | $ | 84,943 | ||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 22,495 | $ | 57,497 | ||||
| Accounts receivable | 34,829 | 40,635 | ||||||
| Prepaid expenses | 93,516 | 6,696 | ||||||
| Total current assets | 150,840 | 104,828 | ||||||
| Capitalized prepaid software development and license | 7,058,922 | 0 | ||||||
| Prepaid offering cost | 25,000 | 0 | ||||||
| Note receivable | 25,500 | 17,500 | ||||||
| Right of use asset | 203,938 | 249,825 | ||||||
| Security deposit | 7,536 | 7,536 | ||||||
| TOTAL ASSETS | $ | 7,471,736 | $ | 379,689 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 1,732,924 | $ | 1,635,384 | ||||
| Accrued liabilities | 1,726,628 | 2,632,334 | ||||||
| Right of use liability | 58,979 | 52,161 | ||||||
| Stock repurchase liability | 430,000 | 430,000 | ||||||
| Loans payable related parties | 0 | 34,400 | ||||||
| Convertible notes payable, net of $63,578 and $280,174 debt discount | 665,922 | 639,826 | ||||||
| Convertible notes payable related parties | 0 | 372,000 | ||||||
| Notes payable | 384,742 | 1,104,981 | ||||||
| Notes payable related parties | 684,863 | 708,493 | ||||||
| Derivative liabilities | 492,830 | 597,948 | ||||||
| Total current liabilities | 6,176,888 | 8,207,527 | ||||||
| Long-term liabilities | ||||||||
| Accounts payable | 15,000 | 75,000 | ||||||
| Right of use liability | 179,195 | 224,492 | ||||||
| Notes Payable, net of current portion | 160,040 | 67,400 | ||||||
| Total long-term liabilities | 354,235 | 366,892 | ||||||
| TOTAL LIABILITIES | 6,531,123 | 8,574,419 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Series A preferred stock; $ par value; shares authorized; shares issued and outstanding at September 30, 2021 and December 31, 2020 | 0 | 0 | ||||||
| Common stock, $ par value; shares authorized; and and outstanding at September 30, 2021 and December 31, 2020, respectively | 113,126 | 88,512 | ||||||
| Additional paid-in capital | 121,269,598 | 36,664,488 | ||||||
| Accumulated deficit | (120,442,111 | ) | (44,947,730 | ) | ||||
| Total stockholders’ equity (deficit) | 940,613 | (8,194,730 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 7,471,736 | $ | 379,689 | ||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 and 2019
(UNAUDITED)
| For the Three Months | For the Nine Months | |||||||||||||||||||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
| Revenues | $ | 105,357 | $ | 66,532 | $ | 241,367 | $ | 190,411 | $ | 92,410 | $ | 105,357 | $ | 258,688 | $ | 241,367 | ||||||||||||||||
| Cost of revenues | 48,759 | 26,548 | 103,721 | 75,099 | 41,774 | 48,759 | 112,032 | 103,721 | ||||||||||||||||||||||||
| Gross profit | 56,598 | 39,984 | 137,646 | 115,312 | 50,636 | 56,598 | 146,656 | 137,646 | ||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| General and administrative, including stock based compensation of $1,066,386, $46,000, $2,357,125 and $89,134, respectively | 1,089,808 | 315,321 | 2,781,912 | 743,210 | ||||||||||||||||||||||||||||
| General and administrative, including stock based compensation of $, $1,066,386, $1,620,703 and $, respectively | 1,360,187 | 1,089,808 | 6,733,594 | 2,781,912 | ||||||||||||||||||||||||||||
| Excess fair value of equity issuance over assets received | 1,090,716 | 0 | 66,124,606 | 0 | ||||||||||||||||||||||||||||
| Research and development | 2,999 | 33,212 | 49,250 | 62,350 | 0 | 2,999 | 0 | 49,250 | ||||||||||||||||||||||||
| Total operating expenses | 1,092,807 | 348,533 | 2,831,162 | 805,560 | 2,450,903 | 1,092,807 | 72,858,200 | 2,831,162 | ||||||||||||||||||||||||
| Loss from operations | (1,036,209 | ) | (308,549 | ) | (2,693,516 | ) | (690,248 | ) | (2,400,267 | ) | (1,036,209 | ) | (72,711,544 | ) | (2,693,516 | ) | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||||||||||||||||||
| Forgiveness of Debt | — | — | 9,000 | — | ||||||||||||||||||||||||||||
| Interest expense | (71,723 | ) | (71,087 | ) | (213,890 | ) | (217,722 | ) | (478,009 | ) | (71,723 | ) | (3,038,568 | ) | (213,890 | ) | ||||||||||||||||
| Change in fair value of derivative liability | 135,469 | 0 | 80,370 | 0 | ||||||||||||||||||||||||||||
| Forgiveness of debt | 0 | 0 | 0 | 9,000 | ||||||||||||||||||||||||||||
| Other income (expenses) | 161 | 0 | 175,361 | 0 | ||||||||||||||||||||||||||||
| Total other expenses | (71,723 | ) | (71,087 | ) | (204,890 | ) | (217,722 | ) | (342,379 | ) | (71,723 | ) | (2,782,837 | ) | (204,890 | ) | ||||||||||||||||
| Loss before provision for income taxes | (1,107,932 | ) | (379,636 | ) | (2,898,406 | ) | (907,970 | ) | (2,742,646 | ) | (1,107,932 | ) | (75,494,381 | ) | (2,898,406 | ) | ||||||||||||||||
| Provision for income taxes | — | — | — | — | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Net loss | $ | (1,107,932 | ) | $ | (379,636 | ) | $ | (2,898,406 | ) | $ | (907,970 | ) | $ | (2,742,646 | ) | $ | (1,107,932 | ) | $ | (75,494,381 | ) | $ | (2,898,406 | ) | ||||||||
| Basic and diluted net loss per common share | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | (0.01 | ) | $ | (0.74 | ) | $ | (0.03 | ) | |||||||||
| Weighted-average number of shares used basic and diluted per share amounts | 86,984,021 | 84,073,281 | 85,941,115 | 84,482,903 | 111,906,997 | 86,984,021 | 106,250,552 | 85,941,115 | ||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICITEQUITY (DEFICIT)
FOR THE THREE MONTHS AND THE NINE MONTHSPERIODS ENDED SEPTEMBER 30, 2021 & 2020, and 2019June 30, 2021 & 2020
AND March 31, 2021 & 2020
(UNAUDITED)
| Series A Preferred | Common Stock | Additional Paid- | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | Deficit | Series A Preferred | Common Stock | Additional Paid- | Accumulated | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2019 | 14 | $ | — | 83,946,632 | $ | 83,947 | $ | 33,030,119 | $ | (39,945,538 | ) | $ | (6,831,472 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2019 | 14 | $ | — | 84,153,825 | $ | 84,154 | $ | 33,230,869 | $ | (40,760,413 | ) | $ | (7,445,390 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (379,635 | ) | (379,635 | ) | — | — | — | — | — | (1,464,050 | ) | (1,464,050 | ) | ||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | — | — | — | — | 3,450 | — | 3,450 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for merchant equity program | — | — | 37,193 | 37 | 14,840 | — | 14,877 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 115,000 | 115 | 45,885 | — | 46,000 | — | — | 2,349,500 | 2,350 | 1,206,835 | — | 1,209,185 | ||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | — | — | — | — | — | — | — | 186,531 | — | 186,531 | ||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2019 | 14 | $ | — | 84,098,825 | $ | 84,099 | $ | 33,094,294 | $ | (40,325,173 | ) | $ | (7,146,780 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2018 | 14 | $ | — | 86,797,132 | $ | 86,797 | $ | 32,284,735 | $ | (39,417,203 | ) | $ | (7,045,671 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2020 | 14 | $ | — | 86,503,325 | $ | 86,504 | $ | 34,627,685 | $ | (42,224,463 | ) | $ | (7,510,274 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (907,970 | ) | (907,970 | ) | — | — | — | — | — | (326,424 | ) | (326,424 | ) | ||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | 10,350 | — | 10,350 | — | — | — | — | 3,450 | — | 3,450 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for subscriptions | — | — | 275,000 | 275 | 68,475 | — | 68,750 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for merchant equity program | — | — | 37,193 | 37 | 14,840 | — | 14,877 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 439,500 | 440 | 88,694 | — | 89,134 | — | — | 174,500 | 174 | 81,380 | — | 81,554 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock cancelled | — | — | (3,450,000 | ) | (3,450 | ) | 3,450 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 623,750 | — | 623,750 | — | — | — | — | 19,250 | — | 19,250 | ||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2019 | 14 | $ | — | 84,098,825 | $ | 84,099 | $ | 33,094,294 | $ | (40,325,173 | ) | $ | (7,146,780 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2020 | 14 | $ | — | 86,677,825 | $ | 86,678 | $ | 34,731,765 | $ | (42,550,887 | ) | $ | (7,732,444 | ) | 14 | $ | — | 86,677,825 | $ | 86,678 | $ | 34,731,765 | $ | (42,550,887 | ) | $ | (7,732,444 | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,107,932 | ) | (1,107,932 | ) | — | — | — | — | — | (1,107,932 | ) | (1,107,932 | ) | ||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | — | — | — | — | 3,450 | — | 3,450 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 1,044,000 | 1,044 | 924,397 | — | 925,441 | — | — | 1,044,000 | 1,044 | 924,397 | — | 925,441 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services with warrant exercise | — | — | 100,000 | 100 | 165,845 | — | 165,945 | 100,000 | 100 | 165,845 | 165,945 | |||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 45,000 | — | 45,000 | — | — | — | — | 45,000 | — | 45,000 | ||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2020 | 14 | $ | 87,821,825 | $ | 87,822 | $ | 35,870,457 | $ | (43,658,819 | ) | $ | (7,700,540 | ) | 14 | $ | — | 87,821,825 | $ | 87,822 | $ | 35,870,457 | $ | (43,658,819 | ) | $ | (7,700,540 | ) | |||||||||||||||||||||||||||||
| Balance December 31, 2019 | 14 | $ | — | 84,153,825 | $ | 84,154 | $ | 33,230,869 | $ | (40,760,413 | ) | $ | (7,445,390 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2020 | 14 | $ | — | 88,511,657 | $ | 88,512 | $ | 36,664,488 | $ | (44,947,730 | ) | $ | (8,194,730 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,898,406 | ) | (2,898,406 | ) | — | — | — | — | — | (66,293,498 | ) | (66,293,498 | ) | ||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | 10,350 | — | 10,350 | — | — | — | — | 3,450 | — | 3,450 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for board of directors | — | — | — | — | 17,559 | — | 17,559 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for services | — | — | — | — | 29,999 | — | 29,999 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | — | — | 1,891,414 | — | 1,891,414 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for board of directors | — | — | 87,500 | 87 | 49,087 | 49,174 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 3,568,000 | 3,568 | 2,212,612 | — | 2,216,180 | — | — | 247,000 | 247 | 315,743 | — | 315,990 | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for merchant equity | — | — | 5,000 | 5 | 16,245 | — | 16,250 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for judgment | — | — | 200,000 | 200 | 999,800 | — | 1,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for capitalized prepaid software development and license | — | — | 18,011,515 | 18,012 | 67,525,170 | — | 67,543,182 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock cancelled | — | — | (150,000 | ) | (150 | ) | (9,850 | ) | — | (10,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 1,972,750 | — | 1,972,750 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2021 | 14 | $ | — | 106,912,672 | $ | 106,913 | $ | 109,475,855 | $ | (111,241,228 | ) | $ | (1,658,460 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (6,458,237 | ) | (6,458,237 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for board of directors | — | — | — | — | 15,217 | — | 15,217 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for services | — | — | — | — | 2,746,385 | — | 2,746,385 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | — | — | 1,090,716 | — | 1,090,716 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for board of directors | — | — | 87,500 | 88 | 49,087 | 49,175 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 106,053 | 106 | 174,905 | — | 175,011 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for merchant equity program | — | — | 26,250 | 26 | 2,095 | — | 2,121 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes payable, accrued interest, derivative liabilities, and accounts payable | — | — | 4,756,895 | 4,757 | 3,945,225 | — | 3,949,982 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 458,000 | — | 458,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2021 | 14 | $ | — | 111,889,370 | $ | 111,890 | $ | 117,960,935 | $ | (117,699,465 | ) | $ | 373,360 | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,742,646 | ) | (2,742,646 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for board of directors | — | — | — | — | 4,682 | — | 4,682 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for services | — | — | — | — | 853,556 | — | 853,556 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock options for capitalized prepaid software development and license | — | — | — | — | 1,090,716 | — | 1,090,716 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for board of directors | — | — | 29,168 | 29 | 16,363 | — | 16,392 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | 20,000 | 20 | 14,940 | — | 14,960 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for forbearance | — | — | 53,383 | 53 | 63,525 | — | 63,578 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services with warrant exercise | — | — | 100,000 | 100 | 165,845 | — | 165,945 | — | — | 115,000 | 115 | 28,636 | — | 28,751 | ||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 250,781 | — | 250,781 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2020 | 14 | $ | — | 87,821,825 | $ | 87,822 | $ | 35,870,457 | $ | (43,658,819 | ) | $ | (7,700,540 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for convertible notes payable | — | — | 1,018,794 | 1,019 | 1,232,795 | — | 1,233,814 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2021 | 14 | $ | — | 113,125,715 | $ | 113,126 | $ | 121,269,598 | $ | (120,442,111 | ) | $ | 940,613 | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 and 2019
(UNAUDITED)
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | |||||||||||||||
| September 30, 2020 | September 30, 2019 | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (2,898,406 | ) | $ | (907,970 | ) | $ | (75,494,381 | ) | $ | (2,898,406 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Issuance of stock options for board of directors | 37,458 | 0 | ||||||||||||||
| Issuance of stock options for service | 5,058,682 | 0 | ||||||||||||||
| Stock issued for board of directors | 114,741 | 0 | ||||||||||||||
| Stock issued for services | 2,063,680 | 89,134 | 505,961 | 2,063,680 | ||||||||||||
| Stock issued for merchant equity | 16,250 | 0 | ||||||||||||||
| Stock issued for exercise of warrants | 140,945 | — | 0 | 140,945 | ||||||||||||
| Stock issued for purchase of judgment | 1,000,000 | 0 | ||||||||||||||
| Stock issued for excess fair value of equity over assets received | 64,724,614 | 0 | ||||||||||||||
| Excess fair market value of shares issued recorded as interest expense | 2,705,904 | 0 | ||||||||||||||
| Imputed interest on notes payable | 10,350 | 10,350 | 10,350 | 10,350 | ||||||||||||
| Depreciation and amortization | — | 49 | ||||||||||||||
| Amortization of debt discount | 280,175 | 0 | ||||||||||||||
| Gain on extinguishment of accounts payable | (174,925 | ) | 0 | |||||||||||||
| Change in fair value of derivative liabilities | (80,370 | ) | 0 | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | (8,391 | ) | (5,406 | ) | 5,806 | (8,391 | ) | |||||||||
| Prepaid expenses | (86,820 | ) | 0 | |||||||||||||
| Accounts payable | 147,265 | 8,687 | 420,717 | 147,265 | ||||||||||||
| Accrued liabilities | 218,233 | 211,920 | 127,578 | 218,233 | ||||||||||||
| Right of use asset and liability | 23,089 | — | 7,408 | 23,089 | ||||||||||||
| Net cash used in operating activities | (303,235 | ) | (593,236 | ) | (820,852 | ) | (303,235 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
| Deposit escrow | 25,000 | (50,000 | ) | 0 | 25,000 | |||||||||||
| Capitalized prepaid software development and license | (1,567,500 | ) | 0 | |||||||||||||
| Payments on notes receivable | (8,000 | ) | 0 | |||||||||||||
| Security deposit | (1,589 | ) | — | 0 | (1,589 | ) | ||||||||||
| Net cash provided by (used in) investing activities | 23,411 | (50,000 | ) | (1,575,500 | ) | 23,411 | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds on loans payable - related parties | 750 | 120,000 | ||||||||||||||
| Payments for prepaid offering costs | (25,000 | ) | 0 | |||||||||||||
| Proceeds on loans payable – related parties | 0 | 750 | ||||||||||||||
| Payments on loans payable - related parties | (42,750 | ) | (41,000 | ) | (34,400 | ) | (42,750 | ) | ||||||||
| Repurchase of common stock - related party | (10,000 | ) | 0 | |||||||||||||
| Proceeds on note payable | 68,200 | — | 0 | 68,200 | ||||||||||||
| Payments on notes payable | — | (36,000 | ) | |||||||||||||
| Proceeds from sale of repurchase option | 250,781 | 623,750 | ||||||||||||||
| Proceeds from exercise of warrants | 25,000 | — | 0 | 25,000 | ||||||||||||
| Proceeds from sale of common stock | — | 68,750 | ||||||||||||||
| Proceeds from sale of repurchase options | 2,430,750 | 250,781 | ||||||||||||||
| Net cash provided by financing activities | 301,981 | 735,500 | 2,361,350 | 301,981 | ||||||||||||
| Changes in cash and cash equivalents | 22,157 | 92,264 | (35,002 | ) | 22,157 | |||||||||||
| Cash and cash equivalents, beginning of period | 24,159 | 1,384 | 57,497 | 24,159 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 46,316 | $ | 93,648 | $ | 22,495 | $ | 46,316 | ||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||||
| Cash paid for interest | $ | — | $ | 1,805 | $ | 0 | $ | 0 | ||||||||
| Cash paid for income taxes | $ | — | $ | — | $ | 0 | $ | 0 | ||||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||||
| Common stock issued for conversion of accounts payable | $ | 152,500 | $ | — | $ | 206,250 | $ | 152,500 | ||||||||
| Common stock issued for merchant equity liability | $ | — | $ | 14,877 | ||||||||||||
| Forgiveness of debt through conversion of accounts payable | $ | 174,925 | $ | 0 | ||||||||||||
| Common stock issued convertible notes, accrued interest and derivative liabilities | $ | 1,620,411 | $ | 0 | ||||||||||||
| Common stock and options issued for capitalized software and licensing costs | $ | 5,491,422 | $ | 0 | ||||||||||||
| Common stock issued with forbearance agreements recorded as a discount | $ | 63,578 | $ | 0 | ||||||||||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
AppTech Corp. (“AppTech” or the “Company”) is a Wyoming Corporation incorporated on July 2, 1998.
AppTech Corp. is a FinTech company providing electronic payment processing technologies and merchant services. This includesThese technologies allow businesses to accept cashless and/or contactless payments, such as credit cards, ACH, wireless payments, and more. Their patented, exclusively licensed and/or proprietary merchant services software offers or will offer integrated solutions for frictionless digital and mobile payment acceptance; AppTech is supplementing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based issuer processing for card, processing, Automated Clearing House (“ACH”) processing, giftdigital tokens, and loyalty cards and e-commerce. The Company expanded its core services to include global Short Messaging Service (“SMS”) patented text messaging and secure mobile payments. The patented two-way text chat platform enables secure SMS services including mobile payments, notifications, authentication, marketing, information queries and reporting. Other services include digital marketing, lead generation, mobile app development, and intellectual property rights development.payment transfer transactions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Also see Note 3.
Accounting Method
The accompanying unaudited financial statements of Apptech Corp. have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“GAAP”) for interim financial information and in accordance with Rule 8-03 of Regulation S-X. Certain information and disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. These interim financial statements should be read in conjunction with the audited annual financial statements of the Company as of and for the year ended December 31, 2019. The results of operations for the three months and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year.
Principles of Consolidation
The Company’s accounts include financials of the Company and its wholly owned subsidiaries, Transcendent One, Inc. and TransTech One, LLC. All significant inter-company transactions have been eliminated in consolidation. The operations of Transcendent One, Inc. and TransTech One, LLC are insignificant and the Company dissolved the subsidiaries on October 8, 2019.
Use of Estimates
The preparation of the consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, and realization of tax deferred tax assets.assets and capitalization of software development. Actual results could differ from those estimates.
Concentration of Credit Risk
Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250,000$250,000 per institution that pays Federal Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to these balances.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses fournine financial institutions to service their merchants for which represented 100% of accounts receivable as of September 30, 20202021 and 2019.2020. The loss of one of these financial institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company. For the nine months ended September 30, 20202021 and 2019,2020, the one merchant (customer) represented approximately 36%16% and 40%36% of the total revenues, respectively. The loss of this customer would have significant impact on the Company’s operations.
Cash and Cash EquivalentsSoftware Development Costs
The Company classifies its highly liquid investments with maturities of three months or less atcapitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the date of purchasecapitalization requirements are expensed as cash equivalents. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations of each investment as of the balance sheet date for each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those with maturities greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification method.incurred.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable is recorded net of an allowance for doubtful accounts, if needed. The Company considers any changes to the financial condition of its financial institutions used and any other external market factors that could impact the collectability of its receivables in the determination of its allowance for doubtful accounts. The Company does not expect to have write-offs or adjustments to accounts receivable which could have a material adverse effect on its consolidated financial position, results of operations or cash flows as the portion which is deemed uncollectible is already taken into account when the revenue is recognized.
Revenue Recognition
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, codified as Accounting Standards Codification (“ASC”) 606 Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted ASC 606 effective January 1, 2019 using modified retrospective basis and the cumulative effect was immaterial to the consolidated financial statements.
The Company provides merchant processing solutions for credit cards and electronic payments. In all cases, the Company acts as an agent between the merchant which generates the credit card and electronic payments, and the bank which processes such payments. The Company’s revenue is generated on services priced as a percentage of transaction value or a specified fee transaction, depending on the card or transaction type. Revenue is recorded as services are performed which is typically when the bank processes the merchant’s credit card and electronic payments.
The Company provides various Cloud services to business clients. Revenues generated from the services as agreed upon in a Cloud Service Agreement. The revenue is recorded as the services are performed and billed in advance on a monthly basis. Revenues from these services represent less than 5% of the Company’s total revenues.
Consideration paid to customers such as amounts earned under our customer equity incentive program, are recorded as a reduction to revenues. There were no amounts paid or incurred during the nine months ended September 30, 2021 and 2020.
Fair Value of Financial InstrumentsMeasurements
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures defines(“ASC 820”) to measure and disclose the fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.of its financial instruments. ASC 820 alsoestablishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy that requires an entitywhich prioritizes the inputs to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may bevaluation techniques used to measure fair value:
value into three broad levels. The three levels of fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as follows:defined by ASC 820 are described below:
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Level 1 | ||
| Level 2 | ||
| Level 3 |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The Company’sfair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial instruments consist of cash and cash equivalents, accounts receivable, vendor deposits, accounts payable, accrued expenses, etc. The carrying value of these assets and liabilities fall within more than one level described above, the categorization is representativebased on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair market value due tobecause of the short maturityimmediate or short-term mature of these financial instruments.
Research and DevelopmentTransactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
In accordance with ASC 730, ResearchThe following table presents liabilities that are measured and Development (“R&D”) costs are expensed when incurred. R&D costs include costsrecognized at fair value as of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and other outside services. Total R&D costs for the nine months ended September 30, 2021 and December 31, 2020 on recurring basis:
| Schedule of derivative liabilities | ||||||||||||||||
| September 30, 2021 | ||||||||||||||||
| Total Carrying | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 492,830 | $ | 492,830 | ||||||||
| December 31, 2020 | ||||||||||||||||
| Total Carrying | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 597,948 | $ | 597,948 | ||||||||
See Note 7 for discussion of valuation and 2019 were $49,250 and $62,350, respectively.roll forward related to derivative liabilities.
Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated. As of September 30, 2020 and December 31, 2019, there were no asset impairments.
Lease Commitment
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s statement of operations in the same line as expense arising from fixed lease payments. As of September 30, 2020, management determined that there were no variable lease costs.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal 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 the consolidated statement of operations in the period that includes the enactment date.
The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known. As of September 30, 2020 and 2019, the Company does not believe any provisions are required in connection with uncertain tax positions as there are none.
Per Share Information
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.year. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include stock options, warrants granted, convertible debt and potentially outstanding sharesconvertible preferred stock.
The number of common stock duringequivalents not included in diluted income per share was 12,498,187 and 5,616,624 for the period.nine months ended September 30, 2021 and 2020, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive.
As of September 30, 2020 and 2019, the Company had potential dilutive securities related to options, warrants, Series A preferred stock and convertible notes payable. These dilutive securities were not included within the calculation of dilutive net loss per common share as the effects would have been anti-dilutive.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Schedule of anti dilutive stock | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Series A preferred stock | 10,920 | 10,920 | ||||||
| Convertible debt | 1,639,217 | 5,605,704 | ||||||
| Warrants | 200,000 | — | ||||||
| Options | 7,272,500 | — | ||||||
| Common stock | 3,375,550 | — | ||||||
| Total | 12,498,187 | 5,616,624 | ||||||
Convertible Debt
Convertible debt is accounted for under the guidelines established by ASC 470-20 Conversion and Other Options. ASC 470-20 governs the calculation of an embedded beneficial conversion, which is treated as an additional discount to the instruments where derivative accounting does not apply. The amount of the value of additional stock and other consideration in addition to the beneficial conversion feature may reduce the carrying value of the instrument to zero, but no further. The discounts are accreted over the term of the debt using the straight line method due to the short terms of the notes.
The Company accounts for modifications of its embedded beneficial conversions, in accordance with ASC 470-50 Modifications and Extinguishments. ASC 470-50 requires the modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment.
Stock Based Compensation
The Company recognizes as compensation expense all share-based payment awards made to employees, directors, and consultants including grants of stock options and warrants, based on estimated fair values. Fair value is generally determined based on the closing price of the Company’s common stock on the date of grant and is recognized over the service period. The Company has several consulting agreements that have share based payment awards based on performance. These agreements typically require the Company to issue common stock to the consultants on a monthly basis. The Company records the fair market value of the common stock issuable at each month end when the performance is complete based upon the closing market price of the Company’s common stock.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – GOING CONCERN
As reflected in the accompanying consolidated financial statements, during the nine months ended September 30, 20202021 and 2019,2020, the Company incurred a net loss of $2,898,406 $75,494,381 and $907,970$2,898,406 and used cash of $303,235$3,027,981 and $593,236$303,235 in operating activities. In addition, the Company had a working capital deficit of $7,735,022 $6,026,048 and an accumulated deficit of $43,658,819 at$120,442,111 as of September 30, 2020.2021. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. We have evaluated the conditions or events that raise substantial doubt about the Company’s ability as a going concern within one year of issuance of the consolidated financial statements.
While the Company is continuing operations and generating revenues, the Company’s cash position is not significant enough to support the Company’s daily operations. To fund operations and reduce the working capital deficit, we intendthe Company intends to raise additional funds through public or private debt and/or equity offerings. During 2020,2021, the Company raised $274,614received $2,430,750 from eighteleven sales of a repurchase option and $25,000 from warrants exercised to fund operations.option. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern, however, such are not guaranteed. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect, nor can there be assurance that such funds will be at acceptable terms. Subsequent to September 30, 2021, the Company has received an additional $127,500 through October 28, 2021. As of the date of these consolidated financial statements, the Company has not finalized a commitment for additional capital. The ability of the Company to continue as a going concern is dependent upon our ability to further implement its business plan and generate revenues and cash flows. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Risks and uncertaintiesUncertainties
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. Since we derive ourthe Company derives its revenues from processing of purchases from our merchant services clients, a downturn in economic activity, such as associated with the current coronavirus pandemic, could reduce the volume of purchases we process,it processes, and thus ourits revenues. In addition, such a downturn could cause ourits merchant customers to cease operations permanently decreasing our payment processing unless new customers are found. We may also face additional difficulty in raising capital during an economic downturn. The effects of the pandemic had significant impact on revenue at the beginning of the pandemic and the processors gave significant concessions of reduced fees to minimize the impact of the pandemic. The revenue began to return to normalincrease after several months.months as the economy began to reopen using different methods of purchasing especially online purchasing, as well as, the Company has been able to add new customers. The continuing effects of the potential impact cannot be estimateestimated at this time.
Additionally, it is reasonably possible that the estimates made in the financial statements have been or will be materially and adversely impacted in the near term as a result of these conditions. Also, if the development of the Company’s payment platform is not successful, the software development costs will need to be expensed instead of capitalized.
NOTE 4 – PATENTS
Patents
On JuneSeptember 22, 2017, AppTech executed an Amendment to Asset Purchase Agreement with GlobalTel Media, Inc. In connection with the asset purchase agreement, 5,000,000 shares of common stock were issued to GlobalTel Media, Inc. The Company valued the common stock issuance at $1,000,000 based on the closing market price of the Company’s common stock on the date in which the performance was complete. This amendment revived the original asset purchase agreement dated December 4, 2013 to purchase the assets of GlobalTel Media, Inc. (AppTech and GlobalTel agree that the asset purchase agreement dated September 30, 2015 is null and void), which include, but is not limited to, all intellectual property, United States Patent Trademark Office (“USPTO”) issued patents, enterprise-grade, patent protected software and intellectual property for advanced messaging incorporating secure payments, databases, documentation, copyrights, trademarks, registrations, and all current development work in process of USPTO application approval; more specifically but not limited to USPTO 8,073,895 & 8,572,166 “System and Method for Delivering Web Content to a Mobile Device”, USPTO 8,315,184 “Computer to Mobile Two-Way Chat System and Method”, and USPTO 8,369,828 “Mobile-to-Mobile Payment System and Method”. GlobalTel’s technology focuses on SMS text-based applications, social media and mobile payment. The USPTO assigned the patents to AppTech on July 25, 2017. AppTech, as part of the various agreements, agreed to pay $1,600,000 which included an assumption of certain liabilities, including costs incurred to continue development of the patents, as well as guaranteed payment of 25% of the net proceeds on revenue created by the patents up to $26,600,000. As of September 30, 20202021 and December 31, 2019,2020, amounts included in accounts payable related to the assumption of liabilities in connection with the patents were $340,500$280,000 and $415,000,$280,000, respectively. The Company has expensed the cost of the patents as research and development costs as the future estimated cash flow expected cannot be reasonably estimated.estimated at the time of the expense.
See Note 9 for more information on capitalized prepaid software development and license.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities as of September 30, 20202021 and December 31, 20192020 consist of the following:
| September 30, 2020 | December 31, 2019 | |||||||
| Accrued interest – related parties | $ | 1,010,505 | $ | 943,356 | ||||
| Accrued interest – third parties | 1,352,090 | 1,215,699 | ||||||
| Accrued residuals | 55,068 | 39,064 | ||||||
| Accrued merchant equity | 91,023 | 91,023 | ||||||
| Other | 44,026 | 45,338 | ||||||
| Total accrued liabilities | $ | 2,552,712 | $ | 2,334,480 | ||||
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Schedule of Accrued Liabilities | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| Accrued interest – related parties | $ | — | $ | 1,039,977 | ||||
| Accrued interest – third parties | 1,420,690 | 1,395,133 | ||||||
| Accrued payroll | 21,672 | — | ||||||
| Accrued PTO | 56,071 | — | ||||||
| Accrued residuals | 100,615 | 62,174 | ||||||
| Accrued merchant equity | 88,903 | 91,023 | ||||||
| Other | 38,677 | 44,027 | ||||||
| Total accrued liabilities | $ | 1,726,628 | $ | 2,632,334 | ||||
Accrued Interest
Notes payable and convertible notes payable incur interest at rates between 10% and 15%, per annum. The accrued interest in most cases is currently in technical default due to the notes being past their maturity date.
Accrued Residuals
The Company pays commissions to independent agents which refer merchant accounts. The amounts payable to these independent agents is based upon a percentage of the amounts processed on a monthly basis by these merchant accounts.
Accrued Merchant Equity Liability
The Company provided all merchants the opportunity to earn shares of the Company’s common stock through their Merchant Equity Program (the “Program”). Under the Program, the merchant earned 1% of their total Visa/MasterCard volume processed during the first year of their contract. For example, if a merchant processes $1.0 million in credit card charges, the merchant will receive 10,000 shares of the Company’s common stock. The merchant must process with the Company for a period of three years for the shares to vest. All merchants became fully vested when the Company ended the program effective December 31, 2015.
For merchants in which the shares of common stock are not known as they are within the one-year period, the Company estimates on a quarterly basis as to the estimated amount of shares based upon the expected amount to be processed by the merchant on an annual basis. At the end of the first year, when the number of shares issuable is known, the Company makes an adjustment to the value of the shares, if needed.
The Company accounts for the value of the shares under the program as a sales incentive and thus the amounts in connection with the Program are recorded as a reduction to revenues. As of September 30, 2020,2021, the Company has an obligation to issue approximately 776,000750,000 shares of the Company’s common stock issuable under the Program. During the year ended December 31, 2019, the Company issued 37,193 shares of common stock relieving $14,877 in liability under the program.
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The Company funds operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of September 30, 20202021 and December 31, 2019.2020. Related parties noted below are either members of management, board of directors, significant shareholders or individuals in which have significant influence over the Company.
Loans Payable – Related Parties
During the nine months ended September 30, 20202021 and 2019,2020, the Company obtained (paid) $(42,000)paid $34,400 and $79,000$42,000 loans payable from related parties, net. As of September 30, 20202021 and December 31, 2019,2020, the balance of the loans payable was $51,401$0 and $93,401,$34,400, respectively. The loans payable are due on demand, unsecured and non-interest bearing as there are no formal agreements executed.
Subordinated Notes Payable
In 2016, the Company issued $350,000 in subordinated notes payable to third parties. The subordinated notes payable were due in 30 to 180 days and incurred interest at 10% per annum. As of September 30, 20202021 and December 31, 2019,2020, accrued interest related to the subordinated notes was $144,795$0 and $118,545,$153,545, respectively. On September 30, 2021, the Company converted notes issued for $529,795 of principal and interest into 529,795 shares of the Company’s common stock.
Convertible Notes Payable
In 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300,000 convertible note bearing interest at 12% per annum (the “Note”). The CompanyNote matures in 365 days from the date of issuance. The Note is currently inconvertible at the option of the holder at any time into shares of the Company’s common stock at $1.00 for the 180 days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty-five trading days, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five percent of the lowest trading price for the common stock during the twenty-five consecutive trading days preceding the conversion date with a minimum trading volume of 1,000 shares.
In the event of a default of the subordinated note agreements.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSNote, the Holder in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.
The embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 200,000 shares of common stock exercisable at $1.50 and expire in five years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 7 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable.
Total interest expense on convertible notes payable, inclusive of amortization of debt discount of $280,175 amounted to $310,588 for the nine months ended September 30, 2021. As of September 30, 2021 and December 31, 2020, the convertible note payable discount is $63,578 and $280,174 and will be amortized over the life of the convertible note payable in 2021. As of September 30, 2021, and December 31, 2021, the derivative liability is as follows:
| Schedule of notes and convertible notes payable | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| Convertible notes payable | $ | 245,551 | $ | 378,134 | ||||
| Warrants | 247,279 | 219,814 | ||||||
| Total notes and convertible notes payable | $ | 492,830 | $ | 597,948 | ||||
See Note 9 – Convertible Notes Payablenote and warrant lawsuit.
In 2017, the Company received $222,000 in convertible notes payable from related parties. The convertible notes payable are unsecured, were due in 180 days, incur interest at 10% per annum and are convertible at $0.10 per share. As of September 30, 2020 and December 31, 2019,2020, accrued interest related to the convertible notes was $70,638 and $53,988, respectively.$76,187. On the date of the agreement, Management calculated the beneficial conversion feature in connection with the convertible notes payable and recorded a discount of $222,000. The Company amortized the discount over the term of the convertible notes payable of 180 days. TheOn February 24, 2021, the chief executive officer assigned $200,000 in convertible notes to a direct relative. On April 29, 2021, the Company is currently in default onissued 3,055,875 shares of the Company’s common stock to the convertible notes payable.payable holders in connection with debt conversion. The closing market price of the Company’s common stock on the date of the agreement was used to value the excess fair value of equity issuance. The amounts were reflected as a reduction of convertible notes payable, accrued interest, and excess fair value of equity issuance as follows:
| Schedule of Convertible note and warrant lawsuit | ||||
| Convertibles note payable | $ | 222,000 | ||
| Accrued interest | 83,588 | |||
| Excess fair value of equity issuance | 1,379,193 | |||
| Total | $ | 1,684,781 |
In 2015, the Company issued $50,000 in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $1.00 per share. As of September 30, 20202021 and December 31, 2019,2020, the accrued interest related to the convertible notes was $24,584$29,584 and $20,833,$25,833, respectively. The Company is currently in default on the convertible note payable.
In 2014, the Company issued $400,000 in convertible notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest between 10% to 12% per annum and are convertible at prices ranging from $0.33 to $1.00 per share. In addition, the Company issued 400,000 shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 400,000 shares of common stock at $1.00 per share within one year of the note issuance date. As of September 30, 20202021 and December 31, 2019,2020, the Company held the obligation to repurchase the shares for $400,000. As of September 30, 20202021 and December 31, 2019,2020, the accrued interest related to the convertible notes was $216,833$257,833 and $186,083,$227,083, respectively. The Company is currently in default of the note agreements.
In 2008 and 2009, the Company issued $320,000 in convertible notes payable, of which $150,000 was from related parties. The convertible notes payable are currently due on demand, incur interest at 15% per annum, and convertible at $0.60 per share. As of September 30, 2020 and December 31, 2019,2020, accrued interest related to the convertible notes was $552,013 and $516,013$564,013 of which $260,250 and $243,375, respectively,$265,875 was due to related parties. TheOn April 29, 2021, the Company is currently in defaultissued 1,500,021 shares of the Company’s common stock, of which 705,625 shares of common stock were issued to related parties to the convertible note holders in connection with debt conversion. On September 27 – 30, 2021, the Company issued 1,018,793 shares of the Company’s common stock, of which 50,631 shares of common stock were issued to related parties to the convertible note holders in connection with debt conversion. The closing market price of the Company’s common stock on the date of the agreement was used to value the excess fair value of equity issuance. The amounts were reflected as a reduction of convertible notes payable, agreements.accrued interest, and excess fair value of equity issuance as follows:
| Schedule of convertible notes payables | ||||
| Convertible notes payable | $ | 170,000 | ||
| Convertible notes payable – related parties | 150,000 | |||
| Accrued interest | 306,637 | |||
| Accrued interest – related parties | 273,375 | |||
| Excess fair value of equity issuance | 587,723 | |||
| Excess fair value of equity issuance – related parties | 523,968 | |||
| Total | $ | 2,011,703 |
Notes Payable
In 2020, the Company entered into a 30-year unsecured note payable with U.S. Small Business Administration for $68,200 in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principleprincipal and interest are deferred for twelve months with the first $333 payment due July 1, 2021. As of September 30, 2021 and December 31, 2020 the balance of the note payable was $68,300, and accrued interest was $640.$3,202 and $1,281, respectively.
In 2016, the Company issued $143,000 in notes payable to third parties. The notes payable were due in ninety days or less. During 2019, the Company paid $36,000 in notes payable. TheOn September 27, 2021 and September 30, 2021, the Company is currently in defaultconverted two of the note agreements.
In 2007 and 2008,notes issued for $74,000 into 74,000 shares of the Company’s common stock. On September 30, 2021, the Company entered into notes payablea forbearance agreement which granted the holders 1,650 shares of the Company’s common stock with a related partycurrent fair market value of $1,931 in exchange for $46,000 in proceeds. The notes payable were due on demand and incurred interest at 12% per annum. These were combined into a single note agreement in 2014. As of September 30, 2020 and December 31, 2019, the balance on the note payable was $88,136 and accrued interest related to the note payable was $57,235 and $49,243, respectively. The Company is currently in default of the note payable agreement.
In 2007, the Company entered into note payable with a third party for $128,000 in proceeds. Undernot enforcing the terms of the agreement for a period of twelve months.
Two significant shareholders funded the holder received a flat interest amount of $37,496.Company’s operations through notes payable in primarily 2009 and 2010. The Company is currently in default of the notenotes payable agreement and the entire amount of $37,496 has been included within accrued interest. Since the note payable did not incur interest the Company imputed interest at $9,600 and $9,600, respectively, which represented an interest rate of 10% per annum during the nine months endedand were due on December 31, 2016. As of September 30, 2021, and December 31, 2020, the aggregate balance of the notes payable was $596,726 and 2019.$620,356 and accrued interest was $382,917 and $638,016, respectively. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with a significant shareholder. The parties agreed to reduce the outstanding accrued interest in the amount of $275,000. On September 29, 2021, the Company converted notes issued for $50,631 of principal and accrued interest into 50,631 shares of the Company’s common stock. On September 29, 2021, the Company entered into a forbearance agreement which granted the holder 29,836 shares with a current fair market value of $34,908 in exchange for not enforcing the terms of the agreement for a period of twelve months.
In 2008, the Company entered into a note payable with a third party for $10,000 in total proceeds. The note payable is currently in default and has a flat interest amount due of $21,000. As of September 30, 20202021, and December 31, 2019, the Company was in default of the note agreement and2020, the entire amount of $21,000 has been included withinin accrued interest. Since the notes payable do not incur interest, the Company imputed interest at $750 and $750, respectively, which represented an interest rate of 10% per annum during the nine months ended September 30, 20202021 and 2019.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS2020.
In 2008, the Company entered into notes payable with a third party for $26,000 in total proceeds. The notes payable have a flat interest amount due of $80,000. During 2015, the Company received another $50,000 from the third party. During 2017, the Company entered into an agreement whereby they would repay the principal and accrued interest in the amount of $145,000 by April 4, 2018 and issue the holders 800,000 shares of common stock. The Company recorded the fair market value of the common stock issued at $336,000 based on the date of issuance as interest expense. Other than the issuance of shares of common stock,stock. On September 27, 2021, the Company converted notes issued for $225,000 of principal and accrued interest into 225,000 shares of the Company’s common stock.
In 2007 and 2008, the Company entered into notes payable with a related party for $46,000 in proceeds. The notes payable were due on demand and incurred interest at 12% per annum. These were combined into a single note agreement in 2014. As of September 30, 2021, and December 31, 2020, the balance on the note payable was $88,136 and accrued interest related to the note payable was $67,892 and $59,900, respectively. On September 30, 2021, the Company entered into a forbearance agreement which granted the holder 4,407 shares with a current fair market value of $5,156 in exchange for not enforcing the terms of the agreement for a period of twelve months.
In 2007, the Company entered into note payable with a third party for $128,000 in proceeds. Under the terms of the agreement the holder received a flat interest amount of $37,496. The entire amount of $37,496 has been included within accrued interest. Since the note payable did not perform underincur interest, the agreement. The Company is currentlyimputed interest at $9,600 and $9,600, respectively, which represented an interest rate of 10% per annum during the nine months ended September 30, 2021 and 2020. On September 27, 2021, the Company entered into a forbearance agreement which granted the holder 6,400 shares with a current fair market value of $8,608 in defaultexchange for not enforcing the terms of the note agreement.agreement for a period of twelve months.
In 2007, the Company entered into note payable with a third party for $221,800 in proceeds. The note payable is currently in default and incurs interest at 10% per annum. On September 30,December 31, 2013, the holder received an arbitration settlement for the principal and accrued interest. As of September 30, 20202021, and December 31, 2019,2020, the Company was in default of the arbitration settlement. As of September 30, 20202021, and December 31, 2019,2020, accrued interest related to the note payable was $460,072$500,384 and $429,861,$470,143, respectively. On September 30, 2021, the Company entered into a forbearance agreement which granted the holder 11,090 shares with a current fair market value of $12,975 in exchange for not enforcing the terms of the agreement for a period of twelve months.
In 2007, the Company entered into note payable with a significant shareholder for $58,600 in proceeds. The note payable is currently due on demand and incurs interest at 10% per annum. As of September 30, 20202021, and December 31, 2019,2020, accrued interest related to the note payable was $74,908$0 and $70,513,$76,372, respectively. TheOn September 30, 2021, the Company is currently in defaultconverted notes issued for $139,368 of principal and accrued interest into 139,368 shares of the note agreement.Company’s common stock.
NOTE 7–DERIVATIVE LIABILITIES
Two significant shareholders fundedThe Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s operations through notes payable in primarily 2009common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and 2010warrants were recorded as derivative liabilities on the issuance date and continue to support operations on a limited basis. The notes payable incur interest at 10% per annumrevalued as of September 30, 2021 and were due on December 31, 2016.2020.
Based on the convertible notes described in Note 6, the derivative liability day one loss is $389,712 and the change in fair value as of September 30, 2021 and December 31, 2020 is $(105,118) and $71,464. The Company is currentlyfair value of applicable derivative liabilities on note, warrants and change in defaultfair value of derivative liability are as follows for the note agreements. nine months ended September 30, 2021.
| Schedule of fair value of derivative liabilities | ||||||||||||
| Derivative Liability Convertible Notes | Derivative Liability Warrants | Total | ||||||||||
| Balance as of December 31, 2020 | $ | 378,134 | $ | 219,814 | $ | 597,948 | ||||||
| Change in fair value | (107,835 | ) | 27,465 | (80,370 | ) | |||||||
| Change in fair value due to conversion | (24,748 | ) | — | (24,748 | ) | |||||||
| Balance as of September 30, 2021 | $ | 245,551 | $ | 247,279 | $ | 492,830 | ||||||
As of September 30, 2020 and December 31, 2019,2021, the aggregate balancefair value of the derivative liability convertible notes payable was $620,355 and $591,114 accrued interest was $622,382 and $575,480, respectively.is estimated using a Monte Carlo pricing model with the following assumptions:
| Schedule of pricing mode with assumptions | ||||
| Market value of common stock | $ | 1.17 | ||
| Expected volatility | % | |||
| Expected term (in years) | ||||
| Risk-free interest rate | % |
As of September 30, 2021, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
| Market value of common stock | $ | 1.17 | ||
| Expected volatility | % | |||
| Expected term (in years) | ||||
| Risk-free interest rate | % |
NOTE 7 – 8–RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Company entered into a lease agreement commencing February 8, 2020 for its current facility which expires in 2025. The term of the lease is for five years. The Company also entered into a six month option to purchase its current facility under terms and conditions of the lease. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 12% within the calculation. The following are the expected lease payments as of September 30, 2020,2021, including the total amount of related imputed interest related:interest:
Years ended December 31, :31:
| Schedule of Future Minimum Rental Payments for Operating Leases | |||||
| 2021 | $ | 20,691 | |||
| 2022 | 85,039 | ||||
| 2023 | 87,590 | ||||
| 2024 | 90,217 | ||||
| 2025 | 7,536 |
| 2020 | $ | 20,089 | |||
| 2021 | 82,561 | ||||
| 2022 | 85,039 | ||||
| 2023 | 87,590 | ||||
| 2024 | 90,217 | ||||
| 2025 | 7,536 | ||||
| $ | 373,032 | ||||
| Less: Imputed interest | (84,823 | ) | |||
| Total | $ | 288,209 |
| Operating Lease Total | $ | 291,073 | ||
| Less: Imputed interest | (52,899 | ) | ||
| Total | $ | 238,174 |
The rent expense was $45,885 and $70,404 for the nine months ended September 30, 2021 and 2020, respectively.
17
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 89 - COMMITMENTS AND CONTIGENCIES
Litigation
ShareholderFormer Shareholders Lawsuit
In March 2016, a significant shareholder (“Plaintiff”) of the Company filed a lawsuit against the Company in the state of California alleging breach of contract, fraud and negligent misrepresentation based on supposed oral promises in 2013 to give Plaintiff’s company shares in exchange for stocks in another company and a 2014 consulting agreement. The Company strongly disputed all claims made in the lawsuit. On April 20,November 2017, the Company filed an answer that denied each and every purported allegation and cause of action and further denied that they caused any damage or loss. The Company reached an agreement resulting in a voluntary dismissal of the civil case on July 5, 2017. The Plaintiff was not able to fulfill the proper documentation within the allotted 180 days and the 3,450,000 sharestwo shareholders of AppTech, Corp stock were properly cancelled in 2019.
Former Shareholders Lawsuits
In April 2014, a shareholder of AppTechLaura Farris and Eric Ottens, filed a lawsuit against the Company in the State of WashingtonCalifornia, claiming conversion, aiding and abetting conversion, breach of fiduciary duty, breach of contract, related to the sale / transferbreach of unregistered shares at the timeimplied covenant of AppTech acquisition. On August 13, 2014, the Company notified the transfer agentgood faith and placed a ’Stop Order’ on the shares. The shareholder claims that the 2.5 million shares received are unrestrictedfair dealing and should be reflected as such. On August 19, 2014, the Company filed a motion to dismiss the lawsuit.declaratory relief. The lawsuit was dismissed on October 31, 2014.
In November 2017, two shareholders of AppTech, one who previously filed the 2014 lawsuit in the State of Washington, filed another lawsuit against the Company in the State of California, claiming the same accusations as the previously filed lawsuit which was dismissed. The lawsuit has been transferredremoved to the United States District Court for the Southern District of California. The Company filed the defendants answer, affirmative defenses and counter claims. Management believes that the Plaintiff misrepresented and misled AppTech during the merger. The court has encouraged the parties to settle. Even though the Company believes the lawsuit is without merit and will vigorously defend, the Company has made several offers to settle. On December 19, 2019, the Company entered into a settlement and release agreement. Theagreement with the plaintiffs pursuant to which the Company has recordedwill pay the liability as of December 31, 2019 for the total obligationplaintiffs an aggregate of $240,000 to be paid outin installments over three years, beginningcommencing on February 15, 2020. On January 24, 2021, the parties entered a stipulation modifying the repayment schedule of the settlement to which altered the timing of payments over the three-year repayment period. The 2019 impactCompany is recorded in general and administrative expenses. A stipulation for dismissal of action has been filed with the courts. As of September 30, 2020, we are in defaultcurrent on the paymentmodified repayment schedule. The plaintiffs have filed a motion to enforce the settlement agreement and we have requested a modified payment schedule from the courts due to the pandemic from the coronavirus outbreak and no settlement has been reached as of the date of the financial statement.
Former Landlord LawsuitYears ended December 31:
In September 2018, the landlord for our former office space lease filed a limited civil lawsuit against the Company in the State of California. The Company reached an agreement that resulted in a stipulation for judgment on October 28, 2018. The stipulated judgment was for $42,432 including attorney fees and court costs plus interest for which the Company recorded as a liability as of December 31, 2018. The stipulated judgment was paid in full on August 16, 2019.
| Schedule of payment of lawsuit | |||||
| 2021 | $ | 20,000 | |||
| 2022 | 75,000 | ||||
| Total | $ | 95,000 |
Patent Acquisition Lawsuit
In September 2018, a complaint was filed in San Diego superior court for a breach of contract arising from a written agreement for the purchase of a judgment to which AppTech was not a party. The purchase of the judgment was part of the transaction to acquire the patents. AppTech substantially performed under the agreement but the second agreement to extend the final payment was executed under alleged duress. On October 26, 2018, the Company filed an answer that denied each and every purported allegation and cause of action and further denied that they caused any damage or loss. On December 3, 2019, the Company entered into a conditional settlement providing the terms of the conditional settlement have been completed by October 1, 2020. The conditional settlement amount of $150,000 iswas paid in monthly installments of $15,000. The settlement installments paid for the nine monthsyear ended SeptemberDecember 31, 2020 was $135,000. On December 30, 2020, full payment was $74,500. On June 19, 2020, resulting from the impact of Covid-19 pandemic, AppTech entered intomade in accordance with a modified settlement payment schedule.
Other Lawsuit
On July 23, 2020, Flowpay Corporation, a Delaware corporation (“Flowpay”), and R. Wayne Steiger, the President of Flowpay, filed a complaint in the Superior Court of California, County of San Diego, North Division against the Company, Luke D’Angelo (the Chairman of the Board, Chief Executive Officer, Executive Officer and Chief Investment Officer of the Company), Robert Sanchez (the former Chief Executive Officer of GlobalTel Media, Inc., and former Chief Technology Officer of the Company) and Christopher Williams (the former Chairman and Chief Operating Officer of Flowpay and current member of the Company’s board of directors). In the complaint, Flowpay and Mr. Steiger alleged breach of contract, intentional misrepresentation and negligent misrepresentation by the Company and Mr. D’Angelo in connection with a Memorandum of Understanding, dated May 7, 2016, between the Plaintiffs and the Company and Mr. D’Angelo, as the Company’s CEO, and unjust enrichment, and violation of the California Uniform Trade Secrets Act by the Company in connection with certain patents, and trade secrets of Flowpay. In the complaint, the plaintiffs sought general and special damages, punitive and exemplary damages, disgorgement of profits, prejudgment interest, costs and other relief to be determined by the court. The November 1, 2020 payment was made timelyPlaintiffs filed an amended complaint on March 15, 2021 which removed the cause of action related to violation of the California Uniform Trade Secrets Act. The Company filed an answer with affirmative defenses on April 26, 2021. The lawsuit is presently in the discovery phase. We believe the plaintiffs’ claims are meritless and we are current on the following modified payment schedule:
intend to vigorously defend against this lawsuit.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSConvertible Note and Warrant Lawsuit
| November 1, 2020 | 20,000 | ||||
| December 1, 2020 | 20,000 | ||||
| January 2, 2021 | 20,500 | ||||
| Total | $ | 60,500 |
On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the Southern District of New York against the Company. In its complaint, EMAF alleged that the Company breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess of $2,750,000, reimbursement of costs and expenses, including reasonable legal fees, and non-interference. On September 2, 2021, EMAF filed a motion for summary judgment. On September 9, 2021, AppTech filed a motion to dismiss on the grounds the agreements were void as a result of the illegal activity by the plaintiff. On October 15, 2021, the parties filed memorandums in opposition to the respective motion. On October 25, 2021, the parties filed memorandums of law in further support of their respective motions. We believe the EMAF’s claims are meritless and intend to vigorously defend against this lawsuit. The parties have engaged in settlement discussions with an expected range of potential liability between $400,000 and $550,000, which includes principal and accrued interest of the convertible notes payable.
Significant ContractContracts
In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC. doing business as Lifelight Systems (“Lifelight”), expanding into the telehealth sphere. The partnership will expand Apptech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets. The strategic partnership provides a promissory note for up to one million dollars at a rate of three percent upon successful completion of Lifelight’s Personal Emergency Response System (PERS) pilot program. Also Lifelight is granted the right to purchase four million five hundred thousand shares of Apptech Corp. exercisable at $0.01 for one million shares and $0.25 for three million five hundred thousand shares upon the successful completion of the PERS pilot program. In accordance with the agreement, the contract, and all such liabilities and rights, are contingent upon a Lifelight’s successful completion of its PERS pilot program and AppTech securing financing.Capital Raise
In January 2019, the Company entered into an agreement with a broker dealer to provide capital raising activities. Under the terms of the agreement the broker dealer is to make a minimum of $90,000 in advisory fees. In addition, there are various other provisions within the agreement which include a 10% placement fee, warrants to purchase common stock, a 4% transaction fee, etc.
In February 2021, the Company entered into an engagement letter with Maxim Group LLC (“Maxim”) as the lead management underwriter for a follow-on offering which is non-binding. This engages Maxim through September 30, 2021 as exclusive financial advisor, lead managing underwriter and sole book running manager and investment banker in connection with the offering. The offering shall consist of approximately fifteen million worth of securities subject to the due diligence examination of the Company. The actual size of the offering, the precise number of securities to be offered by the Company and Maxim will depend upon the capitalization of the Company among other various factors. Maxim shall be granted an option to acquire an additional 15% of the total number of securities as an over-allotment, an underwriting discount of 7% and an expense allowance equal to 1%. See note 11 for subsequent events.
Silver Alert Services, LLC
In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC. doing business as Lifelight Systems (“Lifelight”), expanding into the telehealth sphere. The partnership will expand AppTech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets. The strategic partnership provides a promissory note to Lifelight for up to $1.0 million dollars with an interest rate of three percent per annum upon successful completion of Lifelight’s Personal Emergency Response System (“PERS”) pilot program. Also, Lifelight is granted an option for the right to purchase 4,500,000 shares of AppTech Corp. for which 1 million are exercisable at $0.01 and 3,500,000 are exercisable at $0.25 for which vest upon the successful completion of the PERS pilot program and are exercisable for 24 months. These options had a grant date fair value of at $1,549,999 and $5,424,987, respectively using a Black-Scholes options pricing model. No stock-based compensation was recorded during the nine months ended September 30, 2021 as vesting was determined to be highly improbable.
On December 30, 2020, the Company amended its strategic partnership agreement and purchase option agreement with Silver Alert dated August 21, 2020. The amendment altered and/or added certain definitions and the loan disbursements in the strategic partnership agreement. Further, the purchase option agreement was amended to incorporate a vesting schedule related to the gross revenue generated from the partnership. The options will vest based on reaching various gross revenue benchmarks for which expire two years after each tranche vests.
On March 29, 2021, the Company amended its strategic partnership agreement and purchase option agreement dated December 30, 2020. The amendment altered the agreement reducing the options to purchase to one million shares at a price of $0.01 and two million five thousand shares of stock at $0.25. These options had a grant date fair value of $2,329,999 and $5,824,980, respectively using a Black-Scholes options pricing model. No stock-based compensation was recorded during the nine months ended September 30, 2021 as vesting was determined to be highly improbable.
The Company’s ability to deliver on the $1,000,000 loan and fulfill its 50% obligation in 2020 was greatly impacted by the ongoing Covid 19 pandemic. Nursing homes and other senior living facilities were in lock down which did not allow the Silver Alert team into facilities for set-up and equipment training. As of August 9, 2021, the team still does not have access to these facilities and thus revenue could not be generated. Both parties agreed the delay was in the best interest of the long-term growth of the partnership. The Company will assess the probability of vesting at the end of each reporting period.
On April 27, 2021, the Company entered an amended and restated strategic partnership agreement and purchase option agreement with Silver Alert Services, LLC which amends and restates earlier agreements dated August 21, 2020, as amended on December 30, 2020 and March 29, 2021. The amended and restated agreements provide for an equity transaction whereby the Company receives a 70% (seventy percent) ownership in Silver Alert, LLC upon certain revenue goals being achieved. Further, upon the occurrence of the revenue goals, the revenue sharing between the companies shall be altered resulting in the Company retaining 70% (seventy percent).
Infinios Financial Services (formally NEC Payments)
On October 1, 2020, the Company entered into a strategic partnership with Infinios Financial Services BSC (formally NEC Payments B.S.C) (“Infinios”) through a series of agreements, which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”).
The intent of the Agreements was for the Company to deploy Infinios’s technologies, allowing the Company to extend its product offering to include flexible, scalable and secure payment acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legally payment types to distanced and contactless card and real time payment transactions. Infinios will assist the Company to complete the development of its text payment solution and provide “best in class” software that complements the Company’s intellectual property. The Agreements, among other things:
| (a) | provide the Company a license to access and use Infinios’s digital banking and payment technology solutions, as identified in the Subscription License Order Form; | |
| (b) | grant the Company conditional exclusivity in the United States for all of Infinios’s payment acceptance processing technologies contingent upon the Company reaching transaction volume target goals; |
| (c) | grant Infinios a license to develop software without the possibility of infringing upon the Company’s intellectual property; | |
| (d) | creates the parameters in which Infinios shall assist the Company in completing the development of its text payment system related to the Company’s patents; | |
| (e) | award Infinios a fifteen percent (15%) equity stake in the Company, on a fully diluted basis; | |
| (f) | set revenue sharing splits between AppTech and Infinios for all revenues generated from digital banking technologies licensed to AppTech. |
Under the Agreements, either party had the right to terminate the agreement should the Company fail to secure a funding in the amount of $3,000,000 within 45 days from the effective date of the Agreements.
On November 19, 2020, the Company entered into Amendment No. 1 to the Subscription License and Services Agreement whereby the funding date was amended to amended to no later than December 18, 2020. All other terms of the original Agreements remained in full force and effect.
On February 11, 2021, the Company entered into an amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License Order Form with Infinios (collectively the “Restated Agreements”). The Restated Agreement created an engagement fee of $100,000 due within three business days from the effective date, reduced the funding amount triggering the enforceability of the Restated Agreements to $707,500 (“Funding”), altered the date in which initial fees are payable to no later than March 5, 2021 (the “Funding Date”) and provided terms to prevent dilution for Infinios’s equity compensation for future funding secured by the Company. The fees in the Restated Agreements are payable within three business days from the effective date, at or before the Funding Date, at the Subscription Service Ready Date annually and monthly. The gross total fees due under the Restated Agreements are $2,212,500, excluding pass-through costs associated with infrastructure hosting fees.
On February 19, 2021, the Company completed and validated its contractual obligations and paid to Infinios the $100,000 engagement fee. On February 29, 2021, the Company paid the initial fee of $707,500 to Infinios prior to the Funding Date. On March 25, 2021, the Company issued 18,011,515 shares of common stock to NEC on a fully diluted basis with piggyback rights. The Company valued the common stock issuance at $67,543,182 based upon the closing market price on the effective date of the transaction based on the closing market price of the Company’s common stock. The issuance was recorded as a $5,000,000 asset, as capitalized prepaid software development and licensing and $62,543,182 as an expense, as excess fair value of equity issuance over assets received, as of September 30, 2021 based on the estimated fair market value of services had the Company developed improvements and additional functionality of the Infinios platform. The estimated amortization is a 5-years life based on the term of the licensing agreement. The Company may revise the value of the asset and estimated life as more information is made available.
The initial fees paid within three business days from the effective date and at or before the Funding Date included the following costs:
| Schedule of fees paid to NECP platform | ||||
| Engagement Fee | $ | 100,000 | ||
| License subscription fee (50% due at Funding Date) | 375,000 | |||
| Annua l maintenance subscription fee (first year) | 112,500 | |||
| Implementation fee (50% due at Funding Date) | 162,500 | |||
| Infrastructure implementation fee (50% due at Funding Date) | 32,500 | |||
| Training fee (50% due at Funding Date) | 25,000 | |||
| Total | $ | 807,500 |
As of September 30, 2021, the following payments are due in the intervals noted over the five-year life of the Restated Agreements:
| License subscription fee (second 50% due at Subscription Ready Date) | $ | 375,000 | ||
| Annual maintenance subscription fees ($112,500 annually) | 450,000 | |||
| Implementation fees (50% due at Subscription Ready Date) | 162,500 | |||
| Infrastructure implementation fees (50% due at Subscription Ready Date) | 32,500 | |||
| Training fees (50% due at Subscription Ready Date) | 25,000 | |||
| Infrastructure support fees ($6,000 monthly after Subscription Ready Date) | 360,000 | |||
| Total | $ | 1,405,000 | * |
| * | Infrastructure Hosting Fees, which are pass through hosting fees from a hosting partner are excluded from this calculation. |
Innovations Realized LLC
On October 2, 2020, the Company entered into an independent contractor services agreement with Innovations Realized, LLC (“IR”) to develop a strategic operating plan focused on the design, execution and go to market implementation of the NECP platform to enter the United States market.
On February 18, 2021, the Company entered into an amended independent contractor services agreement with IR. On February 19, 2021, the initial payment of $76,000 was made and on February 24, 2021 the second payment of $76,000 was made, on April 5, 2021 the third payment of $152,000 and on May 5, 2021, the fourth and fifth payment of $114,000 was made. The outstanding balance of $171,000 is past due and remains unpaid as of September 30, 2021.
Under the October 2020 agreement, the Company granted options to purchase 400,000 shares at a price of $0.01 and 2,500,000 shares at $0.25 and exercisable for two years after vesting. These options vest in equal monthly installments over 24 months. In addition, the options early vesting based on the completion date of the statement of work or the IR principle becoming an employee of AppTech Corp. These options had a grant date fair value of $1,399,992 and $8,749,701 using a Black Scholes pricing model. The options to purchase 400,000 shares valued at $1,399,992 were recorded as an expense, as excess fair value of equity issuance, and to purchase 141,411 shares valued at $491,421 were recorded as an asset, as capitalized prepaid software development and licensing, as of September 30, 2021 based on the estimated fair market value of services had the Company developed the platform. The estimated amortization is a 5-year life based on the term of the licensing agreement. The Company may revise the estimated life upon completion of the platform.
Employee versus Contractor Classification
The Company compensatescompensated various individuals as consultants. Annually, these consultants are issuedthe Company issues Form 1099s for amounts paid to them. In addition, a portion of these consultants dodid not have arrangements in which specifyspecified compensation payable to them. The Company risks potential tax and legal actions ifshould these consultants arebe deemed to be employees by governmental agencies. The Company added all relevant independent contractors as paid full-time employees on April 22, 2021 and April 28, 2021.
Executive Compensation
On April 28, 2021, the Company entered into new employment and stock options agreements with its named executive officers. The agreements, among other things, each employment agreement, apart from the Chief Executive Officer which implements a guaranteed bonus structure, shall provide for a starting base salary and potential business development revenue sharing at rates ranging from 20-50% of net processing revenue. Each Employment Agreement also provides a potential annual bonus, which is subject to adjustment by the Board from time to time. Further, stock option awards for certain named executives were provided, subject to the applicable vesting schedule. Each Employment Agreement provides that the applicable named executive officer’s employment with us is “at will”. The named executive officers are entitled to receive all other benefits generally available to our executive officers.
NOTE 910 – STOCKHOLDERS’ DEFICIT
Series A Preferred Stock
The Company is authorized to issue 100,000 shares of $0.001 par value Series A preferred stock (“Series A”). There were fourteen (14) shares of Series A preferred stock outstanding as of September 30, 20202021 and December 31, 2019.2020. The holders of Series A preferred stock are entitled to one vote per share on an “as converted” basis on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of Series A preferred stock are entitled to any dividends that may be declared by the Board of Directors out of funds legally available, therefore on a pro rata basis according to their holdings of shares of Series A preferred stock, on an as converted basis. In the event of liquidation or dissolution of the Company, holders of Series A preferred stock are entitled to share ratably in all assets remaining after payment of liabilities and have no liquidation preferences. Holders of Series A preferred stock have a right to convert each share of Series A into 780 shares common stock.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
The Company is authorized to issue 1,000,000,000 shares of $0.001 par value common stock. There were 87,821,825113,125,715 and 84,153,825,88,511,657, respectively, shares of common stock outstanding as of September 30, 20202021 and December 31, 2019.2020. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available, therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions against the payment of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock into any other securities.
During the nine months ended September 30, 20202021 and 2019,2020, the Company issued 3,568,000488,053 and 439,500,3,568,000, respectively, shares of common stock to several consultants in connection with business development accounts payable conversion and professional services. The Company valued the common stock issuances at $2,357,125$2,512,693 and $89,134,$2,357,125, respectively, based upon the closing market price of the Company’s common stock on the date in which the performance was complete or issued based upon the vesting schedule and the closing market price of the Company’s common stock on the date of the agreement. The amounts were expensed to general and administrative expenses on the accompanying consolidated statements of operations. The accounts payable conversion was $152,500.$424,885 and $152,500 during 2021 and 2020, respectively.
During the year ended December 31, 2020, the Company granted 350,000 shares of common stock to the board of directors valued at $196,700 or $0.562 per share. The shares vest quarterly over the period of approximately one year. The Company valued the stock issuances, earned for the nine months ended September 30, 2021, at $114,741 based on the closing market price of the Company’s common stock on the date of the agreement. The amount was expensed to general and administrative expenses on the accompanying statement of operations. The Company will issue 116,668 shares of common stock during 2021 valued at $65,567 based on the closing market price of the Company’s common stock on the date of the agreement, over the remaining term of the directors.
During the nine months ended September 30, 2021, the Company issued 31,250 shares of common stock to a merchant in connection with a new contract extension. The Company valued the common stock issuance at $18,371 based upon the closing market price of the Company’s common stock on the date of the agreement. The amount was reflected as a reduction of revenue on the accompanying statement of operations.
During the nine months ended September 30, 2021, the Company issued 200,000 shares of common stock in connection with a judgment purchase agreement from a third party. The judgment is for damages in the amount of $516,932 plus statutory interest against FlowPay Corporation and R. Wayne Steiger. The Company valued the common stock issuance at $1,000,000 based on the closing market price of the Company’s common stock on the date of the judgment purchase.
During the nine months ended September 30, 2021, the Company issued 31,250 shares of common stock to two merchants in connection with the merchant equity program. The Company recorded the common stock issuance at the historical price of $2,121 based upon the closing market price of the Company’s common stock on the date of the qualification. The amount was reflected as a reduction of the merchant equity liability.
During the nine months ended September 30, 2021, the Company issued 5,574,689 shares of common stock to several convertible note payable holders of which 3,812,131 shares of common stock were issued to related parties in connection with debt conversions. The closing market price of the Company’s common stock on the date of the agreement was used to value the excess fair value of equity issuance. The amounts were reflected as a reduction of convertible notes payable, accrued interest, and excess fair value of equity issuance as follows:
| Schedule of convertible related party | ||||
| Convertible notes payable | $ | 797,600 | ||
| Convertible notes payable – related parties | 395,630 | |||
| Accrued interest | 647,199 | |||
| Accrued interest – related parties | 383,964 | |||
| Excess fair value of equity issuance | 794,136 | |||
| Excess fair value of equity issuance – related parties | 1,911,769 | |||
| Total | $ | 4,930,298 |
See Note 9 – Significant Contracts for additional common stock issuance.
Stock Options
On July 28, 2020, the Company entered into an agreement for board of director services. As compensation the Company granted options to purchase 125,000 shares at a price of $0.562 and are exercisable for two years. The options vest in equal monthly installments over 24 months. These options were valued at $70,235 using a Black-Scholes options pricing model.
On August 25, 2020, the Company issuedentered into an optionagreement for accounting services in general and administrative expenses. As compensation the Company granted options to purchase 100,000 shares of common stock at a price of $0.25 per share with an expiration date of February 25, 2021. Theand are exercisable for nine months. These options were valued at $140,945 and include within stock issued for business development consulting services.using a Black-Scholes options pricing model. The Company valued the options at $140,945 using the Black Scholes valuation model with the following variables; expected volatility of 100%, risk free rate of 0.11%, fair market value of the Company’s common stock of $1.48 on the date of grant, and an expected life of 0.50 years. The option waswere exercised on August 26, 2020.
On September 21, 2020, the Company entered into an agreement for sales and marketing services in general and administrative expenses. As compensation the Company granted options to purchase 10,000 shares at a price of $0.01 and to purchase 120,000 shares at a price of $0.25 and are exercisable for two years. These options vest upon execution of the contract and in equal quarterly installments of 24 months. These options were valued at $13,498 and $161,999, respectively using a Black-Scholes options pricing model.
On September 22, 2020, the Company entered into an agreement for IT services in general and administrative expenses. As compensation the Company granted options to purchase 52,000 shares at a price of $0.25 and are exercisable for two years. The options vest in equal quarterly installments of 24 months. These options were valued at $77,995 using a Black-Scholes options pricing model.
On October 29, 2020, the Company entered into an agreement for sales and marketing in general and administrative expenses. As compensation the Company granted options to purchase 100,000 shares of common stock at a price of $0.30 and are exercisable for two years. These options were valued at $156,999 using a Black-Scholes options pricing model. The options were exercised on October 29, 2020.
On April 22, 2021, the Company entered into four agreements for administrative services, sales and marketing services in general and administrative expenses. As compensation the Company granted non-statutory stock options to purchase 282,000 shares at a price of $1.91 and are exercisable for three years. These options were valued at $606,278 using a Black-Scholes option pricing model.
On April 28, 2021, the Company entered into three agreements for executive officers’ compensation in general and administrative expenses. As compensation the Company granted non-statutory stock options to purchase 1,600,000 shares at a price of $2.036 and are exercisable for three years. These options were valued at $3,663,820 using a Black-Scholes option pricing model.
During the third quarter, the Company entered into an agreement for administrative services in general and administrative expenses. As compensation, the Company granted non-statutory stock options to purchase 200,000 shares of the Company’s common stock at a price of $1.80 per share. These options were valued at $360,000 using a Black-Scholes option pricing model.
During the third quarter, the Company entered into two agreements for administrative services in general and administrative expenses. As compensation, the Company granted non-statutory stock options to purchase 365,000 shares of the Company’s common stock at prices of $0.25 and $1.304 per share. These options were valued at $354,750 using a Black-Scholes option pricing model.
See Note 9 – Significant Contracts for additional stock options granted.
The fair value of the options is estimated using a Black-Scholes option pricing model with the following range of assumptions as of September 30, 2021:
| Schedule of Black Scholes option pricing | ||||
| Market value of common stock on issuance date | $ | 0.562 - $3.50 | ||
| Expected price | $ | 0.01 - $2.036 | ||
| Expected volatility | % - | % | ||
| Expected term (in years) | - | |||
| Risk-free interest rate | % | |||
| Expected dividend yields | 0 |
The following table summarizes option activity:
| Schedule of option activity | |||||||||||||
| Weighted | Weighted | ||||||||||||
| Number of | Average | Average | |||||||||||
| shares | exercise price | remaining years | |||||||||||
| Outstanding December 31, 2020 | 7,707,000 | $ | 0.21 | ||||||||||
| Issued | 2,447,000 | $ | 2.02 | ||||||||||
| Cancelled | (1,079,749 | ) | $ | 0.36 | |||||||||
| Outstanding as of September 30, 2021 | 9,074,251 | $ | 0.56 | ||||||||||
| Outstanding as of September 30, 2021, vested | 3,010,785 | $ | 1.11 | ||||||||||
The remaining expense outstanding through September 30, 2021 is $8,869,318 for which $1,701,755 is expected to be expensed over the next 30 months in general and administrative expense and $7,167,563 is expected to be recorded over the next 16 ½ months as an asset, as capitalized prepaid software development and licensing or as an expense excess fair value of equity issuance over assets received.
On July 28, 2020, the board authorized the Company’s AppTech Equity Incentive Plan in order to facilitate the grant of equity incentives to employees (including our named executive officers), directors, independent contractors, merchants, referral partners, channel partners and consultants of our company to enable our company to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term success. A total of 5,000,000 shares of common stock were authorized under the AppTech Equity Incentive Plan, for which as of September 30, 2021 a total of 3,204,500 are available for issuance.
Warrants
In 2020, the Company entered into a security purchase agreement with an investor pursuant to which the Company agreed to sell the investor a $300,000 convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 200,000 shares of common stock, with an exercise term of five (5) years, at a per share price of one dollar and fifty cents ($1.50) which may be exercised by cashless exercise. The number of warrants adjusted in the period ending September 30, 2021 due to a reset event on September 27, 2021 changed the exercise price from one dollar and fifty cents ($1.50) to one dollar ($1.00) and increased the number of warrants from 200,000 to 300,000. The warrants were deemed a derivative liability and were recorded as a debt discount at date of issuance. See Note 7.
Common Stock Repurchase Option
On January 23, 2020,February 3, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 300,0002,000,000 shares of common stock from a third party at $0.05 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase options were exercised on January 26, 2020 for which the Company received $98,750 in proceeds which was recorded as additional paid-in capital.
On February 26, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 266,115 shares of common stock from a third party at $0.05$0.20 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 50,000 shares was exercised on February 27, 202011, 2021 for which the Company received $25,281$33,750 in proceeds which was recorded as additional paid-in capital.
On February 3, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 350,000 shares was exercised on February 17, 2021 for which the Company received $222,250 in proceeds which was recorded as additional paid-in capital.
On March 18, 2020,February 3, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 850,000 shares was exercised on February 19, 2021 for which the Company received $539,750 in proceeds which was recorded as additional paid-in capital.
On February 3, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 250,0001,000,000 shares of common stock from a third party at $0.05$0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 750,000 shares was exercised on February 22, 2021 for which the Company received $881,250 in proceeds which was recorded as additional paid-in capital.
On February 23, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 500,000 shares of common stock from a third party at $0.225 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 250,000 shares was exercised on March 1, 2021 for which the Company received $193,750 in proceeds which was recorded as additional paid-in capital.
On February 23, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 500,000 shares of common stock from a third party at $0.225 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 150,000 shares was exercised on March 5, 2021 for which the Company received $102,000 in proceeds which was recorded as additional paid-in capital.
On March 4, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a related party at $0.20 per share. The common stock repurchase option for 50,000 of the 2,000,000 shares was exercised on March 10, 2021. On March 10, 2021, the Company cancelled the 50,000 shares exercised.
On March 15, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 100,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option was exercised on April 7, 2021 for which the Company received $117,500 in proceeds which was recorded as additional paid-in capital.
On March 17, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 750,000 shares of common stock from a third party at $0.20 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 35,000 shares was exercised on March 19, 2020April 8, 2021 for which the Company received $62,500$28,000 in proceeds which was recorded as additional paid-in capital.
On April 24, 2020,June 17, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 55,000706,667 shares of common stock from a third party at $0.05$0.20 per share. The Company assigned its rights toa portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 500,000 shares was exercised on April 27, 2020September 18, 2021 for which the Company received $19,250$87,500 in proceeds which was recorded as additional paid-in capital.
On August 26, 2020,June 18, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 250,0001,000,000 shares of common stock from a third party at $0.07$0.15 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 1,000,000 shares was exercised on August 26, 2020September 18, 2021 for which the Company received $45,000$225,000 in proceeds which was recorded as additional paid-in capital.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1011 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below.
On October 1, 2020,4, 2021, the Company entered into a strategic partnershiploan forbearance agreement with NEC Payments B.S.C througha lender with a balance outstanding of $13,895, including principal and interest, to forebear enforcement of any of the deployment of NECP’s technologies, Apptech will extend its product offering to include flexible, scalable and secure payment acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legally payment types to distanced and contactless card and real time payment transactions. NECP will assist Apptech to complete the development of its text payment solution and provide best in class software that complements Apptech’s intellectual property. Apptech will also receive licenses to utilize NECP’s digital banking platform, including exclusivity in the United States for its payment acceptance software.
All terms of this agreement are contingent upon Apptech Corp. receiving fundingthe promissory note in excessexchange for 5,695 shares of three million dollars within forty-five days of execution. NECP will be awarded a fifteen percentthe Company’s common stock as an equity stake in Apptech Corp. on a fully diluted basis.bonus.
On October 2, 2020,4, 2021, the Company entered into an independent contractor servicesa loan forbearance agreement with Innovations Realized, LLCa lender with a balance outstanding of $40,189, including principal and interest, to develop a strategic operating plan focused on the design, execution and go to market aspectsforebear enforcement of any of the NECP platform to enterpayment terms of the United States market.promissory note in exchange for 7,009 shares of the Company’s common stock as an equity bonus.
On October 21, 2020,5, 2021, the Company entered into a debt conversion agreement to convert a non-interest bearing promissory note with an engagementoutstanding balance of $29,598 for 29,598 shares of the Company’s common stock as of the effective date of the agreement with Emerging Markets Consulting, LLC. to be the investor relations firm for the Company.at a conversion price of $1.00 per share.
On October 14, 2020,August 24, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 2,000,000300,000 shares of common stock from a third party at $0.20$0.175 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 13,333300,000 shares was exercised on October 14, 202013, 2021 for which the Company received $7,333$127,500 in proceeds which was recorded as additional paid-inpaid in capital.
On October 14, 2020,18, 2021, the Company entered in an engagement letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as lead underwriter, deal manager and investment banker for the Company’s proposed firm commitment public offering and uplisting. The engagement letter is subject to the signing of an underwriting agreement between the parties covering the sale of up to $15,00,000 of securities subject to the due diligence examination of the Company. The actual size of the offering, the precise number of securities to be offered by the Company and EF Hutton will depend upon the capitalization of the Company among other various factors. EF Hutton shall be granted an option to acquire an additional 15% of the total number of securities as an over-allotment, an underwriting discount of 8% and an expense allowance equal to 1%.
On October 20, 2021, the Company entered into a debt conversion agreement to convert a promissory note with an outstanding balance of $35,000, including principal and accrued interest for 35,000 shares of the Company’s common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portionas of the repurchase option agreement toeffective date at a third party in exchange for compensation. The common stock repurchase option for 10,000 shares was exercised on October 15, 2020 for which the Company received $5,500 in proceeds which was recorded as additional paid-in capital.conversion price of $1.00 per share.
On October 14, 2020,27, 2021, Maxim and the Company entered into aterminated all relevant agreements. In satisfaction of all amounts due and owning, and all amounts that shall become due and owing, the Company shall issue Maxim 200,000 shares of the Company’s common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion ofin association with the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 20,000 shares was exercised on October 29, 2020 for which the Company received $11,000 in proceeds which was recorded as additional paid-in capital.
See note 8 for additional subsequent events.
termination.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements, such as statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.
Business Overview
WeThrough our scalable cloud-based platform architecture and infrastructure coupled with our commerce experiences development and delivery model, we intend to simplify and streamline the digital financial technology industry services for corporations, small and midsized enterprises (“SMEs”) and consumers. We will accomplish this through innovative omnichannel payment processing and digital banking technologies tothat complement our core merchant services capabilities. Our company’sWe believe there is opportunity to generate significant revenue for the Company the near future by providing innovative commerce solutions and experiences that resonate with clients, their customers, and the market as a whole. Further, our soon to be launched modular platform will equip forward-thinking financial institutions, technology companies, and SMEs with operational efficiencies, such as automated financial controls and reconciliation in addition to manual administration.
Today, our Company’s merchant services solutions provide financial processing for businesses to accept cashless and/or contactless payments, such as credit cards, ACH, wireless payments, and more. Our patented, exclusively licensed, and/orand proprietary merchant services software offers or will offer, new integrated advanced solutions for frictionless digital and mobile payment processing,acceptance including acceptance of alternative payment methods (“APMs”). We are extending and enhancing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based issuer processing global marketingfor card, digital tokens, and payment facilitation.transfer transactions. Our innovative and scalable business model allows for expansive white labeling,white-labeling, SaaS, distribution and integratedembedded solutions that will drive the digital transformation of financial services and generate diverse revenue streams.streams for our company.
Each merchant has unique requirements for payment processing. As a result, we offer a variety of solutions to meet each merchant’s requirements. By considering all aspects of our clients’ business, such as risk, volume, customer service integration capabilities and technical needs, we create optimal processing solutions to fit their needs. We will continue to aggressively seek new merchants as we shift our focus to technological advancement.
We believe theThe financial services industry is going through a period of intensive change driven by the rapid advancement of technology, which is adaptingthe adaptation to societal changes resulting from COVID-19, and the rapid rise of contactless transactions. If positioned properly,End-users expect ease of use and an enhanced user experience in all their daily financial interactions. In this rapidly evolving digital marketplace, our yetprospective clients, such as merchants and independent software vendors (“ISVs”), have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their competitive edge.
Providing basic payment acceptance and “lowest price” models is no longer the winning formula to support the market. These entities recognize that staying competitive in the digital age requires a partner with a platform and services capable of delivering flexibility and growth while streamlining operations to continually deliver increased revenue and profitability opportunities. Our pricing is extremely competitive, but we believe the value we create for financial institutions, technology companies, and SMEs through our technology, deployment model, services and consultative approach will create true differentiation from our competitors.
Our global financial services platform architecture and infrastructure is designed to be released technologies are poisedflexible and configurable to be at the forefrontmeet current and future market needs. This will empower our clients to take advantage of this change. We believefuture platform development and new innovative digital financial solutions by leveraging off-the-shelf experiences and consuming our APIs. Additionally, by taking a holistic view of all aspects of our clients’ business, including risk, volume, user experience, integration capabilities and technical needs, we will do this by deploying innovative businesscreate optimal and consumer digitalextensible financial services products.technology solutions at a rapid pace.
Through exclusive licensing and partnership agreements with NEC Payments, management believesto complement our patented technology capabilities, we believe we will become pioneersleaders in the processing technology industryembedded payment and digital banking sectors by supporting digital, tokenized, multi-channel, andembedded API-driven transactions. This will further occurWe intend to accelerate this position through the integration of our merchant services and a secure text payment solution with their platform’s extensive digital accountaccount-based and multi-channel issuer payment processing capabilitiescapabilities. We believe that this will enable us to formprovide our clients an end-to-end payment acceptance and digital banking solution for SMEspowering straight-through processing and will power straight-through processingembedded payment opportunities in the B2B payment space. We expect to support clients through the development of custom and off-the-shelf experiences by delivering these solutions through public APIs and Webhooks.
A key to the company’s success and market penetration is the continued development of enterprise-grade, patent protected software for SMS text payments via a mobile device. Our patented technology manages text messaging for processing payments, notification, response, authentication, marketing, advertising, information queries and reports. Once an account is established through a multi-currency digital wallet, neither internet connectivity nor a specific application is required to process payments between merchants and end-users. These features will be particularly beneficial for unbanked and under banked individuals in developing or emerging markets where access to the internet on a mobile device and modern banking institutions may not be readily available. In addition, our software platform will extend merchants’ marketplace capabilities by creating new avenues and channels to request and receive frictionless, digital payments and engaging end-users by utilizing a familiar, convenient, and widely adopted technology.
We are expandingbelieve our merchant processing services to include enterprise-grade, patent protected software and intellectual property for secure short message system, or SMS, payments and advanced text messaging for lead generation. Our patent protected software and technology manages text messaging for notification, response, authentication, marketing, advertising, information queries and reports. Our software platforms will incorporate advanced intellectual property to transact mobile payments via secure text messaging technology, thereby extending merchants’ marketplace and avenues to receive payments.
We believe that our technology technologies will greatly increase the adoption of mobile payments and alternate banking solutions in a sectorsectors that is shiftingmust quickly adapt and migrate towards new technologies related to conveniencethat facilitate convenient and safe contactless payments. To survive and succeed in this environment, businesses may need to adopt new technologies to engage, communicate and process payments with their customers. We believe thiscustomers from a supplier that widely supports innovation and adaptation as the industry evolves. By embracing technological advancement in the payment and banking industries, iswe are well-positioned to meet the precise direction companies are trending towardsgrowing needs of existing and weprospective clients and intend for our current and future products to be at the forefront in providingof solving these solutions.accelerated market needs.
We are also expanding upon our financial technology foundation into the telehealth and remote patient monitoring sectors in response to cultural shifts and new healthcare demands of society. We have identified a need for the integration of payment acceptance technologies into the burgeoning telehealth sector. We believe this sector’s focus to date has been on providing health-related telecommunications but the way in which fees and payments for these services are requested and accepted is being overlooked. We intend to fill this identified shortfall by developing technologies and payment-related services to aid companies providing telehealth solutions. Through a strategic partnership, we will aid in offeringplan to help bring to market personal emergency response and remote patient monitoring services and equipment to help ensure the safety of the elderly and injured or sick patients while providing peace of mind to family members, care givers and retirement communities. These solutions increase patient’spatients’ access to comprehensive care options and allow medical teams to intervene in a timely manner to avoid more serious health concerns. By providing financial and administrative services we will have the opportunity to receive substantial revenue share from recurring revenue billed through Medicare with the potential for substantial growth and substantial profit margins.
We are an OTCPink Open Market traded corporation headquartered in Carlsbad, CA. Our stock trades under the symbol “APCX.” We werefounded in 1998 as Health Express USA, Inc. Our business went through name changesin 2005(CSI Business, Inc.), 2006 (Natural Nutrition Inc.) and 2009 (AppTech Corp.) In 2013, wemerged with Transcendent One, Inc., whereby Transcendent One, Inc. and its managementtook controlling ownership of the Company.From this point forward,wehave operated as a merchant services provider, continuing the business conducted byTranscendent One, Inc. In 2017, we acquired certain assets from GlobalTel Media, Inc., or GTM, which included patented, enterprise-grade software for advanced text messaging. In addition to the software and associated databases, the acquisition included four patents and additional intellectual property for mobile payments and advanced MFA security protocols..
Effects of the COVID-19 Pandemic
The unprecedented and adverse effects of COVID-19, and its unpredictable duration, in the regions wherewehave merchants, employees and consumers has an adverse effect on our processing volume and may in the future have a material adverse effect on our liquidity and financial condition.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations aswellasfactors that impact those items.
Revenues
Our Revenues. We devisederive our revenue by providing financial processing services to businesses.
Expenses
Cost of Revenue. Cost of revenue includes costs directly attributable to processing and other services the company provides. These also include related costs such as residual payments to our business development partners, which are based on a percentage of the net revenue generated from client referrals.
General and Administrative. General and administrative expenses include professional services, rent and utilities, and other operating costs.
Research and Development. Research and development costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code textingour financial services platform, contract and outside services.
Interest Expense, net. Our interest expense consists of interest on our outstanding indebtedness and amortization of debt issuance costs.
Results of Operations
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three-month and nine-month periods ended September 202030, 2021 and 2019,2020, respectively. We have derived this data from our consolidated financial statements included elsewhere in this registration statement.quarterly report.
The Three Months Ended September 30, 20202021
Compared to the Three Months Ended September 30, 20192020
The following table presents our historical results of operations for the periods indicated:
| Three Months Ended September 30 | Three Months Ended September 30 | |||||||||||||||
| (in thousands) | 2020 | 2019 | 2021 | 2020 | ||||||||||||
| Revenue | $ | 105.4 | $ | 66.5 | $ | 92.4 | $ | 105.4 | ||||||||
| Cost of revenue | 48.8 | 26.5 | 41.8 | 48.8 | ||||||||||||
| Gross profit | 56.6 | 40.0 | 50.6 | 56.6 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 1,089.8 | 315.3 | 1,360.2 | 1,089.8 | ||||||||||||
| Excess fair value of equity issuance over assets received | 1,090.7 | — | ||||||||||||||
| Research and development | 3.0 | 33.2 | — | 3.0 | ||||||||||||
| Total operating expenses | 1,092.8 | 348.5 | 2,450.9 | 1,092.8 | ||||||||||||
| Loss from operations | (1,036.2 | ) | (308.5 | ) | (2,400.3 | ) | (1,036.2 | ) | ||||||||
| Other expenses | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense, net | (71.7 | ) | (71.1 | ) | (478.0 | ) | (71.7 | ) | ||||||||
| Total other expenses | (71.7 | ) | (71.1 | ) | ||||||||||||
| Loss before income taxes | (1,107.9 | ) | (379.6 | ) | ||||||||||||
| Change in fair value derivative liability | 135.5 | — | ||||||||||||||
| Forgiveness of debt | — | — | ||||||||||||||
| Other income | 0.2 | — | ||||||||||||||
| Total other income (expenses) | (342.3 | ) | (71.7 | ) | ||||||||||||
| Loss before provision for income taxes | (2,742.6 | ) | (1,107.9 | ) | ||||||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| Net Loss | $ | (1,107.9 | ) | $ | (379.6 | ) | $ | (2,742.6 | ) | $ | (1,107.9 | ) | ||||
The Nine Months Ended September 30, 20202021
Compared to the Nine Months Ended September 30, 20192020
The following table presents our historical results of operations for the periods indicated:
| Nine Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (in thousands) | 2020 | 2019 | 2021 | 2020 | ||||||||||||
| Revenue | $ | 241.3 | $ | 190.4 | $ | 258.7 | $ | 241.5 | ||||||||
| Cost of revenue | 103.7 | 75.1 | 112.0 | 103.8 | ||||||||||||
| Gross profit | 137.6 | 115.3 | 146.7 | 137.7 | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 2,781.9 | 743.2 | 6,733.6 | 2,781.9 | ||||||||||||
| Excess fair value of equity issuance over assets received | 66,124.6 | — | ||||||||||||||
| Research and development | 49.2 | 62.4 | — | 49.2 | ||||||||||||
| Total operating expenses | 2,831.1 | 805.6 | 72,858.2 | 2,831.1 | ||||||||||||
| Loss from operations | (2,693.5 | ) | (690.3 | ) | (72,711.5 | ) | (2,693.4 | ) | ||||||||
| Other expenses | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense, net | (3,038.6 | ) | (213.9 | ) | ||||||||||||
| Change in fair value derivative liability | 80.4 | — | ||||||||||||||
| Forgiveness of debt | 9.0 | — | 9.0 | |||||||||||||
| Interest expense, net | (213.9 | ) | (217.7 | ) | ||||||||||||
| Total other expenses | (204.9 | ) | (217.7 | ) | ||||||||||||
| Loss before income taxes | (2,898.4 | ) | (908.0 | ) | ||||||||||||
| Other income | 175.3 | — | ||||||||||||||
| Total other income (expenses) | (2,782.9 | ) | (204.9 | ) | ||||||||||||
| Loss before provision for income taxes | (75,494.4 | ) | (2,898.3 | ) | ||||||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| Net Loss | $ | (2,898.4 | ) | $ | (908.0 | ) | $ | (75,494.4 | ) | $ | (2,898.3 | ) | ||||
Revenue
Revenue decreased to $92,410 from $105,357 and increased to $105,357$258,688 from $66,532 and $241,367 from $190,411, or 58% and 27%, for the three months and the nine months ended September 30, 2020from2021 and 2020. The decrease in the three months and the nine months ended September 30, 2019. This increasequarter was principally driven by a decrease in the processing volume along with an adjustment in processing fees with one major account. The increase year-to-date more than offset this decrease and was principally driven by an increase in new accounts and an increase in processing volume along with an adjustment in processing fees assessed to the Company.
Cost of Revenue
Cost of revenue increased decreased to $41,774 from $48,759 from $26,548 and $112,032 from $103,721 from $75,099, or 84% and 38%, for the three months and the nine months ended September 30, 2021 and2020from the three months and the nine months ended September 30, 2019.. This increasedecrease was driven primarily by increased residual payouts from increased an adjustment discussed above related to the decrease in revenue.
General and Administrative Expenses
General and administrative expenses increased to $1,360,187 from $1,089,808 and $6,733,594 from $315,321 and $2,781,912 from $743,210 for the three months and the nine months ended September 30, 2020 from the three months and the nine months ended September 30, 2019,2021 and 2020, the increase was primarily drivenbystock-based compensation due to several significant consulting agreements for marketing and professional related services, along with stock-based compensation due to executive management and employee contracts.
Excess Fair Value of Equity Issuance Over Assets Received
Excess fair value of equity issuance over assets received expenses increased to $1,090,716 from $0 and $66,124,606 from $0 for the three months and nine months ended September 30, 2021 and 2020. The increase was due to two major equity issuances for services.
Research and Development Expenses
Research and development expenses decreased to $0 from $2,999 and $0 from $33,212 and $49,250, from $62,350 for the three months and the nine months ended September 30, 2020 from the three months2021 and the nine months ended September 30, 2019.2020. This decrease was primarily due to various insignificant factors.the timing of the development of our financial services platform.
Interest Expense, net
Interest expense, net increased to $478,009 from $71,723 and $3,038,568 from $71,087 and decreased to $213,890 from $217,722 $213,890 for the three months and the nine months ended September 30, 2021 and 2020. The increase was primarily due to an expense of excess fair value of equity issuance for accrued interest and notes payable on convertible notes payable and notes payable conversion in the second and third quarter.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability increased to $135,469 from $0 and to $80,370 from $0, for the three months and the nine months ended September 30, 2019.2021 and 2020. The decreaseincrease was primarily due to various insignificant factors.a new convertible note agreement.
Liquidity and Capital Resources
WhileThe Company is in its pre-commercialization phase of its financial services platform. Historically, the company is continuingCompany funded its operations through private investment, such as convertible notes, and generating revenues, the company’sassignment of repurchase option agreements to third parties. The current cash position from continuing operations is not significant enoughto support the company’s daily operations. operations for the next twelve months. Tothe extent that additional funds are necessary to finance operations and meet our long-term liquidity needs as we continue to execute our strategy,we anticipatenote that they can be obtained throughour current public offering will fund our expenses required to generate profits and eliminate the Company’s going concern upon effectiveness. As a result, no additional indebtedness equity or debt issuances or both. is anticipated at this time. Using currently available capital resources, management believes we can conduct planned operations for 15 days. Further,45 days, however, management believes weneed to raise $4.5M$5,000,000 to remain in business for the next 12 months. The net proceeds of this offering will fund our anticipated expenses for the next 36 months regardless if the Company generates a profit.
Sincewe derive our revenues principally from processing of purchases from our merchant services clients, a downturn in economic activity, such as that associated with the current coronaviruscorona virus pandemic could continue to reduce the volume of purchaseswe process, and thus our revenues. In addition, such a downturn could cause our merchant customers to cease operations permanently decreasing our payment processing unless new customers were found. We may also face additional difficulty in raising capital duringan economic downturn.
Cash Flows
The following table presents a summary of cash flows from operating, investing, and financing activities for the following comparative periods.
| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Net cash used in operating activities | $ | (303,235 | ) | $ | (593,236 | ) | ||||||||||
| Net cash used in in operating activities | $ | (820,852 | ) | $ | (303,235 | ) | ||||||||||
| Net cash provided by (used in) investing activities | $ | 23,411 | $ | (50,000 | ) | $ | (1,575,500 | ) | $ | 23,411 | ||||||
| Net cash provided by financing activities | $ | 301,981 | $ | 735,500 | $ | 2,361,350 | $ | 301,981 | ||||||||
Cash Flow from Operating Activities
Net cash usedin operating activities decreasedincreased by $290,001 $517,617 for the nine months ended September 30, 2020 from the nine months ended September 302019., 2021 from the nine months ended September 30, 2020. This increase was principally driven byan increase in accounts payableresidual payouts, professional fees and services, and new executive management and employee contracts.
Cash Flow from Investing Activities
Net cash provided by used in investing activities increased by $73,411 $1,598,911 for the nine months ended September 30 2020 , 2021 from the nine months ended September 30, 2019.2020. This increase was principally drivenby a refund ofsignificant investment in a deposit.capitalized asset.
Cash Flow from Financing Activities
Net cash provided byfinancing activities decreased increased by $433,519 $2,059,369 for the nine months ended September 30, 2021 from the nine months ended September 30, 2020from nine. This increase was principally driven by the months ended September 30, 2019. This decrease was principally driven by decreased proceeds from the sale of common stock and decreasedincrease in proceeds from the sale of repurchase options.
Critical Accounting Policies
Ourdiscussion and analysis of our financialcondition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amountsof assets, liabilities, revenues and expenses. Onan ongoingbasis,weevaluate our estimates including those related to revenue recognition, goodwill and intangibleassets, derivative financial instruments, and equity-based compensation.We base our estimates on historicalexperience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies arethose that weconsider the most critical to understanding our financial condition and results of operations. The accounting policies we believe to be most critical to understanding our financial condition and results of operations are discussed below.As of September 30, 2020, 2021, there have been no significant changes to our critical accounting estimates, except as described in Note 2 to our consolidated financial statements.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
As of September 30, 2020,2021,there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of RegulationS-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.
Item 3. Quantitative and Qualitative DisclosuresAboutMarket Risk.
Not applicable for smaller reporting companies.
Item 4. Control and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.2021.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting duringthe nine-month three-month period ended September 30, 2020 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not anabsolute,level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be consideredrelative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instancesoffraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
In November 2017, two shareholders of AppTech, onewho previously Laura Farris and Eric Ottens, filed a 2014 lawsuitinthe State ofWashington, which was dismissed, filed another lawsuit against usthe Company in the State of California, claiming the same accusations as the previously filedconversion, aiding and abetting conversion, breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and declaratory relief. The lawsuit which was dismissed. The lawsuit has been transferred removed to the United States District Court for the Southern District of California. We filed an answer, affirmative defenses and counter claims. Management believes that the Plaintiff misrepresented and mislead us during the merger between ourselves and Transcendent One, Inc. The court has encouraged the parties to settle. Even though the Company believes the lawsuit is without merit and will vigorously defend, the Company has made several offers to settle. On December 19, 2019, the Company entered into a settlement and release agreement. The agreement with the plaintiffs pursuant to which the Company has recorded will pay the liability as plaintiffs an aggregate of December 31, 2019 forthe total obligation of$240,000 to be paid outin installments over three years, beginningcommencing on February 15, 2020. A On January 24, 2021, the parties entered a stipulation for dismissal of action has been filed withmodifying the courts. Asrepayment schedule of August 14, 2020, we are in defaultthe settlement to which altered the timing of payments over the three-year repayment period. The Company is current on the payment schedulemodified repayment schedule.
Other Lawsuit
On July 23, 2020, Flowpay Corporation, a Delaware corporation (“Flowpay”), and have requestedR. Wayne Steiger, the President of Flowpay, filed a delaycomplaint in the payment schedule dueSuperior Court of California, County of San Diego, North Division against the Company, Luke D’Angelo (the Chairman of the Board, Chief Executive Officer, Executive Officer and Chief Investment Officer of the Company), Robert Sanchez (the former Chief Executive Officer of GlobalTel Media, Inc., and former Chief Technology Officer of the Company) and Christopher Williams (the former Chairman and Chief Operating Officer of Flowpay and current member of the Company’s board of directors). In the complaint, Flowpay and Mr. Steiger alleged breach of contract, intentional misrepresentation and negligent misrepresentation by the Company and Mr. D’Angelo in connection with a Memorandum of Understanding, dated May 7, 2016, between the Plaintiffs and the Company and Mr. D’Angelo, as the Company’s CEO, and unjust enrichment, and violation of the California Uniform Trade Secrets Act by the Company in connection with certain patents, and trade secrets of Flowpay. In the complaint, the plaintiffs sought general and special damages, punitive and exemplary damages, disgorgement of profits, prejudgment interest, costs and other relief to be determined by the pandemic from the coronavirus outbreak. As of September 30, 2020, we are in default on the payment schedule.court. The Plaintiffs havefiled an amended complaint on March 15, 2021 which removed the cause of action related to violation of the California Uniform Trade Secrets Act. The Company filed an answer with affirmative defenses on April 26, 2021. The lawsuit is presently in the discovery phase. We believe the plaintiffs’ claims are meritless and intend to vigorously defend against this lawsuit.
Convertible Note and Warrant Lawsuit
On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the Southern District of New York against the Company. In its complaint, EMAF alleged that the Company breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess of $2,750,000, reimbursement of costs and expenses, including reasonable legal fees, and non-interference. On September 2, 2021, EMAF filed a motion for summary judgment. On September 9, 2021, AppTech filed a motion to enforcedismiss on the settlement agreement and we have requestedgrounds the agreements were void as a modified payment schedule fromresult of the courts dueillegal activity by the plaintiff. On October 15, 2021, the parties filed memorandums in opposition to the pandemic fromrespective motion. On October 25, 2021, the coronavirus outbreakparties filed memorandums of law in further support of their respective motions. We believe the EMAF’s claims are meritless and nointend to vigorously defend against this lawsuit. The parties have engaged in settlement has been reached asdiscussions with an expected range of potential liability between $400,000 and $550,000, which includes principal and accrued interest of the date of the financial statement.convertible notes payable.
In September 2018, a complaint was filed in San Diego Superior Court for a breach of contract arising from a subsequent agreement regarding the purchase of a judgment for the matter of Svenston Buelow and Amanda Eliot v. GlobalTel Media. The purchase of the judgment was part of the transaction in which weacquired our IP portfolio from GlobalTel Media. We substantially performed under the original agreement, but the plaintiffs alleged we breached the subsequent agreement which was executed to extend the final payment. On October 26, 2018, we filed an answer that denied each and every purported allegation and cause of action, further denied that they caused any damage or loss and asserted the affirmative defense of duress. We recorded as a liability as of December 31, 2019 and 2018 in the amount of $135,000 and $175,000, respectively. On December 3, 2019, the parties entered into a conditional settlement agreement whereby we agreed to pay $150,000 on a payment schedule ending October 1, 2020. Should the repayment enter default without being cured, the court shall order an entry of judgment in favor of the Plaintiffs in the amount of $175,000 less any amounts paid under the settlement, plus pre-judgment and post-judgment interest, court costs and reasonable attorney fees. On June 19, 2020, resulting from the impact of COVID-19, we entered into a modified settlement payment schedule. We are current on the modified payment schedule.
As a smaller reporting company, as defined in Rule12b-2 of the Exchange Act, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During 2020 year-to-date,weassigned our rights to stock repurchase option agreements to third parties resulting in net proceeds of $274,614 and $25,000 from warrants exercised. During the nine months ended September 30, 2020, 3,568,000 2021, 393,053 shares of common stock were issued to several consultants in connection with business development and professional services rendered valued at $2,357,125. $767,000.
During the nine months ended September 30, 2020, no2021, 233,336 sharesof common stock were issued to membersofthe Board of Directors.Directors valued at $131,134.
During the nine months ended September 30, 2021, 200,000 shares of common stock were issued to purchase a judgment valued at $1,000,000.
During the nine months ended September 30, 2021, 31,250 shares of common stock were issued to a merchant valued at $18,371.
During the nine months ended September 30, 2021, 18,011,515 shares of common stock were issued in connection with a strategic partnership valued at $67,543,182.
During the nine months ended September 30, 2021, 400,000 and 2,500,000 options to purchase common stock were issued at a price of $0.01 and $0.25 valued at $1,399,992 and $8,749,701, respectively.
All Issuances were exempt from registration requirements of Section 5 of the Securities Act of 1933 as they did not involve a public offering under Section 4(a)(2) and were issued as restricted securities asdefinedin Rule 144 of the Act.
Item 3. Defaults Upon Senior Securities.
All subordinated Five convertible notes payable convertible notes payable and notes payable in the amount of $737,416 are currently in default.
Item 4. Mine Safety Disclosures.
Not Applicable.
None.
EXHIBIT INDEX
Pursuant to the requirements of the Securities and ExchangeAct of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
| Audit Committee Charter (incorporated by reference to Exhibit 4.3 to Form 10-Q filed November 16, | ||||
| Compensation Committee Charter (incorporated by reference to Exhibit 4.3 to Form 10-Q filed November 16, | ||||
| 99.3 | Corporate Governance and Nominating Committee Charter (incorporated by reference to Exhibit 99.3 to Form S-1 filed February 16, 2021) | |||
Signatures
Pursuant to the requirements of the Securities and ExchangeAct of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
| AppTech Corp. | ||
| Date: November 11, 2021 | By: | /s/ Luke D’Angelo |
| Luke D’Angelo | ||
| Chief Executive Officer and Chairman (Principal Executive Officer) | ||
| Date: November 11, 2021 | By: | /s/ Gary Wachs |
| Gary Wachs | ||
| Chief Financial Officer (Principal Financial Officer) | ||
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