UNITED STATES
SECURITIES AND EXCHANGECOMMISSION
Washington,D.C. 20549
FORM 10-Q
(MarkOne)
☒ | QUARTERLY REPORT PURSUANTTOSECTION13 OR15(d) OFTHESECURITIES EXCHANGE ACT OF 1934 |
For the quarterly periodended March 31,September 30, 2020
or
☐ | TRANSITION REPORT PURSUANTTOSECTION13 OR15(d)OFTHESECURITIES EXCHANGE ACT OF 1934 |
For the transition period from____________________ to ________________________ ________________________
Commission filenumber: 0001070050
AppTechCorp.
(Exact name of registrant asspecified inits charter)
Wyoming | 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 | Trading Symbol(s) | Nameof each exchange on which registered |
Common Stock,$0.001 par value pershare | APCX | OTCPink 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 suchshorter periodthat the registrant was required tofile such reports),and (2)has been subject tosuch filing requirementsfor thepast 90days.
Yes ☐☒ No ☒☐
Indicateby checkmark whether the registranthas submitted electronically every Interactive DataFile required to besubmitted pursuant toRule405 of RegulationS-T(§ 232.405 ofthischapter)duringthe preceding 12months (or(or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicateby checkmark whether the registrant is alargeacceleratedfiler, an acceleratedfiler,a non-acceleratedfiler, asmaller reportingcompany, or emerginggrowth company. Seethe definitions of “large accelerated filer,” ” acceleratedfiler” “smaller reporting company,”and“emerging growth company”inRule12b-2 ofthe Exchange Act.
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 Act). Yes ☐ No ☒
As of May 14,2020,November 13, 2020, the latest practicable date, the registrant had 86,538,32587,865,075 shares of common stock (par value 0.001).
AppTech Corp.
Form 10-Q
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:
● | uncertaintyassociatedwith anticipatedlaunch ofour | |
● | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | |
● | dependence on third-partychannel andreferral partners,who comprise asignificant portion ofour sales force, for gaining new clients; | |
● | ||
aslowdown or reductionin oursales indue to a reductioninend user demand, unanticipatedcompetition, regulatory issues, orother unexpected circumstances; |
● | uncertainty regardingour ability toachieve profitabilityand positive cash flow throughthe commercialization of | |
● | dependence on third-party payment processors to facilitate our merchant services capabilities; | |
● | delay in or failure to obtain regulatory approval of our text payment system or any future products in additional countries; | |
● | ourability to operate our business while timely making payments pursuant to our loan agreements; | |
● | our needto raise additional financing to fund daily operations and successfully grow our Company; | |
● | ourability to retain and recruit appropriate employees, in particular a productive sales force; | |
● | current and future lawsand regulations; | |
● | general economic uncertainty associated with the Covid-19 pandemic; | |
● | the adverse effects of COVID-19, and its unpredictable duration, in regions where we have customers, employees and distributors; | |
● | the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of customers to visit our merchants’ businesses; | |
● | the possibilitythat the economicimpact ofCOVID-19will lead tochanges in how consumersmake purchases and we are unable to monetize such changes; | |
● | the possibilitythat the economicimpact ofCOVID-19,and its associated highunemployment rate,will lead to less consumer spendingthus resulting in loss of revenues; and | |
● | the possibility that the economic impact of COVID-19, will result in ourmerchants’ businesses failing to reopen once restrictions are further | |
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 thisAnnualQuarterly 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 AND NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 2020 and 2019
INDEXTO CONSOLIDATED FINANCIAL STATEMENTS
4
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSMARCH 31,
SEPTEMBER 30, 2020 and DECEMBER 31, 2019
(UNAUDITED)
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 the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFOR 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 |
September 30, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 46,316 | $ | 24,159 | ||||
Accounts receivable | 38,227 | 29,836 | ||||||
Deposit escrow | — | 25,000 | ||||||
Security deposit | — | 5,948 | ||||||
Total current assets | 84,543 | 84,943 | ||||||
Right of use asset | 265,120 | — | ||||||
Security deposit | 7,536 | — | ||||||
TOTAL ASSETS | $ | 357,199 | $ | 84,943 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 1,862,643 | $ | 1,707,878 | ||||
Accrued liabilities | 2,552,712 | 2,334,480 | ||||||
Right of use liability | 50,035 | — | ||||||
Stock repurchase liability | 430,000 | 430,000 | ||||||
Loans payable related parties | 51,401 | 93,401 | ||||||
Convertible notes payable | 620,000 | 620,000 | ||||||
Convertible notes payable related parties | 372,000 | 372,000 | ||||||
Notes payable | 1,172,281 | 1,104,081 | ||||||
Notes payable related parties | 708,493 | 708,493 | ||||||
Total current liabilities | 7,819,565 | 7,370,333 | ||||||
Long-term liabilities | ||||||||
Accounts payable | — | 160,000 | ||||||
Right of use liability | 238,174 | — | ||||||
Total long-term liabilities | 238,174 | 160,000 | ||||||
TOTAL LIABILITIES | 8,057,739 | 7,530,333 | ||||||
Commitments and contingencies (Note 8) | ||||||||
Stockholders’ Deficit | ||||||||
Series A preferred stock; $0.001 par value; 100,000 shares authorized; 14 shares issued and outstanding at September 30, 2020 and December 31, 2019 | — | — | ||||||
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 87,821,825 and 84,153,825 and outstanding at September 30, 2020 and December 31, 2019, respectively | 87,822 | 84,154 | ||||||
Additional paid-in capital | 35,870,457 | 33,230,869 | ||||||
Accumulated deficit | (43,658,819 | ) | (40,760,413 | ) | ||||
Total stockholders’ deficit | (7,700,540 | ) | (7,445,390 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 357,199 | $ | 84,943 |
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICITOPERATIONS
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED MARCH 31,SEPTEMBER 30, 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR 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 | $ | — | $ | — |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | $ | 105,357 | $ | 66,532 | $ | 241,367 | $ | 190,411 | ||||||||
Cost of revenues | 48,759 | 26,548 | 103,721 | 75,099 | ||||||||||||
Gross profit | 56,598 | 39,984 | 137,646 | 115,312 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative, including stock based compensation of $1,066,386, $46,000, $2,357,125 and $89,134, respectively | 1,089,808 | 315,321 | 2,781,912 | 743,210 | ||||||||||||
Research and development | 2,999 | 33,212 | 49,250 | 62,350 | ||||||||||||
Total operating expenses | 1,092,807 | 348,533 | 2,831,162 | 805,560 | ||||||||||||
Loss from operations | (1,036,209 | ) | (308,549 | ) | (2,693,516 | ) | (690,248 | ) | ||||||||
Other income (expenses) | ||||||||||||||||
Forgiveness of Debt | — | — | 9,000 | — | ||||||||||||
Interest expense | (71,723 | ) | (71,087 | ) | (213,890 | ) | (217,722 | ) | ||||||||
Total other expenses | (71,723 | ) | (71,087 | ) | (204,890 | ) | (217,722 | ) | ||||||||
Loss before provision for income taxes | (1,107,932 | ) | (379,636 | ) | (2,898,406 | ) | (907,970 | ) | ||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Net loss | $ | (1,107,932 | ) | $ | (379,636 | ) | $ | (2,898,406 | ) | $ | (907,970 | ) | ||||
Basic and diluted net loss per common share | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.01 | ) | ||||
Weighted-average number of shares used basic and diluted per share amounts | 86,984,021 | 84,073,281 | 85,941,115 | 84,482,903 |
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(UNAUDITED)
Series A Preferred | Common Stock | Additional Paid- | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | in Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance June 30, 2019 | 14 | $ | — | 83,946,632 | $ | 83,947 | $ | 33,030,119 | $ | (39,945,538 | ) | $ | (6,831,472 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (379,635 | ) | (379,635 | ) | |||||||||||||||||||
Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||
Common stock issued for merchant equity program | — | — | 37,193 | 37 | 14,840 | — | 14,877 | |||||||||||||||||||||
Common stock issued for services | — | — | 115,000 | 115 | 45,885 | — | 46,000 | |||||||||||||||||||||
Proceeds from sale of repurchase option | — | — | — | — | — | — | — | |||||||||||||||||||||
Balance September 30, 2019 | 14 | $ | — | 84,098,825 | $ | 84,099 | $ | 33,094,294 | $ | (40,325,173 | ) | $ | (7,146,780 | ) | ||||||||||||||
Balance December 31, 2018 | 14 | $ | — | 86,797,132 | $ | 86,797 | $ | 32,284,735 | $ | (39,417,203 | ) | $ | (7,045,671 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (907,970 | ) | (907,970 | ) | |||||||||||||||||||
Imputed interest | — | — | — | — | 10,350 | — | 10,350 | |||||||||||||||||||||
Common stock issued for subscriptions | — | — | 275,000 | 275 | 68,475 | — | 68,750 | |||||||||||||||||||||
Common stock issued for merchant equity program | — | — | 37,193 | 37 | 14,840 | — | 14,877 | |||||||||||||||||||||
Common stock issued for services | — | — | 439,500 | 440 | 88,694 | — | 89,134 | |||||||||||||||||||||
Common stock cancelled | — | — | (3,450,000 | ) | (3,450 | ) | 3,450 | — | — | |||||||||||||||||||
Proceeds from sale of repurchase option | — | — | — | — | 623,750 | — | 623,750 | |||||||||||||||||||||
Balance September 30, 2019 | 14 | $ | — | 84,098,825 | $ | 84,099 | $ | 33,094,294 | $ | (40,325,173 | ) | $ | (7,146,780 | ) | ||||||||||||||
Balance June 30, 2020 | 14 | $ | — | 86,677,825 | $ | 86,678 | $ | 34,731,765 | $ | (42,550,887 | ) | $ | (7,732,444 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (1,107,932 | ) | (1,107,932 | ) | |||||||||||||||||||
Imputed interest | — | — | — | — | 3,450 | — | 3,450 | |||||||||||||||||||||
Common stock issued for services | — | — | 1,044,000 | 1,044 | 924,397 | — | 925,441 | |||||||||||||||||||||
Common stock issued for services with warrant exercise | — | — | 100,000 | 100 | 165,845 | — | 165,945 | |||||||||||||||||||||
Proceeds from sale of repurchase option | — | — | — | — | 45,000 | — | 45,000 | |||||||||||||||||||||
Balance September 30, 2020 | 14 | $ | 87,821,825 | $ | 87,822 | $ | 35,870,457 | $ | (43,658,819 | ) | $ | (7,700,540 | ) | |||||||||||||||
Balance December 31, 2019 | 14 | $ | — | 84,153,825 | $ | 84,154 | $ | 33,230,869 | $ | (40,760,413 | ) | $ | (7,445,390 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (2,898,406 | ) | (2,898,406 | ) | |||||||||||||||||||
Imputed interest | — | — | — | — | 10,350 | — | 10,350 | |||||||||||||||||||||
Common stock issued for services | — | — | 3,568,000 | 3,568 | 2,212,612 | — | 2,216,180 | |||||||||||||||||||||
Common stock issued for services with warrant exercise | — | — | 100,000 | 100 | 165,845 | — | 165,945 | |||||||||||||||||||||
Proceeds from sale of repurchase option | — | — | — | — | 250,781 | — | 250,781 | |||||||||||||||||||||
Balance September 30, 2020 | 14 | $ | — | 87,821,825 | $ | 87,822 | $ | 35,870,457 | $ | (43,658,819 | ) | $ | (7,700,540 | ) |
See accompanying notes to the consolidated financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019
(UNAUDITED)
September 30, 2020 | September 30, 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (2,898,406 | ) | $ | (907,970 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock issued for services | 2,063,680 | 89,134 | ||||||
Stock issued for exercise of warrants | 140,945 | — | ||||||
Imputed interest on notes payable | 10,350 | 10,350 | ||||||
Depreciation and amortization | — | 49 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (8,391 | ) | (5,406 | ) | ||||
Accounts payable | 147,265 | 8,687 | ||||||
Accrued liabilities | 218,233 | 211,920 | ||||||
Right of use asset and liability | 23,089 | — | ||||||
Net cash used in operating activities | (303,235 | ) | (593,236 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Deposit escrow | 25,000 | (50,000 | ) | |||||
Security deposit | (1,589 | ) | — | |||||
Net cash provided by (used in) investing activities | 23,411 | (50,000 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds on loans payable - related parties | 750 | 120,000 | ||||||
Payments on loans payable - related parties | (42,750 | ) | (41,000 | ) | ||||
Proceeds on note payable | 68,200 | — | ||||||
Payments on notes payable | — | (36,000 | ) | |||||
Proceeds from sale of repurchase option | 250,781 | 623,750 | ||||||
Proceeds from exercise of warrants | 25,000 | — | ||||||
Proceeds from sale of common stock | — | 68,750 | ||||||
Net cash provided by financing activities | 301,981 | 735,500 | ||||||
Changes in cash and cash equivalents | 22,157 | 92,264 | ||||||
Cash and cash equivalents, beginning of period | 24,159 | 1,384 | ||||||
Cash and cash equivalents, end of period | $ | 46,316 | $ | 93,648 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | — | $ | 1,805 | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Common stock issued for conversion of accounts payable | $ | 152,500 | $ | — | ||||
Common stock issued for merchant equity liability | $ | — | $ | 14,877 |
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. payments. 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 - SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
TheCompany’s consolidatedfinancial statementshave been prepared in accordancewith accounting principles generally accepted inthe United States ofAmerica (“U.S. GAAP”).Also see Note 3.
PrinciplesAccounting Method of Consolidation
The accompanying unaudited financial statements of Apptech Corp. have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“GAAP”) for interim financial information and in accordance with Rule 8-03 of Regulation S-X. Certain information and disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. These interim financial statements should be read in conjunction with the audited annual financial statements of the Company as of and for the year ended December 31, 2019. The results of operations for the three months and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year.
Principles of Consolidation
The Company’s accounts includefinancials ofthe Company and itswholly owned subsidiaries,Transcendent One,Inc. and TransTechOne, LLC. All significant inter-company transactionshave been eliminatedinconsolidation. Theoperations ofTranscendent One, Inc. and TransTech One, LLC. All significant inter-company transactions have been eliminated in consolidation. The operations of Transcendent One, Inc. and TransTech One, LLC 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 which 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 date ofpurchaseascash equivalents. Management determines the appropriateclassification of its investments at thetimeofpurchase and reevaluatesthe 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
The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses four financial institutions to service their merchants for which represented 100% of accounts receivable as of September 30, 2020 and 2019. The loss of one of these financial institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company. For the nine months ended September 30, 2020 and 2019, the one merchant (customer) represented approximately 36% and 40% of the total revenues, respectively. The loss of this customer would have significant impact on the Company’s operations.
Cash and Cash Equivalents
The Company classifies its highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations of each investment as of the balance sheet date for each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those with maturities greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification method.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable isrecorded net of anallowance for doubtful accounts,if needed. The Companyconsiders any changes tothe financial condition of itsfinancial institutions used andanyother external market factors that could impact the collectability of its receivables inthe determination of itsallowance for doubtful 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)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 Company 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 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 aCloud 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 bereceived tosellan asset or paid totransfer a liability in 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:
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 short maturity of these instruments.
Research and 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 threenine monthsended MarchSeptember 30, 2020 and 2019 were $49,250 and $62,350, respectively.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated. As of September 30, 2020 and December 31, 2020 2019, there were no asset impairments.
Lease Commitment
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and2019were $12,000 to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and $6,820,respectively. non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 the 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 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 obtains therights to directthe use ofandto obtainsubstantially all of theeconomic benefits from usingthe underlying asset. The Companyhas lease agreements which include lease and non-leasecomponents, which the Companyhas elected to accountfor as asingle 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 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 (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 option topurchase theunderlying assetif reasonablycertain.
Variable leasepayments not dependent on a rate orindex associatedwiththeCompany’s leases arerecognizedwhen theevent, activity, orcircumstanceinthe leaseagreementonwhich thosepayments areassessedas probable.Variable leasepaymentsarepresented as operating expenses inthe Company’sstatement of operationsin thesame line asexpensearising fromfixed leasepayments.As of March 31,September 30, 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,September 30, 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 during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period.
As of March 31,September 30, 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.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 subsequent recognition of interest 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 the Company’s commonstockonthe date ofgrant and is recognizedover the service period. The Company hasseveralconsultingagreementsthathave sharebasedpaymentawards based onperformance.Theseagreements typicallyrequire theCompany toissue common stock tothe consultants on amonthly basis. The Companyrecordsthe fair market value of the common stockissuableat eachmonth end when the performance is complete based upontheclosingmarket price ofthe Company’s commonstock.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company hasentered into boardbelieves those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – GOING CONCERN
As reflected in the accompanying consolidated financial statements, during the nine months ended September 30, 2020 and 2019, the Company incurred a net loss of directors agreements$2,898,406 and $907,970 and used cash of $303,235 and $593,236 in operating activities. In addition, the Company had a working capital deficit of $7,735,022 and an accumulated deficit of $43,658,819 at September 30, 2020. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. We have evaluated the conditions or events thathave share basedpaymentawards based onservice. Theseagreements require raise substantial doubt about the Company’s ability as a going concern within one year of issuance of the consolidated financial statements.
While the Company is continuing operations and generating revenues, the Company’s cash position is not significant enough to support the Company’s daily operations. To fund operations and reduce the working capital deficit, we intend to raise additional funds through public or private debt and/or equity offerings. During 2020, the Company raised $274,614 from eight sales of a repurchase option and $25,000 from warrants exercised to fund operations. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company toissue commonstockto continue as a going concern, however, such are not guaranteed. While the directors,earned on amonthly basis,over Company believes in theoneyear term viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect, nor can there be assurance that such funds will be at acceptable terms. As of theagreement. date of these consolidated financial statements, the Company has not finalized a commitment for additional capital. The ability of the Company recordsto continue as a going concern is dependent upon our ability to further implement its business plan and generate revenues and cash flows. The consolidated financial statements do not include any adjustments that might be necessary if the fair market valueofthe commonstock issuable atthe end ofthe month when the directorCompany isappointed unable totheboard basedupon the closingmarketprice oftheCompany’s common stock continue as a going concern.
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 agoing concern.
Risks and uncertainties
On January 30, 2020,the World Health Organization declaredthe coronavirus outbreak a“Public “Public Health Emergency ofInternational Concern”and on March 10, 2020,declaredit to be apandemic. Actions takenaroundtheworldtohelp mitigate the spread of the coronavirusinclude restrictions ontravel, and quarantinesin certainareas,and forced closures for certaintypes of public placesand businesses. Thecoronavirus 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 pandemic had significant impact on revenue at the beginning of the pandemic and began to return to normal after several months. The continuing effects of the potential impact cannot beestimated estimate atthis time.
Additionally,itis reasonably possiblethatthe estimates made in thefinancial statementshave been,orwill be materially and adversely impacted in thenearterm as a result 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.(AppTech (AppTech and 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 “System and MethodforDelivering WebContent to a Mobile Device”,USPTO8,315,184“Computer “Computer to Mobile Two-WayChatSystem and Method”,andUSPTO8,369,828“Mobile-to-Mobile “Mobile-to-Mobile Payment 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 MarchSeptember 30, 2020 and December 31, 2020and December 31,2019,amounts included inaccounts payable related tothe assumption of liabilities in connectionwith the patentswere$380,000 $340,500 and $415,000, respectively. The Company has expensed the cost of the patents as research and development costsasthe future estimated cash flow expected cannot be reasonably estimated.
NOTE 5 – ACCRUEDLIABILITIES
Accrued liabilitiesas of March 31,September 30, 2020and December 31, 2019consist of thefollowing:
March 31, 2020 | December 31, 2019 | September 30, 2020 | December 31, 2019 | |||||||||||||
Accrued interest – related parties | $ | 951,559 | $ | 943,356 | $ | 1,010,505 | $ | 943,356 | ||||||||
Accrued interest – third parties | 1,275,129 | 1,215,699 | 1,352,090 | 1,215,699 | ||||||||||||
Accrued residuals | 36,251 | 39,064 | 55,068 | 39,064 | ||||||||||||
Accrued merchant equity | 91,023 | 91,023 | 91,023 | 91,023 | ||||||||||||
Other | 45,251 | 45,338 | 44,026 | 45,338 | ||||||||||||
Total accrued liabilities | $ | 2,399,213 | $ | 2,334,480 | $ | 2,552,712 | $ | 2,334,480 |
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 thenotes 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” “Program”). Underthe Program, themerchant earned 1% of their total Visa/MasterCardvolume processedduring the first year of theircontract. Forexample,if amerchant processes $1.0millionin credit cardcharges, the merchant will receive 10,000shares ofthe Company’s commonstock. Themerchant must processwith the Companyfor a periodof three years for the shares tovest. All merchants becamefully vestedwhen the Company endedthe programeffective December 31,2015.
Formerchants inwhich the shares of commonstock are notknown as they arewithin the one-year period,the Companyestimates on a quarterly basis as tothe estimated amount of shares based uponthe expectedamount to be processedbythemerchant on an annualbasis. Atthe end ofthe first year, when the number of shares issuable isknown, the Companymakesanadjustment tothe valueofthe shares,if needed.
The Company accountsforthevalue ofthe shares under the program as asales incentive and thus theamountsin connectionwith the Program are recorded as a reduction to revenues. As of March 31,September 30, 2020,the Company has an obligation toissue approximately 776,000sharesofthe Company’s common stockissuableunderthe Program. During the year endedDecember31, 2019,the Company issued 37,193sharesof common stock relieving $14,877 in liability underthe program.
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 September 30, 2020 and December 31, 2020and2019.Related partiesnotedbelow areeither membersofmanagement,board of directors,significant shareholders or individuals inwhich have significantinfluence over the Company.
Loans Payable – RelatedParties
During thethree nine months ended March 31,September 30, 2020and 2019,theCompany obtained (paid) $(28,050)$(42,000) and$69,500 $79,000 loans payable from related parties,net.As of MarchSeptember 30, 2020 and December 31, 2020and December31,2019,thebalance oftheloans payablewas$65,351 $51,401 and $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 MarchSeptember 30, 2020 and December 31, 2020and December 31, 2019,accrued interest related tothe subordinated notes was $127,295$144,795 and $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$400,000. As of March 31, 2020and December 31, 2019,the accrued interest related tothe convertible noteswas$196,333and $186,083,respectively.The Companyis currently in default of thenote agreements.
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
Convertible Notes Payable
In 2017, the Company received $222,000 in convertible notes payable from related parties. The convertible notes payable are unsecured, were due in 180 days, incur interest at 10% per annum and are convertible at $0.10 per share. As of September 30, 2020 and December 31, 2019, accrued interest related to the convertible notes was $70,638 and $53,988, respectively. On the date of the agreement, Management calculated the beneficial conversion feature in connection with the convertible notes payable and recorded a discount of $222,000. The Company amortized the discount over the term of the convertible notes payable of 180 days. The Company is currently in default on the convertible notes payable.
In 2015, the Company issued $50,000 in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $1.00 per share. As of September 30, 2020 and December 31, 2019, the accrued interest related to the convertible notes was $24,584 and $20,833, respectively. The Company is currently in default on the convertible note payable.
In 2014, the Company issued $400,000 in convertible notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest between 10% to 12% per annum and are convertible at prices ranging from $0.33 to $1.00 per share. In addition, the Company issued 400,000 shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 400,000 shares of common stock at $1.00 per share within one year of the note issuance date. As of September 30, 2020 and December 31, 2019, the Company held the obligation to repurchase the shares for $400,000. As of September 30, 2020 and December 31, 2019, the accrued interest related to the convertible notes was $216,833 and $186,083, respectively. The Company is currently in default of the note agreements.
In 2008 and 2009, the Company issued $320,000 in convertible notes payable, of which $150,000 was from related parties. The convertible notes payable are currently due on demand, incur interest at 15% per annum, and convertible at $0.60 per share. As of September 30, 2020 and December 31, 2019, accrued interest related to the convertible notes was $552,013 and $516,013 of which $260,250 and $243,375, respectively, was due to related parties. The Company is currently in default of the notes payable agreements.
Notes Payable
In 2020, the Company entered into a note payable with U.S. Small Business Administration for $68,200 in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principle and interest are deferred for twelve months with the first $333 payment due July 1, 2021. As of September 30, 2020 the balance of the note payable was $68,300 and accrued interest was $640.
In 2016, the Company issued $143,000 in notes payable to third parties. The notes payable were due in ninety days or less. During 2019, the Company paid $36,000 in notes payable. The Company is currently in default of the note agreements.
In 2007 and 2008, theCompany entered into notes payable with a related party for $46,000 in proceeds. The notes payable were due on demand and incurred interest at 12% per annum. These were combined into a single note agreement in 2014. As of September 30, 2020 and December 31, 2019, the balance on the note payable was $88,136 and accrued interest related to the note payable was $57,235 and $49,243, respectively. The Company is currently in default of the note payable agreement.
In 2007, the Company entered into note payablewitha third partyfor $128,000 inproceeds.Underthe termsof the terms of the agreementthe holder received aflat interestamount of $37,496. The Companyiscurrentlyindefault ofthe note payable agreementand the entire amount of $37,496 has been included within accrued interest. Since the note payable did not incur interest, the Company imputed interest at $3,200$9,600 and $3,200,$9,600, respectively, which represented an interest rate of 10% per annum during the threenine months ended March 31,September 30, 2020 and 2019.
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$21,000. As of September 30, 2020 and December 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$250 $750 and $250, $750, respectively, which represented an interest rate of 10% perannum during the threenine months ended March 31,September 30, 2020and 2019.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.On September 30, 2013,the holder received an arbitrationsettlement fortheprincipaland accrued interest. As of MarchSeptember 30, 2020 and December 31, 2020and December 31,2019,the Companywasin default ofthearbitration settlement. As of MarchSeptember 30, 2020 and December 31, 2020and December 31,2019,accrued interest related to thenotepayablewas $439,931 $460,072 and $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 MarchSeptember 30, 2020 and December 31, 2020and December 31, 2019,accrued interest related tothe note payablewas $71,978 $74,908 and $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 MarchSeptember 30, 2020 and December 31, 2020 andDecember 31, 2019,the aggregate balance ofthe notes payablewas $620,355and $591,114 accrued interest was $591,114 $622,382 and $575,480,respectively.
NOTE 7 – RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Companyentered into a lease agreementcommencing February 8, 2020for itscurrent 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,September 30, 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 |
2020 | $ | 20,089 | |||
2021 | 82,561 | ||||
2022 | 85,039 | ||||
2023 | 87,590 | ||||
2024 | 90,217 | ||||
2025 | 7,536 | ||||
$ | 373,032 | ||||
Less: Imputed interest | (84,823 | ) | |||
Total | $ | 288,209 |
17
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 companysharesinexchange for stocksin another company and a 2014consulting agreement. The Company strongly disputed all claims made in the lawsuit.OnApril20, 2017,theCompanyfiledan answerthat denied each and every purported allegationand cause of 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 general and administrative expenses. A stipulation fordismissal of actionhas beenfiled withthecourts. As ofMay 14, September 30, 2020,we arecurrent in default on thepayment schedule. The plaintiffs have filed a motion to enforce the settlement agreement and we have requested a modified payment schedule from the courts due to the pandemic from the coronavirus outbreak and no settlement has been reached as of the date of the financial statement.
Former Landlord 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 threenine months ended March 31,September 30, 2020 was $35,000.$5,000$74,500. On June 19, 2020, resulting from the impact of Covid-19 pandemic, AppTech entered into a modified settlement payment schedule. The November 1, 2020 payment was paid towardsthe March 31, 2020installmentmade timely and we are current on the April 30, 2020installment was not paid. We arecurrently in default of theagreement and are in discussionswith the plaintiffs tocure the default prior to May 22,2020.following modified payment schedule:
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
November 1, 2020 | 20,000 | ||||
December 1, 2020 | 20,000 | ||||
January 2, 2021 | 20,500 | ||||
Total | $ | 60,500 |
Significant Contract
In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC. doing business as Lifelight Systems (“Lifelight”), expanding into the telehealth sphere. The partnership will expand Apptech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets. The strategic partnership provides a promissory note for up to one million dollars at a rate of three percent upon successful completion of Lifelight’s Personal Emergency Response System (PERS) pilot program. Also Lifelight is granted the right to purchase four million five hundred thousand shares of Apptech Corp. exercisable at $0.01 for one million shares and $0.25 for three million five hundred thousand shares upon the successful completion of the PERS pilot program. In accordance with the agreement, the contract, and all such liabilities and rights, are contingent upon a Lifelight’s successful completion of its PERS pilot program and AppTech securing financing.
In January 2019, the Company entered into an agreement with a broker dealer to provide capital raising activities. Under the terms of the agreement the broker dealer is to make a minimum of $90,000 in advisory fees. In addition, there are various other provisions within the agreement which include a 10% placement fee, warrants to purchase common stock, a 4% transaction fee, etc.
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 9 – STOCKHOLDERS’DEFICIT
Series A Preferred Stock
The Companyis authorized toissue 100,000shares of $0.001 parvalue Series A preferredstock (“Series A”). Therewere fourteen (14)shares of Series A preferredstock outstanding as of MarchSeptember 30, 2020 and December 31, 2020and December 31,2019. The holders of Series A preferredstock areentitled toone vote pershare on an “asconverted” basis on allmatters submitted to avote of stockholdersand arenot entitled tocumulate theirvotes inthe election of directors. The holders of Series A preferred stock areentitled to any dividends that may be declared bytheBoard of Directorsout offunds legally available, therefore on apro rata basis according to their holdingsof sharesof Series A preferredstock, onan as convertedbasis. In the event of liquidation or dissolution ofthe Company, holders of Series A preferredstock areentitled toshare ratably in all assets remainingafter payment of liabilities andhave no liquidation preferences. Holders ofSeries A preferredstock have aright toconvert eachshare of Series Ainto 780shares commonstock.
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 allmatters submitted to avote ofstockholders and arenot entitled tocumulate their votes in the election of directors. The holdersof common stock areentitled to any dividends thatmay be declared by the board of directorsout of funds legally available, therefore subject tothe priorrights of holders ofany outstanding shares of preferredstock and any contractual restrictions againstthe 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 thehave no liquidation preferences ofanyoutstanding shares of preferredstock. preferences. Holders of commonSeries A preferred stock have no preemptive orother subscription rightsand noa right toconvert theireach share of Series A into 780 shares common stockintoany othersecurities.stock.
During the threemonths ended March 31, 2020and2019,the Company issued 2,349,500and12,000,respectively, shares of common stock to several consultants in connectionwith business development and 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 commonstock repurchase option agreement topurchaseor assign 300,000shares of commonstock from athird party at $0.05 pershare. TheCompany assigned itsrights tothe repurchase optionagreement to athird partyinexchange for compensation. Thecommon stockrepurchaseoptionswere exercised on January 26, 2020for which the Companyreceived $98,750 in proceeds whichwas recorded asadditionalpaid-in capital.
On February 26, 2020,the Company enteredinto a commonstock repurchase optionagreement topurchase orassign266,115shares of commonstock from athird party at $0.05 pershare. TheCompany assigned itsrights tothe repurchase optionagreement to a third party in exchangefor compensation. The commonstock repurchase optionwas exercised on February 27, 2020for which the Companyreceived $25,281 in proceeds whichwas recorded asadditional paid-in capital.
On March 18, 2020,theCompany entered into a commonstock repurchase option agreement topurchaseor assign 250,000shares of commonstockfrom athird party at $0.05 pershare.TheCompany assigned itsrights tothe repurchase optionagreement to athird party inexchange for compensation. The commonstock repurchase option was exercised on March 19, 2020for which the Companyreceived $62,500 in proceeds whichwasrecorded asadditional paid-in capital.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
The Company is authorized to issue 1,000,000,000 shares of $0.001 par value common stock. There were 87,821,825 and 84,153,825, respectively, shares of common stock outstanding as of September 30, 2020 and December 31, 2019. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available, therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions against the payment of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock into any other securities.
During the nine months ended September 30, 2020 and 2019, the Company issued 3,568,000 and 439,500, respectively, shares of common stock to several consultants in connection with business development, accounts payable conversion and professional services. The Company valued the common stock issuances at $2,357,125 and $89,134, respectively, based upon the closing market price of the Company’s common stock on the date in which the performance was complete or issued based upon the vesting schedule and the closing market price of the Company’s common stock on the date of the agreement. The amounts were expensed to general and administrative expenses on the accompanying consolidated statements of operations. The accounts payable conversion was $152,500.
Stock Options
On August 25, 2020, the Company issued an option to purchase 100,000 shares of common stock at $0.25 per share with an expiration date of February 25, 2021. The options were valued at $140,945 and include within stock issued for business development consulting services. The Company valued the options at $140,945 using the Black Scholes valuation model with the following variables; expected volatility of 100%, risk free rate of 0.11%, fair market value of the Company’s common stock of $1.48 on the date of grant, and an expected life of 0.50 years. The option was exercised on August 26, 2020.
Common Stock Repurchase Option
On January 23, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 300,000 shares of common stock from a third party at $0.05 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase options were exercised on January 26, 2020 for which the Company received $98,750 in proceeds which was recorded as additional paid-in capital.
On February 26, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 266,115 shares of common stock from a third party at $0.05 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option was exercised on February 27, 2020 for which the Company received $25,281 in proceeds which was recorded as additional paid-in capital.
On March 18, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 250,000 shares of common stock from a third party at $0.05 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option was exercised on March 19, 2020 for which the Company received $62,500 in proceeds which was recorded as additional paid-in capital.
On April 24, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 55,000 shares of common stock from a third party at $0.05 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option was exercised on April 27, 2020 for which the Company received $19,250 in proceeds which was recorded as additional paid-in capital.
On August 26, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 250,000 shares of common stock from a third party at $0.07 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option was exercised on August 26, 2020 for which the Company received $45,000 in proceeds which was recorded as additional 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, October 1, 2020,the Companyentered into a strategic partnership with NEC Payments B.S.C through the deployment of NECP’s technologies, Apptech will extend its product offering to include flexible, scalable and secure payment acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legally payment types to distanced and contactless card and real time payment transactions. NECP will assist Apptech to complete the development of its text payment solution and provide best in class software that complements Apptech’s intellectual property. Apptech will also receive licenses to utilize NECP’s digital banking platform, including exclusivity in the United States for its payment acceptance software.
All terms of this agreement are contingent upon Apptech Corp. receiving funding in excess of three million dollars within forty-five days of execution. NECP will be awarded a fifteen percent equity stake in Apptech Corp. on a fully diluted basis.
On October 2, 2020, the Company entered into an independent contractor services agreement with Innovations Realized, LLC to develop a strategic operating plan focused on the design, execution and go to market aspects of the NECP platform to enter the United States market.
On October 21, 2020, the Company entered into an engagement agreement with Emerging Markets Consulting, LLC. to be the investor relations firm for the Company.
On October 14, 2020, the Company entered into a common stockrepurchase option agreement topurchase or assign 55,0002,000,000 shares of commonstock from a third partyat $0.05 $0.20 pershare. The Company assigned its rightstoa portion of the repurchase optionagreement to athird party inexchange for compensation. Thecommonstockrepurchase option for 13,333 shares was exercised onApril 27, October 14, 2020for whichthe Companyreceived $19,250 $7,333 in proceedswhich was recorded as additionalpaid-in capital.
On October 14, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 10,000 shares was exercised on October 15, 2020 for which the Company received $5,500 in proceeds which was recorded as additional paid-in capital.
On October 14, 2020, the Company entered into a common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 20,000 shares was exercised on October 29, 2020 for which the Company received $11,000 in proceeds which was recorded as additional paid-in capital.
Seenote8for additionalsubsequent events.
Item Item2. Management’s Discussion and Analysis Ofof Financial Condition Andand Results Ofof 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 aintend to simplify and streamline the financial technology companyindustry utilizingthrough innovative payment processing and digital banking 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 traditionalmeansofcashless and/or contactless payments, such as credit cards,ACH, wireless payments, andmore. ThroughOur partnershipsandpatented, exclusively licensed and/or proprietarysoftwarewe offers or will offerour merchants integrated, advanced capabilitiessuchasonline paymentgateways andpayment splitting to protect,enhance and expandtheir business.Further,in partthrough our intellectual property and patents,weoffer integrated,advancedsolutionsfor mobilepayment processing, multi-use case issuer processing, global marketing and payment facilitation,facilitation. Our innovative and scalable business model allows digitalmarketing, software development,mobile appdevelopment, website developmentfor expansive white labeling, SaaS distribution andwebsite hosting. integrated revenue streams.
Each merchant has unique requirements for payment processing. As a result, we offer a variety of solutions to meet each merchant’s requirements. By considering all aspects of our clients’ business, such as risk, volume, customer service integration capabilities and technical needs, we create optimal processing solutions to fit their needs. We will continue to aggressively seek new merchants as we shift our focus to technological advancement.
We believe the financial services industry is going through a period of intensive change driven by the rapid advancement of technology which is adapting to societal changes and contactless transactions. If positioned properly, our yet to be released technologies are poised to be at the forefront of this change. We believe we will do this by deploying innovative business and consumer digital financial services products.
Through exclusive licensing and partnership agreements with NEC Payments, management believes we will become pioneers in the processing technology industry by supporting tokenized, multi-channel and API-driven transactions. This will further occur through the integration of our merchant services and secure text payment solution with their platform’s extensive digital account and multi-channel issuer payment processing capabilities to form an end-to-end payment acceptance and digital banking solution for SMEs and will power straight-through processing opportunities in the B2B payment space.
We are expanding 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.payments and alternate banking solutions in a sector that is shifting towards new technologies related to convenience and contactless payments. Tosucceed, businesses mayneed to adopttext messagingnew technologies to engage, communicate and process payments withtheircustomers. We believe this technological advancement in the payment and banking industries is the thatprecise direction companies are trending towards and we intend for our patent protectedtext platformwill allow businessescurrent and future products tocommunicate regularlywith their customers,suppliersand partnersknowing that theirtexts are being readand welcomed. be at the forefront in providing these solutions.
We seekare also expanding upon our financial technology foundation into the telehealth and remote patient monitoring sectors in response to grow our business by pursuingcultural shifts and new healthcare demands of society. Through a strategic partnership, we will aid in offering personal emergency response and remote patient monitoring services and equipment help ensure the following strategies:safety of the elderly and injured or sick patients while providing peace of mind to family members, care givers and retirement communities. These solutions increase patient’s access to comprehensive care options and allow medical teams to intervene in a timely manner to avoid more serious health concerns. By providing financial and administrative services we will have the opportunity to receive substantial revenue share from recurring revenue billed through Medicare with the potential for substantial growth and substantial profit margins.
We are 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 amaterialhas an 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.Administrative. General and administrative expenses include professional services, rent and utilities, and other operating costs.
Research and development.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 and nine-month periods ended March 31,September 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,September 30, 2020
Compared to the Three Months Ended March 31,September 30, 2019
Thefollowing table presents ourhistorical results of operationsfor the periods indicated:
Three Months Ended March 31 | Three Months Ended September 30 | |||||||||||||||
(in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenue | $ | 58.2 | $ | 56.8 | $ | 105.4 | $ | 66.5 | ||||||||
Cost of revenue | 23.2 | 22.5 | 48.8 | 26.5 | ||||||||||||
Gross profit | 35.0 | 34.3 | 56.6 | 40.0 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | 1,415.9 | 189.7 | 1,089.8 | 315.3 | ||||||||||||
Research and development | 12.0 | 6.8 | 3.0 | 33.2 | ||||||||||||
Total operating expenses | 1,427.9 | 196.5 | 1,092.8 | 348.5 | ||||||||||||
Loss from operations | (1,392.9 | ) | (162.2 | ) | (1,036.2 | ) | (308.5 | ) | ||||||||
Other expenses | ||||||||||||||||
Interest expense, net | 71.1 | 76.0 | (71.7 | ) | (71.1 | ) | ||||||||||
Total other expenses | 71.1 | 76.0 | (71.7 | ) | (71.1 | ) | ||||||||||
Loss before income taxes | (1,464.0 | ) | (238.2 | ) | (1,107.9 | ) | (379.6 | ) | ||||||||
Provision for income taxes | — | — | ||||||||||||||
Net Loss | $ | (1,464.0 | ) | $ | (238.2 | ) | $ | (1,107.9 | ) | $ | (379.6 | ) |
The Nine Months Ended September 30, 2020
Compared to the Nine Months Ended September 30, 2019
The following table presents our historical results of operations for the periods indicated:
Nine Months Ended September 30 | ||||||||
(in thousands) | 2020 | 2019 | ||||||
Revenue | $ | 241.3 | $ | 190.4 | ||||
Cost of revenue | 103.7 | 75.1 | ||||||
Gross profit | 137.6 | 115.3 | ||||||
Operating expenses | ||||||||
General and administrative | 2,781.9 | 743.2 | ||||||
Research and development | 49.2 | 62.4 | ||||||
Total operating expenses | 2,831.1 | 805.6 | ||||||
Loss from operations | (2,693.5 | ) | (690.3 | ) | ||||
Other expenses | ||||||||
Forgiveness of debt | 9.0 | |||||||
Interest expense, net | (213.9 | ) | (217.7 | ) | ||||
Total other expenses | (204.9 | ) | (217.7 | ) | ||||
Loss before income taxes | (2,898.4 | ) | (908.0 | ) | ||||
Provision for income taxes | — | — | ||||||
Net Loss | $ | (2,898.4 | ) | $ | (908.0 | ) |
Revenue
Revenue increased to $58,157$105,357 from $56,800,$66,532 and $241,367 from $190,411, or 2%58% and 27%,for the three months and the threenine months ended March 31,September 30, 2020from the three months and threethe nine months ended March 31,September 30, 2019. Thisincrease was principally driven byvarious insignificanta decrease in processing fees assessed to the Company factors..
Cost of Revenue
Cost ofrevenue increased to $23,225$48,759 from $26,548 and from $103,721 from $22,537,$75,099, or 3%84% and 38%,for the three months and the nine months ended March 31,September 30, 2020from the three months and the nine months ended March 31,September 30, 2019. Thisincrease was driven primarilyby various insignificantincreased residual payouts from increased revenuefactors..
General and Administrative Expenses
Generaland administrative expenses increased to $1,415,899$1,089,808 from $189,645,$315,321 and $2,781,912 from $743,210 for the three months ended March31, 2020from and the three nine months ended MarchSeptember 30, 2020 31,from the three months and the nine months ended September 30, 2019, the increase was primarily drivenbystock-based compensationdue toseveral significant consulting agreementsfor marketing and professional related services.
Research and Development Expenses
Research and development expenses increaseddecreased to $12,000$2,999 from $33,212 and $49,250 from $6,820, or$62,350 76%, for the three months and the nine months ended March 31,September 30, 2020 from the three months and the threenine months ended March 31,September 30, 2019. Thisincreasedecrease was primarily due tovarious insignificant factors.
Interest Expense, net
Interest expense, net increased to $71,723 from $71,087 and decreased to$71,083213,890 from $76,039, or 7%,$217,722 for the three months and the nine months ended March 31,September 30, 2020from the three months and the nine months ended March 31,September 30, 2019. ThisThe decreasewas primarily drivenbythe elimination of one-time interest charges fortheamortization of the debtdiscounton new related party notespayable and refinancing charges on othernotespayable.due to various insignificant factors.
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 2115 days. Further, management believesweneed to raise $1.35M$4.5M toremain in businessfor the next 12months.
Sincewe deriveour revenues principally from processing ofpurchases fromour merchant services clients, a downturn ineconomic activity, such as thatassociated with the current coronavirus pandemic could continue to reduce the volume ofpurchaseswe process,and 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 the following comparative periods.
Three Months Ended March 31, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net cash used in operating activities | $ | (190,888 | ) | $ | (190,661 | ) | $ | (303,235 | ) | $ | (593,236 | ) | ||||
Net cash provided by investing activities | $ | 23,411 | $ | — | ||||||||||||
Net cash provided by (used in) investing activities | $ | 23,411 | $ | (50,000 | ) | |||||||||||
Net cash provided by financing activities | $ | 158,481 | $ | 226,000 | $ | 301,981 | $ | 735,500 |
Cash Flow from Operating Activities
Netcash usedin operating activities increaseddecreased by $227$290,001 for the threenine months ended March 31,September 30, 2020from the threenine months ended March31,September 30, 2019. Thisincrease was principallydrivenbyan increase in accounts payable various insignificantfactors..
Cash Flow from Investing Activities
Netcash providedby investing activities increasedby $23,411$73,411 for the threenine months ended March 31,September 30, 2020from the nine months ended March31,September 30, 2019. Thisincrease was principallydrivenby arefund of a depositand aprepayment of rent expense.deposit.
Cash Flow from Financing Activities
Netcash providedbyfinancing activities decreasedby $67,519$433,519 for the threenine months ended March 31,September 30, 2020from nine themonths ended March31,September 30, 2019. This decreasewas principallydriven by decreased proceeds fromthe sale of commonstock and decreased proceedsfrom loans payable related parties. the sale of repurchase options.
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 reportedamountsof assets, liabilities, revenuesand expenses.On anongoingbasis,weevaluate our estimatesincluding those related torevenue recognition, goodwill andintangible assets, derivativefinancial instruments, and equity-basedcompensation. We baseour estimates onhistorical experienceand onvarious other assumptions that are believed to bereasonable under the circumstances. Actual results maydiffer fromthese estimates underdifferent assumptions orconditions.
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,September 30, 2020,there havebeenno significant changes toour criticalaccounting estimates, exceptas described in Note 2 toour consolidated financial statements.
Recent Accounting Pronouncements
As of March 31,September 30, 2020,there have beenno 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 orfinancial partnerships, such as entitiesoften referred to asstructured finance or special purposeentities, that would have been established tofacilitate off-balancesheet arrangements (asthat term isdefined in Item303(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 inthose types ofrelationships. Weenter into guarantees in the ordinary course ofbusiness 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 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,September 30, 2020.
Changes in Internal Control over Financial Reporting
Therehave not beenany changes inour internal controlover financial reportingduringthe three-monthnine-month periodended March 31,September 30, 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 eachand 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 entry of judgment infavorof thePlaintiffs 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 agreement and are in discussions with the plaintiffs to cure the default by May 22, 2020.
In September 2018,the landlordfor our former office space leasefiled a limitedcivil lawsuitagainst us in the State 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, which was dismissed, filed anotherlawsuit against us in the State ofCalifornia, claiming thesame accusations asthe previouslyfiled lawsuit which was dismissed. Thelawsuit has beentransferred tothe United StatesDistrict Court for the Southern 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 MayAugust 14, 2020,wearecurrent in default on thepayment schedule and have requested a delay in the payment schedule due to the pandemic from the coronavirus outbreak. As of September 30, 2020, we are in default on the payment schedule. The Plaintiffs have filed a motion to enforce the settlement agreement and we have requested a modified payment schedule from the courts due to the pandemic from the coronavirus outbreak and no settlement has been reached as of the date of the financial statement. schedule.
In March 2016,September 2018, asignificant shareholder (“Plaintiff”) ofourscomplaint was filed in San Diego Superior Court fora breach of lawsuit against uscontract arising from a insubsequent agreement regarding thestatepurchase of a judgment for the matter ofCalifornia allegingSvenston breachofcontract, fraudBuelow and negligentAmanda misrepresentation based onEliot supposedv. oralGlobalTel Media. The promisesinpurchase 2013 toof the givePlaintiff’sjudgment was company sharespart of the transaction in exchange forwhich stockwe in another company and a 2014consultingacquired our agreement.IP portfolio from GlobalTel Media. Westronglysubstantially disputed all claimsmade inperformed under the lawsuit.OnApriloriginal 20, 2017,agreement, but the plaintiffs alleged we breached the subsequent agreement which was executed to extend the final payment. On October 26, 2018, we filed an answer anthatanswer that denied each and every purported allegationand cause ofaction, further and furtherdeniedthat they caused anydamage orloss.loss and asserted the affirmative defense of duress. We recorded as a reachedliability anas of December 31, 2019 agreementand resulting2018 in a voluntary dismissalofthe civil case on July 5, 2017. ThePlaintiff was not able tofulfill the proper documentationwithin the allotted 180days and the 3,450,000sharesamount of $135,000 ourand $175,000, respectively. On December 3, 2019, the parties entered into commona stock wereconditional properly cancelledsettlement agreement whereby we agreed to pay $150,000 on a payment schedule ending October 1, 2020. Should the repayment enter default without being cured, the court shall order an entry of judgment in 2019.favor of the Plaintiffs in the amount of $175,000 less any amounts paid under the settlement, plus pre-judgment and post-judgment interest, court costs and reasonable attorney fees. On June 19, 2020, resulting from the impact of COVID-19, we entered into a modified settlement payment schedule. We are current on the modified payment schedule.
As 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.
$274,614 and $25,000 from warrants exercised. Duringthethreenine months ended March 31,September 30, 2020, 2,349,5003,568,000 sharesof common stockwere issued toseveralconsultants in connectionwith business developmentand professional services renderedvalued at $1,209,185.Duringthethree months ended March 31, 2020, weassignedourrights to stockrepurchase option agreements to third partiesresulting innetproceeds of $186,531.$2,357,125. During the threenine monthsended March 31,September 30, 2020,no sharesof common stock wereissued tomembersofthe managementormembersoftheBoard ofDirectors.
All Issuances were exempt from registration requirements of Section 5 of the Securities Act of 1933 as they did not involve a public offering under Section 4(a)2(2)(2) and were issued as restricted securitiesasdefinedinRule 144 of the Act.
Item 3.Defaults Upon Senior Securities.
All subordinated notes payable,convertible notespayable andnotes payableare currently in default.
Item 4.Mine Safety Disclosures.
Not Applicable.
None.
EXHIBITINDEX
Pursuant to the requirements ofthe Securities andExchangeAct of 1934, theregistranthasduly causedthisreport to be signed onits behalf bythe undersigned thereunto dulyauthorized.
AppTech Corp. | ||
Date: | By: | /s/ Luke D’Angelo |
Luke D’Angelo | ||
Interim Chief Executive Officer and Chairman | ||
Date: | By: | /s/ Gary Wachs |
Gary Wachs | ||
Chief Financial Officer |
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