AppTech Payments Corp 10-Q for FY2023 Q1
AppTech Payments Corp. (APCX)
About this 10-Q
AppTech Payments Corp filed this 10-Q on May 8, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $89K
- down 14.4% from $104K a year earlier
- Net loss
- $3.15M
- compared with a net loss of $5.46M a year earlier
- Diluted EPS
- -$0.22
- compared with -$0.35 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ________________________
Commission file number:
(Exact name of registrant as specified in its charter)
| 7389 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices & Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Capital Market | ||
| Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “ accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | |
|
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
As of May 8, 2023, the registrant had shares of common stock (par value $0.001 per share) issued and outstanding.
AppTech Payments Corp.
Form 10-Q
Table of Contents
| 2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this Quarterly on Form 10-Q of AppTech Payments Corp. (we, our, AppTech or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include:
| · | uncertainty associated with anticipated launch of our text payment platform and other potential advanced payment solutions we intend to launch in the future; | |
| · | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | |
| · | dependence on third-party channel and referral partners, who comprise a portion of our sales force, for gaining new clients; | |
| · | a slowdown or reduction in our sales due to a reduction in end-user demand, unanticipated competition, regulatory issues, or other unexpected circumstances | |
| · | uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer in the future; | |
| · | our current 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; | |
| · | uncertainty associated with our ability to achieve profitability through the HotHand patents; |
All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).
We encourage you to read the discussion and analysis of our financial condition and our financial statements contained in this Quarterly Report on Form 10-Q. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates.
Unless the context otherwise requires, throughout this Quarterly Report on Form 10-Q, the words “AppTech” “we,” “us,” the “registrant” or the “Company” refer to AppTech Payments Corp.
| 3 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
APPTECH PAYMENTS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO UNAUDITED FINANCIAL STATEMENTS
(The financial statements have been condensed for presentation purposes)
| 4 |
APPTECH PAYMENTS CORP.
CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 2023 AND DECEMBER 31, 2022
(UNAUDITED)
(in thousands, except shares and per share data)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalent | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Prepaid license fees - current | ||||||||
| Total current assets | ||||||||
| Prepaid license fees - long term | ||||||||
| Intangible assets | ||||||||
| Note receivable | ||||||||
| Right of use asset | ||||||||
| Security deposit | ||||||||
| Capitalized software development and license (net of accumulated amortization) | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Right of use liability | ||||||||
| Stock repurchase liability | ||||||||
| Convertible notes payable, net of $ | ||||||||
| Notes payable | ||||||||
| Notes payable related parties | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Right of use liability | ||||||||
| Notes payable, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Equity | ||||||||
| Series A preferred stock; $ par value; shares authorized; shares issued and outstanding on March 31, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value; shares authorized; and issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the financial statements.
| 5 |
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
(in thousands, except shares and per share data)
| For the Three Months Ended March 31, 2023 | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative, including stock
based compensation of $ | ||||||||
| Research and development,including stock based
compensation of $ | ||||||||
| Excess fair value of equity issuance over assets received | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ||||||||
| Other income (expenses) | ||||||||
| Total other income (expenses) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Deemed dividend related to warrant resets | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share | $ | ) | $ | ) | ||||
| Weighted-average number of shares used basic and diluted per share amounts | ||||||||
See accompanying notes to the financial statements.
| 6 |
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
(in thousands, except shares and per share data)
| Series A Preferred | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for forbearance | – | |||||||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Common stock cancelled | – | ( | ) | |||||||||||||||||||||||||
| Net proceeds from sale of public offering | – | |||||||||||||||||||||||||||
| Balance March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Issuance of shares for prepaid services | – | |||||||||||||||||||||||||||
| Retained earnings change due to warrants' repricing | – | – | ( | ) | ||||||||||||||||||||||||
| Net proceeds from sale of offering shares | – | |||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to the financial statements.
| 7 |
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
(in thousands, except per share data)
| March 31, 2023 | March 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Issuance of stock for prepaid services | ||||||||
| Common stock issued for forbearance | ||||||||
| Cancellation of stock repurchase liabilities | ( | ) | ||||||
| Stock issued for excess fair value of equity over assets received | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of intangible assets and software | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Prepaid license costs | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Right of use asset and liability, net | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capitalized prepaid software development and license | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on loans payable - related parties | ( | ) | ||||||
| Repayments on notes payable | ( | ) | ( | ) | ||||
| Repayment of convertible note payable | ( | ) | ||||||
| Net proceeds from offering | ||||||||
| Net cash provided by financing activities | ||||||||
| Changes in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing transactions | ||||||||
| Cancellation of stock repurchase liabilities | $ | $ | ||||||
| Issuance of stock for prepaid services | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | |||||||
| Restricted cash | $ | $ | ||||||
| Total cash, cash equivalents, and restricted cash in the consolidated statements of cash flows | $ | $ | ||||||
See accompanying notes to the financial statements.
| 8 |
APPTECH PAYMENTS CORP.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
AppTech Payments Corp. (“AppTech” or the “Company”), a Delaware corporation, is a Fintech Company headquartered in Carlsbad, California. AppTech utilizes innovative payment processing and digital banking technologies to complement its core merchant services capabilities. The Company’s patented and proprietary software will provide progressive and adaptable products that are available through a suite of synergistic offerings directly to merchants, banking institutions, and business enterprises.
AppTech is developing an embedded, highly secure digital payments and banking platform that powers commerce experiences for clients and their customers. Based upon industry standards for payment and banking protocols, we will offer standalone products and fully integrated solutions that deliver innovative, unparalleled payments, banking, and financial services experiences. Our processing technologies can be taken off-the-shelf or tapped into via our RESTful APIs to build fully branded and customizable experiences while supporting tokenized, multi-channel, and multi-method transactions.
In 2017, the Company acquired assets from GlobalTel Media, Inc. The assets included patented, enterprise-grade software for advanced text messaging, four patents in text technology, and additional intellectual property for mobile payments.
In 2020, AppTech entered into a strategic partnership with Infinios (formerly “NEC Payments”), to extend its product offering to include flexible, scalable, and secure payment acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legacy payment types to contactless card and real time payment transactions.
In 2021, the Company announced its intent to launch an innovative and patented mobile text payment solution in addition to a suite of digital banking and payment acceptance products designed in the Business-to-Business (“B2B”) and Business-to-Consumer (“B2C”) payment and software space.
On December 23, 2021, AppTech re-domiciled to Delaware and changed its name from “AppTech Corp.” to “AppTech Payments Corp.” AppTech stock trades under the symbol “APCX” and its warrants trade under the symbol “APCXW,” on the Nasdaq Capital Market (“NASDAQ”).
The Company successfully completed its capital
raise and uplisting onto NASDAQ (herein referred to as its “Offering”) on January 7, 2022. As part of the Offering, the Company
executed a
In April 2022, the Company acquired HotHand Inc. (“HotHand”), a patent-holding company. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States.
In September 2022, the Company expanded its operations to Austin, Texas by establishing AppTech Holdings LLC. The goal of this expansion is primarily to pursue licensing revenue.
| 9 |
In February 2023, the Company completed an underwritten
public offering of its common stock and warrants, raising gross proceeds of approximately $
Management's Plan
The Company continues to have yearly losses from its limited revenues from operations. Management believes the present cash flows will not enable it to meet its commitments for twelve months from the date of filing. However, Management has an open S-3 filed with the SEC and it intends to obtain the necessary funding for the Company to meet its obligations for the twelve-month period from the date the financial statements are issued.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended March 31, 2023 and March 31, 2022. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying consolidated unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 20, 2023. The interim results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ended December 31, 2023 or for any future interim periods.
Basis of Consolidation
The consolidated financial statements include the accounts of AppTech Payments Corp., and wholly owned subsidiary of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, valuation of the derivative liabilities, and realization of tax deferred tax assets. Actual results could differ from those estimates.
Restricted Cash
Included in current assets is a $
| 10 |
Concentration of Credit Risk
Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250,000 per institution that pays Federal Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to these balances.
The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. There is no merchant (customer) representing a significant amount of total revenue, for the three months ended March 31, 2023 and for the year ended December 31, 2022.
Software Development Costs
The Company capitalizes certain costs related to the development of its digital banking platform. Costs incurred during the development phase are capitalized only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the development phase include employee compensation and consulting fees for third party developers working on these projects. Costs related to the preliminary project planning phase and post implementation phase are expensed as incurred. The digital banking platform is amortized on a straight line basis over the estimated useful life of the asset.
Revenue Recognition
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, codified as Accounting Standards Codification (“ASC”) 606 Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
The Company provides merchant processing solutions for credit cards and electronic payments. In all cases, the Company acts as an agent between the merchant which generates the credit card and electronic payments, and the bank, which processes such payments. The Company’s revenue is generated on services priced as a percentage of transaction value or a specified fee transaction, depending on the card or transaction type. Revenue is recorded as services are performed, which is typically when the bank processes the merchant’s credit card and electronic payments.
Consideration paid to customers, such as amounts earned under our customer equity incentive program, are recorded as a reduction to revenues.
Fair Value Measurements
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
| 11 |
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term maturity of these financial instruments.
Transactions involving related parties cannot be presumed to be carried out on an arms-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
The following table presents liabilities that are measured and recognized at fair value as of March 31, 2023 and December 31, 2022 on recurring basis (in thousands):
| Schedule of derivative liabilities | ||||||||||||||||
| March 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Carrying
Value | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Carrying
Value | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
See Note 6 for discussion of valuation and roll forward related to derivative liabilities.
Intangible Assets and Patents
Our intangible assets only consist of patents.
We amortize the patents on a straight-line basis from
Research and Development
In accordance with ASC 730, Research and Development (“R&D”) costs are expensed when incurred. R&D costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and other outside services. Total R&D costs for the three months ended March 31, 2023 and 2022 was approximately $ and $, respectively.
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include stock options, warrants granted, convertible debt and convertible preferred stock.
| 12 |
The number of common stock equivalents not included in diluted income per share was and for the three months ended March 31, 2023 and 2022, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive.
| Schedule of anti-dilutive shares | ||||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Series A preferred stock | ||||||||
| Convertible debt | ||||||||
| Warrants | ||||||||
| Options | ||||||||
| Restricted stock units | ||||||||
| Total | ||||||||
Derivative Liability
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and at each reporting period.
Stock Based Compensation
The Company recognizes as compensation expense all share-based payment awards made to employees, directors, and consultants including grants of stock, stock options and warrants, based on estimated fair values. Fair value is generally determined based on the closing price of the Company’s common stock on the date of grant and is recognized over the service period. The Company has several consulting agreements that have share based payment awards based on performance. These agreements typically require the Company to issue common stock to the consultants on a monthly basis. The Company records the fair market value of the common stock issuable at each month end when the performance is complete based upon the closing market price of the Company’s common stock.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – INTANGIBLE ASSETS
Capitalized Development Cost and Prepaid Licenses
The Company capitalizes certain costs related
to the development of its digital payment and banking platform, and also the third-party prepaid license fees. Costs incurred during
the development phase are capitalized only when we believe it is probable the development will result in new or additional functionality.
The types of costs capitalized during the development phase include employee compensation and consulting fees for third party developers
working on these projects. Costs related to the preliminary project planning phase and post implementation phase are expensed as incurred.
The digital banking platform is amortized on a straight line basis over the estimated useful life of the asset. The Company has capitalized
approximately $
| 13 |
Patents
In April 2022, the Company fully executed a Definitive Agreement to acquire HotHand Inc. (“HotHand”), a patent-holding company. HotHand did not have any operations, so the transaction was an asset acquisition of its portfolio of thirteen patents including USPTO 7,693,752; USPTO 8,554,632; USPTO 8,799,102; USPTO 9,436,956; USPTO 10,102,556; USPTO 10,127,592; USPTO 10,600,094; USPTO 10,621,639; USPTO 10,846,726; USPTO 10,846,727; USPTO 10,909,593; USPTO 11,107,140; USPTO 11,345,715. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States. Additionally, HotHand’s family of patents includes a patent that protects advertising on a store’s mobile application when the cell phone is in the store and the ads shown are being triggered by geolocation tagging.
AppTech is currently integrating the HotHand Intellectual Property (“IP”) into an elite digital platform. In addition to offering an embedded, highly secure, and patent-backed product, AppTech will offer licensing agreements for its IP.
HotHand was acquired for shares of common stock and was allocated to the patents as an intangible asset based on the fair market value of the common stock on the date of acquisition (April 18, 2022). The Company amortizes the asset over three years. Further, the purchase agreement outlines revenue milestones that may trigger four payments of $500 thousand payable to HotHand's former owners. The Company did not meet these revenue milestones as of March 31, 2023.
| Schedule of patent activity | ||||
March 31, 2023 | ||||
| Balance as of December 31, 2021 | $ | |||
| Acquisition of patents | ||||
| Amortization of patents | ( | ) | ||
| Balance as of December 31, 2022 | ||||
| Acquisition of patents | ||||
| Amortization of patents | ( | ) | ||
| Balance as of March 31, 2023 | $ | |||
NOTE 4 – ACCRUED LIABILITIES
Accrued liabilities as of March 31, 2023 and December 31, 2022 consist of the following (in thousands):
| Schedule of accrued liabilities | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
| Accrued interest – third parties | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued residuals | ||||||||
| Anti-dilution provision | ||||||||
| Other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
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Accrued Interest
Convertible notes payable incur interest at rate between 10% to 24%, per annum.
Accrued Residuals
The Company pays commissions to independent agents which refer merchant accounts. The amounts payable to these independent agents is based upon a percentage of the amounts processed on a monthly basis by these merchant accounts.
Anti-dilution Provision
The agreement between the Company and Infinios, formerly NEC Payments B.S.C., has an anti-dilution provision. To remain in compliance, the Company accrued 73,848 shares of its common stock at $17.46 per share for a total value of $1.3 million as of December 31, 2021. Further, in connection with the capital raise discussed in Note 1, the Company issued an additional 378,109 shares of its common stock at $2.20 per share for a value of $832 thousand or a total value of $2.1 million. The 451,957 total shares were issued in May 2022. The anti-dilution provision expired in January 2023.
Further, in connection with the shares to be issued as part of the HotHand acquisition, and to be in compliance with its anti-dilution provision with Infiinios, the Company accrued an additional 39,706 shares of its common stock at $1.81 per share for a total of $72 thousand. The shares have not been issued to Infinios as of March 31, 2023.
NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The Company funded operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of March 31, 2023 and December 31, 2022. Related parties noted below are either members of management, board of directors, significant shareholders or individuals in which have significant influence over the Company.
Convertible Notes Payable
In 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300 thousand convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the date of issuance. Upon maturity of the convertible note, interest rate will be increased to 24%. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at $9.50 for the one hundred and eighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty-five (25) trading day, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares.
In the event of a default of the Note, the Holder, in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.
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The embedded conversion feature of this Note
was deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company
also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock exercisable at $14.25 and expire
in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see
Note 6 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which
lower the exercise price and share and warrants issuable. As of March 31, 2023 and December 31, 2022, the convertible note
payable balance was $
See Note 8 - Commitments and Contingencies.
See Note 6– Derivative Liabilities.
In 2014, the Company issued $400 thousand
in convertible notes payable. On March 30, 2022, the Company entered into forbearance agreements in exchange for not enforcing the terms
of the original agreements. In November 2022, the parties agreed to extend the terms of the forbearance agreements for an additional
six months. As of December 31, 2022, the balance of the convertible notes was $
Notes Payable
In 2020, the Company entered into a 30-year unsecured
note payable with U.S. Small Business Administration for $68 thousand in proceeds. The notes payable incurred a $100 fee upon issuance
and incurs interest at 3.75% per annum. All payments of principal and interest are deferred for thirty months from the date of the note.
As of March 31, 2023 and December 31, 2022 the balance of the note payable was $
A significant shareholder funded the Company’s operations through notes payable primarily in 2009 and 2010. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with the significant shareholder that is no longer a related party. The Company entered into a forbearance agreement in exchange for not enforcing the terms of the agreement. In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six months. As of December 31, 2022, the balance of the notes payable was $597 thousand, and the accrued interest related to the notes was $83 thousand. In February 2023, the Company paid off the note and accrued interest in its entirety.
The Company entered into several notes payable with third parties. The Company entered into forbearance agreements in exchange for not enforcing the terms of the agreement. The interest rate on the note payable is 0% to 18% per annum. The expiration date of the agreement ranged from September 27, 2022 to October 4, 2022. In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six months. As of December 31, 2022, the balance of the notes payable was $423 thousand, and the accrued interest related to the notes payable was $538 thousand. In February 2023, the Company paid off the note and accrued interest in its entirety.
Note Payable - Related Party
As of December 31, 2022, the balance of the related party notes payable was $88 thousand, with an interest rate of 12% per annum and the accrued interest to the related party notes payable was $68 thousand. In February 2023, the Company paid off the note and accrued interest in its entirety.
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NOTE 6–DERIVATIVE LIABILITIES
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15, the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and revalued for the three months ended March 31, 2023 and December 31, 2022.
Based on the convertible notes described in Note
5, the derivative liability day one loss is $
| Schedule of derivative liabilities | ||||||||||||
| Derivative Liability Convertible Notes | Derivative Liability Warrants | Total | ||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | |||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||
| Balance as of March 31, 2023 | $ | $ | $ | |||||||||
As of March 31, 2023, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
| Assumptions used | ||||
| Market value of common stock | $ | |||
| Expected volatility | ||||
| Expected term (in years) | ||||
| Risk-free interest rate |
As of March 31, 2023, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
| Market value of common stock | $ | |||
| Expected volatility | ||||
| Expected term (in years) | ||||
| Risk-free interest rate |
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NOTE 7–RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Company entered into a lease agreement commencing February 8, 2020 for its current facility which expires in 2025. The term of the lease is for five years. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 12% within the calculation. The following are the expected lease payments as of March 31, 2023, including the total amount of related imputed interest (in thousands):
Years ending December 31:
| Schedule of future minimum lease payments | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Operating Lease Total | ||||
| Less: Imputed interest | ( | ) | ||
| Total | $ |
The rent expense was $
In September 2022, the Company opened a new office in Austin’s emerging tech hub to expand operations and foster growth. The total amount payable for one year lease under the lease agreement is $11 thousand.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
Convertible Note and Warrant Lawsuit
On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the United States District Court for the Southern District of New York against the Company. In its complaint, EMAF alleged that AppTech breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties.
On September 2, 2021, EMAF filed a motion for summary judgment. AppTech filed a motion to dismiss EMAF’s complaint in its entirety. On September 13, 2022, the court denied AppTech’s motion to dismiss, and granted EMAF’s motion for summary judgment in part and denied in part. In particular, the court granted EMAF’s motion for summary judgment for its claim of breach of contract but denied its request for damages.
On December 8, 2022, the United States District
Court for the Southern District of New York entered an order denying AppTech’s motion to dismiss and granted EMAF’s motion
for summary judgment and awarded damages to EMAF for $1.2 million. On December 15, 2022, AppTech appealed the judgment to the United
States Court of Appeals for the Second Circuit. In January 2023, the Company secured a cash backed bond for $
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NCR Lawsuit
On November 30, 2022, AppTech filed a complaint against NCR Payment Solutions, LLC in the United States District Court for the Southern District of California alleging Breach of Contract, Breach of Implied Covenant of Good Faith and Fair Dealing, Specific Performance and Accounting. The case is currently stayed in the Southern District of California as the parties take jurisdictional discovery. NCR has filed a motion to dismiss, motion to transfer venue and motion to compel arbitration. The court set a briefing schedule and our opposition to those motions were due in March 2023. There was a hearing in early April and the Company is awaiting a decision from the court.
Significant Contracts
Capital Raise
On October 18, 2021, the Company entered into an engagement letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as lead underwriter, deal manager and investment banker for the Company’s proposed firm commitment follow-on public offering and uplisting. This engaged EF Hutton through the earlier of (i) October 2022 or (ii) the closing of a follow-on offering. The Company completed its offering on January 7, 2022. The Company sold 3,614,458 units of our common stock (a unit consisting of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. The offering provided net proceeds of approximately $13.4 million. See Note 1 for information on the capital raise completed in January 2022.
In February 2023, the Company completed an underwritten
public offering of its common stock and warrants, raising gross proceeds of approximately $
See Note 1 for information on the capital raises completed in January 2022 and February 2023.
Infinios Financial Services (formerly NEC Payments B.S.C.)
On October 1, 2020, the Company entered into a strategic partnership with Infinios Financial Services BSC (formally NEC Payments B.S.C) (“Infinios”) through a series of agreements, which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”).
On February 11, 2021, the Company entered into an amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License Order Form with Infinios (collectively the “Restated Agreements”). The gross total fees due under the Restated Agreements are $2.2 million excluding pass-through costs associated with infrastructure hosting fees.
On February 19, 2021, the Company completed and
validated its contractual obligations and paid to Infinios the $
The annual maintenance subscription fee of $113 thousand will be due annually beginning in the month of the platform launch. In addition, the infrastructure support fee of $72 thousand will be due annually with monthly payments beginning in February 2022 and ending in 2026.
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Investor Relations
On February 17, 2023, the Company entered into an investor relations consulting agreement with MZHCI, LLC. The Company agreed to a monthly fee of $14,000. Additionally, the Company agreed to issue 65,000 shares of its common stock.
NOTE 9 – STOCKHOLDERS’ DEFICIT
Common Stock
During the three months ended March 31,
2023 and 2022, the Company issued and , respectively, shares of common stock to several consultants in connection with
business development and professional services. The Company valued the common stock issuances at $
During the three months ended March 31,
2023 and 2022, the Company granted and shares of common stock to the board of directors valued at $
As of March 31, 2023, the Company has reserved the 10,800 shares of common stock to HotHand.
See Note 8 – Significant Contracts for additional common stock issuance.
Stock Options
During the three months ended March 31, 2023, no options were granted during the three months ended March 31, 2023.
The following table summarizes option activity:
| Schedule of option activity | ||||||||||||
| Number of shares | Weighted Average exercise price | Weighted Average remaining years | ||||||||||
| Outstanding December 31, 2022 | $ | |||||||||||
| Issued | $ | |||||||||||
| Exercised | $ | |||||||||||
| Cancelled | ( | ) | $ | |||||||||
| Outstanding as of March 31, 2023 | $ | |||||||||||
| Outstanding as of March 31, 2023, vested | $ | |||||||||||
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The Company recorded $ thousand expenses for the three months ended March 31, 2023. The remaining expense outstanding through March 31, 2023 is $ thousand which is expected to be expensed over the next two years in general and administrative expense.
On December 7, 2021, the board authorized the Company’s Equity Incentive Plan in order to facilitate the grant of equity incentives to employees (including our named executive officers), directors, independent contractors, merchants, referral partners, channel partners and employees of our company to enable our company to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term success. A total of shares of common stock were authorized under the Equity Incentive Plan, for which as of March 31, 2023 a total of are available for issuance.
Warrants
In 2020, the Company entered into a security purchase agreement with an investor pursuant to which the Company agreed to sell the investor a $300 thousand convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock, with an exercise term of five (5) years, at a per share price of $14.25 which may be exercised by cashless exercise. The number of warrants adjusted in the period ending March 31, 2022 due to a reset event on January 7, 2022 changed the exercise price from $9.50 to $2.52 and increased the number of warrants from 31,578 to 119,095. The warrants were deemed a derivative liability and recorded as a debt discount at their date of issuance.
On February 2, 2023, the Company announced the
closing of its previously announced $5.0 million registered direct offering (the “Registered Direct Offering”) with
a single institutional investor to sell shares of its common stock (the “Shares”) and warrants to purchase up to
shares (the “Warrants”) in a concurrent private placement (the “Private Placement”). The combined purchase
price for one Share and one Warrant was $3.00. Each of the Warrants will have an exercise price of $4.64 per share of common stock and
are exercisable on and after August 1, 2023. The Warrants will expire five years from the date on which they become exercisable. The
aggregate gross proceeds from the Registered Direct Offering and the concurrent Private Placement were approximately $
The offering that was completed in February 2023, caused a reset to the exercise price of existing warrants from $5.19 to $4.15. In total, 4,156,626 warrants were reset and $763 thousand was recorded as a result of the reset.
In total, the Company has
NOTE 10 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below.
On, or about, April 23, 2023, EMAF and AppTech entered into a settlement and release agreement providing for, among other things, a settlement amount of $880,000 and mutually releasing all claims arising from the Agreements. On, or about, April 24, 2024, AppTech and EMAF each filed a Stipulation withdrawing the Appeal, which was then closed on April 25, 2023. On April 25, 2023, EMAF filed Satisfaction of Judgements with the Court and all outstanding judgments entered against AppTech are deemed satisfied as of that date. On, or about, April 26, 2023 AppTech and EMAF each filed a Stipulation withdrawing the Cross-Appeal, which was then closed on April 27, 2023.
On May 2, 2023, the Company's shareholders approved the repricing of previously issued options to both employees and non-employees. The Company will evaluate the impact as part of its second quarter filings.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements, such as statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.
Business Overview
The financial services industry is going through a period of intensive change driven by the advancement of technology and the rapid rise of contactless transactions due to societal changes, in part, as a response to COVID-19. End-users expect ease of use and an enhanced user experience in all of their daily financial interactions. In this rapidly evolving digital marketplace, businesses face broad and ever-changing requirements to meet consumer expectations and achieve the operational efficiencies necessary to maintain a competitive edge.
To survive and succeed in this environment, businesses must adopt new technologies in order to engage, communicate, process payments, and manage payouts with their customers. They need a supplier who will widely support innovation and adaptation as the industry evolves. AppTech believes that its technologies will greatly increase the adoption of omni-channel payments and digital banking solutions in sectors that must adapt and migrate to new, secure digital Fintech technologies. By embracing advancements in the payment and banking industries, AppTech is well-positioned to meet the growing needs of existing and prospective clients and it intends for its current and future products to be at the forefront of solving these accelerated market needs.
AppTech’s all-new, innovative Fintech platform, “Commerse™” officially launched in October 2022. The platform will deliver best-in-class financial technologies and capabilities through an ever-evolving modular cloud/edge-based architecture. The Commerse platform houses a large array of financial products and services that can be implemented off-the-shelf or customized via modern APIs. Within its Commerse platform, AppTech offers three primary products: Payments-as-a-Service (“PaaS”), Banking-as-a-Service(“BaaS”), and Commerce-as-a-Service (“CXS”).
Commerse provides PaaS via integrated solutions for frictionless digital and mobile payment acceptance. These solutions provide advanced payment processing solutions for credit cards, ACH, and gift/loyalty cards by catering to the unique needs of each merchant. PaaS will also solve for multi-use case, multi-channel, API-driven, account-based issuer processing for cards, digital tokens, and payment transfer transactions.
AppTech is positioned to further accelerate digital transformation through BaaS, layered with financial management tools that empower financial institutions to provide businesses, professionals, and individuals with the ability to better manage their finances anywhere, anytime at a fraction of the cost of traditional banking and financial services. BaaS creates an ecosystem of immersive and scalable digital financial management services backed by Mastercard & Visa processing certifications.
Commerse has a flexible architecture to allow for rich, personalized payment and banking experiences. This first-to-market, cloud-based CXS platform packages together elements of AppTech’s intellectual property, BaaS, PaaS, and other related technologies to create seamless interactions throughout the customer journey.
The platform also incorporates AppTech’s core, patented text payment and geolocation-triggered ecommerce and/or advertising via cell phone capabilities delivering experiences that focus on frictionless use cases and end-user's desire for payment transaction simplicity, control, and comfort. AppTech believes that these features will be particularly beneficial to the unbanked and under-banked in developing or emerging markets—where access to the internet on a mobile device and modern banking institutions may not be readily available—specifically by extending merchants’ marketplace capabilities via new channels to request and receive frictionless, digital payments and engaging end-users by utilizing a familiar, convenient, and widely adopted technology.
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AppTech’s innovative Commerse platform delivers scalable solutions for automated and embedded, customizable business and consumer commerce experiences. These experiences propel business growth, create value and drive operational efficiencies for businesses while providing economic convenience for end users.
AppTech was reincorporated in Delaware on December 23, 2021. During this time, the business name was changed to AppTech Payments Corp. AppTech’s executive offices are located at 5876 Owens Avenue, Suite 100, Carlsbad, California 92008. The Company’s phone number is (760) 707-5959. The Company’s website address is www.apptechcorp.com. AppTech does not incorporate the information on or accessible through our website into this prospectus. The Company has included our website address in this prospectus solely as an inactive textual reference.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items (in thousands, except per share data).
Revenues
Our Revenues. We derive our revenue by providing financial processing services to businesses.
Expenses
Cost of Revenue. Cost of revenue includes costs directly attributable to processing and other services the company provides. These also include related costs such as residual payments to our business development partners, which are based on a percentage of the net revenue generated from client referrals.
General and Administrative. General and administrative expenses include professional services, rent, utilities, and other operating costs.
Research and Development. Research and development costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and outside services.
Interest Expense, net. Our interest expense consists of interest on our outstanding indebtedness and amortization of debt issuance costs.
Results of Operations
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three months ended March 31, 2023 and 2022, respectively.
Revenue
Revenue was approximately $89 thousand for the three months ended March 31, 2023, compared to $104 thousand for the three months ended March 31, 2022, representing a decrease of 14%. The decrease was principally driven by lower transaction volume and fewer merchant accounts.
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Cost of Revenue
Cost of revenue was approximately $53 thousand for the three months ended March 31, 2023, compared to $51 thousand for the three months ended March 31, 2022, representing an increase of 4%, driven primarily by an increase in residual payouts.
General and Administrative Expenses
General and administrative expenses were approximately $2.1 million for the three months ended March 31, 2023, compared to $2.8 million for the three months ended March 31, 2022, representing a decrease of 24%. The decrease was primarily driven by less amortization of stock based compensation.
Research and Development Expenses
Research and development expenses were approximately $1.5 million for the three months ended March 31, 2023, compared to $2 million for the three months ended March 31, 2022. The increase was primarily driven by less amortization of stock based compensation.
Excess Fair Value of Equity Issuance Over Assets Received
Excess fair value of equity issuance over assets received expenses was $0 thousand for the three months ended March 31, 2023, compared to $0.8 million for the three months ended March 31, 2022. The excess fair value over assets occurring was due to the timing of the share issuance to Infinios. The difference between the value of the newly issued shares and the value of the services performed was expensed as excess fair value of equity issuance over assets received. See Note 4 for additional information related to the Anti-dilution provision.
Interest Expense, net
Interest expenses, net was approximately $46 thousand for the three months ended March 31, 2023, compared to $55 thousand for the three months ended March 31, 2022, representing a decrease of 20%. The decrease was primarily due to the Company's repayment of forbearance loan and interest in February 2023.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability was approximately $27 thousand for the three months ended March 31, 2023, compared to a change in fair value of $136 thousand for the three months ended March 31, 2022. The decrease was primarily due to standard market volatility coupled with the resetting terms of the derivative.
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Liquidity and Capital Resources
The Company successfully completed its capital raise and uplisting onto NASDAQ (herein referred to its “Offering”) on January 7, 2022. As part of the Offering, the Company executed a 9.5 to 1 reverse split of its common stock. In addition, the Offering sold 3,614,458 units of our common stock (a unit consisted of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. In addition, 542,168 warrants were granted. The Offering provided net proceeds of approximately $13.4 million.
On February 2, 2023, the Company announced the closing of its previously announced $5.0 million registered direct offering (the “Registered Direct Offering”) with a single institutional investor to sell 1,666,667 shares of its common stock (the “Shares”) and warrants to purchase up to 1,666,667 shares (the “Warrants”) in a concurrent private placement (the “Private Placement”). The combined purchase price for one Share and one Warrant was $3.00. Each of the Warrants will have an exercise price of $4.64 per share of common stock and are exercisable on and after August 1, 2023. The Warrants will expire five years from the date on which they become exercisable. The aggregate gross proceeds from the Registered Direct Offering and the concurrent Private Placement were approximately $5.0 million before deducting placement agent fees and other estimated offering expenses. Along with the offering that was completed in February 2023, the reset price (essentially the fair value of the share sold with the warrant) was determined by iterating the valuation of the Warrant until the stock price converged to yield a unit price of $4.15. The Company used a portion of the proceeds to fulfill its obligations and paid all of its Loan Forbearance Agreements related to the notes payable in full. See note 5 for the agreements that have been paid off.
As of March 31, 2023, we had cash and cash equivalents of approximately $2.1 million, working capital of approximately $2.4 million, and stockholders’ equity of approximately $9.9 million.
Management's Plan
The Company continues to have yearly losses from its limited revenues from operations. Management believes the present cash flows will not enable it to meet its commitments for twelve months from the date of filing. The Company maintains an effective registration statement on Form S-3 with the Securities and Exchange Commission that would allow the Company to raise additional capital in an amount up to $70.0 million. SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to our effective shelf registration statement on Form S-3. We are currently limited by the Baby Shelf Rule as of the filing of this Quarterly Report, until such time as our public float exceeds $75 million. However, factors such as stock price, volatility, trading volume, market conditions, demand and regulatory requirements may adversely affect the Company’s ability to raise capital in an efficient manner.
Cash Flows
Net cash used in or provided by, operating, investing and financing activities were as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (3,050 | ) | $ | (2,878 | ) | ||
| Net cash used in investing activities | – | (185 | ) | |||||
| Net cash provided by financing activities | 2,982 | 13,345 | ||||||
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Operating Activities
Net cash used in operating activities during the three months ended March 31, 2023 was approximately $3.1 million, which is comprised of (i) our net loss of $3.2 million, adjusted for non-cash expenses totaling $0.7 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) increased by changes in operating assets and liabilities of approximately $0.6 million.
Net cash used in operating activities during the three months ended March 31, 2022 was approximately $2.9 million, which is comprised of (i) our net loss of $5.5 million, adjusted for non-cash expenses totaling $3.4 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) changes in operating assets and liabilities using approximately $800 thousand.
Investing Activities
There no cash used by investing activities during the three months ended March 31, 2023.
Net cash used by investing activities during the three months ended March 31, 2022 was approximately $0.2 million and was primarily due to the internal capitalized software costs.
Financing Activities
Net cash provided by financing activities during the three months ended March 31, 2023 was approximately $3.0 million, which principally consists of net proceeds of $4.5 million through the issuance of common shares and warrants in our public offering, offset by repayments of the Loan forbearance Agreements in full..
Net cash provided by financing activities during the three months ended March 31, 2022 was approximately $13.3 million, which principally consists of net proceeds of $13.4 million through the sale of repurchase options.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, derivative financial instruments, and equity-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations. The accounting policies we believe to be most critical to understanding our financial condition and results of operations are discussed below. As of March 31, 2023, there have been no significant changes to our critical accounting estimates, except as described in Note 2 to our financial statements.
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Software Development Costs
The Company capitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred. Equity and options granted are capitalized as part of the software development costs.
Recent Accounting Pronouncements
As of March 31, 2023, there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our consolidated financial statements.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Because we are allowed to comply with the disclosure obligations applicable to a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this Annual Report on Form 10-K, we are not required to provide the information required by this item.
Item 4. Control and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the United States District Court for the Southern District of New York against the Company. In its complaint, EMAF alleged that AppTech breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties.
On September 2, 2021, EMAF filed a motion for summary judgment. AppTech filed a motion to dismiss EMAF’s complaint in its entirety. On September 13, 2022, the court denied AppTech’s motion to dismiss, and granted EMAF’s motion for summary judgment in part and denied in part. In particular, the court granted EMAF’s motion for summary judgment for its claim of breach of contract but denied its request for damages.
On December 8, 2022, the United States District Court for the Southern District of New York entered an order denying AppTech’s motion to dismiss and granted EMAF’s motion for summary judgment and awarded damages to EMAF for $1.2 million. On December 15, 2022, AppTech appealed the judgment to the United States Court of Appeals for the Second Circuit. In January 2023, the Company secured a cash backed bond for $1.3 million for the appeal which is recorded as Restricted cash in the accompanying consolidated balance sheet..
Item 1A. Risk Factors.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
EXHIBIT INDEX
| Exhibit | Description | |
| 31.1 | Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 dated May 8, 2023 | |
| 31.2 | Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 dated May 8, 2023 | |
| 32.1 | Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 dated May 8, 2023 | |
| 32.2 | Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 dated May 8, 2023 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104.0 | Cover Page Interactive Data File (Embedded within the Inline XBRL document) |
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AppTech Payments Corp. | ||
| Date: May 8, 2023 | By: | /s/ Luke D’Angelo |
| Luke D’Angelo | ||
| Chief Executive Officer, Chairman and Director | ||
| Date: May 8, 2023 | By: | /s/ Gary Wachs |
| Gary Wachs | ||
| Chief Financial Officer, Treasurer and Director | ||
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Luke D’Angelo, certify that:
| 1. | I have reviewed this report on Form 10-Q of AppTech Payments Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 8, 2023 | /s/ Luke D’Angelo |
| Luke D’Angelo | |
| Chief Executive Officer, Chairman and Director |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary Wachs, certify that:
| 1. | I have reviewed this report on Form 10-Q of AppTech Payments Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 8, 2023 | /s/ Gary Wachs |
| Gary Wachs | |
| Chief Financial Officer, Treasurer and Director |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AppTech Payments Corp. on Form 10-Q for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luke D’Angelo, Chairman of the Board and Chief Executive Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
| Date: May 8, 2023 | /s/ Luke D’Angelo |
| Luke D’Angelo | |
| Chief Executive Officer, Chairman and Director |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AppTech Payments Corp. on Form 10-Q for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary Wachs, Chief Financial Officer of AppTech Payments Corp., certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
| Date: May 8, 2023 | /s/ Gary Wachs |
| Gary Wachs | |
| Chief Financial Officer, Treasurer and Director |