UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended endedSeptember 30, 2021March 31, 2022
orOr
| ☐ | 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: 000-27569
AppTech Payments Corp.
(Exact name of registrant as specified in its charter)
| 7389 | 65-0847995 | |
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
5876 Owens AveAve.. Suite 100
Carlsbad,California 92008
(Address of Principal Executive Offices & Zip Code)
(760) 707-5959
(Registrant’s telephonenumber,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 |
| Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§(§ 232.405 of this chapter) during the preceding 12 months (or (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “ accelerated filer” “smaller reporting company,” and “emerging“emerging growth company” inRule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated Filer | 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 11, 2021,May 10, 2022, the registrant had shares of common stock (par value 0.001) issued and outstanding.
AppTech Payments Corp.
Form 10-Q
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this Quarterly on Form 10-Q of AppTech Payments Corp. (we,(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,“anticipate,” “believe,“believe,” “estimate,“estimate,” “expect,“expect,” “intend,“intend,” “may,” “plan,” “contemplates,“contemplates,” “predict,” “project,” “target,“target,” “likely,” “potential,” “continue,“continue,” “ongoing,” “will,“will,” “would,“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:
| ● | uncertainty associated with anticipated launch of our | |
| ● | ||
| substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | ||
| ● | dependence on third-party channel and referral partners, who comprise a significant portion of our sales force, for gaining new clients; |
| ● | a slowdown or reduction in our sales in due to a reduction in end-user demand, unanticipated competition, regulatory issues, or other unexpected circumstances |
| ● | uncertainty regarding 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 merchant services capabilities; |
| ● | ||
| delay in or failure to obtain regulatory approval of our |
| ● | ||
| current and future laws and regulations; |
| ● | ||
| 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; | ||
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 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,“we,” “us,” the “registrant” or the “Company” refer to AppTech Payments Corp.
PART I – FINANCIAL INFORMATION
ItemItem 1. Financial Statements
APPTECH PAYMENTS CORP.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
(The financial statements have been condensed for presentation purposes)
6
APPTECH PAYMENTS CORP.
BALANCE SHEETS
SEPTEMBER 30, 2021MARCH 31, 2022 AND DECEMBER 31, 2020
2021
(UNAUDITED)
(in thousands, except per share data)
| September 30, | December 31, | |||||||||||||||
| 2021 | 2020 | |||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash | $ | 22,495 | $ | 57,497 | $ | 10,290 | $ | 8 | ||||||||
| Accounts receivable | 34,829 | 40,635 | 43 | 40 | ||||||||||||
| Prepaid expenses | 93,516 | 6,696 | 247 | 95 | ||||||||||||
| Prepaid License Fees - Current | 599 | 479 | ||||||||||||||
| Total current assets | 150,840 | 104,828 | 11,179 | 622 | ||||||||||||
| Capitalized prepaid software development and license | 7,058,922 | 0 | ||||||||||||||
| Prepaid offering cost | 25,000 | 0 | — | 92 | ||||||||||||
| Prepaid license fees - long term | 3,060 | 3,180 | ||||||||||||||
| Note receivable | 25,500 | 17,500 | 26 | 26 | ||||||||||||
| Right of use asset | 203,938 | 249,825 | 173 | 189 | ||||||||||||
| Security deposit | 7,536 | 7,536 | 8 | 8 | ||||||||||||
| Capitalized software development and license | 3,625 | 3,440 | ||||||||||||||
| TOTAL ASSETS | $ | 7,471,736 | $ | 379,689 | $ | 18,071 | $ | 7,557 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable | $ | 1,732,924 | $ | 1,635,384 | $ | 474 | $ | 1,255 | ||||||||
| Accrued liabilities | 1,726,628 | 2,632,334 | 1,821 | 3,136 | ||||||||||||
| Right of use liability | 58,979 | 52,161 | 64 | 61 | ||||||||||||
| Stock repurchase liability | 430,000 | 430,000 | 430 | 430 | ||||||||||||
| 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 | ||||||||||||||
| Convertible notes payable, net of $37 and $51 thousand debt discount | 680 | 679 | ||||||||||||||
| Notes payable | 384,742 | 1,104,981 | 1,086 | 438 | ||||||||||||
| Notes payable related parties | 684,863 | 708,493 | — | 685 | ||||||||||||
| Derivative liabilities | 492,830 | 597,948 | 463 | 599 | ||||||||||||
| Total current liabilities | 6,176,888 | 8,207,527 | 5,018 | 7,283 | ||||||||||||
| Long-term liabilities | ||||||||||||||||
| Accounts payable | 15,000 | 75,000 | ||||||||||||||
| Right of use liability | 179,195 | 224,492 | 146 | 163 | ||||||||||||
| Notes Payable, net of current portion | 160,040 | 67,400 | 67 | 67 | ||||||||||||
| Anti-dilution liability | 2,121 | — | ||||||||||||||
| Total long-term liabilities | 354,235 | 366,892 | 2,334 | 230 | ||||||||||||
| TOTAL LIABILITIES | 6,531,123 | 8,574,419 | 7,352 | 7,513 | ||||||||||||
| 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 | ||||||||||||||
| Series A preferred stock; $ par value; shares authorized; shares issued and outstanding at March 31, 2022 and December 31, 2021 | — | — | ||||||||||||||
| Common stock, $par value; shares authorized; and and outstanding at March 31, 2022 and December 31, 2021, respectively | 16 | 12 | ||||||||||||||
| Additional paid-in capital | 121,269,598 | 36,664,488 | 140,351 | 124,225 | ||||||||||||
| Accumulated deficit | (120,442,111 | ) | (44,947,730 | ) | (129,648 | ) | (124,193 | ) | ||||||||
| Total stockholders’ equity (deficit) | 940,613 | (8,194,730 | ) | 10,719 | 44 | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 7,471,736 | $ | 379,689 | $ | 18,071 | $ | 7,557 | ||||||||
See accompanying notes to the financial statements.
APPTECH PAYMENTS CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
(in thousands, except per share data)
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 92,410 | $ | 105,357 | $ | 258,688 | $ | 241,367 | ||||||||
| Cost of revenues | 41,774 | 48,759 | 112,032 | 103,721 | ||||||||||||
| Gross profit | 50,636 | 56,598 | 146,656 | 137,646 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| 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 | 0 | 2,999 | 0 | 49,250 | ||||||||||||
| Total operating expenses | 2,450,903 | 1,092,807 | 72,858,200 | 2,831,162 | ||||||||||||
| Loss from operations | (2,400,267 | ) | (1,036,209 | ) | (72,711,544 | ) | (2,693,516 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | (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 | (342,379 | ) | (71,723 | ) | (2,782,837 | ) | (204,890 | ) | ||||||||
| Loss before provision for income taxes | (2,742,646 | ) | (1,107,932 | ) | (75,494,381 | ) | (2,898,406 | ) | ||||||||
| Provision for income taxes | 0 | 0 | 0 | 0 | ||||||||||||
| Net loss | $ | (2,742,646 | ) | $ | (1,107,932 | ) | $ | (75,494,381 | ) | $ | (2,898,406 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.02 | ) | (0.01 | ) | $ | (0.74 | ) | $ | (0.03 | ) | |||||
| Weighted-average number of shares used basic and diluted per share amounts | 111,906,997 | 86,984,021 | 106,250,552 | 85,941,115 | ||||||||||||
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 104 | $ | 101 | ||||
| Cost of revenues | 51 | 34 | ||||||
| Gross profit | 53 | 67 | ||||||
| Operating expenses: | ||||||||
| General and administrative, including stock based compensation of $ million and $ million, respectively | 2,779 | 1,780 | ||||||
| Research and development | 2,053 | — | ||||||
| Excess fair value of equity issuance over assets received | 832 | 63,943 | ||||||
| Total operating expenses | 5,664 | 65,723 | ||||||
| Loss from operations | (5,611 | ) | (65,656 | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense | (55 | ) | (129 | ) | ||||
| Change in fair value of derivative liability | 136 | (508 | ) | |||||
| Other income (expenses) | 75 | — | ||||||
| Total other income (expenses) | 156 | (637 | ) | |||||
| Loss before provision for income taxes | (5,455 | ) | (66,293 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net loss | $ | (5,455 | ) | $ | (66,293 | ) | ||
| Basic and diluted net loss per common share | $ | (0.35 | ) | (6.52 | ) | |||
| Weighted-average number of shares used basic and diluted per share amounts | 15,479,613 | 10,165,034 | ||||||
See accompanying notes to the financial statements.
APPTECH PAYMENTS CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIODSTHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2022 AND 2021 & 2020, June 30, 2021 & 2020
AND March 31, 2021 & 2020
(UNAUDITED)
| Series A Preferred | Common Stock | Additional Paid- | Accumulated | Stockholders’ Equity | ||||||||||||||||||||||||
| 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 | — | — | — | — | — | (1,464,050 | ) | (1,464,050 | ) | |||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||
| Common stock issued for services | — | — | 2,349,500 | 2,350 | 1,206,835 | — | 1,209,185 | |||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 186,531 | — | 186,531 | |||||||||||||||||||||
| Balance March 31, 2020 | 14 | $ | — | 86,503,325 | $ | 86,504 | $ | 34,627,685 | $ | (42,224,463 | ) | $ | (7,510,274 | ) | ||||||||||||||
| Net loss | — | — | — | — | — | (326,424 | ) | (326,424 | ) | |||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||
| Common stock issued for services | — | — | 174,500 | 174 | 81,380 | — | 81,554 | |||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 19,250 | — | 19,250 | |||||||||||||||||||||
| Balance June 30, 2020 | 14 | $ | — | 86,677,825 | $ | 86,678 | $ | 34,731,765 | $ | (42,550,887 | ) | $ | (7,732,444 | ) | ||||||||||||||
| Net loss | — | — | — | — | — | (1,107,932 | ) | (1,107,932 | ) | |||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||
| Common stock issued for services | — | — | 1,044,000 | 1,044 | 924,397 | — | 925,441 | |||||||||||||||||||||
| Common stock issued for services with warrant exercise | 100,000 | 100 | 165,845 | 165,945 | ||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 45,000 | — | 45,000 | |||||||||||||||||||||
| Balance September 30, 2020 | 14 | $ | — | 87,821,825 | $ | 87,822 | $ | 35,870,457 | $ | (43,658,819 | ) | $ | (7,700,540 | ) | ||||||||||||||
| Balance December 31, 2020 | 14 | $ | — | 88,511,657 | $ | 88,512 | $ | 36,664,488 | $ | (44,947,730 | ) | $ | (8,194,730 | ) | ||||||||||||||
| Net loss | — | — | — | — | — | (66,293,498 | ) | (66,293,498 | ) | |||||||||||||||||||
| Imputed interest | — | — | — | — | 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 | — | — | 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 | — | — | 115,000 | 115 | 28,636 | — | 28,751 | |||||||||||||||||||||
| 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 financial statements.
(in thousands, except per share data)
APPTECH CORP.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (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 | 505,961 | 2,063,680 | ||||||
| Stock issued for merchant equity | 16,250 | 0 | ||||||
| Stock issued for exercise of warrants | 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 | ||||||
| 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 | 5,806 | (8,391 | ) | |||||
| Prepaid expenses | (86,820 | ) | 0 | |||||
| Accounts payable | 420,717 | 147,265 | ||||||
| Accrued liabilities | 127,578 | 218,233 | ||||||
| Right of use asset and liability | 7,408 | 23,089 | ||||||
| Net cash used in operating activities | (820,852 | ) | (303,235 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Deposit escrow | 0 | 25,000 | ||||||
| Capitalized prepaid software development and license | (1,567,500 | ) | 0 | |||||
| Payments on notes receivable | (8,000 | ) | 0 | |||||
| Security deposit | 0 | (1,589 | ) | |||||
| Net cash provided by (used in) investing activities | (1,575,500 | ) | 23,411 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments for prepaid offering costs | (25,000 | ) | 0 | |||||
| Proceeds on loans payable – related parties | 0 | 750 | ||||||
| Payments on loans payable - related parties | (34,400 | ) | (42,750 | ) | ||||
| Repurchase of common stock - related party | (10,000 | ) | 0 | |||||
| Proceeds on note payable | 0 | 68,200 | ||||||
| Proceeds from exercise of warrants | 0 | 25,000 | ||||||
| Proceeds from sale of repurchase options | 2,430,750 | 250,781 | ||||||
| Net cash provided by financing activities | 2,361,350 | 301,981 | ||||||
| Changes in cash and cash equivalents | (35,002 | ) | 22,157 | |||||
| Cash and cash equivalents, beginning of period | 57,497 | 24,159 | ||||||
| Cash and cash equivalents, end of period | $ | 22,495 | $ | 46,316 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 0 | $ | 0 | ||||
| Cash paid for income taxes | $ | 0 | $ | 0 | ||||
| Non-cash investing and financing activities: | ||||||||
| Common stock issued for conversion of accounts payable | $ | 206,250 | $ | 152,500 | ||||
| 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 | ||||
| Series A Preferred | Common Stock | Additional Paid-in | Accumulated | Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance December 31, 2020 | 14 | $ | — | 9,317,017 | $ | 9 | $ | 36,744 | $ | (44,948 | ) | $ | (8,195 | ) | ||||||||||||||
| Net loss | — | — | — | — | — | (66,293 | ) | (66,293 | ) | |||||||||||||||||||
| Imputed interest | — | — | — | — | 3 | — | 3 | |||||||||||||||||||||
| Stock based compensation | — | — | 35,737 | — | 429 | — | 429 | |||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | — | — | 1,891 | — | 1,891 | |||||||||||||||||||||
| Common stock issued for purchase of judgment | — | — | 21,053 | — | 1,000 | — | 1,000 | |||||||||||||||||||||
| Common stock issued for capitalized prepaid software development and license | — | — | 1,895,949 | 2 | 67,525 | — | 67,543 | |||||||||||||||||||||
| Common stock cancelled | — | — | (15,789 | ) | — | (10 | ) | — | (10 | ) | ||||||||||||||||||
| Net Proceeds from sale of repurchase option | — | — | — | — | 1,973 | — | 1,973 | |||||||||||||||||||||
| Balance March 31, 2021 | 14 | $ | — | 11,253,967 | $ | 11 | $ | 109,555 | $ | (111,241 | ) | $ | (1,659 | ) | ||||||||||||||
| Balance December 31, 2021 | 14 | $ | — | 11,944,600 | $ | 12 | $ | 124,225 | $ | (124,193 | ) | $ | 44 | |||||||||||||||
| Net loss | — | — | — | — | — | (5,455 | ) | (5,455 | ) | |||||||||||||||||||
| Common Stock Issued for Forbearance | — | — | 2,104 | — | 3 | — | 3 | |||||||||||||||||||||
| Stock based compensation | — | — | 310,480 | — | 2,732 | — | 2,732 | |||||||||||||||||||||
| Common stock cancelled | — | — | (126,315 | ) | — | — | — | — | ||||||||||||||||||||
| Net Proceeds from sale of Offering Shares | — | — | 3,614,201 | 4 | 13,391 | — | 13,395 | |||||||||||||||||||||
| Balance March 31, 2022 | 14 | $ | — | 15,745,070 | $ | 16 | $ | 140,351 | $ | (129,648 | ) | $ | 10,719 | |||||||||||||||
See accompanying notes to the financial statements.
APPTECH PAYMENTS CORP.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)
(in thousands, except per share data)
| March 31, 2022 | March 31, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (5,455 | ) | $ | (66,293 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Issuance of stock based compensation | 2,508 | 1,829 | ||||||
| Issuance of stock for prepaid services | 156 | — | ||||||
| Common Stock Issued for Forbearance | 3 | — | ||||||
| Stock issued for purchase of judgment | — | 1,000 | ||||||
| Stock issued for excess fair value of equity over assets received | 832 | 62,543 | ||||||
| Imputed interest on notes payable | — | 3 | ||||||
| Amortization of debt discount | 14 | 40 | ||||||
| Change in fair value of derivative liabilities | (136 | ) | 508 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (3 | ) | (26 | ) | ||||
| Prepaid expenses | 8 | (61 | ) | |||||
| Accounts payable | (781 | ) | (24 | ) | ||||
| Accrued liabilities | (25 | ) | 93 | |||||
| Right of use asset and liability | 1 | 3 | ||||||
| Net cash used in operating activities | (2,878 | ) | (385 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capitalized prepaid software development and license | (185 | ) | (960 | ) | ||||
| Net cash used in investing activities | (185 | ) | (960 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on loans payable - related parties | — | (33 | ) | |||||
| Payments on notes payable | (50 | ) | — | |||||
| Net Proceeds from offering | 13,395 | — | ||||||
| Repurchase of common stock | — | (10 | ) | |||||
| Proceeds from sale of repurchase options | — | 1,948 | ||||||
| Net cash provided by financing activities | 13,345 | 1,905 | ||||||
| Changes in cash and cash equivalents | 10,282 | 560 | ||||||
| Cash and cash equivalents, beginning of period | 8 | 58 | ||||||
| Cash and cash equivalents, end of period | $ | 10,290 | $ | 618 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Non-cash investing and financing transactions related to capitalized software and licensing costs | $ | — | $ | 5,491 | ||||
| Issuance of stock for prepaid services | $ | 156 | $ | — | ||||
See accompanying notes to the financial statements.
APPTECH PAYMENTS CORP.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
On December 23, 2021, AppTech Payments Corp. (“AppTech” or the “Company”) changed our name to AppTech Payments Corp from AppTech Corp. and re-domiciled to Delaware. We are headquartered in Carlsbad, CA and our stock trades under the symbol “APCX” and our warrants under the symbol “APCXW”.
The Company successfully completed its capital raise and uplisting onto NASDAQ (herein referred to its “Offering”) on January 7, 2022. As part of the Offering, the Company executed a 9.5 to 1 reverse split of its common stock. In addition, the Offering sold units of our common stock (a unit consisted of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. In addition, warrants were granted by EF Hutton with a 5 five-year expiration and an exercise price of $5.19. The Offering provided net proceeds of approximately $13.4 million. The Company’s current cash position is significant enough to support the daily operations for a Wyoming Corporation incorporated on July 2, 1998.period in excess of one year from the date of filing this 10-Q. All shares and share prices within this 10-Q have been adjusted to reflect the stock split.
AppTech Payments Corp. is a FinTech company providing electronic payment processing technologies and merchant services. These 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, digital tokens, and payment transfer transactions.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’saccompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Also see Note 3.In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended March 31, 2022 and March 31, 2021. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any future interim periods.
Use of Estimates
The preparation of the 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 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 and capitalization of software development.assets. 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 $250,000250 thousand per institution that pays Federal Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to these balances.
The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses ninesix financial institutionsinstitutions to service their merchants for which represented 100%100% of accounts receivable as of September 30, 2021 and 2020.March 31, 2022. 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 ninethree months ended September 30,March 31, 2022 and 2021, and 2020, the one merchant (customer) represented approximately 16%8.2% and 36%36% of the total revenues, respectively. The loss of this customer would have significant impact on the Company’s operations.
Software Development Costs
The Company capitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred.
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 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.
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 Measurements
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“(“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
Level 1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3 Pricing inputs that are generally unobservable inputs and not corroborated by market data.
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 fair 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 assets and liabilities fall within more than one level described above, the categorization is based 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 value because of the immediate or short-term maturematurity of these financial instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-lengtharms-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.
The following table presents liabilities that are measured and recognized at fair value as of September 30, 2021March 31, 2022 and December 31, 20202021 on recurring basis:basis (in thousands):
| Schedule of derivative liabilities | ||||||||||||||||||||||||||||||||
| September 30, 2021 | March 31, 2022 | |||||||||||||||||||||||||||||||
| Total Carrying | Level 1 | Level 2 | Level 3 | Total Carrying Value | ||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 492,830 | $ | 492,830 | $ | — | $ | — | $ | 463 | $ | 463 | ||||||||||||||||
| December 31, 2020 | ||||||||||||||||
| Total Carrying | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 597,948 | $ | 597,948 | ||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Carrying Value | |||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | 599 | $ | 599 | ||||||||
See Note 76 for discussion of valuation and roll forward related to derivative liabilities.
Research and Development
In accordance with ASC 730, Research and Development (“R&D”) costs are expensed when incurred. R&D costs include costs 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 three months ended March 31, 2022 and 2021 were $2.1 million and $0, respectively.
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 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 convertible preferred stock.
The number of common stock equivalents not included in diluted income per share was 12,498,187 and 5,616,624 for the ninethree months ended September 30,March 31, 2022 and 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.
| Schedule of anti dilutive stock | March 31, 2022 | March 31, 2021 | ||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||
| Series A preferred stock | 10,920 | 10,920 | 1,149 | 1,149 | ||||||||||||
| Convertible debt | 1,639,217 | 5,605,704 | 175,632 | 645,432 | ||||||||||||
| Warrants | 200,000 | — | 4,275,464 | 21,052 | ||||||||||||
| Options | 7,272,500 | — | 999,132 | 706,000 | ||||||||||||
| Common stock | 3,375,550 | — | ||||||||||||||
| Restricted stock units | 554,973 | 359,526 | ||||||||||||||
| Total | 12,498,187 | 5,616,624 | 6,006,350 | 1,733,159 | ||||||||||||
Derivative Liability
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution 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 common 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 warrants and shares to be issued were recorded as derivative liabilities on the issuance date and at each reporting period.
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 financial statements, during the nine months ended September 30, 2021 and 2020, the Company incurred a net loss of $75,494,381 and $2,898,406 and used cash of $3,027,981 and $303,235 in operating activities. In addition, the Company had a working capital deficit of $6,026,048 and an accumulated deficit of $120,442,111 as of September 30, 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 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, the Company intends to raise additional funds through public or private debt and/or equity offerings. During 2021, the Company received $2,430,750 from eleven sales of a repurchase 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 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 financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Risks and Uncertainties
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 the 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 it processes, and thus its revenues. In addition, such a downturn could cause its 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 increase after several 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 estimated 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 43 –PATENTS
Patents
On SeptemberJune 22, 2017, AppTech executed an Amendment to Asset Purchase Agreement with GlobalTel Media, Inc. In connection with, the asset purchasedetails of which were previously disclosed by AppTech. The referenced 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, allacquired 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 specificallyassets including 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 patentsAppTech intends to AppTech on July 25, 2017. AppTech,use these assets as an integral 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.future business expansion and product development. As of September 30, 2021March 31, 2022 and December 31, 2020, amounts included2021, there were zero dollars in accounts payable related to the assumption of liabilities in connection with the patents were $280,000 and $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 at the time of the expense.patents.
See Note 98 for more information on capitalized prepaid software development and license.
NOTE 54 – ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2021March 31, 2022 and December 31, 20202021 consist of the following:following (in thousands):
| Schedule of Accrued Liabilities | ||||||||||||||||
| September 30, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||
| Accrued interest – related parties | $ | — | $ | 1,039,977 | ||||||||||||
| Accrued interest – third parties | 1,420,690 | 1,395,133 | $ | 1,305 | $ | 1,420 | ||||||||||
| Accrued payroll | 21,672 | — | 251 | 294 | ||||||||||||
| Accrued PTO | 56,071 | — | ||||||||||||||
| Accrued residuals | 100,615 | 62,174 | 28 | 98 | ||||||||||||
| Accrued merchant equity | 88,903 | 91,023 | ||||||||||||||
| Anti-dilution provision | — | 1,290 | ||||||||||||||
| Other | 38,677 | 44,027 | 237 | 34 | ||||||||||||
| Total accrued liabilities | $ | 1,726,628 | $ | 2,632,334 | $ | 1,821 | $ | 3,136 | ||||||||
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 LiabilityAnti-dilution provision
The agreement between the Company provided all merchantsand Infinios, formerly NEC Payments B.S.C., has an anti-dilution provision. To remain in compliance, the opportunity to earnCompany accrued shares of the Company’sits 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 Companyat $ per share for a periodtotal value of three years for the shares to vest. All merchants became fully vested when the Company ended the program effective$ million as of December 31, 2015.
The Company accounts for the value of the shares under the program as a sales incentive and thus the amounts2021. Further, in connection with the Program are recordedcapital raise discussed in Note 1, the Company accrued an additional shares of its common stock at $ per share for a value of $ thousand or a total value of $2.1 million as of March 31, 2022. The 451,957 total shares were issued in May 2022, were classified as a reductionlong-term liability and treated as additional consideration to revenues. As of September 30, 2021, the Company has an obligation to issue approximately 750,000 shares of the Company’s common stock issuable under the Program.Infinios.
NOTE 65 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The Company fundsfunded 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, 2021March 31, 2022 and 2020.2021. 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, 2021 and 2020, the Company paid $34,400 and $42,000 loans payable from related parties, net. As of September 30, 2021 and December 31, 2020, the balance of the loans payable was $0 and $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$350 thousand in subordinated notes payable to third parties. The subordinated notes payable were due in 30 to 180 days andparties that incurred interest at 10% per annum. As of September 30, 2021 and December 31, 2020, accrued interest related to the subordinated notes was $0 and $153,545, respectively. On September 30, 2021, the Company converted the notes issued for $529,795$530 thousand of principal and interest into 529,79555,767 shares of the Company’s common stock. Since the notes were converted to equity, there will no longer be any accrued interest related to the subordinated notes.
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$300 thousand convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the date of issuance. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at $1.00nine dollars and fifty cents $9.50 for the 180one hundred and eighty (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 (25) trading days,day, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of 1,000one thousand (1,000) shares.
In the event of a default of the Note, 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 (75) 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 200,00021,052 shares of common stock exercisable at $1.50fourteen dollars and twenty-five cents ($14.25) and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 76 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. As of March 31, 2022 and December 31, 2021, the convertible note payable balance was $280 thousand and $280 thousand, and has accrued interest of $68 thousand and $39 thousand, respectively.
Total interest expense on convertible notes payable, inclusive of amortization of debt discount of $280,175$280 thousand, amounted to $310,588$315 thousand for the nine monthsyear ended September 30,December 31, 2021. As of September 30, 2021 and DecemberMarch 31, 2020,2022, 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:$0.
| 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 note and warrant lawsuit.6– Derivative Liabilities.
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 December 31, 2020, accrued interest related to the convertible notes was $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. On February 24, 2021, the chief executive officer assigned $200,000 in convertible notes to a direct relative. On April 29, 2021, the Company issued 3,055,875 shares of the Company’s common stock to the convertible notes 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$50 thousand 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$9.50 per share. As of September 30, 2021 and December 31, 2020, the accrued interest related to the convertible notes was $29,584 and $25,833, respectively. The Company is currently in default onamended the convertible note payable.on March 2, 2022 and an agreed offer of a $10 thousand discount on the principal and interest resulting in a $72 thousand payment in full.
In 2014, the Company issued $400,000$400 thousand 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$3.14 to $1.00$9.50 per share. In addition, the Company issued 400,00042,105 shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 400,00042,105 shares of common stock at $1.00$9.50 per share within one year of the note issuance date. On March 30, 2022, the Company entered into three forbearance agreements which granted the holders 2,105 shares of our common stock in exchange for not enforcing the terms of the agreement for a period of twelve months. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company held the obligation to repurchase the shares for $400,000.$ thousand. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the accrued interest related to the convertible notes was $257,833$278 thousand and $227,083,$268 thousand, 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 December 31, 2020, accrued interest related to the convertible notes was $564,013 of which $265,875 was due to related parties. On April 29, 2021, the Company issued 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, 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$68 thousand in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principal and interest are deferred for twelvethirty months withfrom the first $333 payment due July 1, 2021.date of the note. As of September 30, 2021March 31, 2022 and December 31, 20202021 the balance of the note payable was $68,300,$68 thousand and $68 thousand, and accrued interest was $3,202$4 thousand and $1,281,$4 thousand, 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. On September 27, 2021 and September 30, 2021, the Company converted two of the notes issued for $74,000 into 74,000 shares of the Company’s common stock. On September 30, 2021, the Company entered into a forbearance agreement which granted the holders 1,650 shares of the Company’s common stock with a current fair market value of $1,931 in exchange for not enforcing the terms of the agreement for a period of twelve months.
Two significant shareholders funded the Company’s operations through notes payable in primarily 2009 and 2010. The notes payable incur interest at 10% per annum and 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 $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.$275 thousand. On September 29, 2021, the Company converted notes issued for $50,631$51 thousand of principal and accrued interest into 50,6315,329 shares of the Company’s common stock. On September 29, 2021, the Company entered into a forbearance agreement which granted the holder 29,8363,140 shares with a current fair market value of $34,908$35 thousand 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 has a flat interest amount due of $21,000. As of September 30, 2021, and 2020, the entire amount of $21,000 has been included in 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, 2021 and 2020.
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, On February 4, 2022, the Company entered into an agreement whereby they would repayamended forbearance agreement. The parties agreed to reduce the principal andoutstanding accrued interest in the amount of $145,000 by April 4, 2018$75 thousand along with a $50 thousand payment of accrued interest. As of March 31, 2022, and issueDecember 31, 2021, the holders 800,000 shares of common stock. The Company recorded the fair market valueaggregate balance of the common stock issued at $336,000 based on the datenotes payable was $597 thousand and accrued interest was $258 thousand and $383 thousand, respectively.
In Q3 of issuance as interest expense. Other than the issuance of shares of common stock. On September 27, 2021, the Company converted notes issued for $225,000 of principal and accrued interest$503 thousand into 225,00052,942 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, Also, the Company entered into a forbearance agreement which granted the holder 4,407holders 2,760 shares of the Company’s common stock with a current fair market value of $5,156$120 thousand 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 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 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 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 $221,800 in proceeds. The note payable incurs interest at 10% per annum. On December 31, 2013, the holder received an arbitration settlement for the principal and accrued interest. As of September 30, 2021, and December 31, 2020, the Company was in default of the arbitration settlement. As of September 30, 2021, and December 31, 2020, accrued interest related to the note payable was $500,384 and $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, 2021, and December 31, 2020, accrued interest related to the note payable was $0 and $76,372, respectively. On September 30, 2021, the Company converted notes issued for $139,368 of principal and accrued interest into 139,368 shares of the Company’s common stock.
NOTE 7–6–DERIVATIVE LIABILITIES
The 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 common 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 warrants were recorded as derivative liabilities on the issuance date and revalued as of September 30, 2021at March 31, 2022 and December 31, 2020.2021.
Based on the convertible notes described in Note 6, the derivative liability day one loss is $389,712$390 thousand and the change in fair value as of September 30, 2021at March 31, 2022 and December 31, 20202021 is $(105,118)$136 thousand and $71,464.($26 thousand), respectively. The fair value of applicable derivative liabilities on note, warrants and change in fair value of derivative liability are as follows for the ninethree months ended September 30, 2021.March 31, 2022 (in thousands).
| 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 | ||||||
Schedule of fair value of derivative liabilities | ||||||||||||
| Derivative Liability Convertible Notes | Derivative Liability Warrants | Total | ||||||||||
| Balance as of December 31, 2021 | $ | 274 | $ | 325 | $ | 599 | ||||||
| Change in fair value | (76 | ) | (60 | ) | (136 | ) | ||||||
| Balance as of March 31, 2022 | $ | 198 | $ | 265 | $ | 463 | ||||||
As of September 30, 2021,March 31, 2022, the fair value of the derivative liability convertible notes 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 | $ | 1.35 | ||||
| Expected volatility | % | % | ||||||
| Expected term (in years) | ||||||||
| Risk-free interest rate | % | % |
As of September 30, 2021,March 31, 2022, 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 | $ | 1.35 | ||||
| Expected volatility | % | % | ||||||
| Expected term (in years) | ||||||||
| Risk-free interest rate | % | % |
NOTE 8–7–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. 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, 2021,March 31, 2022, including the total amount of related imputed interest:interest (in thousands):
Years ended December 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 |
| Schedule of Future Minimum Rental Payments for Operating Leases | ||||||||
| 2022 | $ | 64 | ||||||
| 2023 | 88 | |||||||
| 2024 | 90 | |||||||
| 2025 | 7 | |||||||
| Operating Lease Total | $ | 291,073 | 249 | |||||
| Less: Imputed interest | (52,899 | ) | (39 | ) | ||||
| Total | $ | 238,174 | $ | 210 | ||||
The rent expense was $45,88515 thousand and $70,40415 thousand for the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, respectively.
NOTE 98 - COMMITMENTS AND CONTIGENCIESCONTINGENCIES
Litigation
Former Shareholders Lawsuit
In November 2017, two shareholders of AppTech, Laura Farris and Eric Ottens, filed a lawsuit against the Company in the State of California, claiming conversion, 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 was removed to the United States District Court for the Southern District of California. On December 19, 2019, the Company entered into a settlement and release agreement with the plaintiffs pursuant to which the Company will pay the plaintiffs an aggregate of $240,000$240 thousand in installments over three years, commencing 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 Company is current on the modified repayment schedule.
Years ended December 31:
| 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 was paid in monthly installments of $15,000. The settlement installments paid for the year ended December 31, 2020 was $135,000. On December 30, 2020, full payment was made in accordance with a modified settlement payment schedule.March 2022. The litigants are now paid in full and no further action is warranted by the Company.
Other Lawsuit
OnIn July 23,of 2020, Flowpay Corporation,an owner and corporation having a Delaware corporationnon-binding Memorandum of Understanding (“Flowpay”MOU”), and R. Wayne Steiger, the President of Flowpay, filed a complaintlawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the Superior Court of California, County of San Diego, North Division againstState of California. Plaintiffs amended 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 allegedComplaint on March 11, 2021. The claims include breach of contract, intentional misrepresentation, and negligent misrepresentation, byand unjust enrichment. Service of process occurred on January 8, 2021. Management believes the Company and Mr. D’Angelo in connection with a Memorandum of Understanding, dated May 7, 2016,non-binding MOU terminated after no Definite Agreement was executed between the Plaintiffsparties, 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 Plaintiffs 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 Companynegotiations ceased December 20, 2016. We filed an answer with affirmative defensesto the Amended Complaint on April 26, 2021. The lawsuit is presently27, 2021 and began discovery. Management does not believe Plaintiffs’ claims for damages have merit or are supported by Plaintiffs’ evidence. We filed a Summary Judgment requesting an Order from the Court to narrow the issues in the discovery phase.Amended Complaint. This matter is scheduled for trial on July 8, 2022. We believecurrently own a judgment dated February 17, 2017, against the plaintiffs’ claims are meritlessowner and intendcorporation in the amount of $517 thousand plus interest. The judgment was assigned to vigorously defend againstAppTech Payments Corp. and Management plans to use the judgment to assist in the possible settlement and dismissal of this lawsuit.case prior to trial.
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,$2.75 million, 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$400 thousand and $550,000,$550 thousand, which includes principal and accrued interest of the convertible notes payable.
Significant Contracts
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 engagesOn October 27, 2021, Maxim through September 30,and the Company terminated all relevant agreements and the Company issued Maxim shares of the Company’s common stock in association with the termination.
On October 18, 2021, the Company entered into an engagement letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as exclusive financial advisor, lead managing underwriter, and sole book runningdeal manager and investment banker in connection withfor the Company’s proposed firm commitment follow-on public offering and uplisting. This engaged EF Hutton through the earlier of (i) October 2022 or (ii) the closing of a follow-on offering. The Company completed its offering shall consiston January 7, 2022. The Company sold 3,614,201 units of our common stock (a unit consisted of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. The offering provided net proceeds 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%.$13.4 million. See note 111 for subsequent events.information on the capital raise completed in January 2022.
Silver Alert Services, LLC
In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC.LLC doing business as Lifelight Systems (“Lifelight”), expanding into the telehealth sphere.. The partnership willwould 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 amendedwas cancelled 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).February 17, 2022.
Infinios Financial Services (formally(formerly NEC Payments)Payments B.S.C.)
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:
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,$2.2 million 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$100 thousand engagement fee. On February 29,28, 2021, the Company paid the initial fee of $707,500$708 thousand to Infinios prior to the Funding Date. On March 25, 2021, the Company issued 18,011,5151,895,948 shares of common stock to NECan Infinios affiliate on a fully diluted basis with piggyback rights. The Company valued the common stock issuance at $67,543,182$67.5 million 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$3.8 million asset as capitalized prepaid software development and licensing and $62,543,182 as an$63.8 million expense asin excess fair value of equity issuance over assets received,received. The capitalized asset was classified as capitalized prepaid software development of September 30, 2021 based on the estimated fair market value$2.8 million and capitalized licensing of services had the Company developed improvements and additional functionality of the Infinios platform.$1.0 million. The estimated amortization is a 5-years life based on the term of the licensing agreement. The Company may reviseamortization is set to begin once the valueplatform begins processing transactions (in thousand).
As of March 31, 2022, the asset and estimated life as more information is made available.following fees were paid (in thousands):
| Schedule of fees paid to NECP platform | ||||
| Engagement Fee (prepaid licensing cost) | $ | 100 | ||
| License subscription fee (prepaid licensing cost) | 750 | |||
| Annual maintenance subscription fee (prepaid licensing cost) | 113 | |||
| Implementation fee (capitalized software cost) | 325 | |||
| Infrastructure implementation fee (capitalized software cost) | 65 | |||
| Training fee (50% due at Funding Date) | 50 | |||
| Total | $ | 1,403 |
The initial fees paid within three business days fromannual maintenance subscription fee of $113 thousand will be due annually beginning in the effective datemonth of the platform launch. In addition, the infrastructure support fee of $72 thousand will be due annually beginning in 2022 and at or before the Funding Date included the following costs:ending in 2026.
| 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 | * |
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 marketgo-to-market implementation of the NECPInfinios 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 400,00042,105 shares at a price of $0.01$0.095 and 2,500,000263,157 shares at $0.25$2.375 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$1.4 million and $8,749,701$8.7 million 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 compensated various individuals as consultants. Annually, the Company issues Form 1099s for amounts paid to them. In addition, a portion of these consultants did not have arrangements which specified compensation payable to them. The Company risks potential tax and legal actions should these consultants be 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,February 18, 2021, the Company entered into new employmentan amended independent contractor services agreement for $760 thousand with IR. The final payment owed to IR of $171 thousand was paid in January 2022.
Investor Relations
On January 2, 2022, the Company entered into an agreement with an investor relations firm (“IR Firm”) that compensated IR Firm $50 thousand and 100,000 shares upon the successful uplisting onto NASDAQ. In addition, on January 31, 2022, the Company entered into a consulting agreement with IR Firm. The Company agreed to a six-month commitment with IR Firm that pays $5 thousand per month, grants IR Firm a stock optionspurchase agreement to buy 45,000 shares of the Company stock at $0.001 per share and grants a monthly budget of approximately $100 thousand (with monthly automatic renewals unless the agreement were canceled in writing). In return, IR Firm agrees to provide investor relations outreach, public relations, advisory and consulting services, to AppTech. Payment for the two 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.was made in February 2022.
NOTE 109 –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, 2021 and December 31, 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.
Common Stock
The Company is authorized to issue 1,000,000,000 shares of $0.001 par value common stock. There were 113,125,715 and 88,511,657, respectively, shares of common stock outstanding as of September 30, 2021 and December 31, 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 ninethree months ended September 30,March 31, 2022 and 2021, and 2020, the Company issued 488,053 and 3,568,000,, respectively, shares of common stock to several consultants in connection with business development and professional services. The Company valued the common stock issuances at $2,512,693$466 thousand and $2,357,125,$316 thousand, 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 statements of operations. The accounts payable conversion was $424,885 and $152,500 during 2021 and 2020, respectively.
During the yearthree months ended DecemberMarch 31, 2020,2022 and 2021, the Company granted 350,000 and shares of common stock to the board of directors valued at $196,700 or $0.562 per share.$103 thousand and $49 thousand, respectively. 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 98 – 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 entered into an agreement 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 and are exercisable for nine months. These options were valued at $140,945 using a Black-Scholes options pricing model. The options were 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.year ended December 31, 2021:
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.
| a) | options to purchase shares of common stock at a weighted average price of $ were granted as compensation to employees. The options vest in equal monthly installments over 6 and 12 months. The options were valued at $6.3 million using a Black-Scholes options pricing model. |
See Note 9 – Significant Contracts for additional stock options granted.
| b) | options to purchase shares of common stock at a weighted average price of $ were granted as compensation for various services including accounting, sales, and marketing. The options were valued at $825 thousand using a Black-Scholes options pricing model. shares were exercised. |
The fair value of the options for the year ended December 31, 2021 is estimated using a Black-Scholes option pricing model with the following range of assumptions as of September 30, 2021:assumptions:
| Schedule of Black Scholes option pricing | ||||
| Market value of common stock on issuance date | ||||
| Expected price | ||||
| Expected volatility | ||||
| Expected term (in years) | - | |||
| Risk-free interest rate | % | |||
| Expected dividend yields | 0 |
During the three months ended March 31, 2022:
| a) | options to purchase shares of common stock at a weighted average price of $ were granted as compensation to employees. The options vest in equal monthly installments ranging from instantly to 24 months months. The options were valued at $897 thousand using a Black-Scholes options pricing model. |
| b) | options to purchase shares of common stock at a weighted average price of $ were granted as compensation for various services including engineering, accounting, and sales. The options were valued at $444 thousand using a Black-Scholes options pricing model. |
The fair value of the options for the three months ended March 31, 2022 is estimated using a Black-Scholes option pricing model with the following range of assumptions:
| Market value of common stock on issuance date | $1.24 - $12.45 | |||
| Expected price | $1.24 - $12.04 | |||
| Expected volatility | % - % | |||
| Expected term (in years) | 0.0 - | |||
| Risk-free interest rate | % | |||
| Expected dividend yields | 0 |
The following table summarizes option activity:
| Schedule of option activity | Schedule of option activity | ||||||||||||||||||||||||
| Weighted | Weighted | Number of shares | Weighted Average exercise price | Weighted Average remaining years | |||||||||||||||||||||
| Number of | Average | Average | |||||||||||||||||||||||
| shares | exercise price | remaining years | |||||||||||||||||||||||
| Outstanding December 31, 2020 | 7,707,000 | $ | 0.21 | ||||||||||||||||||||||
| Outstanding December 31, 2021 | 1,055,184 | $ | 6.62 | ||||||||||||||||||||||
| Issued | 2,447,000 | $ | 2.02 | 335,527 | $ | 4.00 | |||||||||||||||||||
| Exercised | — | $ | — | ||||||||||||||||||||||
| Cancelled | (1,079,749 | ) | $ | 0.36 | (391,579 | ) | $ | 2.44 | |||||||||||||||||
| Outstanding as of September 30, 2021 | 9,074,251 | $ | 0.56 | ||||||||||||||||||||||
| Outstanding as of September 30, 2021, vested | 3,010,785 | $ | 1.11 | ||||||||||||||||||||||
| Outstanding as of March 31, 2022 | 999,132 | $ | 7.38 | ||||||||||||||||||||||
| Outstanding as of March 31, 2022, vested | 667,235 | $ | 7.75 | ||||||||||||||||||||||
The remaining expense outstanding through September 30, 2021March 31, 2022 is $8,869,318 for$ million 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.expense.
See Note 8 – Significant Contracts for additional stock options granted.
On July 28, 2020,December 7, 2021, 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 consultantsemployees 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, 2021March 31, 2022 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$300 thousand convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 200,00021,052 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)$14.25 which may be exercised by cashless exercise. The number of warrants adjusted in the period ending September 30, 2021March 31, 2022 due to a reset event on September 27, 2021January 7, 2022 changed the exercise price from one dollar and fifty cents ($1.50)$9.50 to one dollar ($1.00)$2.52 and increased the number of warrants from 200,00031,578 to 300,000.119,095. The warrants were deemed a derivative liability and were recorded as a debt discount at its date of issuance.
In total, the Company has 4,275,464 warrants outstanding. 3,614,201 were related to the Offering, 542,168 were granted on January 7 and the reset event added an additional 119,095. See Note 7.
Common Stock Repurchase Option
On February 3, 2021,1 for information on warrants issued during the Company entered into a common stock repurchase option agreement with a former officerOffering 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 its rights tonote 6 for additional information on 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 11, 2021 for which the Company received $33,750 in proceeds which was recorded as additional paid-in capital.derivative liability.
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 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 1,000,000 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 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 April 8, 2021 for which the Company received $28,000 in proceeds which was recorded as additional paid-in capital.
On June 17, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 706,667 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 500,000 shares was exercised on September 18, 2021 for which the Company received $87,500 in proceeds which was recorded as additional paid-in capital.
On June 18, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 1,000,000 shares of common stock from a third party at $0.15 per share. The Company assigned 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 September 18, 2021 for which the Company received $225,000 in proceeds which was recorded as additional paid-in capital.
NOTE 1110 – 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 4, 2021,The Company fully executed a Definitive Agreement to acquire Hothand Inc. (“Hothand”), a patent-holding company which owns the intellectual property rights to a wide array mobile credit/debit transaction and mobile search, location, offer and payment fields in April 2022. The purchase price was a combination of cash and stock, but should be finalized in the second quarter of 2022. The Company is still determining the impact of this transaction on the financial statements.
The Company extended its stock repurchase agreement with the Chief Financial Officer. Terms of the updated agreement state that the Company entered into a loan forbearance agreement with a lender with a balance outstanding of $13,895, including principal and interest,has until October 21, 2022 to forebear enforcement of any of the payment terms of the promissory note in exchange for 5,695buyback 263,158 shares of the Company’sits common stock as an equity bonus.
On October 4, 2021, the Company entered into a loan forbearance agreement with a lender with a balance outstanding of $40,189, including principal and interest, to forebear enforcement of any of the payment terms of the promissory note in exchange for 7,009 shares of the Company’s common stock as an equity bonus.
On October 5, 2021, the Company entered into a debt conversion agreement to convert a non-interest bearing promissory note with an outstanding balance of $29,598 for 29,598 shares of the Company’s common stock as of the effective date of the agreement at a conversion price of $1.00 per share.
On August 24, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 300,000 shares of common stock from a third party at $0.175 per share. The Company assigned the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 300,000 shares was exercised on October 13, 2021 for which the Company received $127,500 in proceeds which was recorded as additional paid in capital.
On October 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 as of the effective date at a conversion price of $1.00 per share.
On October 27, 2021, Maxim and the Company terminated 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 in association with the termination.$500 thousand.
Item 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 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
Through our scalable cloud-based platform architecture and infrastructure coupled with our commerce experiences development and delivery model, we intend to simplify and streamline digital financial services for corporations, small and midsized enterprises (“SMEs”) and consumers. We will accomplish this through innovative omnichannel payment and digital banking technologies that complement our core merchant services capabilities. We 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, ourOur 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 proprietary merchant services software will offer, new integrated solutions for frictionless digital and mobile payment 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 for card, digital tokens, and payment transfer transactions. Our scalable business model allows for expansive white-labeling, SaaS, and embedded solutions that will drive the digital transformation of financial services and generate diverse revenue streams for our company.
The financial services industry is going through a period of intensive change driven by the advancement of technology, the adaptation to societal changes resulting from COVID-19, and the rapid rise of contactless transactions. End-users expect ease of use and an enhanced user experience in all their daily financial interactions. In this rapidly evolving digital marketplace, our prospective 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 flexible and configurable to meet current and future market needs. This will empower our clients to take advantage of future 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 create optimal and extensible financial technology solutions at a rapid pace.
Through exclusive licensing and partnership agreements to complement our patented technology capabilities, we believe we will become leaders in the embedded payment and digital banking sectors by supporting digital, tokenized, multi-channel, embedded API-driven transactions. We intend to accelerate this position through the integration of our merchant services and a secure text payment solution with extensive digital account-based and multi-channel issuer payment processing capabilities. We believe that this will enable us to provide our clients an end-to-end payment acceptance and digital banking solution powering straight-through processing and embedded payment opportunities in the B2B 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 protectedpatent-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 bankedunder-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 believe our technologies will greatly increase the adoption of mobile payments and alternate banking solutions in sectors that must quickly adapt and migrate towards new technologies that facilitate convenient and safe contactless payments. To survive and succeed in this environment, businesses need to adopt new technologies to engage, communicate and process payments with their customers from a supplier that widely supports innovation and adaptation as the industry evolves. By embracing technological advancement in the payment and banking industries, we are well-positioned to meet the growing needs of existing and prospective clients and intend for our current and future products to be at the forefront of solving these 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 plan to help bring to market personal emergency response and remote patient monitoring services and equipment to help ensure the safety of elderly and injured or sick patients while providing peace of mind to family members, care givers and retirement communities. These solutions increase patients’ 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 and changed our name changesto AppTech Corp. in 2005(CSI Business, Inc.), 2006 (Natural Nutrition Inc.) and 2009 (AppTech Corp.)2009. 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.
Effects ofpayments. On December 23, 2021, we changed our name to AppTech Payments Corp and re-domiciled to Delaware. We are headquartered in Carlsbad, CA. and uplisted to NASDAQ in January 2022. Our stock trades under the COVID-19 Pandemic
The unprecedentedsymbol “APCX” and adverse effects of COVID-19, and its unpredictable duration, in our warrants under 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.symbol “APCXW”.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations aswellasfactors that impact those items.items (in thousands, except per share data).
Revenues
Our Revenues.Revenues. We derive 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 our financial servicesthe SMS short code texting 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 periodsthree months ended September 30,March 31, 2022 and 2021, and 2020, respectively. We have derived this data from our financial statements included elsewhere in this quarterly report.
The Three Months Ended September 30, 2021
Compared to the Three Months Ended September 30, 2020
The following table presents our historical results of operations for the periods indicated:
| Three Months Ended September 30 | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Revenue | $ | 92.4 | $ | 105.4 | ||||
| Cost of revenue | 41.8 | 48.8 | ||||||
| Gross profit | 50.6 | 56.6 | ||||||
| Operating expenses | ||||||||
| General and administrative | 1,360.2 | 1,089.8 | ||||||
| Excess fair value of equity issuance over assets received | 1,090.7 | — | ||||||
| Research and development | — | 3.0 | ||||||
| Total operating expenses | 2,450.9 | 1,092.8 | ||||||
| Loss from operations | (2,400.3 | ) | (1,036.2 | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense, net | (478.0 | ) | (71.7 | ) | ||||
| 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 | $ | (2,742.6 | ) | $ | (1,107.9 | ) | ||
The Nine Months Ended September 30, 2021
Compared to the Nine Months Ended September 30, 2020
The following table presents our historical results of operations for the periods indicated:
| Nine Months Ended September 30 | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Revenue | $ | 258.7 | $ | 241.5 | ||||
| Cost of revenue | 112.0 | 103.8 | ||||||
| Gross profit | 146.7 | 137.7 | ||||||
| Operating expenses | ||||||||
| General and administrative | 6,733.6 | 2,781.9 | ||||||
| Excess fair value of equity issuance over assets received | 66,124.6 | — | ||||||
| Research and development | — | 49.2 | ||||||
| Total operating expenses | 72,858.2 | 2,831.1 | ||||||
| Loss from operations | (72,711.5 | ) | (2,693.4 | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense, net | (3,038.6 | ) | (213.9 | ) | ||||
| Change in fair value derivative liability | 80.4 | — | ||||||
| Forgiveness of debt | — | 9.0 | ||||||
| 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 | $ | (75,494.4 | ) | $ | (2,898.3 | ) | ||
Revenue
Revenue decreased to $92,410 from $105,357 and increased to $258,688 from $241,367 was approximately $104 thousand for the three months and nine ended March 31, 2022, compared to $101 thousand for the three months ended September 30,March 31, 2021, and 2020.representing an increase of 3%. The decrease in the quarter 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 adjustmentand a decrease in processing fees assessedcharged to the Company.Company.
Cost of Revenue
Cost of revenue decreased to $41,774 from $48,759 and $112,032 from $103,721 for the three months and nine months ended September 30, 2021 and 2020. This decrease was driven primarily by 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 $2,781,912 approximately $51 thousand for the three months and nineended March 31, 2022, compared to $34 thousand for the three months ended September 30,March 31, 2021, and 2020, therepresenting an increase of 50%. The increase was driven primarily by increased residual payouts from more processing revenue.
General and Administrative Expenses
General and administrative expenses were approximately $2.8 million for the three months ended March 31, 2022, compared to $1.8 million for the three months ended March 31, 2021, representing an increase of 56%. The increase was primarily drivenbystock-based compensation an increase in both payroll and bonuses which is consistent with the ramped up headcount growth needed to launch the platform.
Research and Development Expenses
Research and development expenses were approximately $2.1 million for the three months ended March 31, 2022, compared to $1 for the three months ended March 31, 2021. The increase was primarily due to several significant consulting agreements for marketingthe onboarding of engineers and professional related services, along with stock-based compensation duedevelopers, and the hardware and software needed to executive management and employee contracts.complete the platform. Only the salaries of the product development team were capitalized in January 2022.
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 $0was $832 thousand for the three months and nine months ended September 30, 2021 and 2020. The increase was dueMarch 31, 2022, compared to two major equity issuances for services.
Research and Development Expenses
Research and development expenses decreased to $0 from $2,999 and $0 from $49,250, $63.9 million for the three months and nine months ended September 30, 2021 and 2020. ThisMarch 31, 2021. decrease The excess fair value over assets was primarily a one-time event that was due to the timing of the developmentshare issuance to Infinios. The shares were issued on a day that the fair value of our financialcommon stock closed at $3.75 per share. Approximately, 18 million shares were issued, so the difference between the value of the newly issued shares and the value of the services platform.
Interest Expense, net
Interest expense, net increased to $478,009 from $71,723 and $3,038,568 from $213,890 for the three months and nine months ended September 30, 2021 and 2020. The increaseperformed was primarily due to an expense ofexpensed as excess fair value of equity issuance over assets received. See Note 4 for accruedadditional information related to the Anti-dilution provision.
Interest Expense, net
Interest expenses, net was approximately $55 thousand for the three months ended March 31, 2022, compared to $129 thousand for the three months ended March 31, 2021, representing an decrease of 57%. The decrease was due to the Company entering into forbearance agreements with outstanding debt holders in return for the interest and notes payable on convertible notes payable and notes payable conversion inbeing capped. In addition, the second and third quarter.Company converted certain debt into equity, so the interest expense was written off.
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,was approximately $136 thousand for the three months and nineended March 31, 2022, compared to $508 thousand for the three months ended September 30, 2021 and 2020.March 31, 2021. The increasedecrease was primarily due to a new convertible note agreement.standard market volatility coupled with the resetting terms of the derivative.
Liquidity and Capital Resources
The Company is in its pre-commercialization phase of its financial services platform. Historically,As noted earlier, the Company fundedsuccessfully completed its operationsOffering on January 7, 2022. For further discussion, see Note 1.
As of March 31, 2022, we had cash and cash equivalents of approximately $10.3 million, working capital of approximately $6.2 million, and stockholders’ equity of approximately $10.7 million.
During the three months ended March 31, 2022, we met our immediate cash requirements through private investment, such as convertible notes,existing cash balances. Additionally, we used equity and the assignment of repurchase option agreementsequity-linked instruments to third parties. The current cash position from continuing operations is not significant to support the company’s daily operationspay for the next twelve months. To the extent that additional funds are necessary to finance operationsservices and meet our long-term liquidity needs as we continue to execute our strategy, we note that our 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 is anticipated at this time. Using currently available capital resources, management believes we can conduct planned operations for 45 days, however, management believes we need to raise $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.compensation.
Since we derive our revenues principally from processing of purchases from our merchant services clients, a downturnNet cash used in economic activity, such as that associated with the current corona virus pandemic could reduce the volume of purchases we 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 during an economic downturn.
Cash Flows
The following table presents a summary of cash flows from or provided by, operating, investing and financing activities for the following comparative periods.were as follows (in thousands):
| Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Net cash used in in operating activities | $ | (820,852 | ) | $ | (303,235 | ) | ||||||||||
| Net cash used in operating activities | $ | (2,878 | ) | $ | (385 | ) | ||||||||||
| Net cash provided by (used in) investing activities | $ | (1,575,500 | ) | $ | 23,411 | (185 | ) | (960 | ) | |||||||
| Net cash provided by financing activities | $ | 2,361,350 | $ | 301,981 | 13,345 | 1,905 | ||||||||||
Cash Flow from Operating Activities
Net cash used in operating activities increased by $517,617 forduring the ninethree months ended September 30March 31, 2022 was approximately $2.9 million, which is comprised of (i) our net loss of $5.5 million, adjusted for non-cash expenses totaling $3.4 million (which includes adjustments for equity-based compensation, depreciation and amortization), 2021and (ii) changes in operating assets and liabilities using approximately from the$0.8 million. nine months ended September 30, 2020. This increase was principally driven byan increase in residual payouts, professional fees and services, and new executive management and employee contracts.
Cash Flow from Investing Activities
Net cash used in investingoperating activities increased by $1,598,911 forduring the ninethree months ended September 30March 31, 2021 was approximately $0.4 million, which is comprised of (i) our net loss of $66.3 million, adjusted for non-cash expenses totaling $65.9 million (which includes adjustments for equity-based compensation, depreciation and amortization), 2021and (ii) changes in operating assets and liabilities using approximately from$15 thousand. the nine months ended September 30, 2020. This increase was principally drivenby a significant investment in a capitalized asset.
Cash Flow from FinancingInvesting Activities
Net cash provided used byfinancing investing activities increased by $2,059,369 forduring the ninethree months ended September 30, 2021 fromMarch 31, 2022 was approximately $185 thousand and was primarily due to the nineinternal capitalized software costs.
Net cash used by investing activities during the three months ended September 30, 2020March 31, 2021 was approximately $960 thousand and was primarily due to the purchase of capitalized software costs.
.Financing Activities This increase
Net cash provided by financing activities during the three months ended March 31, 2022 was approximately $13.3 million, which principally drivenconsists of net proceeds of $13.4 million through the issuance of common shares and warrants in our public offering.
Net cash provided by financing activities during the increase inthree months ended March 31, 2021 was approximately $1.9 million, which principally consists of net proceeds fromof $1.9 million through the sale of repurchase options.
Critical Accounting Policies
Our discussion and analysis of our financial condition 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. On an ongoingbasis,we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, derivative financial instruments, and equity-based compensation. We base our estimates on historical experience 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, 2021, March 31, 2022, there have been no significant changes to our critical accounting estimates, except as described in Note 2 to our financial statements.
Software Development Costs
The Company capitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred. Equity and options granted are capitalized as part of the software development costs.
Recent Accounting PronouncementsAccounting Pronouncements
As of September 30, 2021,March 31, 2022, there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our 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.
NotBecause we are allowed to comply with the disclosure obligations applicable for smallerto a “smaller reporting companies.company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this Annual Report on Form 10-K, we are not required to provide the information required by this Item.
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, 2021. March 31, 2022.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting duringthe three-month period ended September 30, 2021 March 31, 2022 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 considered relative 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 instancesof fraud, 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.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
In November 2017, two shareholders of AppTech, Laura Farris and Eric Ottens, filed a lawsuit against the Company in the State of California, claiming conversion, 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 was removed to the United States District Court for the Southern District of California. On December 19, 2019, the Company entered into a settlement and release agreement with two shareholders. The total obligation was for $240 thousand and the plaintiffs pursuant to whichfinal payment was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company will pay the plaintiffs an aggregate of $240,000 in installments over three years, commencing 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 Company is current on the modified repayment schedule.Company.
Other Lawsuit
OnIn July 23,of 2020, Flowpay Corporation,an owner and corporation having a Delaware corporationnon-binding Memorandum of Understanding (“Flowpay”MOU”), and R. Wayne Steiger, the President of Flowpay, filed a complaintlawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the Superior Court of California, County of San Diego, North Division againstState of California. Plaintiffs amended 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 allegedComplaint on March 11, 2021. The claims include breach of contract, intentional misrepresentation, and negligent misrepresentation, byand unjust enrichment. Service of process occurred on January 8, 2021. Management believes the Company and Mr. D’Angelo in connection with a Memorandum of Understanding, dated May 7, 2016,non-binding MOU terminated after no Definite Agreement was executed between the Plaintiffsparties, 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 Plaintiffs 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 Companynegotiations ceased December 20, 2016. We filed an answer with affirmative defensesto the Amended Complaint on April 26, 2021. The lawsuit is presently27, 2021 and began discovery. Management does not believe Plaintiffs’ claims for damages have merit or are supported by Plaintiffs’ evidence. We filed a Summary Judgment requesting an Order from the Court to narrow the issues in the discovery phase.Amended Complaint. This matter is scheduled for trial on July 8, 2022. We believecurrently own a judgment dated February 17, 2017, against the plaintiffs’ claims are meritlessowner and intendcorporation in the amount of $517 thousand plus interest. The judgment was assigned to vigorously defend againstAppTech Payments Corp. and Management plans to use the judgment to assist in the possible settlement and dismissal of this lawsuit.
Convertible Note and Warrant Lawsuitcase prior to trial.
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,$2.75 million, 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$400 thousand and $550,000,$550 thousand, which includes principal and accrued interest of the convertible notes payable.
Item 1A. Risk Factors.
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 the nine months ended September 30, 2021, 393,053 shares of common stock were issued to several consultants in connection with business development and professional services rendered valued at $767,000.
During the nine months ended September 30, 2021, 233,336 sharesof common stock were issued to membersofthe Board of Directors valued at $131,134.
During the ninethree months ended September 30, 2021, 200,000 shares of common stock were issued to purchase a judgment valued at $1,000,000.March 31, 2022:
During the nine months ended September 30, 2021, 31,250 shares of common stock were issued to a merchant valued at $18,371.
| a) | 233,816 shares of common stock were issued to several consultants in connection with business development and professional services rendered valued at $466 thousand. |
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.
| b) | 76,664 shares of common stock were issued to members of the Board of Directors valued at $103 thousand, which vest quarterly over the period of approximately one year. |
Item 3. Defaults Upon Senior Securities.
Five convertible notes Only the EMA Financial, LLC payable is in the amount of $737,416 aredefault since it is currently involved in default.litigation.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
EXHIBIT INDEX
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 Payments Corp. | ||
| Date: | By: | /s/ Luke D’Angelo |
| Luke D’Angelo | ||
| Chief Executive Officer, Chairman and | ||
| Date: | By: | /s/ Gary Wachs |
| Gary Wachs | ||
| Chief Financial Officer, | ||
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