UNITED STATES
SECURITIES AND EXCHANGECOMMISSION
Washington,Washington, D.C. 20549
FORM 10-Q
(MarkOne)
| QUARTERLY REPORT PURSUANTTOSECTION13 OR15(d) OFTHESECURITIES EXCHANGE ACT OF 1934 |
For the quarterly periodended September 30, 2008
or
| TRANSITION REPORT PURSUANTTOSECTION13 OR15(d)OFTHESECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ ____________________ to __________
Commission File Number file : 0-27569
AppTechCorp.
(Exact name of registrant asspecified inits charter)
65-0847995 | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer IdentificationNumber) |
5876Owens Ave. Suite 100
Carlsbad, California 92008
(Address ofPrincipal Executive Offices &Zip Code)
(760) 707-5959
(Registrant’s telephonenumber,including area code)
Securities registered pursuant to Section12(b) of theAct:
| Titleof each class | Nameof each exchange on which registered | |
par value per | ||
| APCX | ||
| Pink Open Market | ||
Securities registered pursuant to Section 12(g) of theAct:
None
Indicate by checkmark whetherthe registrant (1)has filed all reportsrequired to befiled by Section 13 or 15(d) ofthe SecuritiesExchange Act of1934during the preceding 12months (orfor such shorter periodthat the Securities Exchange Actregistrant was required tofile such reports),and (2)has been subject tosuch filing requirementsfor the past 90days. Yes ☐ No ☒
Indicateby checkmark whether the registranthas submitted electronically every Interactive DataFile required to besubmitted pursuant toRule 405 of 1934 RegulationS-T(§ 232.405 ofthis chapter)duringthe preceding 12months (orfor such shorter period that the registrant was required to filesubmit such reports), and (2) has been subject to such filing requirements for the past 90 days. files). Yes x☒ No ☐
oIndicate
| Largeacceleratedfiler | ☐ | Acceleratedfiler | ☐ |
| Non-accelerated filer | ☐ | Smallerreporting 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 Exchange Act).
As of May 14,2020, the latest practicable date, the registrant had 86,538,325 shares outstanding of our common stock at November 7, 2008 was 64,576,333.(par value 0.001)
AppTech Corp.
Form 10-Q
| Signatures | 28 | ||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statementsin this Quarterlyon Form 10-Q of AppTech Corp.(we, our, AppTech orthe Company)are “forward-looking statements”within themeaningof thePrivate Securities Litigation ReformActof 1995. Forward-lookingstatements involvesubstantialrisksand uncertainties. All statements, otherthanstatements ofhistorical facts, included in this report regardingourstrategy,future operations,future financial position, future revenues, projectedcosts, prospects, plansandobjectives ofmanagement are forward-lookingstatements.These statements are subject torisks and uncertainties and are based oninformation currently available toour management. Wordssuchas“anticipate,”“believe,”“estimate,”“expect,”“intend,” “may,” “plan,”“contemplates,” “predict,” “project,”“target,” “likely,” “potential,”“continue,” “ongoing,”“will,”“would,” “should,” “could,”orthe negative ofthese terms andsimilar expressions orwords, identify forward-lookingstatements.The events andcircumstances reflected inourforward-looking statements maynotoccurand actual resultscould differmaterially fromthoseprojected inour forward-looking statements. Meaningful factorsthat could causeactualresults todifferinclude:
| ● | ||
| ● | ||
| ● | thepossibility thatwe mayfail to sustain the listing standardsrequired to up-list tothe OTCQBMarket, and the possibility that evenifwe do sustain potentialcompliance,we may again fail to complywith the OTCQBlisting standardsinthe future; | |
| ● | aslowdown or reductionin oursales indue to a reductioninend user demand, unanticipatedcompetition, regulatory issues, orother unexpected circumstances; |
| September 30, 2008 | December 31, 2007 | ||||||
| (Unaudited) | (Audited) | ||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
| Cash | $ | 1,677,987 | $ | 1,923,429 | |||
| Trade accounts receivable-net of $13,726 and $35,307 allowance for doubtful accounts | 2,386,331 | 1,860,411 | |||||
| Notes receivable - net of allowance of $929,973 and $-0- | 280,561 | 1,203,405 | |||||
| Inventory-net of allowance of $48,897 and $108,400 | 1,945,938 | 1,770,595 | |||||
| Investment in marketable securities | 50,000 | 1,692,856 | |||||
| Deferred finance costs | 111,849 | 134,977 | |||||
| Prepaids, accrued interest and other accounts receivable | 472,656 | 287,984 | |||||
| Total current assets | 6,925,322 | 8,873,657 | |||||
NONCURRENT ASSETS | |||||||
| Fixed assets, net | 1,253,707 | 1,361,530 | |||||
| Intellectual property | 3,558,464 | 4,294,719 | |||||
| Goodwill | 9,282,970 | 9,900,198 | |||||
| Total noncurrent assets | 14,095,141 | 15,556,447 | |||||
TOTAL ASSETS | $ | 21,020,463 | $ | 24,430,104 | |||
LIABILITIES AND SHAREHOLDERS' DEFICIT | |||||||
CURRENT LIABILITIES | |||||||
| Accounts payable, accrued liabilities and other current liabilities | $ | 1,817,051 | $ | 1,382,476 | |||
| Accrued interest payable | 374,254 | 275,503 | |||||
| Current portion of note payable - net of discount of $244,625 and $318,501 | 1,164,885 | 1,210,539 | |||||
| Deferred taxes payable | 2,527,725 | 2,419,767 | |||||
| Total current liabilities | 5,883,915 | 5,288,285 | |||||
NONCURRENT LIABILITIES | |||||||
| Convertible debenture payable--net of discount of $141,793 and $167,777 | 15,018,104 | 15,233,120 | |||||
| Convertible note payable--net of discount of $1,367,932 and $1,617,208 | 6,515,452 | 6,146,646 | |||||
| Derivative liabilities | 5,805,954 | 12,184,777 | |||||
| Deferred taxes payable | - | 649,226 | |||||
| Capital lease obligations | 101,296 | 148,902 | |||||
| Accrued interest payable | 2,057,487 | 1,483,384 | |||||
| Total liabilities | 35,382,208 | 41,134,340 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
SHAREHOLDERS' DEFICIT | |||||||
| Preferred stock, $.01 par value; 10,000,000 shares authorized | |||||||
| Preferred stock Series A Convertible $0.01 par value; | |||||||
| 100,000 shares authorized, 19,643 and 94,443 shares issued and outstanding and no | |||||||
| liquidation or redemption value | 196 | 944 | |||||
| Preferred stock Series B Convertible $0.001 par value; | |||||||
| 100,000 shares authorized, 71,455 and -0- shares issued and outstanding and no | |||||||
| liquidation or redemption value | 72 | - | |||||
| Common stock, par value $0.001; 10,000,000,000 shares | |||||||
| authorized; 69,645,958 and 37,196,387 issued and outstanding | 69,646 | 29,757 | |||||
| Additional paid-in capital | 737,899 | 497,074 | |||||
| Retained deficit | (15,387,024 | ) | (18,511,466 | ) | |||
| Accumulated other comprehensive income, foreign currency translation adjustment | 217,466 | 1,279,455 | |||||
| Total shareholders' deficit | (14,361,745 | ) | (16,704,236 | ) | |||
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT | $ | 21,020,463 | $ | 24,430,104 | |||
| ● | uncertainty regardingour ability toachieve profitabilityand positive cash flow throughthe commercialization of ourSecure TextPayment System inthe U.S.and other regions of theworld whereweintend tosell the product; | |
| ● | dependence on third-party payment processors tofacilitate ourmerchant services capabilities; | |
| ● | general economicuncertainty associatedwith the Covid-19 pandemic; | |
| ● | the adverse effects of COVID-19,and itsunpredictable duration, in regionswherewehave customers, employeesand distributors; | |
| ● | the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of to visit our merchants’ businesses; | |
| ● | the possibilitythat the economicimpact ofCOVID-19will lead tochanges in how consumersmake purchases | |
| ● | the possibilitythat the economicimpact ofCOVID-19,and its associated highunemployment rate,will lead to less consumer spendingthus resulting in loss of revenues; | |
| ● | the possibility that the economic impact of COVID-19, will result in ourmerchants’ businesses failing to reopen once restrictions are further eased; | |
| ● | delay in orfailure to obtain regulatory approval ofour Secure TextPayment System or anyfuture products in additionalcountries; | |
| ● | our ability to operateour business while timelymaking payments toour loanagreements; | |
| ● | our need to raise additionalfinancing; | |
| ● | our ability to retain andrecruit appropriateemployees, in particular aproductive sales force;and | |
| ● | current and future laws andregulations. |
All written and oral forward-lookingstatements attributable tous or any person acting onour behalf are expresslyqualified in their entiretyby the cautionary statements contained orreferred toin this section. Wecaution investors not to rely too heavily on the forward-looking statementswemake orthat are made onour behalf. Weundertake no obligationand specificallydeclineany obligation, to update orrevise any forward-lookingstatements, whether as aresultof new information,future events or otherwise. Pleasesee, however,anyfurther disclosureswemake on related subjects in anyannual, quarterly orcurrent reportsthatwemay filewiththeSecurities and Exchange Commission (SEC).
Weencourage you to readthe discussion and analysis ofourfinancial condition andour consolidated financial statementscontainedin thisAnnual Report on Form10-Q. There can beno assurance thatwewillinfact achieve the actualresults or developmentswe anticipate or,evenifwe do substantially realizethem,that theywill have the expected consequences to, oreffects on, us. Therefore,wecangive no assurancesthatwewill achieve theoutcomes stated in those forward-lookingstatements and estimates.
Unlessthecontextotherwise requires,throughoutthis Quarterly Report on Form 10-Q,the words “AppTech”“we,” “us,” the “registrant” orthe “Company”refer to AppTech Corp.
PART I – FINANCIAL INFORMATION
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FORTHE THREE MONTHS ENDED MARCH 31, 2020 and 2019
INDEXTO CONSOLIDATED FINANCIAL STATEMENTS
APPTECH CORP. AND SUBSIDIARIES
Nine months ended September 30, | |||||||
2008 | 2007 | ||||||
REVENUE | |||||||
| Sales revenue | $ | 12,264,672 | $ | 5,771,105 | |||
| Fee income | - | 2,965 | |||||
| Trading gains (losses) | (129,500 | ) | 3,897 | ||||
| Dividends from marketable securities | 36,257 | 9,015 | |||||
| Interest income from notes and debenture receivable | 167,462 | 206,309 | |||||
| Total revenue | 12,338,891 | 5,993,291 | |||||
OPERATING EXPENSES | |||||||
| Cost of sales revenue | 9,790,380 | 4,767,414 | |||||
| Selling, general and administrative expenses (2008 and 2007 | |||||||
| include $-0- and $199,835, respectively of expenses | |||||||
| allocated from an affiliated entity) | 4,396,710 | 3,417,787 | |||||
| Total operating expenses | 14,187,090 | 8,185,201 | |||||
OPERATING LOSS | (1,848,199 | ) | (2,191,910 | ) | |||
OTHER (INCOME) EXPENSE | |||||||
| Net change in fair value of derivative | (6,389,641 | ) | 1,561,112 | ||||
| Loss on sale of investment | 11,480 | - | |||||
| Interest and other income | (335,546 | ) | (33,776 | ) | |||
| Interest expense | 1,809,867 | 1,279,193 | |||||
| Total other (income) expense | (4,903,840 | ) | 2,806,529 | ||||
| Income (Loss) before provision for income taxes | 3,055,641 | (4,998,439 | ) | ||||
INCOME TAX BENEFIT | (68,800 | ) | (59,442 | ) | |||
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES | $ | 3,124,441 | $ | (4,938,997 | ) | ||
| Net income (loss) per share - basic | $ | 0.06 | $ | (0.31 | ) | ||
| Net income (loss) per share - diluted | $ | 0.02 | $ | (0.31 | ) | ||
| Weighted shares outstanding - basic | 49,855,367 | 16,060,568 | |||||
| Weighted shares outstanding - diluted | 145,965,917 | 16,060,568 | |||||
OTHER COMPREHENSIVE INCOME | |||||||
NET INCOME (LOSS) | $ | 3,124,441 | $ | (4,938,997 | ) | ||
| Foreign currency translation income (expense) adjustment | (1,061,989 | ) | 1,194,593 | ||||
COMPREHENSIVE INCOME (LOSS) | $ | 2,062,452 | $ | (3,744,404 | ) | ||
Three months ended September 30, | |||||||
2008 | 2007 | ||||||
REVENUE | |||||||
| Sales revenue | $ | 3,910,138 | $ | 4,201,764 | |||
| Trading gains (losses) | 11,527 | (8,114 | ) | ||||
| Dividends from marketable securities | 7,332 | 546 | |||||
| Interest income from notes and debenture receivable | 49,249 | 52,826 | |||||
| Total revenue | 3,978,246 | 4,247,022 | |||||
OPERATING EXPENSES | |||||||
| Cost of sales revenue | 3,173,853 | 3,467,897 | |||||
| Selling, general and administrative expenses (2008 and 2007 | |||||||
| include $-0- and $50,114, respectively of expenses | |||||||
| allocated from an affiliated entity) | 2,048,882 | 1,152,694 | |||||
| Total operating expenses | 5,222,735 | 4,620,591 | |||||
OPERATING LOSS | (1,244,489 | ) | (373,569 | ) | |||
OTHER (INCOME) EXPENSE | |||||||
| Net change in fair value of derivative | 104,024 | (1,201,440 | ) | ||||
| Interest and other income | (117,277 | ) | (16,538 | ) | |||
| Interest expense | 606,922 | 648,459 | |||||
| Total other (income) expense | 593,669 | (569,519 | ) | ||||
| Income (Loss) before provision for income taxes | (1,838,158 | ) | 195,950 | ||||
INCOME TAX PROVISION (BENEFIT) | 4,024 | (92,179 | ) | ||||
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES | $ | (1,842,182 | ) | $ | 288,129 | ||
| Net income (loss) per share - basic | $ | (0.03 | ) | $ | 0.01 | ||
| Net income (loss) per share - diluted | $ | (0.01 | ) | $ | 0.00 | ||
| Weighted shares outstanding - basic | 66,104,072 | 19,259,139 | |||||
| Weighted shares outstanding - diluted | 154,924,622 | 2,209,918,984 | |||||
OTHER COMPREHENSIVE INCOME | |||||||
NET INCOME (LOSS) | $ | (1,842,182 | ) | $ | 288,129 | ||
| Foreign currency translation adjustment | (662,948 | ) | 1,133,419 | ||||
COMPREHENSIVE INCOME (LOSS) | $ | (2,505,130 | ) | $ | 1,421,548 | ||
Nine Months Ended September 30, | |||||||
2008 | 2007 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
| Net income (loss) | $ | 3,124,441 | $ | (4,938,997 | ) | ||
| Adjustment to reconcile net income to net cash | |||||||
| provided by (used in) operating activities | (3,196,288 | ) | 5,900,519 | ||||
| Net cash provided by (used in) operating activities | (71,847 | ) | 961,522 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
| Cash acquired in acquisition | - | 609,022 | |||||
| Purchase of assets | (147,391 | ) | (95,223 | ) | |||
| Sale of asset | - | 100,000 | |||||
| Net cash provided by (used in) investing activities | (147,391 | ) | 613,799 | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
| Proceeds from issuance of convertible note, net | - | 1,070,910 | |||||
| Payments on capital lease obligations | (47,606 | ) | (16,123 | ) | |||
| Net cash provided by (used in) financing activities | (47,606 | ) | 1,054,787 | ||||
EFFECT OF EXCHANGE RATE CHANGE ON CASH | 21,317 | 164,893 | |||||
NET CHANGE IN CASH | (245,527 | ) | 2,795,001 | ||||
CASH, BEGINNING OF PERIOD | 1,923,429 | 148,691 | |||||
CASH, END OF YEAR | $ | 1,677,902 | $ | 2,943,692 | |||
SUPPLEMENTAL INFORMATION | |||||||
| Interest paid | $ | 750,000 | $ | 710 | |||
| Taxes paid | $ | 355,156 | $ | - | |||
| Purchase of INII: | |||||||
| Fair value of assets acquired | $ | - | $ | 18,985,445 | |||
| Liabilities assumed | $ | - | $ | 4,720,596 | |||
| Discount on convertible note | $ | - | $ | 2,185,159 | |||
| Embeded derivative and warrant liability | $ | - | $ | 1,180,870 | |||
| Non-cash portion of convertible note payable | $ | - | $ | 8,221,964 | |||
| Deferred finance costs | $ | - | $ | 153,000 | |||
| Conversion of debentures, preferred stock and stock for services: | |||||||
| Convertible debt | $ | 12,000 | |||||
| Preferred stock | $ | (677 | ) | $ | 8 | ||
| Common stock | $ | 32,200 | $ | 8,658 | |||
| Paid in capital | $ | 240,825 | $ | 87,443 | |||
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 15,163 | $ | 24,159 | ||||
| Accounts receivable | 26,691 | 29,836 | ||||||
| Prepaid rent | 4,910 | — | ||||||
| Deposit escrow | — | 25,000 | ||||||
| Security deposit | — | 5,948 | ||||||
| Total current assets | 46,764 | 84,943 | ||||||
| Right of use asset | 295,711 | — | ||||||
| Security deposit | 7,537 | — | ||||||
| TOTAL ASSETS | $ | 350,012 | $ | 84,943 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 1,717,804 | $ | 1,707,878 | ||||
| Accrued liabilities | 2,399,213 | 2,334,480 | ||||||
| Right of use liability | 39,002 | — | ||||||
| Stock repurchase liability | 430,000 | 430,000 | ||||||
| Loans payable related parties | 65,351 | 93,401 | ||||||
| Convertible notes payable | 620,000 | 620,000 | ||||||
| Convertible notes payable related parties | 372,000 | 372,000 | ||||||
| Notes payable | 1,104,081 | 1,104,081 | ||||||
| Notes payable related parties | 708,493 | 708,493 | ||||||
| Total current liabilities | 7,455,944 | 7,370,333 | ||||||
| Long-term liabilities | ||||||||
| Accounts payable | 140,000 | 160,000 | ||||||
| Right of use liability | 264,342 | — | ||||||
| Total long-term liabilities | 404,342 | 160,000 | ||||||
| TOTAL LIABILITIES | 7,860,286 | 7,530,333 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders' Deficit | ||||||||
| Series A preferred stock; $0.001 par value; 100,000 shares authorized; 14 shares issued and outstanding at March 31, 2020 and December 31, 2019 | — | — | ||||||
| Common stock, $0.001 par value; 1,000,000,000 shares authorized; 86,503,325 and 84,153,825 and outstanding at March 31, 2020 and December 31, 2019, respectively | 86,504 | 84,154 | ||||||
| Additional paid-in capital | 34,627,685 | 33,230,869 | ||||||
| Accumulated deficit | (42,224,463 | ) | (40,760,413 | ) | ||||
| Total stockholders' deficit | (7,510,274 | ) | (7,445,390 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 350,012 | $ | 84,943 | ||||
See accompanying notes to Condensed Consolidated Financial Statements
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019
(UNAUDITED)
| March 31, | March 31, | |||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 58,157 | $ | 56,800 | ||||
| Cost of revenues | 23,225 | 22,537 | ||||||
| Gross profit | 34,932 | 34,263 | ||||||
| Operating expenses: | ||||||||
| General and administrative, including stock based compensation of $1,209,185 and $7,208, respectively | 1,415,899 | 189,645 | ||||||
| Research and development | 12,000 | 6,820 | ||||||
| Total operating expenses | 1,427,899 | 196,465 | ||||||
| Loss from operations | (1,392,967 | ) | (162,202 | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense | (71,083 | ) | (76,039 | ) | ||||
| Total other expenses | (71,083 | ) | (76,039 | ) | ||||
| Loss before provision for income taxes | (1,464,050 | ) | (238,241 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net loss | $ | (1,464,050 | ) | $ | (238,241 | ) | ||
| Basic and diluted net loss per common share | $ | (0.02 | ) | $ | (0.00 | ) | ||
| Weighted-average number of shares used basic and diluted per share amounts | 84,289,100 | 86,922,132 | ||||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019
(UNAUDITED)
| Series A Preferred | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid- in Capital | Accumulated Deficit | Stockholders' Deficit | ||||||||||||||||||||||
| Balance December 31, 2018 | 14 | $ | — | 86,797,132 | $ | 86,797 | $ | 32,284,735 | $ | (39,417,203 | ) | $ | (7,045,671 | ) | ||||||||||||||
| Net loss | — | — | — | — | — | (238,241 | ) | (238,241 | ) | |||||||||||||||||||
| Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||
| Common stock issued for subscriptions | — | — | 275,000 | 275 | 68,475 | — | 68,750 | |||||||||||||||||||||
| Common stock issued for services | — | — | 12,000 | 12 | 7,196 | — | 7,208 | |||||||||||||||||||||
| Common stock cancelled | — | — | (3,450,000 | ) | (3,450 | ) | 3,450 | — | — | |||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | — | — | 123,750 | — | 123,750 | |||||||||||||||||||||
| Balance March 31, 2019 | 14 | $ | — | 83,634,132 | $ | 83,634 | $ | 32,491,056 | $ | (39,655,444 | ) | $ | (7,080,754 | ) | ||||||||||||||
| 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 | ) | ||||||||||||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2020 and 2019
(UNAUDITED)
| March 31, | March 31, | |||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,464,050 | ) | $ | (238,241 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock issued for services | 1,209,185 | 7,208 | ||||||
| Imputed interest on notes payable | 3,450 | 3,450 | ||||||
| Depreciation and amortization | — | 16 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 3,145 | (98 | ) | |||||
| Prepaid rent | (4,910 | ) | ||||||
| Accounts payable | (10,074 | ) | 106,039 | |||||
| Accrued liabilities | 64,733 | (69,035 | ) | |||||
| Right of use asset and liability | 7,633 | — | ||||||
| Net cash used in operating activities | (190,888 | ) | (190,661 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Deposit escrow | 25,000 | — | ||||||
| Security deposit | (1,589 | ) | — | |||||
| Net cash provided by investing activities | 23,411 | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds (payments) on loans payable - related parties | (28,050 | ) | 69,500 | |||||
| Payments on notes payable | — | (36,000 | ) | |||||
| Proceeds from sale of repurchase option | 186,531 | 123,750 | ||||||
| Proceeds from sale of common stock | — | 68,750 | ||||||
| Net cash provided by financing activities | 158,481 | 226,000 | ||||||
| Changes in cash and cash equivalents | (8,996 | ) | 35,339 | |||||
| Cash and cash equivalents, beginning of period | 24,159 | 1,384 | ||||||
| Cash and cash equivalents, end of period | $ | 15,163 | $ | 36,723 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | — | $ | — | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS
AppTech Corp.(“AppTech” orthe “Company”) is a Wyoming Corporation incorporatedon July 2, 1998.
AppTech Corp. is a FinTechcompany providing electronicpayment processingtechnologies and merchant services. Thisincludes credit cardprocessing, Automated ClearingHouse (“ACH”)processing, gift andloyalty cardsande-commerce. The Company expanded its core services to includeglobal ShortMessaging Service (“SMS”) patentedtext messaging andsecure mobile payments based on Multi-factor authenticationtechnologies. The patentedtwo-way text chat platform enablessecure SMS servicesincluding mobilepayments, notifications, authentication,marketing, information queriesand reporting. Other services includedigital marketing, lead generation,mobile appdevelopment, and intellectual property rights development.
NOTE 2 - BASISSUMMARY OF PRESENTATIONSIGNIFICANT
Basis of September 30, 2008, the Condensed Consolidated Statements of Operations for the nine and three months ended September 30, 2008 and 2007, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 Presentation
TheCompany’s consolidatedfinancial statementshave not been audited. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation of Natural Nutrition, Inc. (the “Company”) and Subsidiaries. The results for the nine months are not necessarily indicative of the results expected for the year.
Principles of Consolidation
TheCompany’s accounts includefinancials ofthe Company and itswholly owned subsidiaries,Transcendent One,Inc. and TransTechOne, LLC. All significant inter-company transactionshave been omittedeliminatedinconsolidation. Theoperations ofTranscendent One, Inc. and TransTech One,LLC areinsignificant and the Company dissolvedthe subsidiarieson October8,2019.
Use of Estimates
The preparation ofthe consolidatedfinancial statementsin conformitywith generally acceptedaccounting principlesrequires management tomake estimatesand assumptions that affectthe reportedamounts of assetsand liabilitiesand disclosure ofcontingentassetsand liabilities at the dateof the consolidatedfinancial statementsand the reportedamounts ofrevenuesand expensesduring the reporting period.Significant estimates include the estimated liabilities related tovarious vendors in accordancewhich communicationshave ceased,contingent liabilities, and realization of tax deferred tax assets.Actual results coulddifferfromthose estimates.
Concentration ofCredit Risk
Cashandcash equivalents aremaintained atfinancialinstitutions and, attimes, balances mayexceedfederallyinsuredlimits of $250,000 perinstitution that pays Federal DepositInsuranceCorporation(“FDIC”) insurancepremiums.The Companyhas never experienced any losses related tothese balances.
Theaccounts receivablefrom merchant services are paidby thefinancial institutions on amonthly basis. The Companycurrently uses three financial institutions toservice their merchantsfor which represented 100% ofaccounts receivable as of March 31, 2020and 2019. Theloss ofone of thesefinancial institutions would not have asignificant impact on the Company’s operations asthere areadditional financial institutions available tothe Company. Forthe three months ended March 31, 2020and2019,the one merchant (customer)represented approximately 43%and 40% ofthe totalrevenues, respectively. Theloss ofthis customerwould have significantimpactonthe Company’s operations.
Cash andCash Equivalents
The Company classifies itshighly liquidinvestments with maturities of threemonths or less at the published rulesdate ofpurchaseascash equivalents. Management determines the appropriateclassification of its investments at thetimeofpurchase and regulationsreevaluatesthe designations of eachinvestment asofthe balance sheet datefor each reporting period. The Company classifies itsinvestmentsaseither short-term or long-term based on eachinstrument’s underlying contractualmaturitydate. Investmentswith maturities of less than 12months areclassified as short-term andthose with maturities greater than 12months areclassifiedas long-term. The cost ofinvestments sold is based uponthespecific identificationmethod.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable isrecorded net of anallowance for doubtful accounts,if needed. The Companyconsiders any changes tothe U.S. Securitiesfinancial condition of itsfinancial institutions used and Exchange Commission (the “SEC”)anyother external market factors that could impact the collectability of its receivables inthe determination of itsallowance for interimdoubtful accounts. The Company does notexpect tohave write-offs oradjustments to accounts receivablewhich could have amaterial adverse effect on its consolidatedfinancial position, results of operations orcash flows asthe portionwhich is deemeduncollectible is already takeninto account when therevenueisrecognized.
Revenue Recognition
TheFinancial Accounting Standards Board(“FASB”) issuedAccounting Standards Update(“ASU”) No. 2014-09,codified asAccounting Standards Codification (“ASC) 606 Revenue from Contractswith Customers,which provides asingle comprehensive model for entities touse inaccounting for revenue arising from contractswith customers. The Company adoptedASC 606effective January 1, 2019using modified retrospective basisand the cumulativeeffect was immaterial tothe consolidated financial statements.
The unaudited Condensed Consolidated Financial StatementsCompany providesmerchant processing solutionsforcredit cardsand electronic payments. In all cases,the Company acts as an agent between themerchant which generates the credit cardand electronic payments, and the notes thereto bank which processes suchpayments. TheCompany’s revenue isgenerated on services priced as apercentage of transactionvalue or aspecified fee transaction, depending onthe card ortransaction type.Revenue is recorded as services are performedwhich is typically whenthe bank processes themerchant’s credit cardand electronic payments.
The Company provides various Cloud services to business clients. Revenuesgenerated from the servicesas agreed upon in this report shouldaCloud ServiceAgreement. Therevenue is recorded asthe services are performedand billed inadvanceon amonthly basis.Revenues from these servicesrepresent less than 5% ofthe Company’s total revenues.
Consideration paid tocustomers, such as amountsearned under our customer equity incentiveprogram, arerecorded as a reduction torevenues.
Fair Value of Financial Instruments
ASC 820, FairValue Measurements andDisclosures definesfair value as the pricethat would be readreceived tosellan asset or paid totransfer a liability in conjunction an orderly transaction betweenmarket participants at themeasurement date. ASC 820 alsoestablishes afair value hierarchy thatrequires an entity tomaximize the use of observableinputs and minimize theuse ofunobservable inputs when measuring fair value.
The standard describesthree levels of inputs that may be used tomeasure fairvalue:
Thefair value hierarchy prioritizesthe inputs used in valuationtechniques into three levels asfollows:
| Level 1 | Observableinputs – unadjusted quoted prices inactive marketsfor identical assetsand liabilities; |
| Level 2 | Observable inputs –other thanthe quoted pricesincluded inLevel 1that are observablefor the asset or liabilitythrough corroborationwith market data;and |
| Level 3 | Unobservableinputs – includes amounts derived from valuationmodels where one ormore significant inputs areunobservable. |
TheCompany’s financial instruments consist of cashand cash equivalents, accounts receivable, vendordeposits, accounts payable, accrued expenses, etc. Thecarrying value ofthese assets and liabilitiesisrepresentative oftheirfair market value,due tothe audited Consolidated Financial Statementsshort maturity of these instruments.
Research and notes thereto included in our Annual Report on Form 10-KSB Development
In accordancewith ASC 730, Research andDevelopment (“R&D”) costs areexpensed when incurred.R&Dcosts include costs ofacquiring patents andother unproven technologies, contractorfees and other costs associatedwiththe developmentof the SMSshortcodetextingplatform,contract and other outside services. TotalR&D costsfor the fiscal year three monthsended December March31, 2007 (the “10-KSB”).
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Propertyand equipmentis recorded at cost.Expenditures for major additionsand betterments are capitalized. Maintenanceand repairs arecharged tooperations as incurred. Depreciation of propertyand equipmentiscomputedby the straight-linemethod (after taking intoaccount theirrespective estimated residual values)over the assets estimateduseful life offive (5) years. Uponsale orretirementof equipment,the related costand accumulated depreciation areremoved from the accounts and any gain orloss is reflected in Floridathe consolidatedstatements of operations.
Impairment of Long-LivedAssets
Long-lived assets are reviewedfor impairment when thereis evidencethat events or changes in circumstances indicate thatthe carrying amount of anasset orasset group may not berecoverable. Recoverability of assets to beheld and used ismeasuredbycomparing thecarrying amount of anasset orasset group to estimatedundiscounted future cash flows expected to begenerated by theasset orasset group. If the carrying amount of anasset orasset group exceeds itsestimated future cashflows,animpairment charge is recognizedfor the amountby whichthecarryingamount of the asset orasset group exceeds the estimatedfair value ofthe asset orasset group. Long-lived assets tobe disposed of bysale arereported atthe lower of theircarrying amounts or theirestimated fair values less costs to selland arenot depreciated.As of March 31, 2020and December 31,2019,there were no asset impairments.
Lease Commitment
The Company determinesif anarrangement is a lease atinception. This determination generally depends on July 2, 1998. On August 25, 2005,whetherthe arrangement conveys tothe Company theright to control theuse of an explicitly or implicitlyidentified fixed assetfor a period oftimeinexchange for consideration. Control ofanunderlying asset isconveyed tothe Companyif the Company completedobtains the closingrights to directthe use of that certain Share Exchange Agreement, byandto obtainsubstantially all of theeconomic benefits from usingthe underlying asset. The Companyhas lease agreements which include lease and betweennon-leasecomponents, which the Company CSI Business Finance, Inc.,has elected to accountfor as a Texas corporationsingle leasecomponent for all classes of underlying assets.Lease expense for variable lease components are recognizedwhen the obligation is probable.
Operating leaseright ofuse (“ROU”)assets and now wholly-owned subsidiary lease liabilities arerecognized atcommencement date based onthe present valueof lease paymentsover the leaseterm. Operating leasepayments arerecognized as lease expense on a straight-line basisover the leaseterm. The Company primarily leases buildings (real estate) which are classifiedas operating leases. ASC 842requires alessee to discount itsunpaid lease payments using the interest rate implicitinthe lease or, ifthat rate cannot be readilydetermined, itsincremental borrowing rate. As an implicit interest rate isnot readily determinable in the Company’s leases,the incremental borrowing rate isused based on the information available at commencement date in determining thepresent value of leasepayments.
The lease termfor all ofthe Company’s leasesincludes the non-cancellable period ofthe leaseplus any additional periods covered byeither a Company option toextend (ornot toterminate) the lease thatthe Company is reasonably certain to exercise, or an option toextend (ornot toterminate) the lease controlled bythe lessor.Options for leaserenewals have been excluded from the lease term(and leaseliability) for the majority of theCompany’s leases asthe reasonably certain threshold isnot met.
Lease payments included inthe measurement ofthe lease liability arecomprised of fixedpayments, variable paymentsthat depend onindex or rate,and amounts probable to be payableunder the exercise of the Company herein referredoption topurchase theunderlying assetif reasonablycertain.
Variable leasepayments not dependent on a rate orindex associatedwiththeCompany’s leases arerecognizedwhen theevent, activity, orcircumstanceinthe leaseagreementonwhich thosepayments areassessedas ("CSI-BF")probable.Variable leasepaymentsarepresented as operating expenses inthe Company’sstatement of operationsin thesame line asexpensearising fromfixed leasepayments.As of March 31, 2020,management determinedthat there were no variable leasecosts.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
IncomeTaxes
The Company recognizes deferred taxassets andliabilities forthe expectedfuturetax consequences of eventsthat havebeenincluded in the consolidatedfinancialstatements or tax returns. Under this method, deferred tax assets and liabilities are based onthe differences betweenthe financial statement and tax bases of assetsandliabilities using enacted tax rates in effect forthe fiscal yearinwhichthe differences are expected toreverse.Deferred tax assets are reduced by avaluation allowancetotheextentmanagement concludes it ismorelikely thannot that the assetswill not be realized. Deferred tax assetsandliabilities aremeasured using enacted tax rates expected to apply to taxableincomein thefiscal yearsinwhichthosetemporary differences are expected to be recoveredorsettled. Theeffecton deferred tax assets and liabilitiesofachangein tax rates is recognized inthe consolidated statement of operations intheperiodthatincludes theenactment date.
TheCompany’s income tax returns are based on calculationsand assumptions that are subject toexaminationby the InternalRevenue Service and other taxauthorities. In addition,the calculation ofthe Company’s tax liabilitiesinvolves dealingwithuncertainties in the application of complex tax regulations.The Company recognizes liabilitiesfor uncertain tax positions based on atwo-step process. Thefirst step is toevaluate the tax positionfor recognitionby determiningifthe weight of availableevidence indicatesthat it ismore likely thannot that the positionwill besustained on audit,including resolutionof related appeals orlitigation processes, ifany. Thesecond step is tomeasure the tax benefit asthe largest amountthat ismore than 50% likely of being realized uponsettlement. Whilethe Company believes ithas appropriate supportfor the positionstakenon its taxreturns, the Company regularly assessesthe potential outcomes ofexaminationsby tax authorities in determiningthe adequacyofitsprovision for income taxes. The Company continually assesses the likelihoodand amountof potential adjustmentsand adjusts theincome tax provision,income taxes payableand deferredtaxes in the period in whichthefacts thatgive rise to arevision become known. As of March 31, 2020and 2019,the Company doesnot believe anyprovisionsarerequired inconnection with uncertain tax positions as there arenone.
PerShare Information
Basicnet income (loss) percommon share iscomputed by dividingnet income (loss) by theweighted average number ofshares of common stockoutstanding during the period.Diluted netincome (loss) per commonshare is computed by dividingnet income (loss) bythe weighted average number of shares of commonstock and potentiallyoutstanding shares of commonstock during the period.
As of March 31, 2020and 2019,the Companyhad potentialdilutive securities related tooptions, warrants, Series A preferredstock and convertiblenotes payable. Thesedilutive securitieswere not includedwithinthecalculationofdilutive net loss per common share asthe effectswould have been anti-dilutive.
Convertible Debt
Convertible debt is accountedfor underthe guidelines establishedbyASC470-20 Conversionand Other Options. ASC 470-20governs the calculationof an embeddedbeneficial conversion,which is treated asan additional discount to the instrumentswhere derivativeaccountingdoesnot apply. Theamount of thevalueof additional stock andother considerationin addition tothe beneficial conversionfeature may reduce thecarrying valueofthe instrument to zero,but no further. The discounts are accretedover the term of the debtusing the straight linemethod due tothe short terms of thenotes.
The Company accountsfor modifications of its embeddedbeneficial conversions, in accordancewith ASC470-50 Modificationsand Extinguishments. ASC470-50requires the modification of a convertible debtinstrument that changesthe fair value of an embeddedconversion feature and the shareholdersubsequent recognition of CSI-BF (the "CSI-BF Shareholder"). In Septemberinterest expense orthe associated debtinstrument whenthe modification does notresultin a debtextinguishment.
StockBased Compensation
The Company recognizes as compensation expense all share-basedpayment awardsmadetoemployees, directors,and consultants includinggrantsof stock options andwarrants, based onestimated fair values. Fairvalue is generallydeterminedbased onthe closing price of 2006, CSI Business Finance, Inc. changed its namethe Company’s commonstockonthe date ofgrant and is recognizedover the service period. The Company hasseveralconsultingagreementsthathave sharebasedpaymentawards based onperformance.Theseagreements typicallyrequire theCompany to Natural Nutrition, Inc. and simultaneously redomiciled from Florida to Nevada.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements
TheFASB issues ASUs toamend the authoritative literature inASC. Therehave been anumber of ASUs to datethat amend the original text ofASC. The Company believesthose issuedto dateeither (i) provide supplementalguidance, (ii) are technicalcorrections, (iii) arenot applicable tothe Company or(iv) arenot expected tohave a significant impact onthe Company.
NOTE 3 –GOING CONCERN
Asreflected in the accompanying consolidatedfinancial statements,during thethree months ended March 31, 2020and2019,the Company incurred anet lossof $1,464,050and $238,241and used cash of $190,888and $190,661 in operating activities. In addition,the Companyhad aworking capitaldeficit of $7,409,180and anaccumulated deficit of $42,224,463 atMarch 31, 2020. Thesefactors raise substantial doubt regarding the Company’s ability tocontinueas agoing concern. Wehave evaluatedthe conditions or eventsthat raisesubstantial doubt aboutthe Company’s ability as agoing concern within one year of issuance ofthe consolidatedfinancial statements.
While the Company is continuing operationsand generatingrevenues, the Company’s cash position isnot significant enough to supportthe Company’s daily operations.Tofund operations andreduce the working capitaldeficit,weintend to raise additionalfunds through public orprivate debt and/or equityofferings. During 2020,the Company raised$205,781from asale of arepurchase option tofund operations.Management believesthat the actions presently being taken tofurther implement itsbusinessplan andgenerate revenues provide the opportunityfor the Company to continue as agoing concern, however, such arenot guaranteed.While the Company believesin the viabilityofits strategy togenerate revenues and in its ability to raise additionalfunds, therecan beno assurances to thateffect, nor canthere beassurance that such fundswill be at acceptableterms. As ofthe date oftheseconsolidatedfinancial statements, the Companyhas notfinalized acommitment for additionalcapital. The ability ofthe Company tocontinue as agoing concern is dependent uponour ability tofurther implement itsbusiness planand generate revenues and cashflows. Theconsolidated financial statements donot include any adjustments thatmight be necessaryifthe Companyis unable to continue as separate classes,agoing concern.
Risks and uncertainties
On January 30, 2020,the World Health Organization declaredthe Preferred Stock shallcoronavirus outbreak a“Public Health Emergency ofInternational Concern”and on March 10, 2020,declaredit to be counted on an "as converted" basis, thereby giving apandemic. Actions takenaroundthe Preferred shareholders controlworldtohelp mitigate the spread of the Company.coronavirusinclude restrictions ontravel, and quarantinesin certainareas,and forced closures for certaintypes of public placesand businesses. The transaction was accounted forcoronavirus and actions taken tomitigate ithave had and are expected tocontinuetohave anadverse impact on theeconomies and financial markets ofmany countries, including thegeographical areain which the Company operates.Sincewe deriveour revenues from processing of purchases fromour merchant servicesclients, a downturn in economic activity,suchas associatedwith the currentcoronavirus pandemic,could reducethevolume of purchaseswe process,and thus our revenues. In addition, such a downturn could causeour merchant customers to cease operationspermanently decreasingour payment processing unless new customers arefound. We may alsoface additional difficulty in raising capitalduringan economicdownturn. Theeffects ofthe potential impact cannot beestimated atthis time.
Additionally,itis reasonably possiblethatthe estimates made in thefinancial statementshave been,orwill be materially and adversely impacted in thenearterm as a reverse acquisition since controlresult of theseconditions.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 –PATENTS
Patents
OnJune22, 2017,AppTech executedanAmendmentto AssetPurchase Agreement with GlobalTelMedia, Inc. Inconnection with the asset purchaseagreement,5,000,000shares of common stockwere issued to GlobalTelMedia, Inc. The Companyvaluedthe common stock issuance at $1,000,000 based onthe closingmarketprice ofthe Company’s common stock onthedate in which the performancewas complete. Thisamendmentrevived theoriginal asset purchase agreement datedDecember4, 2013 topurchase the assets of GlobalTel Media,Inc.(AppTechand GlobalTelagree that the asset purchase agreement dated September 30, 2015 isnull andvoid), which include,but isnot limited to, allintellectual property,United States Patent Trademark Office (“USPTO”)issued patents, enterprise-grade, patent protectedsoftware and intellectual propertyfor advanced messagingincorporating securepayments, databases, documentation,copyrights, trademarks,registrations, and allcurrent developmentwork in process of USPTO applicationapproval; more specificallybut not limited to USPTO 8,073,895 & 8,572,166“System and MethodforDelivering WebContent to a Mobile Device”,USPTO8,315,184“Computer to Mobile Two-WayChatSystem and Method”,andUSPTO8,369,828“Mobile-to-MobilePayment System and Method”. GlobalTel’s technologyfocuses on SMS text-based applications, socialmedia and mobile payment. The USPTOassigned thepatentsto AppTech on July 25, 2017. AppTech, as part ofthe various agreements,agreedto pay $1,600,000which included an assumption of certain liabilities,includingcostsincurred tocontinue developmentof the patents,aswellasguaranteedpayment of 25% ofthe net proceeds onrevenue created by the patentsup to $26,600,000. As of March 31, 2020and December 31,2019,amounts included inaccounts payable related tothe assumption of liabilities in connectionwith the patentswere$380,000and $415,000, respectively. The Company has expensed the cost of the Company passedpatents as research and development costsasthe future estimated cash flow expected cannot be reasonably estimated.
NOTE 5 – ACCRUEDLIABILITIES
Accrued liabilitiesas of March 31, 2020and December 31, 2019consist of thefollowing:
| March 31, 2020 | December 31, 2019 | |||||||
| Accrued interest – related parties | $ | 951,559 | $ | 943,356 | ||||
| Accrued interest – third parties | 1,275,129 | 1,215,699 | ||||||
| Accrued residuals | 36,251 | 39,064 | ||||||
| Accrued merchant equity | 91,023 | 91,023 | ||||||
| Other | 45,251 | 45,338 | ||||||
| Total accrued liabilities | $ | 2,399,213 | $ | 2,334,480 | ||||
Accrued Interest
Notes payable and convertiblenotes payable incur interest at rates between 10%and 15%, perannum. Theaccrued interest inmost cases is currently in technicaldefault due to the shareholdersnotes being pasttheir maturity date.
Accrued Residuals
The Company payscommissions to independent agents whichrefer merchant accounts. Theamountspayable tothese independent agents is based upon apercentage ofthe amounts processed on amonthly basisby thesemerchant accounts.
Accrued Merchant Equity Liability
TheCompany provided allmerchants the opportunity toearn shares ofthe Company’scommonstock throughtheir Merchant Equity Program (the“Program”). Underthe acquired company (CSI-BF).
Formerchants in consolidation.
The Company accountsforthevalue ofthe shares under the program as asales incentive and thus theamountsin connectionwith the Program are computed based on recorded as a reduction to revenues. As of March 31,2020,the Company has an obligation toissue approximately 776,000sharesofthe weighted average Company’s common stockissuableunderthe Program. During the year endedDecember31, 2019,the Company issued 37,193sharesof common stock plus relieving $14,877 in liability underthe assumedprogram.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
TheCompanyfunds operationsthrough cashflows generated from operationsand the issuance ofloans and notes payable. Thefollowingis a summary of loans and notes payable outstanding asof March 31, 2020and2019.Related partiesnotedbelow areeither membersofmanagement,board of directors,significant shareholders or individuals inwhich have significantinfluence over the Company.
Loans Payable – RelatedParties
During thethree months ended March 31, 2020and 2019,theCompany obtained (paid) $(28,050)and$69,500loans payable from related parties,net.As of March 31, 2020and December31,2019,thebalance oftheloans payablewas$65,351and $93,401, 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 Companyissued $350,000 insubordinated notes payable to third parties. The subordinatednotes payablewere due in 30 to180 days andincurred interest at 10% perannum. As of March 31, 2020and December 31, 2019,accrued interest related tothe subordinated notes was $127,295and $118,545,respectively. The Company is currently in default ofthe subordinated note agreements.
Convertible Notes Payable
In 2017,the Company received $222,000 inconvertible notes payable from related parties. Theconvertible notes payable areunsecured, were duein 180days, incur interest at 10% per annum and areconvertible at $0.10 pershare.As of March 31, 2020and December 31, 2019,accrued interest related tothe convertible noteswas $59,538and $53,988,respectively. Onthe date ofthe agreement, Management calculated the beneficial conversionfeaturein connectionwith the convertiblenotes payableand recorded adiscount of $222,000. The Companyamortized the discountover the term of the convertiblenotes payable of 180days. The Company is currently in default on the convertiblenotes payable.
In 2015,the Companyissued $50,000 inconvertible notes payable.Theconvertible notespayable areunsecured, were dueinnine months, incur interestat 10% perannum and areconvertible at $1.00 pershare.Asof March 31, 2020and December31, 2019,the accrued interest related tothe convertible noteswas $22,084and $20,833,respectively. The Company is currentlyindefaultonthe convertiblenote payable.
In 2014,the Company issued $400,000 inconvertible notes payable. Theconvertible notes payable areunsecured, due in periodsranging up toone year,incurring interest between 10% to 12% per annumand areconvertibleat pricesranging from $0.33 to $1.00 pershare.Inaddition, the Companyissued 400,000shares ofcommon stock inconnection with the convertiblenotes payable. TheCompany had the obligation to repurchasethe 400,000sharesofcommon stock at $1.00 pershare within one year ofthe note issuance date. As of March 31, 2020and December 31,2019, the Companyheld theobligation torepurchase the sharesfor all potentially dilutive securities.
In 2008and 2009,the Companyissued $320,000 inconvertible notes payable, ofwhich$150,000was from related parties. Theconvertible notes payable arecurrently due on demand, incurinterest at 15% perannum, andconvertible at $0.60 pershare.As of March 31, 2020and December 31, 2019,accrued interest related tothe convertible noteswas$528,013and $516,013 of which $249,000and $243,375, respectively, was due to related parties. The Company iscurrently indefault of thenotes payable agreements.
Notes Payable
In 2016,the Companyissued $143,000 innotes payable tothird parties. Thenotes payablewere duein ninety days orless. During 2019,the Company paid $36,000 innotes payable.The Company is currently in default of thenote agreements.
In 2007and2008,the Company enteredinto notespayablewith a related partyfor $46,000in proceeds. Thenotes payablewere due ondemand and incurred interest at 12% perannum. Thesewere combinedinto a singlenote agreementin2014. As of March 31, 2020and December 31, 2019,thebalance onthe note payable was $88,136and accrued interest related tothe note payable was $51,907and$49,243,respectively. The Companyiscurrentlyindefaultofthenote payable agreement.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In 2007,theCompany enteredinto note payablewitha third partyfor $128,000 inproceeds.Underthe termsof the agreementthe holder received aflat interestamount of $37,496. The Companyiscurrentlyindefault ofthe note payable agreementand diluted earnings per share calculations are included below:
| Nine Months Ended | Three Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||
| Income (loss) from continuing operations | $ | 3,124,441 | $ | (4,938,997 | ) | $ | (1,842,182 | ) | $ | 288,129 | |||
| Less effect of derivatives and convertible note and debenture | (7,715 | ) | 2,839,392 | - | (552,992 | ) | |||||||
| Net income (loss) | $ | 3,116,726 | $ | (2,099,605 | ) | $ | (1,842,182 | ) | $ | (264,863 | ) | ||
| Basic weighted average shares | 49,855,367 | 16,060,568 | 66,104,072 | 19,259,139 | |||||||||
| Effect of dilutive securities: | |||||||||||||
| Preferred stock | 88,820,550 | 73,665,540 | 88,820,550 | 73,665,540 | |||||||||
| Convertible note and debenture | 7,290,000 | 2,116,994,305 | - | 2,116,994,305 | |||||||||
| Diluted weighted average shares | 145,965,917 | 2,206,720,413 | 154,924,622 | 2,209,918,984 | |||||||||
| Income (loss) per share: | |||||||||||||
| Basic: | $ | 0.06 | $ | (0.31 | ) | $ | (0.03 | ) | $ | 0.01 | |||
| Diluted: | $ | 0.02 | $ | (0.31 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||
In 2008,the Company enteredinto anote payablewith a third partyfor $10,000 in total proceeds. Thenote payableis currently indefault and has aflat interestamount dueof $21,000.As of March 31, 2020and December 31, 2019,the Companywas indefaultofthe note agreementand the entireamountof $21,000has beenincluded within accrued interest.Since the notes payable donot incur interest, the Companyimputed interest at$250and $250,respectively, which represented an interest rate of 10% perannum during the threemonths ended March 31, 2020and 2019.
In 2008,the Company enteredinto notes payable with athird partyfor $26,000 in totalproceeds. Thenotes payable have aflatinterest amount due of $80,000. During 2015,the Companyreceived another $50,000from the thirdparty. During 2017,the Company entered into an agreement whereby theywould repay the principaland accrued interestin the amountof $145,000 byApril 4, 2018and issue the holders800,000 shares of commonstock. The Company recordedthe fair market value of the commonstock issued at $336,000 based onthe date ofissuance as interest expense.Other than theissuance of shares of commonstock, the Company didnot perform underthe agreement. The Company is currentlyin default ofthe note agreement.
In 2007,theCompanyentered into note payablewitha third partyfor $221,800 inproceeds.Thenote payable is currentlyindefault and incurs interest at 10% perannum.OnSeptember 30, 2008, but2013,the holder received an arbitrationsettlement fortheprincipaland accrued interest. As of March 31, 2020and December 31,2019,the Companywasin default ofthearbitration settlement. As of March 31, 2020and December 31,2019,accrued interest related to thenotepayablewas $439,931and $429,861, respectively.
In 2007,the Company enteredinto note payablewith a significant shareholderfor $58,600 in proceeds. Thenote payable iscurrently due ondemand and incursinterest at 10% perannum. As of March 31, 2020and December 31, 2019,accrued interest related tothe note payablewas $71,978and $70,513,respectively. The Company is currently indefault ofthe note agreement.
Two significant shareholdersfunded the Company’soperations throughnotes payable in primarily 2009and 2010and continue to support operations on alimited basis. Thenotes payable incur interest at 10% perannum andwere due onDecember 31, 2016. The Company is currently indefault of thenote agreements. As of March 31, 2020 andDecember 31, 2019,the aggregate balance ofthe notes payablewas $620,355and accrued interest was $591,114and $575,480,respectively.
NOTE 7 – RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Companyentered into a lease agreementcommencing February 8, 2020for its conversion current facility which expiresin 2025. The term ofthe lease isfor five years. The Company also enteredinto a sixmonth option topurchase itscurrent facility under terms andconditions of the lease. At inception ofthe lease, the Company recorded arightofuse assetand liability. The Companyusedaneffective borrowing rate of 12%within the calculation.The following arethe expected leasepaymentsas of March 31, 2020,including the total amount ofimputedinterest related:
Years endedDecember 31, :
| 2020 | $ | 53,122 | |||
| 2021 | 82,561 | ||||
| 2022 | 85,039 | ||||
| 2023 | 87,590 | ||||
| 2024 | 90,217 | ||||
| 2025 | 7,536 | ||||
| $ | 406,065 | ||||
| Less: Imputed interest | (102,721 | ) | |||
| Total | $ | 303,344 |
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTIGENCIES
Litigation
Shareholder Lawsuit
In March 2016, asignificant shareholder (“Plaintiff”) of the Companyfiled alawsuit againstthe Companyin the state ofCalifornia alleging breachof contract,fraud and negligent misrepresentation based on supposed oralpromises in 2013 togive Plaintiff’s companyshares were not includedinexchange for stocksin another company and a 2014consulting agreement. The Company strongly disputed all claims made in the computationlawsuit.OnApril20, 2017,theCompanyfiledan answerthat denied each and every purported allegationand cause of diluted per share net income action andfurther deniedthat they caused anydamage orloss. The Company reached anagreement resultingin a voluntary dismissal of the civilcase on July 5, 2017. ThePlaintiff was not able tofulfill the proper documentationwithin the allotted 180days and the 3,450,000shares of AppTech Corp stockwere properly cancelledin 2019.
Former ShareholdersLawsuits
InApril 2014, ashareholder of AppTechfiled a lawsuitagainst the Company inthe State of Washingtonclaiming breach ofcontract related tothe sale /transfer ofunregistered shares atthe time of AppTechacquisition. OnAugust 13,2014, the Companynotified the transfer agent and placed a’Stop Order’ onthe shares. The shareholderclaims thatthe 2.5million sharesreceived areunrestricted andshould bereflected assuch. OnAugust 19, 2014,the Companyfiled amotion to dismiss thelawsuit. Thelawsuit was dismissed on October 31,2014.
InNovember 2017,two shareholders of AppTech,onewhopreviouslyfiledthe 2014lawsuit in the State ofWashington, filed another lawsuit against the Companyinthe State of California, claimingthe same accusations asthe previously filedlawsuit whichwas dismissed. The lawsuit has been transferred tothe United StatesDistrict Courtfor the Southern District ofCalifornia. The Company filedthe defendants answer, affirmative defensesand counter claims.Management believes that thePlaintiff misrepresented and misled AppTechduring the merger. Thecourt has encouraged the parties tosettle. Even thoughthe Company believesthe lawsuit iswithout merit and will vigorously defend,theCompany hasmade several offers to settle. OnDecember 19, 2019,the Company enteredinto asettlement and release agreement. The Company has recordedthe liabilityas ofDecember 31, 2019for the total obligation of $240,000to be paidout over three years beginning February 15, 2020. The 2019impact is recorded inother expenses. A stipulation fordismissal of actionhas beenfiled withthecourts. As ofMay 14, 2020,we arecurrent on thepayment schedule.
Former Landlord Lawsuit
In September 2018,the landlordfor our former office space leasefiled alimited civillawsuit against the Companyin theState ofCalifornia. The Companyreached anagreement thatresultedin a stipulationfor judgment on October 28,2018. Thestipulated judgmentwas for $42,432including attorneyfees and court costsplus interest forwhich the Company recorded as a liabilityas ofDecember 31, 2018. The stipulatedjudgment was paid infull onAugust 16, 2019.
Patent AcquisitionLawsuit
In September 2018, acomplaint was filed in San Diego superiorcourt for a breach ofcontract arising from awrittenagreementfor the purchaseof a judgment towhich AppTechwas not aparty. The purchase ofthe judgment was part of the transaction toacquire the patents. AppTechsubstantially performedunder the agreement but the secondagreement toextend the final payment was executed underduress.On October 26, 2018, the Company filed ananswer that denied eachand every purported allegationand cause of actionand further deniedthat theycaused anydamage orloss. OnDecember 3,2019, the Company entered into aconditional settlement providing the terms of the conditionalsettlement have been completedby October 1, 2020. Theconditional settlement amount of $150,000 is paid inmonthly installments of $15,000. Thesettlement installments paidfor the three months ended SeptemberMarch 31, 2020 was $35,000.$5,000 was paid towardsthe March 31, 2020installment andthe April 30, 2008, because they were anti-dilutive. There were no similar potentially dilutive shares outstanding for2020installment was not paid. We arecurrently in default of the three monthsagreement and nine months ended September 30, 2007.
Significant Contract
In January 2019,theCompany enteredinto anagreement with a broker dealer to provide capital raisingactivities. Underthe termsofthe agreement the broker dealer is tomake aminimum of $90,000 in advisory fees. In addition,there are variousotherprovisions within the agreementwhich include a 10%placement fee, warrants topurchase common stock, a 4%transaction fee,etc.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Employeeversus ContractorClassification
The Company compensatesvarious individuals asconsultants. Annually, these consultants areissuedForm 1099sfor amounts paid tothem. In addition, theseconsultants donot have arrangements in which specify compensation payable tothem. The Companyrisks potential tax andlegal actions ifthese consultants aredeemed to beemployees bygovernmental agencies.
NOTE 39 – STOCKHOLDERS’DEFICIT
Series A Preferred Stock
The Companyis authorized to- PURCHASE OF THE SENIOR DEBT OF INTERACTIVE NUTRITION INTERNATIONAL, INC.issue
Common Stock
The Company is authorizedtoissue 1,000,000,000shares of $0.001par value commonstock. Therewere 86,503,325and 84,153,825,respectively, shares ofcommon stockoutstanding as of March 31, 2020and December 31,2019. Theholders of commonstock areentitled toone vote pershare on a purchase agreement (the “allmatters submittedPurchase Agreement”) with Nesracorp. Inc., a company organized under the laws of Canada (the “Vendor”) pursuant to which the Company purchased from the Vendor,avote ofstockholders and the Vendor sold, assigned transferred and conveyed arenot entitled to the Company, all of Vendor’s right, title, benefit and interest in (a) all of the then outstanding principal and interest accrued thereon (the “cumulateIndebtedness”) owed to the Vendor by Interactive Nutrition International, Inc. (“INII”), a company organized under the laws of Canada and a wholly-owned subsidiary of the Company, under a promissory note their votes in the original principal amountelection of Fifteen Million Canadian Dollars (Cdn$15,000,000) issued (in part)directors. The holdersof common stock areentitled to any dividends thatmay be declared by INIIthe board of directorsout of funds legally available, therefore subject tothe priorrights of holders ofany outstanding shares of preferredstock and any contractual restrictions againstthe Vendor payment ofdividendson commonstock. Inthe event ofliquidation or dissolution ofthe Company, holders of common stock areentitled to share ratably in all assets remainingafterpayment of liabilities and theliquidation preferences ofanyoutstanding shares of preferredstock. Holders of commonstock have no preemptive orother subscription rightsand no right toconvert their common stockintoany othersecurities.
During the threemonths ended March 31, 2004 (the “2020andSubsidiary Note2019,”)the Company issued 2,349,500and12,000,respectively, shares of common stock to several consultants in connectionwith business development and (b)professional services. The Company valuedthe common stock issuances at $1,209,185and $7,208, respectively, based uponthe closingmarket price ofthe Company’s commonstock onthe date in whichthe performancewas complete. Theamounts were expensed togeneral and administrative expenses on the accompanyingconsolidated statementsof operations.
Common Stock Repurchase Option
On January 23, 2020,the Company enteredinto a general securitycommonstock repurchase option agreement topurchaseor assign 300,000sharesof even date with commonstock from athird party at $0.05 pershare. TheCompany assigned itsrights tothe Subsidiary Note, andrepurchase optionagreement to a share pledge agreement, of even date with the Subsidiary Note, both granted concurrently by INII and its shareholder,third partyinexchange for compensation. Thecommon stockrepurchaseoptionswere exercised on January 26, 2020for which the Company (as successorreceived $98,750 in interest to the now defunct Bio One Corporation) in connection with the Indebtedness (together, both instruments are hereinafter referred toproceeds whichwas recorded as the “additionalSecuritypaid-in capital.
On February 26, 2020,”) for a purchase price equal to (i) Seven Million Six Hundred Fifty Thousand Canadian Dollars (Cdn$7,650,000) and (ii) the execution by the Company enteredinto a commonstock repurchase optionagreement topurchase orassign266,115shares of that certain Mutual Release.commonstock from athird party at $0.05 pershare. TheCompany and assigned itsrights tothe Vendor entered into an Assignment and Conveyance (“repurchase optionAssignmentagreement”), of even date with the Purchase Agreement, to a third party in order to properly effectuate the assignment by the Vendor toexchangefor compensation. The commonstock repurchase optionwas exercised on February 27, 2020for which the Company of all of the right, title, benefit and interestreceived $25,281 in and to the Purchased Assets (as defined therein),proceeds which such Purchased Assets include, without limitation, the Indebtedness, the Security and all loan, security and other documentation relating to the Indebtedness and the Security purchased under the Purchase Agreement. The Company and the Vendor executed the Purchase Agreement, the Mutual Release and the Assignment on May 25, 2007; however they closed the transactions upon the execution of the SPA (as defined and discussed herein below) on May 31, 2007.was
On May 31, 2007, March 18, 2020,theCompany entered into a securities purchasecommonstock repurchase option agreement (the “topurchaseor assign 250,000SPAshares of common”) with YA Global Investments, L.P. (f/k/stockfrom a Cornell Capital Partners, LP and herein referredthird party at $0.05 pershare.TheCompany assigned itsrights tothe repurchase optionagreement to as the “athird party inInvestorexchange for compensation. The common”) pursuant tostock repurchase option was exercised on March 19, 2020for which the Company soldreceived $62,500 in proceeds whichwasrecorded asadditional paid-in capital.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – SUBSEQUENTEVENTS
Management has evaluated subsequent eventspursuant tothe requirementsof ASCTopic 855and has determined thatno material subsequent events existother than those disclosed below.
OnApril 24, 2020,the Companyentered into a common stockrepurchase option agreement topurchase or assign 55,000shares of commonstock from a third partyat $0.05 pershare. The Company assigned its rightstothe repurchase optionagreement to athird party inexchange for compensation. Thecommonstockrepurchase option was exercised onApril 27, 2020for whichthe Companyreceived $19,250 in proceedswhich was recorded as additionalpaid-in capital.
Seenote8for additionalsubsequent events.
Item2. Management’s Discussion and Analysis Of Financial Condition And Results Of Operations
Thefollowing discussion and analysis of our financial conditionand results of operations should beread in conjunctionwith our consolidated financial statements and related notes included elsewhere in thisquarterlyreport. Thisdiscussion contains forward-looking statements,such as statements regarding the anticipated developmentand expansion of our business, our intent, belief or current expectations, primarilywith respect to thefutureoperating performance ofour companyandthe productsand services we expect to offerandother statements containedherein regarding matters thatarenot historical facts. Our Management’s Discussion and Analysis contains not only statements that are historical facts, butalso forward-looking statements which involverisks,uncertainties, and assumptions.Because forward-looking statements are inherently subject torisks and uncertainties, our actual results may differ materially from theresults discussed in the forward-lookingstatements.
Business Overview
We are afinancial technology companyutilizing innovative payment processing technologies to complementour coremerchant services capabilities.Our patentedand proprietarysoftware for merchant services, text marketingand lead generation arelicensable or availablethrough asuite of synergisticofferings directly toour clients. We are developing an enterprise-gradetext payment system usingthe simplicity andfamiliarity of textmessaging with multi-factor authentication to ensuresecurity.
Our company’s merchant services providefinancial processingfor businesses to accept traditionalmeansof cashlesspayments, such as credit cards,ACH, wireless payments, andmore. Through partnershipsand proprietarysoftware,we offerour merchants advanced capabilitiessuchasonline paymentgateways andpayment splitting to protect,enhance and expandtheir business.Further,in partthrough our intellectual property and patents,weoffer integrated,advanced solutionsfor mobilepayment processing, payment facilitation, digitalmarketing, software development,mobile appdevelopment, website development andwebsite hosting.
We areexpanding our merchant processing services to include enterprise-grade, patent protectedsoftware and intellectual propertyfor secureshort message system, or SMS, payments andadvanced text messaging for lead generation. Our patent protectedsoftware and technologymanages textmessaging for notification, response,authentication, marketing, advertising, information queriesand reports.Our software platformswill incorporate advancedintellectual property totransact mobile paymentsvia secure textmessaging based onsecure multi-factorauthentication, orMFA, technology, thereby extendingmerchants’ marketplaceand avenues toreceive payments.
We believethat our technologywill greatly increase the adoption ofmobile payment through ease of useincluding text-basedsecurityprotocols.Tosucceed, businesses mayneed to adopttext messaging to engagewiththeircustomers. We believethat our patent protectedtext platformwill allow businesses tocommunicate regularlywith their customers,suppliersand partnersknowing that theirtexts are being readand welcomed.
We seek to grow our business by pursuing the following strategies:
| ● | Increasing our customer base by offeringunique, patent protectedtechnologies; | |
| ● | Rolling-out oursecure text paymentsystemwhich does not require a data plan or anapplication; | |
| ● | Expandingour leadgeneration services enablingbusinesses to betterengage their customers; | |
| ● | Maintaining technologicalleadership by continuing toinnovate and improveour technology; | |
| ● | Pursuing strategic acquisitions or partnerships tocomplement and bolsterour suite of fintech products; | |
| ● | Creatingcross-selling synergiesby providing a holistic suite of productsandservices tomerchants; | |
| ● | Utilizinga scalable business model toeliminate certain barriers to rapidgrowth. |
We are anOTCPink Open Market traded corporationheadquartered in Carlsbad,CA. Ourstock trades underthe symbol “APCX.” Wewerefounded in 1998 as Health ExpressUSA, Inc.Our business went throughname changesin 2005(CSI Business, Inc.), 2006(Natural NutritionInc.) and 2009 (AppTechCorp.) In 2013,wemerged with Transcendent One,Inc., whereby Transcendent One,Inc. and itsmanagementtook controllingownership of theCompany.From this pointforward,wehave operated as amerchant services provider,continuing the business conductedbyTranscendent One, Inc. In 2017,we acquired certain assets from GlobalTel Media,Inc., orGTM, which includedpatented, enterprise-gradesoftware for advanced text messaging. In addition tothe software and associated databases,the acquisition included four patentsand additionalintellectual propertyfor mobile payments andadvanced MFAsecurity protocols.
Effects of the COVID-19 Pandemic
Theunprecedented and adverseeffects of COVID-19,and its unpredictableduration, in theregions wherewehave merchants, employeesand consumershave had amaterial adverseeffect on our processingvolume and thus onour net revenuesand may inthe future have amaterial adverse effect onour liquidity andfinancial condition.
Financial Operations Overview
Thefollowing discussionsets forth certaincomponents of our statements of operationsaswellasfactors that impact those items.
Revenues
OurRevenues. We devise our revenue by providing financial processing services to businesses.
Expenses
Cost of Revenue. Cost of revenue includes costs directly attributable to processing and other services the company provides. These also include related costs such as residual payments to our business development partners, which are based on a percentage of the net revenue generated from client referrals.
General and administrative. General and administrative expenses include professional services, rent and utilities, and other operating costs.
Research and development. Research and development costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code 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 periods ended March 31, 2020 and 2019, respectively. We have derived this data from our consolidated financial statements included elsewhere in this registration statement.
The Three Months Ended March 31, 2020
Compared to the Investor, andThree Months Ended March 31, 2019
Thefollowing table presents ourhistorical results of operationsfor the Investor purchased periods indicated:
| Three Months Ended March 31 | ||||||||
| (in thousands) | 2020 | 2019 | ||||||
| Revenue | $ | 58.2 | $ | 56.8 | ||||
| Cost of revenue | 23.2 | 22.5 | ||||||
| Gross profit | 35.0 | 34.3 | ||||||
| Operating expenses | ||||||||
| General and administrative | 1,415.9 | 189.7 | ||||||
| Research and development | 12.0 | 6.8 | ||||||
| Total operating expenses | 1,427.9 | 196.5 | ||||||
| Loss from operations | (1,392.9 | ) | (162.2 | ) | ||||
| Other expenses | ||||||||
| Interest expense, net | 71.1 | 76.0 | ||||||
| Total other expenses | 71.1 | 76.0 | ||||||
| Loss before income taxes | (1,464.0 | ) | (238.2 | ) | ||||
| Provision for income taxes | ||||||||
| Net Loss | $ | (1,464.0 | ) | $ | (238.2 | ) | ||
Revenue
Revenue increased to $58,157 from $56,800, or 2%,for the threemonths ended March 31,2020from the threemonths ended March 31, 2019. Thisincrease was principally driven byvarious insignificant factors.
Cost of Revenue
Cost ofrevenue increased to $23,225from $22,537,or 3%,for the three months ended March 31, 2020from the Company,three months ended March 31,2019. Thisincrease was driven primarilyby various insignificantfactors.
General and Administrative Expenses
Generaland administrative expenses increased to $1,415,899 from $189,645,for the three months ended March31, 2020from the threemonths ended March31, 2019,primarily drivenbystock-based compensationdue toseveral significant consulting agreementsfor marketing and professional related services.
Research and Development Expenses
Research and development expenses increased to $12,000from $6,820, or76%, for the months ended March 31,2020 from thethree months ended March 31, 2019. Thisincreasewas primarily due tovarious insignificant factors.
Interest Expense, net
Interest expense, net decreased to$71,083 from $76,039, or 7%,for the three months ended March 31, 2020from the three months ended March 31, 2019. This decreasewas primarily drivenbythe elimination of one-time interest charges fortheamortization of the debtdiscounton new related party notespayable and refinancing charges on othernotespayable.
Liquidity and Capital Resources
While the companyiscontinuing operations and generating revenues,thecompany’s cash position isnot significant enough to supportthe company’s daily operations.Tothe extent that additionalfunds are necessary tofinanceoperationsand meet our long-termliquidityneeds as we continue toexecute our strategy,weanticipate that they can be obtainedthrough additionalindebtedness,equity or debtissuances or both.Usingcurrently available capitalresources, management believeswecanconduct planned operations for 21days. Further, management believesweneed to raise $1.35M toremain in businessfor the next 12months.
Sincewe deriveour revenues principally from processing ofpurchases fromour merchant services clients, a secured convertible promissory note (the “downturn ineconomic activity, such as thatNote”) in the principal amount of Nine Million Two Hundred Ninety-Two Thousand Eight Hundred Ninety-Four United States Dollars (US$9,292,894), the proceeds of which shall be used by the Company to finance the consideration paid by the Company to the Vendor in connectionassociated with the Purchase Agreement current coronavirus pandemic couldreduce the volume ofpurchaseswe process,and Assignment (as discussed herein above)thus our revenues. In addition,such adownturn could cause our merchant customers to cease operationspermanently decreasingour payment processing unless new customerswere found. We may alsoface additional difficulty in raising capitalduringan economicdownturn.
Cash Flows
Thefollowing table presents a summary of cashflows fromoperating, investing and financing activitiesfor other general corporate purposes.the following
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (190,888 | ) | $ | (190,661 | ) | ||
| Net cash provided by investing activities | $ | 23,411 | $ | — | ||||
| Net cash provided by financing activities | $ | 158,481 | $ | 226,000 | ||||
Cash Flow from and afterOperating Activities
Netcash usedin operating activities increased by $227for the occurrence and duringthree months ended March 31, 2020from the continuance of an Event of Default (as defined in threemonths ended March31,2019. Thisincrease was principallydrivenby various insignificantfactors.
Cash Flow from Investing Activities
Netcash providedby investing activities increasedby $23,411for the Note),three months ended March 31, 2020from the interest rate shall be increased to eighteen percent (18%). The Note shall mature, unless extended months ended March31, 2019. Thisincrease was principallydrivenby the holder, upon the earlier of (i) June 1, 2012, (ii) the consummation arefund of a Changedepositand aprepayment of Control (as definedrent expense.
Cash Flow from Financing Activities
Netcash providedbyfinancing activities decreasedby $67,519for the three months ended March 31, 2020from themonths ended March31,2019. This decreasewas principallydriven by decreased proceeds fromthe sale of commonstock and proceedsfrom loans payable related parties.
Critical Accounting Policies
Our discussionand analysis ofour financial conditionand results of operations are based uponour financial statements, which have been prepared inaccordance with GAAP. The preparation ofthese financial statementsrequires us tomake estimates and judgmentsthat affect the Note)reportedamountsof assets, liabilities, revenuesand expenses.On anongoingbasis,weevaluate our estimatesincluding those related torevenue recognition, goodwill andintangible assets, derivativefinancial instruments, and (iii) the occurrence of an Event of Default or any eventequity-basedcompensation. We baseour estimates onhistorical experienceand onvarious other assumptions that with the passage of time and the failure to cure would result in an Event of Default. The Company may prepay the Note at any time upon not less than thirty (30) days prior written notice to the holder; provided, that any such prepayments shall applied first to unpaid late charges on principal and interest, if any, then to unpaid interest and then unpaid principal thereon. Furthermore, the Note shall be convertible into fully paid and nonassessable shares of the Company’s common stock, at the holder’s discretion, at a conversion rateare believed to be determined by dividing the amount to be converted by the lesser of (x) $0.04, subject to adjustment as provided herein and (y) eighty percent (80%) of the lowest daily weighted average price of the Company’s common stock during the five (5) trading days immediately preceding the conversion date. The Company shall not effect any conversion, and the holder of shall not have the right to convert any portion of the Note to the extent that after giving effect to such conversion, the holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.
Critical accounting policiesarethose thatweconsider the most critical tounderstandingour financial condition andresults ofoperations.Theaccounting policieswe believe to bemost critical to understandingour financialcondition andresults of operations arediscussed below.As of March 31, 2020,there havebeenno significant changes toour criticalaccounting estimates, exceptas described in Note has2 toour consolidated financial statements.
Recent Accounting Pronouncements
As of March 31,2020,there have been converted, redeemedno significantchanges toour recentlyissued accounting pronouncements, except as described in Note 2 toour consolidated financial statements.
Off-BalanceSheet Arrangements
Wedo not have any relationshipswith unconsolidated entities or otherwise satisfiedfinancial partnerships, such as entitiesoften referred to asstructured finance or special purposeentities, that would have been established tofacilitate off-balancesheet arrangements (asthat term isdefined in fullItem303(a)(4)(ii) ofRegulationS-K) orother contractually narrow orlimited purposes. Assuch, we arenot exposed to anyfinancing, liquidity,market or creditrisk thatcould arise if wehad engaged in accordance with its terms, the Company shall not, directly or indirectly, redeem, repurchase, or declare or pay any cash dividend or distribution on, its capital stock without the prior express written consentthose types of the holder or, dissolve, liquidate, consolidate with orrelationships. Weenter into another person, or dispose of or otherwise transfer (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any person or acquire any assets or business or any interest in any person or entity in excess of One Hundred Thousand United States Dollars (US$100,000), except for purchases of inventory, raw materials and equipment guarantees in the ordinary course of business. So longbusiness related tothe guarantee ofour ownperformance.
Item 3. Quantitative and QualitativeDisclosuresAboutMarket Risk.
Not applicablefor smaller reporting companies.
Item 4. Control and Procedures.
Evaluation ofDisclosure Controls and Procedures
Underthe supervision andwith the participationofour management, includingthe Chief Executive Officerand the Chief Financial Officer,weevaluatedthe effectiveness of thedesignand operation ofour “disclosure controls and procedures” (asdefined inRule 13a-15(e)under the ExchangeAct) as ofthe Note is outstanding,end ofthe period covered by this report. Based onthat evaluation, the Chief ExecutiveOfficer and the Chief FinancialOfficerconcludedthat our disclosure controls andprocedures were effective asof March 31, 2020.
Changes in Internal Control over Financial Reporting
Therehave not beenany changes inour internal controlover financial reportingduringthe three-month periodended March 31, 2020that have materially affected, or arereasonably likely to materially affect,our internal controlover financial reporting.
Limitations on theEffectiveness of Controls
Control systems, no matter how well conceived and operated, aredesigned to provide areasonable, but notanabsolute, level ofassurance thatthe objectivesof the control system aremet. Further, the designof a control systemmust reflectthe fact thatthere areresource constraints, and the benefits of controlsmust beconsidered relative totheir costs. Because ofthe inherent limitationsin all controlsystems, no evaluationof controls can provideabsolute assurance that all control issuesand instancesoffraud, ifany, have been detected.Because of theinherent limitationsin any controlsystem, misstatements due to error orfraud may occur and not be detected.
In September 2018, acomplaint was filed in San Diego SuperiorCourt for a breach ofcontract arising from asubsequent agreement regarding thepurchaseof ajudgment for the matter ofSvenstonBuelowand Amanda Eliotv. GlobalTel Media. Thepurchase of thejudgment was part of the transaction in whichweacquired our IPportfolio from GlobalTel Media. Wesubstantiallyperformed underthe original agreement,but the plaintiffs allegedwe breachedthe subsequent agreement whichwasexecuted toextend the finalpayment.On October 26, 2018,wefiled an answerthat denied each accounting period identifiedand every purported allegationand cause ofaction, furtherdeniedthat they caused anydamage orloss and assertedthe affirmative defense ofduress. We recorded as aliabilityas of December 31, 2019and2018 inthe amount of $135,000and $175,000,respectively. OnDecember3, 2019,thepartiesentered into aconditional settlementagreement wherebyweagreedto pay $150,000 on apayment schedule ending October1,2020.Should the repayment enterdefault withoutbeing cured,the court shall order an Exhibit toentry of judgment infavorof the Note,Plaintiffs inthe amount of $175,000 less any amounts paidunder the settlement, plus pre-judgment and post-judgment interest,courtcosts andreasonable attorneyfees.As ofMay 14, 2020,weare currently in default of the Company shall maintain EBITDA for such accounting period which equals or exceeds the applicable EBITDA threshold for such accounting period. The Company has beenagreement and are in discussions with the lender regardingplaintiffs to cure the interpretation of default by May 22, 2020.
In September 2018,the Exhibit to the Note as to whether it should be interpreted on landlordfor our former office space leasefiled a fiscal year or calendar year basis. An agreement on this issue has not yet been reached. On a strict calendar year basis as presentedlimitedcivil lawsuitagainst us in the ExhibitState ofCalifornia. Wereached an agreementthat resultedin a stipulationfor judgment on October 28,2018. Thestipulated judgmentwas for $42,432including attorneyfees andcourt costs plusinterest for whichwe recorded as aliability asof September 30, 2019and December 31,2018. Thestipulated judgment was paid infull onAugust 16,2019.
InNovember 2017,two shareholders of AppTech,onewho previouslyfiled a 2014lawsuitinthe StateofWashington, filed anotherlawsuit against us in the State ofCalifornia, claiming thesame accusations asthe previouslyfiled lawsuit which was dismissed. Thelawsuit has beentransferred tothe Note, our EBITDA United StatesDistrict Court for the 9Southern District of California. Wefiled an answer,affirmative defenses and counterclaims. Management believesthat the Plaintiffmisrepresented and mislead us during the merger between ourselves andTranscendent One,Inc. Thecourt has encouraged the parties tosettle. Even thoughthe Company believesthe lawsuit iswithout merit andwill vigorously defend,the Company hasmade several offers to settle. On December 19, 2019,the Company enteredinto a settlement andrelease agreement.The Company has recordedthe liability as ofDecember 31, 2019forthe total obligationof $240,000 to be paidout over three years beginning February 15, 2020. Astipulation for dismissalof action has beenfiled with the courts.Asof May 14, 2020,wearecurrent on thepayment schedule.
In March 2016, asignificant shareholder (“Plaintiff”) ofours filed alawsuit against usin thestate ofCalifornia alleging breachofcontract, fraudand negligent misrepresentation based onsupposed oralpromisesin 2013 togivePlaintiff’s company shares in exchange forstock in another company and a 2014consulting agreement. Westrongly disputed all claimsmade inthe lawsuit.OnApril 20, 2017,wefiledananswer that denied each and every purported allegationand cause ofactionand further deniedthat they caused anydamage orloss. Wereached anagreement resulting in a voluntary dismissalofthe civil case on July 5, 2017. ThePlaintiff was not able tofulfill the proper documentationwithin the allotted 180days and the 3,450,000shares ofour commonstock were properly cancelled in 2019.
As asmaller reportingcompany, as defined inRule12b-2 ofthe ExchangeAct,we are not required toprovide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During 2020year-to-date,weassigned ourrights tostock repurchase optionagreements to third partiesresulting innet proceeds of $205,781.
Duringthethree months ended September 30, 2008 was CDN$1,392,119 versus CDN$1,387,238 as required under the Exhibit to the Note.
All Issuances were exempt from registration requirements of the Transaction Documents (as defined in the SPA) or the shares underlying the Warrant are not subject to an effective registration statement, the holder may, in its sole discretion during such time, exercise the Warrant in whole or in part and, in lieuSection 5 of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price (as defined in the Warrant), elect instead to receive upon such exercise the net number of shares of Common Stock determined according to a specified formula set forth in the Warrant. The Company shall not effect the exercise of the Warrant, and the holder shall not have the right to exercise the Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates) would beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such exercise.
Item 3.Defaults Upon Senior Securities.
All subordinated notes payable,convertible notespayable andnotes payableare currently in whatever form, including without limitation, the reduction of the outstanding balance by conversions by the Investor into shares of Common Stock or cash payments by the Company, a written request from the holders of at least fifty percent (50%) of the Registrable Securities then outstanding, that the Company file with the SEC a registration statement covering the resale of the Registrable Securities, then the Company shall, within thirty (30) days of the receipt thereof, provide written notice of such request to all other holders of Registrable Securities, if any, and file with the SEC such registration statement, as soon as practicable, following receipt of the registration request. The registration statement shall register for resale at least thirty-three percent (33%) of the Company’s market capitalization based on the Company’s shares of Common Stock issued and outstanding and market price of the Company’s shares of Common Stock at the time of the registration request less any shares of Common Stock held by affiliates of the Company, or such greater amount as the Company in good faith believes the SEC may permit to be registered. The Company shall use its best efforts to have the registration statement declared effective by the SEC no later than such date as follows: (i) in the event that the registration statement is not subject to a review by the SEC, sixty (60) calendar days after the date of the registration request or (ii) in the event that the registration statement is subject to a review by the SEC, one hundred twenty (120) calendar days after the date of the registration request.default.
Item 4.In connection with the SPA, the Company and the Investor also entered into an amended and restated security agreement, of even date with the SPA (the “Mine Safety Disclosures.
Not Applicable.
Item 5.2007 Security AgreementOther Information.
None.
Item 6.”), pursuant to which the Company amended and restated that certain Security Agreement, dated September 9, 2005 (the “Exhibits.
EXHIBIT2005 Security AgreementINDEX”), to secure within the definition of “Obligations” as previously defined under the 2005 Security Agreement, those obligations of the Company under the SPA, the Note and the Transaction Documents (as defined in the SPA). The Company and the Investor also entered into a securities pledge agreement, of even date with the SPA (the “2007 Pledge Agreement”), in order for the Company to pledge that certain Pledged Property (as defined therein), which includes the Subsidiary Note, to secure its obligations under the SPA, the Note and the Transaction Documents (as defined in the SPA).
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
| 2008 | 2007 | 2008 | 2007 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| Net sales | $ | 3,978,246 | $ | 4,247,022 | $ | 12,338,891 | $ | 12,866,026 | |||||
| Net income (loss) | $ | (1,842,182 | ) | $ | (358,367 | ) | $ | 3,124,441 | $ | (5,445,645 | ) | ||
| Weighted shares outstanding - basic | 66,104,072 | 19,259,139 | 49,855,367 | 16,060,568 | |||||||||
| Weighted shares outstanding - diluted | 154,924,622 | 2,209,918,984 | 145,965,917 | 2,206,720,413 | |||||||||
| Net income (loss) per share - basic | $ | (0.03 | ) | $ | (0.02 | ) | $ | 0.06 | $ | (0.34 | ) | ||
| Net income (loss) per share - diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | 0.02 | $ | (0.00 | ) | ||
| Exhibit | ||
| Number | Title | |
| 3.1 | AppTechCorp.Articlesof Conversion filed October 25, 2006 (filed as Exhibit 3.1 to the | |
Business | Nutritional | ||||||
Services | Products | ||||||
Nine months ended September 30, 2008 | |||||||
| Revenue | $ | 57,683 | $ | 12,281,208 | |||
| Interest expense | 818,094 | 991,773 | |||||
| Income (loss) before income tax | 3,491,612 | (435,971 | ) | ||||
| Income tax benefit | - | (68,800 | ) | ||||
| Segment assets | 9,195,654 | 11,824,809 | |||||
| Additions to long-term assets | 109,122 | 38,269 | |||||
| Depreciation and amortization | 5,904 | 623,608 | |||||
Nine months ended September 30, 2007 | |||||||
| Revenue | $ | 222,186 | $ | 5,771,105 | |||
| Interest expense | 656,256 | 622,937 | |||||
| Loss before income tax | (4,855,073 | ) | (143,366 | ) | |||
| Income tax benefit | - | (59,442 | ) | ||||
| Segment assets | 3,723,371 | 21,150,287 | |||||
| Additions to long-term assets | - | 95,223 | |||||
| Depreciation and amortization | 2,271 | 278,929 | |||||
| Nine Months Ended | Nine Months Ended | ||||||
| September 30, 2008 | September 30, 2007 | ||||||
| Net cash provided by (used in) operating activities | $ | (71,847 | ) | $ | 961,522 | ||
| Net cash provided by (used in) investing activities | $ | (147,391 | ) | $ | 613,799 | ||
| Net cash provided by (used in) financing activities | $ | (47,606 | ) | $ | 1,054,787 | ||
| 2008 | $ | 96,373 | ||
| 2009 | 177,852 | |||
| 2010 | 6,169 | |||
| $ | 280,394 |
| 32.2 | ||
Pursuant to the requirements ofthe Securities andExchangeAct of 1934, theregistranthasduly causedthisreport to be signed onits behalf bythe undersigned thereunto dulyauthorized.
| AppTech Corp. | ||
| Date: May 14, 2020 | By: | /s/ Luke D’Angelo |
| Luke D’Angelo | ||
| Interim Chief Executive Officer and Chairman | ||
| Date: May 14, 2020 | By: | /s/ Gary Wachs |
| Gary Wachs | ||
| Chief Financial Officer | ||
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