AppTech Payments Corp 10-K for FY2023
AppTech Payments Corp. (APCX)
About this 10-K
AppTech Payments Corp filed this 10-K on April 1, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $504K
- up 12.0% from $450K a year earlier
- Net loss
- $18.51M
- compared with a net loss of $16.28M a year earlier
- Diluted EPS
- -$1.01
- compared with -$1.00 a year earlier
| Table of Contents |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year 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 No.) |
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
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 if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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(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
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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. ☐
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of June 30, 2023, the last business day
of the registrant’s last completed second quarter, the aggregate market value of the common stock held by non-affiliates of
the registrant was approximately $
As of April 1, 2024, the registrant had shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
AppTech Payments Corp.
Form 10-K
Table of Contents
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this report of AppTech Payments Corp. 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.
You should not place undue reliance on forward looking statements. The cautionary statements set forth in this report identify important factors which you should consider in evaluating our forward-looking statements. These risks include, but are not limited to, the following:
| · | delays and uncertainty associated with the boarding of clients to our platform; | |
| · | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | |
| · | 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 adverse macroeconomic conditions, including inflation, a recession, changes to fiscal and monetary policy, tighter credit, higher interest rates, consumer confidence and spending, and high unemployment; | |
| · | dependence on third-parties needed to facilitate our automated clearing house (“ACH”) and merchant service capabilities; | |
| · | delay in or failure to obtain regulatory approval for any future products in additional countries, and; | |
| · | current and future laws and regulations. |
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 consolidated financial statements contained both in our Form S-1 that was filed with the Securities and Exchange Commission on January 3, 2022 and in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K, the words “AppTech Payments,” “we,” “us,” the “registrant” or the “Company” refer to AppTech Payments Corp.
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Item 1. Business
Business Overview
The financial services industry is going through a period of intensive growth 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 their daily financial interactions. In this rapidly evolving digital marketplace, businesses have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their competitive edge.
To flourish in this environment, businesses need to adopt new technologies to engage, communicate and process payments and manage payouts with their customers from a supplier that widely supports innovation and adaptation as the industry evolves. We believe our technologies will greatly increase the adoption of omni-channel payments and digital banking solutions in sectors that must quickly adapt and migrate to new, secure digital Fintech technologies. By embracing advancements in the payment and banking industries, we are well-positioned to meet the growing needs of existing and prospective clients and intend for our current and future products to be at the forefront of solving these accelerated market needs.
AppTech’s all-in-one Fintech platform, FinZeo™, delivers best-in-class financial technologies and capabilities through an ever-evolving modular cloud/edge-based architecture. The FinZeo platform houses a large array of financial products and services that can be implemented off-the-shelf or customized via modern APIs. Within its FinZeo platform, AppTech offers Payments-as-a-Service (“PaaS”), Banking-as-a-Service (“BaaS”), and the Commerse™ Portal.
FinZeo provides PaaS via integrated solutions for frictionless digital and mobile payment acceptance. These solutions provide advanced payment processing solutions by catering to the unique needs of each merchant. FinZeo’s PaaS solutions include ACH (automatic clearing house), credit & debit cards, eCheck, mobile processing, electronic billing, and text-to-pay. PaaS will also solve for multi-use case, multi-channel, API-driven, account-based issuer processing for card, 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 fosters an ecosystem of immersive and scalable digital financial management services, including FinZeo's groundbreaking automated underwriting portal. By digitizing the underwriting process, Automated Underwriting expedites business onboarding with its intuitive digital application and e-signature capabilities. This portal offers customizable pricing, risk models, and access to multiple processors, ensuring tailored solutions for diverse needs.
The Commerse Portal empowers Independent Sales Organizations (ISOs) and Independent Software Vendors (ISVs) to seamlessly integrate their businesses, facilitating swift technology adoption. By leveraging the Commerse portal, ISOs/ISVs can streamline operations and foster growth, meeting the economic demands of their merchants. Through personalized portals, ISOs/ISVs have the flexibility to select and integrate FinZeo payments and banking services, thereby enhancing their offerings to clients.
FinZeo has a flexible architecture and can be fully white labeled to allow for rich, personalized payment and banking experiences. This cloud-based platform packages together elements of AppTech’s intellectual property, BaaS, PaaS and Commerse™️ Portal to create a one-hub connection point of multitenant portals giving the merchant, ISO/ISV, and each customer a well-defined user experience.
Corporate Information
AppTech Corp. reincorporated in Delaware on December 23, 2021 and changed its name to AppTech Payments Corp. The Company’s principal executive offices are located at 5876 Owens Avenue, Suite 100, Carlsbad, California 92008. Its phone number is (760) 707-5959. Its website address is www.apptechcorp.com. AppTech does not incorporate the information on or accessible through our website into this report. AppTech has included our website address in this report solely as an inactive textual reference.
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Industry Background
The financial technology and payment processing industries are an integral part of today’s worldwide financial structure. The electronic payments industry is massive, with growth fueled by powerful long-term trends that continue to increase the acceptance and use of electronic payments compared to cash-based payments. According to the Federal Reserve’s Payment Study of 2022, the growth rate of noncash payments is 9.5% annually, reaching $128.51 trillion in value in 2021.1
The payment processing industry continues to evolve rapidly based on the application of new technology and changing customer needs. Changes in technology have allowed for new payment methods, such as mobile and contactless payments, which is driving demand for new innovative solutions to meet consumer expectations. This results in businesses increasingly being required to deliver more convenient methods of interacting with their customers to ensure loyalty and repeat business. As consumers continue to integrate mobile devices into their lives, there will be increased demand to conduct business through mobile wallets. In fact, PwC consumer research estimates a revenue opportunity of $60 billion for digital payment ecosystems.2
In addition to changing the payment industry by offering digital wallets to enable consumers to transact digitally, Fintech is disrupting the banking sector with banking-as-a-service though FDIC-insured neobanks.3 Digital banking is estimated to continue to grow to a value of $2.6 trillion with over 78 million users by 2027.4
Our Competitive Strengths
We believe our adaptable technology and product offerings differentiate us from our competitors. Our products and solutions help to eliminate much of our sector’s reliance on legacy payment rails and financial systems. The design and delivery are not being restricted by antiquated foundational technology. Management believes the applicability and frictionless nature of our products will offer an immediate impact on the digital financial services industry. Further, the solutions we intend to deliver to our clients will be driven off user-centered design principles to providing seamless, best-in-class experiences to the end-user.
Digital transformation is complex for most companies sighting such concerns around shifting company culture, legacy systems, rigidity of platforms and processes, and inefficiencies in skill sets and knowledge. Additionally, even when these companies see the value in digital transformation, often these companies face an inability to properly shift resources to new technology while maintaining customers on existing platforms. Non-discretionary spend required to “keep the lights on” outweighs leadership’s ability to invest in future technology, which results in vulnerabilities and competitive threats.
Our financial services platform was built to empower our clients with an extensible, adaptable framework capable of dynamically solving challenges found across the financial services industry. Further, this ability will allow us to drive deeply and expediently into specific market segments to solve problems that we find to be a continued burden on our client’s and their customer base. Based on market, client and end-user research and discovery, it is expected that these unique solutions produced for client’s will be highly leverageable across these segments to deliver experiences at scale while producing rapid revenue and profitability.
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1 Federal Reserve Payments Study (FRPS) – July 2023
2 PwC Global Consumer Insights Survey – 2020
3 Bankrate.com - Banking: What is a Neobank - November 2023
4 Statistia: Digital & Trends - Neobanking US Report - 2023
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As we increase our client base and deployment of solutions to meet our client’s specifications, we’ll continue to grow these “off-the-shelf” experiences that will ultimately lower our development costs while increasing speed to market. In addition, we are positioned to utilize this model to grow industry partnerships and app marketplace plugins thus further leveraging our capabilities and market reach.
Founded on a modern core platform backed by an intelligent financial technology framework, our ability to rapidly deploy solutions and experiences that are otherwise cumbersome, expensive and often fall short of expectations will prove successful. Our position is to penetrate deep into certain segments to build a model that will directly drive growth. Gaining robust insights in these segments while delivering best-in-class experiences will also produce future opportunities to expand our off-the-shelf solutions to other verticals or sub-verticals that are challenged with solving similar problems.
While our core foundational platform will continue to adapt and grow based on new innovations, we are launching into the market an extremely robust and innovative set of secure digital banking and payments features and functionality. This will allow us to quickly deliver the future of digital finance to meet the demands of the markets we intend to serve without the deployment burdens encumbering the market today.
Additionally, the patent protection for some of our products is uncommon within the Fintech industry. This protection prevents competitors from replicating our products to carve away at our anticipated market share. Therefore, backing our text payment and lead generation products with patents strengthens the viability of such products by limiting direct competition and strengthening strategic partnerships. It is expected that we will also expand our patent portfolio through new innovations and acquisitions.
Our Growth Strategy
We intend to grow by leveraging our existing IP, continually developing products and solutions, establishing strategic partnerships and seeking selective acquisitions that uniquely complement our core business to meet growing market demand. From traditional merchant accounts to customizable inbound and outbound payment solutions, we intend to modernize and enhance the payment processing and digital banking capabilities for businesses throughout the world. Our business objective is to generate revenue based on licensing and subscription fees, transactional processing fees, product line growth, and continual advancement of our IP portfolio.
Our target market is forward-thinking financial institutions, technology companies, and Small to Medium Enterprises seeking to broaden their distribution through the addition of digital omnichannel payments and digital banking technologies. We will serve these markets by reducing integration complexity and streamlining their integrated financial services capabilities.
SMEs generally lack the resources of large enterprises to invest heavily in technology. As a result, they are more dependent on service providers, like AppTech, to handle critical functions including payment acceptance and other support services and are likely to be early adopters of new services that will further increase their efficiency and drive growth. Additionally, we are targeting financial institutions looking to maintain their ability to compete by digitizing their financial services offerings to meet market demand. By enhancing their customer’s user experience through the development of innovative and user centric multi-channel digital financial products, they will be able to maintain customer loyalty.
We intend to support a multi-method distribution model to achieve our vision. By providing delivery flexibility, we can rapidly engage and develop the right go-to-market strategies. As previously mentioned, not only are off-the-shelf solutions available, but we also offer embedded experiences that can be deployed using a growing portfolio of Open and Private APIs for developers to build unique experiences based on business cases and requirements.
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Further, by offering clients a full array of marketing technology services, omnichannel payments and digital banking technologies, we will enable them to better interact with their customers and provide additional, dynamic means of processing both inbound and outbound financial transactions.
Businesses’ financial technology needs are increasingly complex. As electronic and mobile commerce continues to grow, businesses have no alternative but to use technology to better meet customer’s expectations. We believe that delivering innovative, adaptive, scalable, and operationally efficient products that meet their financial services needs will result in rapid market penetration for our anticipated product launches.
While leveraging new technology is vital to our growth plan, it is equally important that the technology is relevant and seamlessly fits into and benefits our end-user’s daily lives. Consumers are sometimes reluctant to alter their typical routines, especially when it relates to financial services. The anticipated launch of our text payment system and broader digital banking and payments solutions will meet both needs. We will offer financial technologies that do not rely on legacy rails, thus increasing the opportunity to improve the end-user’s digital experiences. Once properly developed and rolled out, we anticipate rapid adoption.
We seek to grow our business by pursuing the following strategies:
| · | Increasing our customer base by offering unique and compelling, patent protected technology solutions; | |
| · | Driving growth in our merchant services business through new and flexible technologies, including our secure text payment system, that will enable our customers to adapt to a rapidly changing marketplace; | |
| · | Rolling-out our API-driven, account-based, issuer processing solution for card, digital token, and payment transfer transactions that will enable us to target multi-currency and multi-channel digital banking and embedded B2B payment opportunities; | |
| · | Providing advanced technology to our clients to engage end-users via lead generation and text marketing services to enable businesses to better communicate with their customers and integrate our full suite of products; | |
| · | Maintaining technological leadership by continuing to innovate and improve our scalable, extensible, cloud-based technology; | |
| · | Pursuing strategic acquisitions, investments, or partnerships to complement and bolster our suite of Fintech products; | |
| · | Creating cross-selling synergies through white-labeling or SaaS distribution enabling us to provide a holistic suite of products and services to financial institutions, technology companies, and SMEs; |
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Our market growth strategies will focus on the following elements: (1) new product development and delivery (2) market penetration (3) market expansion (4) IP, strategic acquisitions, and partnerships.
It is imperative that upon entrance into the market with the new platform, we focus on delivering an enhanced experience to our existing digital client base. As we roll this out, we will also continue discussions with our current and continually evolving pipeline of prospects to understand these opportunities and the value that we can bring to solve their needs. This strategy also provides growth opportunities with these clients, increases customer satisfaction and potential referrals, and produces valuable feedback into our product prioritization and roadmap.
Maintaining focus to deliver our technology to selective target market segments also allows us to deliver a deeper, more targeted set of solutions and experiences. In turn this will grow our knowledge within these select segments that will translate into further innovation and market penetration.
This continual development process will contribute to our overall strategy of delivering new, innovative technologies and solutions. It is expected that bringing these to market will expand opportunities in complimentary and new market segments. Given the Platform’s flexibility and a la carte capabilities, adapting these solutions and delivering new experiences is a core tenant to growth.
In addition, core to our values and strategy is the opportunity for growth through intellectual property. This is inclusive of the existing patent portfolio while also coupled with future innovation. It is also important to continually evaluate new technologies, market entrants and complimentary solutions to ensure continued growth. We expect that this will include strategic acquisitions of complimentary offerings and portfolio customers, while also focusing on strategic partnerships where we find synergy in our vision.
With years of Fintech experience and a deep understanding of the industry, management believes we can leverage this expertise, industry contacts and past clients to accelerate market penetration. Engaging individuals with the ability to integrate our products may prove invaluable. Further, through our channel partnerships, we have an expansive network of potential clients that continue to show interest in our strategy and opportunity to embed our financial technologies into their solutions.
Management believes there are substantial opportunities in emerging and developing markets for our anticipated products. Our mobile payment and digital banking solutions offer innovative avenues to unbanked and under banked communities to transact and provide remittances. Further, since internet connectivity is not required for our text payment solution, individuals with limited internet access will still be able to transact. These two factors could open our products to markets with immense growth potential.
Our Products and Services
We offer Fintech solutions that empowers financial institutions and enterprise brands to deliver “best-of-breed” B2B and B2C experiences through our revolutionary all-in-one platform and deployment model. Our modular platform will seamlessly integrate with legacy and cloud platforms to power a multitude of commerce experiences, including digital payments, financial wellness and more.
Merchant Services
Our core historical business is merchant transaction services. We create revenue by processing payments for credit and debit cards via POS (point of sale) equipment, eCommerce gateways, periodic ACH payments and gift & loyalty programs. We currently support over 100 merchants representing dozens of market verticals in managing their financial transactions.
Each merchant has unique needs for payment processing. As a result, we have a variety of processing partners to meet each merchant’s requirements. In addition to these needs, we take into consideration certain aspects of each business in choosing the optimal processing partner including risk, volume, customer service, integration capabilities, product features and profitability.
Digital Financial Technology Platform consisting of Omnichannel Payments and Digital Banking
To power commerce experiences, our digital financial technology platform incorporates two distinct product pillars: (1) omnichannel digital payments featuring patented SMS text payment technology and (2) digital banking capabilities. The omnichannel payments pillar will consist of several stand-alone solutions, including hosted ecommerce checkout, a flexible payment gateway, patented text payment technology, alternative payment methods (APMs), as well as mobile and contactless payments. The Platform’s digital banking pillar will supply financial institutions with technology to give their customers – businesses, professionals, and individuals the ability to better manage their finances anywhere, anytime and at a fraction of the cost of traditional banking and financial services.
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Developing and deploying customized commerce experiences runs atop the Platform stack. This will include 1) open and private payment and digital banking APIs, 2) select third-party APIs centered on personalization and automation, 3) white labeling 4) online collaboration and development tools, and 5) optional professional services engagement and support.
Similar to experience-focused offerings, our Platform powers immersive content, conversion, marketing automation, payment, and value transfer capabilities for nearly every online and offline shopping, banking, and financial services scenario. Additionally, our Platform experiences can be taken off-the-shelf or tapped into via modern APIs to build and embed fully branded and customizable experiences.
In many cases, our products and services are both available off-the-shelf or through embedded commerce experiences. For example, our patented text payment capabilities can be licensed off-the-shelf, so our clients can take advantage of quick market entry while doing this without any lifting or technical requirements. Alternatively, text payment capabilities and feature sets are available via our open APIs so businesses can embed and customize the experience, i.e. alter the onboarding experience and subscription triggers.
We believe text payment’s simple payment process has widespread application and potential for widespread adoption by mobile users because it utilizes a technology many end users are comfortable with and use daily. The process is quick and user-friendly allowing businesses to simply expand their payment receiving capabilities. The integration of direct, reliable, instant, and familiar text messaging with secure payments is a vital step in how we believe we bridge the gap between Fintech and mobile wireless systems.
Our white-label, digital banking technology platform with payment capabilities will equip financial institutions (Fis), technology providers and brands with a digital “bank-in-a-box” – also referred to as our Banking-as-a-Service (BaaS) product. Furthermore, our Platform will enable multi-channel, pure digital financial services products unlike many other providers in the world. It incorporates a “plug-and-play” capability to facilitate deep integration with payment gateways, POS merchant services, alternative payment mechanisms, open-banking, ERP (“Enterprise Resource Planning”), CRM and web and mobile user interfaces to form an end-to-end, embedded, payment acceptance and digital banking solution that drives innovative and disruptive digital distribution products. Anticipated products include:
| · | Neo-Banking for consumers and SMEs; | |
| · | Embedded B2B and consumer virtual payments (VCNs); | |
| · | P2P money transfer; | |
| · | Payroll, expenses, management and B2C and G2C disbursements; | |
| · | Treasury management; | |
| · | Any other product that requires a prepaid or credit balance to be held and transacted upon. |
Other attributes to our Platform will include:
| · | Patented Technology including a Text-to-Pay patent that enables B2B, B2C and P2P payments via SMS, mobile push, email and other forms of embedded links. Combined with four mobile-to-computer messaging and lead generation patents, we can enable financial institutions, technology companies and businesses to unlock innovative customer experiences. | |
| · | Personalization and User Experience are also at the core of our Platform. Through marketing automation capabilities, our Platform will provide an industry first online-to-offline customer attribution capability. Licensees of our Platform will be able to link their customer’s online behavior to their buying preferences in real-time in order to personalize the selling and buying experience, streamline checkout and improve conversion rates. | |
| · | Automation is delivered through our APIs to unlock automated financial transactions and customer experiences. For example, our Platform can be simply configured to create many types of automated customer benefits and incentives including instant cashback or added-value promotions. Further, our Platform will be easily leverageable to create similar money saving experiences like round ups, i.e., rounding to the nearest dollar and depositing the difference between the purchase price and round-up into a digital bank account. | |
| · | Integration and Embedded Payments are central functions of our Platform. As such, we offer developers and enterprises an open platform with flexible rest APIs to build new payment and financial transaction features in SaaS and cloud apps, or create compelling new digital financial services user experiences from scratch. |
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Our Platform continues to be developed including integration, testing and proper technical certifications before market readiness and client delivery. We expect that our Platform will continue to evolve as discussed to continually provide ongoing improvements, new features and functions and improved opportunities to deliver best in class experiences to the markets we serve.
Employees
As of the date of this annual report, we have eighteen full-time employees. In addition to our employees, we utilize various consultants and contractors for other services on an as-needed basis.
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 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
AppTech recognizes the importance of developing, implementing, and maintaining strong cybersecurity measures to safeguard our information systems and protect our data's privacy and integrity.
Engage Third-parties on Risk Management
Due to the difficulties and evolving nature of cybersecurity threats, AppTech engages with external experts, including cybersecurity consultants and auditors to evaluate and test its risk management systems. These relationships allow us to utilize specialized knowledge and insights, ensuring our strategies and processes remain in-line with current best practices. These third-parties provide the Company with regular audits, threat assessments, and consultations on security enhancements. Also, during onboarding and periodically thereafter, we conduct trainings for the Company’s employees, contractors, and temporary workers about cybersecurity risks, including sending test phishing emails for training purposes to all users of the Company’s email system.
Oversee Third-party Risk
To manage the risks associated with third-party service providers, AppTech conducts weekly calls with its providers to monitor compliance on an ongoing basis. Issues that arise are addressed immediately with mitigating measures added to avoid future problems.
Risks from Cybersecurity Threats
Like other companies in our industry, we face several cybersecurity risks in connection with our business. Although such risks have not materially affected us, including our business strategy, results of operations, or financial condition, to date, we have, from time to time, experienced threats to and security incidents related to our data and systems, including denial of service and phishing attacks.
Risk Management Personnel
Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with our third-party provider, the Company's Director of Information Technology and Director of Software Engineering (referred to as “IT”). Their knowledge, experience and relationship with our third-party vendor instrumental in developing and executing our cybersecurity strategies.
Risk Management Reporting
The IT Team provides updates to upper Management on a routine basis or as potentially critical risks from cybersecurity threats or incidents arise. In addition, the audit committee is notified of any material cybersecurity concerns that may impact internal controls, data storage, or the integrity of our financial reporting.
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Item 2. Properties
Our headquarters is located at 5876 Owens Avenue, Suite 100, Carlsbad, Ca 92008, consisting of approximately 3,000 square feet of office space. Our lease on this facility expires in February 2025. We anticipate that following the expiration of the lease, during the term of the current lease, depending on various factors, we will be able to lease or purchase additional or alternative space at commercially reasonable terms.
In September 2022, the Company opened a new office in Austin’s emerging tech hub to expand operations and foster growth. The first year lease is $11 thousand. The Company later extended the lease, the second year lease is $14 thousand.
Item 3. Legal Proceedings
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 alleging breach of contract. 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. On December 8, 2022, the United States District Court for the Southern District of New York awarded damages to EMA 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. 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. The case closed on our about April 27, 2023. The related convertible note, warrants, and derivative liabilities were extinguished resulting in a gain of $250 thousand during the year ended December 31, 2023.
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. NCR filed a motion to dismiss, motion to transfer venue and motion to compel arbitration. Both parties are actively working to settle the claim.
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.
In the years of 2021 and 2022, the Company paid Infinios $1.8 million and issued to an Infinios' affiliate about 1,895,948 shares of common stock of the Company.
On May 4, 2023, unsatisfied with Infinios’ performance of its contractual obligations, the Company notified Infinios of its intent to terminate its relationship and commenced a good-faith negotiation with Infinios regarding the termination terms.
In June 2023, Infinios turned off all its services, and the Company wrote off the $6.1 million net capitalized asset as it was deemed to be impaired.
On or about October 5, 2023, Infinios filed a demand for arbitration and a Statement of Claim before the International Centre for Dispute Resolution, Case No. 01-23-0004-3881 (the “Arbitration Claim”). In the Arbitration Claim, Infinios asserts claims for breach of contract, quantum meruit, and account stated. Infinios alleges damages of $598,525, and asserts a demand for the grant and registration of shares.
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On November 13, 2023, the Company filed an Answer to the Arbitration Claim, along with Counterclaims for breach of contract, fraudulent inducement, unjust enrichment, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing.
At a Preliminary Hearing held on February 22, 2024, hearing dates of August 12 and 13, 2024, August 19 and 20, 2024, and October 21 and 22, 2024 were scheduled.
While the Company will continue to pursue consensual means of resolving this dispute, it intends to vigorously defend the claims in the Arbitration Claim, and prosecute the causes of action in its Counterclaims.
ITEM 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock has been registered with the SEC since 1999 and trading on the OTC Pink Open Market since 2010. We successfully uplisted to NASDAQ on January 7, 2022 under the symbol “APCX”. Our warrants are listed under the symbol “APCXW”. The Company joined the Russell Microcap® Index at the conclusion of the 2023 Russell indexes annual reconstitution, effective after the US market opened on June 26, 2023.
Stockholder Data
As of April 1, 2024, 24,684,317 shares of our common stock were outstanding and held of record by 5,168 stockholders, and 14 shares of preferred stock were outstanding.
Dividends
We have not declared or paid any cash dividends on our common stock since our inception.
Equity Compensation Plan
For information regarding securities authorized under the equity compensation plan, see Item 12.
Recent Sales of Unregistered Securities
None.
Item 6. RESERVED
Item 7. 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 together with the audited consolidated financial statements and related notes included elsewhere in this report. Certain statements contained in this report, including 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, are “forward-looking” statements. 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 growth 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 their daily financial interactions. In this rapidly evolving digital marketplace, businesses have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their competitive edge.
To flourish in this environment, businesses need to adopt new technologies to engage, communicate and process payments and manage payouts with their customers from a supplier that widely supports innovation and adaptation as the industry evolves. We believe our technologies will greatly increase the adoption of omni-channel payments and digital banking solutions in sectors that must quickly adapt and migrate to new, secure digital Fintech technologies. By embracing advancements in the payment and banking industries, we are well-positioned to meet the growing needs of existing and prospective clients and intend for our current and future products to be at the forefront of solving these accelerated market needs.
AppTech’s all-in-one Fintech platform, FinZeo™, delivers best-in-class financial technologies and capabilities through an ever-evolving modular cloud/edge-based architecture. The FinZeo platform houses a large array of financial products and services that can be implemented off-the-shelf or customized via modern APIs. Within its FinZeo platform, AppTech offers Payments-as-a-Service (“PaaS”), Banking-as-a-Service (“BaaS”), and the Commerse™ Portal.
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FinZeo provides PaaS via integrated solutions for frictionless digital and mobile payment acceptance. These solutions provide advanced payment processing solutions by catering to the unique needs of each merchant. FinZeo’s PaaS solutions include ACH (automatic clearing house), credit & debit cards, eCheck, mobile processing, electronic billing, and text-to-pay. PaaS will also solve for multi-use case, multi-channel, API-driven, account-based issuer processing for card, 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 fosters an ecosystem of immersive and scalable digital financial management services, including FinZeo's groundbreaking automated underwriting portal. By digitizing the underwriting process, Automated Underwriting expedites business onboarding with its intuitive digital application and e-signature capabilities. This portal offers customizable pricing, risk models, and access to multiple processors, ensuring tailored solutions for diverse needs.
The Commerse Portal empowers Independent Sales Organizations (ISOs) and Independent Software Vendors (ISVs) to seamlessly integrate their businesses, facilitating swift technology adoption. By leveraging the Commerse portal, ISOs/ISVs can streamline operations and foster growth, meeting the economic demands of their merchants. Through personalized portals, ISOs/ISVs have the flexibility to select and integrate FinZeo payments and banking services, thereby enhancing their offerings to clients.
FinZeo has a flexible architecture and can be fully white labeled to allow for rich, personalized payment and banking experiences. This cloud-based platform packages together elements of AppTech’s intellectual property, BaaS, PaaS and Commerse™ Portal to create a one-hub connection point of multi-tenant portals giving the merchant, ISO/ISV, and each customer a well-defined user experience.
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 report. The Company has included our website address in this report 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 and utilities, and other operating costs.
Research and development. Research and development costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and outside services.
Interest expense, net. Our interest expense consists of interest on our outstanding indebtedness and amortization of debt issuance costs.
Results of Operations
This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for years ended December 31, 2023 and 2022, respectively. We have derived this data from our annual consolidated financial statements included elsewhere in this report.
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Year Ended December 31, 2023
Compared to Year Ended December 31, 2022
(in thousands, except per share data)
The following table presents our historical results of operations for the periods indicated:
| Year ended December 31 | Change | |||||||||||||||
| (in thousands) | 2023 | 2022 | Amount | % | ||||||||||||
| Revenue | $ | 504 | $ | 450 | $ | 54 | 12 % | |||||||||
| Cost of revenue | 187 | 220 | (33 | ) | (15)% | |||||||||||
| Gross profit | 317 | 230 | 87 | 38 % | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 9,873 | 8,003 | 1,870 | 23 % | ||||||||||||
| Research and development | 3,498 | 7,557 | (4,059 | ) | (54)% | |||||||||||
| Impairment of Intangible assets | 6,131 | – | 6,131 | 100 % | ||||||||||||
| Excess fair value of equity issuance over assets received | – | 904 | (904 | ) | (100)% | |||||||||||
| Total operating expenses | 19,502 | 16,464 | 3,038 | 18 % | ||||||||||||
| Loss from operations | (19,185 | ) | (16,234 | ) | (2,951 | ) | 18 % | |||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense, net | (52 | ) | (417 | ) | 365 | (88)% | ||||||||||
| Change in fair value of Derivative Liability | 27 | 166 | (139 | ) | (84)% | |||||||||||
| Loss on debt extinguishment | (17 | ) | – | (17 | ) | (100)% | ||||||||||
| Other income (expenses) | 715 | 204 | 511 | 250 % | ||||||||||||
| Total other expenses | 673 | (47 | ) | 720 | (1,532)% | |||||||||||
| Loss before income taxes | (18,512 | ) | (16,281 | ) | (2,231 | ) | 14 % | |||||||||
| Provision for income taxes | – | – | – | – | ||||||||||||
| Net loss | $ | (18,512 | ) | $ | (16,281 | ) | $ | (2,231 | ) | 14 % | ||||||
Revenue
Revenue was approximately $504 thousand for the year ended December 31, 2023, compared to $450 thousand for the year ended December 31, 2022, representing an increase of 12%. The increase was principally driven by the new licensing revenue and offset by lower merchant processing revenue.
Cost of Revenue
Cost of revenue was approximately $187 thousand for the year ended December 31, 2023, compared to $220 thousand for the year ended December 31, 2022, representing a decrease of 15%. The decrease was principally driven by lower transaction volume, and the licensing revenue has no corresponding costs of revenue.
General and Administrative Expenses
General and administrative expenses was approximately $9.9 million for the year ended December 31, 2023, compared to $8.0 million or the year ended December 31, 2022, representing an increase of 23%. The increase was primarily driven by an increased stock-based compensation of $0.9 million for the year ended December 31, 2023.
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Excess fair value of equity issuance over assets received
Excess fair value of equity issuance over assets received expenses was none for the year ended December 31, 2023.
Excess fair value of equity issuance over assets received expenses were approximately $904 thousand for the year ended December 31, 2022. 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 December 31, 2022.
Research and Development Expenses
Research and development expenses were approximately $3.5 million for the year ended December 31, 2023, compared to $7.6 million for the year ended December 31, 2022, representing a decrease of 54%. The decrease was primarily due to lower stock based compensation.
Interest Expense, net
Interest expense, net was approximately $0.1 million for the year ended December 31, 2023, compared to $0.4 million for the year ended December 31, 2022, representing a decrease of 88%. 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 year ended December 31, 2023, compared to $166 thousand for the year ended December 31, 2022, representing a decrease of 84%. The decrease was primarily due to the Company's settlement of the notes and warrants that contained the embedded derivative liabilities in April 2023.
Other income (expenses)
Other income was approximately $0.7 million for the year ended December 31, 2023, compared to approximately $0.2 million for the year ended December 31, 2022. The increase was primarily driven by $430 thousand gain from cancellation of stock repurchase liabilities and gain of $250 thousand from extinguishment of related convertible note, warrants, and derivative liabilities.
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) with a current exercise price of $4.15 per unit. In addition, 542,168 warrants were granted. The Offering provided net proceeds of approximately $13.4 million. All shares and share prices within this 10-K have been adjusted to reflect the stock split.
On February 2, 2023, the Company announced the closing of its previously announced $5.0 million registered direct offering (the “February Registered Direct Offering”) with a single institutional investor to sell 1,666,667 shares of its common stock (the “February Shares”) and warrants to purchase up to 1,666,667 shares (the “February Warrants”) in a concurrent private placement (the “Private Placement”). The combined purchase price for one February Share and one February Warrant was $3.00. Each of the February Warrants will have an exercise price of $4.64 per share of common stock and are exercisable on and after August 1, 2023. The February Warrants will expire five years from the date on which they become exercisable. The aggregate gross proceeds from the February Registered Direct Offering and the concurrent Private Placement were approximately $5.0 million before deducting placement agent fees and other estimated offering expenses. 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 6 to the accompanying financial statements for the agreements that have been paid off. These warrants were reset from $4.64 to $2.74 as a result of the October 2023 offering below.
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On October 26, 2023, the Company announced the closing of its previously announced $3.5 million registered direct offering (the “October Registered Direct Offering”) to sell 1,666,667 shares of its common stock (the “October Shares”) and warrants to purchase up to 1,666,667 shares (the “October Warrants”). The combined purchase price for one October Share and one October Warrant was $2.10. Each of the February Warrants will have an exercise price of $2.74 per share of common stock and are exercisable on and after October 26, 2023. The October Warrants will expire five years from the date on which they become exercisable.
The aggregate gross proceeds from the October Registered Direct Offering were approximately $3.5 million before deducting placement agent fees and other estimated offering expenses. The Company used the proceeds for the acquisition of Alliance Partners, LLC pursuant to the membership interest purchase agreement, dated October 13, 2023, by and among the Company, Alliance Partners, LLC and Chris Leyva and the remainder of the proceeds for working capital and general corporate purposes.
During the year ended December 31, 2023, the Company recorded an expense totaling $763 thousand due to the reset in the exercise price of the warrants.
In August 2023, the Company entered into a sales agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $18.0 million through “at-the-market” offerings (ATM), pursuant to its shelf registration statement on Form S-3 on file with the SEC. During the year ended December 31, 2023, the Company sold 475,600 shares of common stock under the ATM, for which the Company received net proceeds of $1.3 million, after deducting commissions, fees and expenses.
As of December 31, 2023, we had cash and cash equivalents of approximately $1.3 million, working capital of negative $2.6 million, and stockholders’ equity of approximately $4.2 million.
During the year ended December 31, 2023, we met our immediate cash requirements through existing cash balances, public offerings, and “at-the-market” offerings (ATM). See Note 10 – Stockholders’ Equity (Deficit).
Additionally, we used equity and equity-linked instruments to pay for services and compensation.
Management's Plan to Address Going Concern Considerations
The Company has experienced recurring operating losses, primarily due to limited revenues. The Company's current financial conditions and recurring losses raise substantial doubt about its ability to continue as a going concern.
In addition to an open S-3 filed with the SEC, management is actively pursuing additional funding options and is confident that two of its revenue streams will begin generating revenue in the following twelve months from the issuance date of these financial statements.
Management intends to maintain adequate working capital and adhere to prudent financial forecasting. Management is also dedicated to implementing comprehensive expense reduction strategies across the Company’s operations to enhance financial stability.
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Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods (in thousands).
Year Ended December 31, 2023 and 2022
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (8,859 | ) | $ | (8,199 | ) | ||
| Net cash provided by (used in) investing activities | $ | (500 | ) | $ | (1,791 | ) | ||
| Net cash provided by financing activities | $ | 7,178 | $ | 13,444 | ||||
Cash Flow from Operating Activities
Net cash used in operating activities during the year ended December 31, 2023, was approximately $8.9 million, which is comprised of (i) our net loss of $18.5 million, adjusted for non-cash expenses totaling $10.3 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) is decreased by changes in operating assets and liabilities of approximately $0.7 million.
Net cash used in operating activities during the year ended December 31, 2022 was approximately $8.2 million, which is comprised of (i) our net loss of $16.3 million, adjusted for non-cash expenses totaling $8.8 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) changes in operating assets and liabilities using approximately $674 thousand.
Cash Flow from Investing Activities
Net cash used by investing activities during the year ended December 31, 2023 was approximately $0.5 million. This expenditure was primarily attributable to an initial payment of $0.5 million related to the acquisition of FinZeo.
Net cash used by investing activities during the year ended December 31, 2022 was approximately $1.8 million and was primarily due to the internal capitalized software costs.
Cash Flow from Financing Activities
Net cash provided by financing activities during the year ended December 31, 2023 was approximately $7.2 million, which principally consists of net proceeds of $8.9 million through the issuance of common shares and warrants in our public offering.
Net cash provided by financing activities during the year ended December 31, 2022 was approximately $13.4 million, which principally consists of net proceeds of $13.5 million through the issuance of common shares and warrants in our public offering.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Significant estimates include those related to the valuation of goodwill impairment and intangible assets, and equity-based compensation. These estimates are based on historical experience and assumptions believed to be reasonable under current conditions. It's important to note that actual results could differ from these estimates.
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 December 31, 2023, there have been no significant changes to our critical accounting estimates nor to our recently issued accounting pronouncements, except as described in Note 2 to our consolidated financial statements.
Equity-Based Compensation: We estimate the fair value of stock options granted using the Black-Scholes option pricing model, which requires input of subjective assumptions. The model inputs include expected stock price volatility, expected term, risk-free interest rate, and dividend yield. The assumptions about future stock price volatility and the option’s expected term involve significant judgments based on historical data and future expectations. The reported equity-based compensation expense is sensitive to changes in the volatility assumption. An increase in expected volatility could materially impact the amount of compensation expense recognized.
Business Combination
Recognition and Measurement: Companies must recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at their fair value on the acquisition date.
Goodwill: Arises when the consideration transferred in a business combination exceeds the fair value of the net identifiable assets acquired. It represents future economic benefits arising from assets that are not individually identified and separately recognized.
Intangible Assets: Identifiable intangible assets, distinguishable either by separability from the acquired entity or through contractual or other legal rights, are valued and reported independently from goodwill. These assets include, but are not limited to, trademarks, customer relationships, proprietary technology, and patents. The fair value of these intangible assets is determined at the time of acquisition and is subject to subsequent impairment tests.
The fair value of identifiable intangible assets is estimated using income, market, or cost approach methods. The income approach, often applied through the discounted cash flow (DCF) method, involves projecting future cash flows attributable to the asset and discounting them to present value using a discount rate that reflects the risk associated with those cash flows. The estimation of fair value is inherently uncertain due to the assumptions and judgments involved in projecting future cash flows, determining appropriate discount rates, and estimating the useful life of each asset.
Over the reporting period, changes in market conditions, technological advancements, or strategic shifts in the business may necessitate revisions to the assumptions used in the valuation of identifiable intangible assets. Management closely monitors these factors and will adjust the valuation of intangible assets as appropriate, reflecting the impact of any such changes in our financial statements.
Contingent Consideration: Any contingent consideration, such as earn-outs, is measured at fair value at the acquisition date and can be adjusted in subsequent periods if the fair value changes.
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Goodwill Impairment
Goodwill Impairment Testing: The process requires an annual test for impairment of goodwill, and more frequent testing if certain indicators suggest that the goodwill might be impaired. This assessment involves comparing the carrying amount of a reporting unit, including goodwill, to its fair value. Key estimates in determine fair value include: a) Cash Flow Projections: Utilizing the DCF method, management estimates future cash flows based on current performance, business plans, and expected market growth, introducing judgment due to forecasting uncertainties. b) Discount Rate: The discount rate, reflecting the WACC and adjusted for unit-specific risks, is crucial for present value calculations, with changes significantly affecting fair value estimations; c) Long-term Growth Rates: Assumptions on sustainable growth rates impact the terminal value in the DCF model, thus influencing the overall fair value of the reporting unit.
Impairment Loss Calculation: The impairment loss, representing the excess of the carrying amount of goodwill over its implied fair value, is highly sensitive to the estimates and assumptions used in the fair value calculation. Small changes in cash flow projections, discount rates, or long-term growth rates can result in significant adjustments to the impairment loss recognized in the income statement. Given the dynamic nature of business conditions, technological advancements, and market competition, estimates used in goodwill impairment testing may change from one period to another. Management is tasked with regularly reviewing and updating these estimates to reflect the latest available information and market conditions.
Once an impairment loss is recognized, it is not reversible in subsequent periods. This finality places additional importance on the accuracy and reasonableness of the underlying estimates and assumptions.
Impairment of Long-Lived Assets
Our company evaluates long-lived assets, including capitalized software, for impairment when there are indicators that the carrying amount may not be recoverable. This process involves comparing the carrying amount to the expected future undiscounted cash flows from the asset. If the carrying amount exceeds the expected cash flows, an impairment charge is recognized to reduce the asset's carrying amount to its fair value.
Indicators of impairment include significant underperformance against projections, market or economic downturns, and technological obsolescence. The fair value is determined using market data or discounted cash flow models. An impairment loss is recorded as an expense immediately.
Smaller Reporting Company
As a smaller reporting company, as defined in Item(f)(1) of Regulation S-K, we may choose to prepare our disclosures relying on scaled disclosure requirements for smaller reporting companies in Regulation S-K and in Article 8 of Regulation S-X.
The scaled disclosure requirements for smaller reporting companies permit us (i) to include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation and (ii) to provide audited consolidated financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited consolidated financial statements for three years.
We may lose our status as a smaller reporting company on the last day of the fiscal year in which (i) our public float exceeds $250 million or (ii) if we have more than $100 million in annual revenues and (a) have no public float or (b) have a public float or more than $700 million.
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Recent Accounting Pronouncements
As of December 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.
Equity-based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at the fair market value on the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes in the statement of operations the grant-date fair market value of stock options and other equity-based compensation issued to employees and non-employees.
During the year ended December 31, 2023, 345,000 shares of common stock were issued to several consultants and employees in connection with business development, professional, and employment services with a value of $738 thousand.
During the year ended December 31, 2023, 115,000 shares of common stock were issued to the board of directors. The shares were earned over the course of the year and had a value of $168 thousand.
During the year ended December 31, 2022, 371,594 of common stock were issued to several consultants and employees in connection with business development, professional, and employment services with a rendered value of $603 thousand.
During the year ended December 31, 2022, 162,914 shares of common stock were issued to the board of directors. The shares were earned over the directors term and rendered a value of $236 thousand.
Related Parties
See Item 13 for a full discussion of related parties.
Item 7A. 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 8. Financial Statements and Supplementary Data
The consolidated financial statements and related financial statement schedules required to be filed are indexed on page 25 and are incorporated herein.
Item 9. Changes in and Disagreements with Accounts on Accounting and Financial Disclosure
None.
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Item 9A. Controls 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 not effective as of December 31, 2023 due to the material weaknesses in our internal control over financial reporting as described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The management has identified a material weakness in our internal control over financial reporting, primarily due to insufficient formal financial reporting policies and procedures resulting in material post-close adjustments and a related party transaction was initially not disclosed.
Policies and procedures should be implemented to ensure that any significant events requiring disclosure are identified, accounted for, disclosed and reviewed by the management.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2023 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Limitations on the Effectiveness of Controls
Due to 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.
Item 9B. Other Information
During the quarter ended December 31, 2023, no director or officer
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding our executive officers will be presented under the caption “Executive Officers” in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2023 (the 2023 Proxy Statement) and is incorporated herein by reference.
The information required by this item regarding our compliance with Section 16 of the Exchange Act of 1934, as amended, will be presented under the caption “Security Ownership of Certain Beneficial Owners and Management - Delinquent Section 16(a) Reports” in our 2023 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding our audit committee will be presented under the caption “Corporate Governance - Board Committee - Audit Committee” in our 2023 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding our code of ethics was previously presented under the caption “Corporate Governance - Code of Business Conduct” in our 2023 Proxy Statement and is incorporated herein by reference. There is no material change.
Item 11. Executive Compensation
The information required by this item regarding executive compensation will be presented under the caption “Executive Compensation” in our 2023 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding director compensation will be presented under the caption “Corporate Governance - Director Compensation” in our 2023 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding our compensation committee will be presented under the caption “Corporate Governance - Compensation Committee Interlocks and Insider Participation” in our 2023 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item regarding security ownership and certain beneficial owners and management will be presented under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2023 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan
The following table provides information, as of December 31, 2023, with respect to shares of our common stock that may be issued, subject to certain vesting requirements, under existing or future awards under our 2023 Equity Incentive Plan (“2023 Plan”). The 2023 Plan was approved by our Board of Directors and ratified by our shareholders at our 2023 Annual Shareholder Meeting.
| A | B | C | ||||||||||
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) | |||||||||
| Equity compensation plans approved by security holders | 992,210 | $ 1.23 (1) | 407,114 | |||||||||
| Equity compensation plans not approved by security holders | – | – | – | |||||||||
| Total | 992,210 | $ 1.23 | 407,114 | |||||||||
_______________
(1) The weighted-average exercise price does not take into account restricted stock units, which do not have an exercise price.
| 23 |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item regarding certain relationships and related persons transactions will be presented under the caption “Certain Relationships and Related Persons Transactions” in our 2023 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding director independence will be presented under the caption “Corporate Governance - Independent Directors” in our 2023 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item regarding aggregate fees billed to us by our independent registered public accounting firm’s fees will be presented in our 2023 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding our audit committee’s pre-approval policies and procedures will be presented in our 2023 Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statements Schedules
(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K:
| 1. | Financial Statements. See Index to Financial Statements under Item 8 of this Annual Report on Form 10-K. | |
| 2. | Financial Statement Schedules. All schedules have been omitted because the information required to be presented in them is not applicable or is shown in the financial statements or related notes. | |
| 3. | Exhibits. We have filed, or incorporated into this Annual Report on Form 10-K by reference, the exhibits listed on the accompanying Exhibit Index immediately following the financial statements contained in this Annual Report on Form 10-K. |
(b) Exhibits. See Item 15(a)(3) above.
(c) Financial Statement Schedules. See Item 15(a)(2) above.
Item 16. Form 10-K Summary
Not applicable.
| 25 |
APPTECH PAYMENTS CORP. CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| 26 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of AppTech Payments Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AppTech Payments Corp. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has limited revenues and has suffered recurring losses from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter, or on the accounts or disclosures to which they relate.
Going Concern
As discussed above and in Note 1 to the consolidated financial statements, the Company has experienced recurring losses from operations and has limited revenues. The ability of the Company to continue as going concern is dependent on executing business plans and ultimately to attain profitable operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock, through expense reductions, and through anticipated new revenue streams, to satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. However, the Company has not concluded that these plans alleviate the substantial doubt related to its ability to continue as a going concern.
How the Critical Audit Matter was Addressed in the Audit
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:
| a. | We inquired of Company management and reviewed Company records to assess whether there are additional factors that contribute to the uncertainties disclosed. |
| b. | We assessed whether the Company’s determination that there is substantial doubt about its ability to continue as a going concern was adequately disclosed. |
| c. | We performed testing procedures such as analytical procedures to identify conditions and events that indicate there could be substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. |
| d. | We reviewed and evaluated management's plans for dealing with the adverse effect of these conditions. |
| /s/ |
| We have served as the Company’s auditor since 2014 |
| April 1, 2024 |
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APPTECH PAYMENTS CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 and 2022
(in thousands, except per share data)
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Prepaid license fees - current | ||||||||
| Total current assets | ||||||||
| Prepaid license fees – long term | ||||||||
| Note receivable | ||||||||
| Right of use asset | ||||||||
| Security deposit | ||||||||
| Intangible assets, net of accumulated amortization | ||||||||
| Goodwill | ||||||||
| Capitalized software development and license, net of accumulated amortization | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Stock repurchase liability | ||||||||
| Convertible notes payable, net
of $ | ||||||||
| Notes payable | ||||||||
| Notes payable related parties | ||||||||
| Deferred revenue | ||||||||
| Derivative liabilities | ||||||||
| Right of use liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Right of use liability, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity | ||||||||
| Series A preferred stock; $par value; shares authorized; shares issued and outstanding at December 31, 2023 and 2022 | ||||||||
| Common stock, $par value; shares authorized; and issued and outstanding at December 31, 2023 and 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
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APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022
(in thousands, except per share data)
| December 31, 2023 | December 31, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative, including stock based compensation of $ | ||||||||
| Impairment of intangible assets | ||||||||
| Excess fair value of equity issuance over assets received | ||||||||
| Research and development, including
stock based compensation of $ | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ||||||||
| Loss on debt extinguishment | ( | ) | ||||||
| Other income (expenses) | ||||||||
| Total other 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 consolidated financial statements.
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APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022
(in thousands, except 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 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Anti-dilution provision | – | |||||||||||||||||||||||||||
| Common stock issued for forbearance | – | |||||||||||||||||||||||||||
| Option exercise | – | |||||||||||||||||||||||||||
| Common stock issued for patents | – | |||||||||||||||||||||||||||
| Common stock cancelled | – | ( | ) | |||||||||||||||||||||||||
| Net proceeds from sale of offering shares | – | |||||||||||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||
| Issuance of shares for settlement | – | |||||||||||||||||||||||||||
| Option exercise | – | |||||||||||||||||||||||||||
| Repricing of warrants | – | – | ( | ) | ||||||||||||||||||||||||
| Net proceeds from sale of common shares | – | |||||||||||||||||||||||||||
| Shares issued for debt extinguishment | – | |||||||||||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
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APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022
(in thousands, except per share data)
| December 31, 2023 | December 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Expense/loss from shares issued for settlement | ||||||||
| Common stock issued for forbearance | ||||||||
| Gain on relief of accrued interest | ( | ) | ||||||
| Loss on debt extinguishment | ||||||||
| Stock issued for excess fair value of equity | ||||||||
| Cancellation of stock repurchase liabilities | ( | ) | ||||||
| Impairment of intangible assets | ||||||||
| Gain on settlement of convertible note, warrants and derivative liabilities | ( | ) | ||||||
| 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 | ( | ) | ||||||
| Deferred revenue | ||||||||
| Right of use asset and liability, net | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capitalized software development | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Acquisition | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on loans payable - related parties | ( | ) | ||||||
| Proceeds from sale of common stock | ||||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Repayment of convertible note payable | ( | ) | ( | ) | ||||
| Proceeds received from exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Changes in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of year | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Issuance of stock for intangible assets | $ | $ | ||||||
| Common stock issued for forbearance | $ | $ | ||||||
| Relief of anti-dilution liability through issuance of common stock | $ | $ | ||||||
| Issuance of stock for prepaid services | $ | $ | ||||||
| Cancellation of stock repurchase liabilities | $ | $ | ||||||
| Accrual of the acquisition consideration | $ | $ | ||||||
| Goodwill from acquisition | $ | $ | ||||||
| Intangible assets from acquisition | $ | $ | ||||||
| Shares issued for loan extinguishment | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| 32 |
APPTECH PAYMENTS CORP.
NOTES TO THE CONSOLIDATED 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 has a highly secure digital payments platform that we acquired and are further developing digital banking products to power 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.
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 February 2023, the Company completed an
underwritten public offering of its common stock and warrants, raising gross proceeds of approximately $
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, and protect all mobile phone advertising, including in a store’s mobile application. 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.
In June 2023, the Company entered into licensing agreements with InstaCash and PayToMe.co.
As part of the arrangement with InstaCash, the Company negotiated a 7.5% preferred share equity interest. As of the date of this filing, the shares have not been issued to AppTech. InstaCash's CEO also provides investor relation services to the company.
| 33 |
AppTech negotiated a 7.5% preferred share equity stake in PayToMe.co, but the shares have not been issued as of the date of this filing. Additionally, PayToMe.co is a related party to AppTech. Senior members of the Company sit on PayToMe.co's board of directors and AppTech's Chief Financial Officer (“CFO”) is married to its founder and Chief Executive Officer (“CEO”).
In August 2023, the Company entered into a sales
agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $18.0 million
through “at-the-market” offerings (ATM), pursuant to its shelf registration statement on Form S-3 on file with the SEC. During
the year ended December 31, 2023, the Company sold shares of common stock under the ATM, for which the Company received net
proceeds of $
Purchase of Alliance Partners, LLC
On October 13, 2023, the Company entered into
a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Alliance Partners, LLC, a Nevada
based software development limited liability company (“Alliance Partners”, “FinZeo”), and Chris Leyva (the “Seller”),
pursuant to which the Company agreed, upon the terms and subject to the conditions of the Membership Interest Purchase Agreement, to purchase
100% of the Seller’s interest in, to and under the membership interests of Alliance Partners (the “Transaction”). As
consideration for the purchase of the membership interests of Alliance Partners, the Company agreed to pay the Seller total consideration
of $
The Company closed the Transaction on October 26, 2023 (the “Closing Date”).
On October 31, 2023, the Company issued shares of its common stock to an entity owned by the Seller. In exchange for the shares, the Seller waived, cancelled, and forgave the long-term debt of FinZeo. Also, the entire FinZeo team elected to join the Company and certain employees received non-guaranteed stock options based on performance.
Management's Plan to Address Going Concern Considerations
The Company has experienced recurring operating losses, primarily due to limited revenues. The Company's current financial conditions and recurring losses raise substantial doubt about its ability to continue as a going concern.
In addition to an open S-3 filed with the SEC, management is actively pursuing additional funding options and is confident that two of its revenue streams will begin generating revenue in the following twelve months from the issuance date of these financial statements, although no assurances can be made.
Management intends to maintain adequate working capital and adhere to prudent financial forecasting. Management is also dedicated to implementing comprehensive expense reduction strategies across the Company’s operations to enhance financial stability.
| 34 |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of Consolidation
The consolidated audited financial statements include the accounts of AppTech Payments Corp., Alliance Partners., LLC, and wholly owned subsidiary. 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.
The Company makes critical estimates and assumptions in valuing: stock-based awards, intangible assets, identifiable intangible assets from the FinZeo acquisition, and the related goodwill impairment test. Actual results could differ from those estimates.
Concentration of Credit Risk
Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250,000 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. As of December 31, 2023,
For the year ended December 31, 2023, two
customers accounted for a significant amount of our revenues at
Cash and Cash Equivalents
The Company's cash consists of cash on deposit at its bank. Cash equivalents, if applicable, represents highly liquid investments with maturities of three months or less at the date of purchase. Management determines the appropriate classification.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable is recorded net of an allowance for doubtful accounts, when applicable. Historically, the Company has not written off any accounts receivable balances and does not maintain an allowance for doubtful accounts.
| 35 |
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 channel partners are recorded as a reduction to revenues.
Licensing Revenue
The Company is actively pursuing strategic partnership agreements that licenses our portfolio of patents in return for a fee. The licensing fee is deferred and recognized evenly on a monthly basis over the term of the service period or contract.
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.
Fair Value Measurements
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
| 36 |
The carrying amounts reported in the Company’s consolidated 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 financial instruments that are measured and recognized at fair value as of December 31, 2022 on recurring basis (in thousands):
| Schedule of fair value of liabilities | December 31, 2022 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Carrying Value | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
As of December 31, 2023, the company's financial instruments have a balance of zero.
See Note 7 for discussion of valuation and roll forward related to derivative liabilities.
Business Combination
ASC 805, Business Combinations (“ASC 805”), applies the acquisition method of accounting for business combinations to all acquisitions where the acquirer gains a controlling interest, regardless of whether consideration was exchanged. ASC 805 establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Accounting for acquisitions requires the Company to recognize, separately from goodwill, the assets acquired, and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While the Company provided its best estimates and assumptions when accurately valuing assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements 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 statements of operations.
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Intangible Assets and Intellectual Property
Intellectual Property
In April 2022, the Company fully executed a Definitive Agreement to acquire the patents of HotHand Inc. (“HotHand”), a patent-holding company. The transaction was an asset acquisition of HotHand's portfolio of thirteen patents. 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.
We amortize the patents on a straight-line basis
from
For the FinZeo acquisition, the Company recorded the identifiable intangible assets, which included the acquired technology, intellectual property, and non-competes, at their acquisition-date fair value using a combination of the income and cost approaches. The capitalized asset will also be amortized on a straight line basis over the five years of estimated useful life of the asset.
Capitalized Development Cost
The Company capitalizes certain costs related to the development of its digital payment and 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 Company recorded the identifiable intangible assets, which included the acquired technology, intellectual property, and non-competes, at their acquisition-date fair value using a combination of the income and cost approaches. Costs related to the preliminary project planning phase and post implementation phase are expensed as incurred. The capitalized development costs are amortized on a straight line basis over the estimated useful life of the asset.
Goodwill
The Company accounts for goodwill in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.
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. During the year ended December 31, 2023, there was $
See Notes 4 and 9 for further discussion of the asset impairment recorded during the year ended December 31, 2023.
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Lease Commitment
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable. Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s statement of operations in the same line as expense arising from fixed lease payments. As of December 31, 2023, management determined that there were no variable lease costs.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date.
The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable and deferred taxes in the period in which the facts that give rise to a revision become known. As of December 31, 2023 and 2022, the Company does not believe any provisions are required in connection with uncertain tax positions as there are none.
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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 year ended December 31, 2023 and 2022 were 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.
The number of common stock equivalents not included in diluted income per share was and for the years ended December 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 | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Series A preferred stock | ||||||||
| Convertible debt | ||||||||
| Warrants | ||||||||
| Options | ||||||||
| 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 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.
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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 - ACQUISITION
See Note 1- Acquisition - Purchase of Alliance Partners, LLC (Business Combinations)
The Company accounts for acquisitions in which it obtains control of a business as a business combination. The purchase price of the acquired business is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
In a business combination, goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed.
Intangible assets are established with business combinations and consist of intellectual property and customer relationships. Intangible assets with finite lives are recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives using the straight-line method.
On October 26, 2023, the Company acquired FinZeo,
a Nevada based LLC. As consideration for the purchase of the membership interests of Alliance Partners, the Company agreed to pay the
Seller total consideration of $
As part of the acquisition of FinZeo, the previous management team received 1.5 million options of AppTech's common stock, which will vest if the Company achieves certain sales target. The options would be forfeited if they left the Company prior to achieving their target. The Company did not record any stock based compensation expense during the year ended December 31, 2023 as these were not determined to be probable of vesting.
The pre-acquisition financial results of FinZeo were not material to these financial statements.
See Note 5- Accrued Liabilities and Note 10 - Stockholders’ Equity (Deficit)
Terms of the acquisition are listed below:
| Schedule of acquisition | ||||
| (in thousands, except share data) | ||||
| Total purchase price | $ | |||
| Allocation of the purchase price was as follows: | ||||
| Cash and cash equivalents | ||||
| Net working capital (excluding cash) | ( | ) | ||
| Other liabilities | ( | ) | ||
| Acquired technology and intellectual property | ||||
| Goodwill | ||||
| Net assets acquired | $ | |||
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NOTE 4 – INTANGIBLE ASSETS
Intellectual Property
The Company has two patent portfolios, which include:
| 1. | Mobile Payment Technology This portfolio consists of 4 mobile technology patents that range from System & Method for Delivering Web Content to a Mobile Device, Computer to Mobile Two-Way Chat System & Method, and Mobile to Mobile payment.; and |
| 2. | Geolocation Technology This portfolio consists of 13 patents that are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s mobile phone anywhere in the United States. This portfolio houses the patent that protects all advertising on a mobile phone, including in a store’s mobile application. We amortize the patents on a straight-line basis from 3 years to 15 years, which approximates the way the economic benefits of the intangible asset will be consumed. |
As of December 31, 2023, we have gross value
of patents at $
As of December 31, 2023, we have gross value
of acquired technology at $
See Note 1 - Purchase of Alliance Partners, LLC and Note 3 - Acquisition for discussions of the FinZeo acquisition.
| Schedule of intangible assets rollforward | ||||||||
| Intellectual Property | December 31, 2023 | December 31, 2022 | ||||||
| Beginning balance as of December 31 | $ | $ | ||||||
| Acquisition of intangible assets | ||||||||
| Amortization expenses | ( | ) | ( | ) | ||||
| Ending balance as of December 31 | $ | |||||||
Capitalized Development Cost
The Company capitalizes certain costs related to the development of its digital payment and banking platform.
See Note 9 for discussion of the impairment recorded during the year ended December 31, 2023.
As of December 31, 2023, we have gross
value of capitalized development cost at $
As of December 31, 2022, we have gross value
of capitalized development cost at $
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See Note 9 - Commitments and Contingencies for discussions of Infinios Financial Services (formerly NEC Payments B.S.C.) and write off capitalized development cost.
| Schedule of intangible assets rollforward | ||||||||
| Capitalized Development Cost | December 31, 2023 | December 31, 2022 | ||||||
| Beginning balance as of December 31 | $ | $ | ||||||
| Additions | ||||||||
| Impairment | ( | ) | ||||||
| Amortization expenses | ( | ) | ( | ) | ||||
| Ending balance as of December 31 | $ | $ | ||||||
Goodwill
On October 26, 2023 (the “Closing
Date”), the Company completed the acquisition of Alliance Partners, LLC, a Nevada limited liability company. The difference
between the fair value of the purchase price and the net assets acquired (including the assembled workforce) is recorded as
goodwill. As of December 31, 2023, the Company recorded goodwill of approximately $
See Note 1 - Purchase of Alliance Partners, LLC and Note 3 - Acquisition
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities as of December 31, 2023 and 2022 consist of the following (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Accrued interest – third parties | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued residuals | ||||||||
| Anti-dilution provision | ||||||||
| Payables due to seller for acquisition | ||||||||
| Other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
As consideration for the purchase of the
membership interests of Alliance Partners, the Company agreed to pay the Seller total consideration of $
See Note 1 Purchase of Alliance Partners, LLC (Business Combinations) and NOTE 3 - Acquisition
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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 and issued 451,957 total shares in May 2022. The anti-dilution provision expired in January 2023.
Also, in connection with the shares to be issued
as part of the HotHand acquisition, and anti-dilution provision with Infinios, the Company accrued an additional 39,706 shares of its
common stock at $1.81 per share for a total of $
The Company and Infinios are currently in arbitration.
See Note 9 - Commitment and Contingencies.
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The following is a summary of loans and notes payable outstanding as of December 31, 2023 and 2022. Related parties noted below are either members of management, board of directors, significant shareholders, or individuals that have significant influence over the Company.
Convertible Notes Payable (EMA)
In 2020, the Company entered into securities 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 matured in 365 days from the date of issuance. Upon maturity of the convertible note, interest rate was increased to 24%. The Note was 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.
The embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the securities 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 7 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable. In April 2023, the parties settled and extinguished the convertible note, warrants, and derivative liability.
See Note 9 - Commitment and Contingencies
As of December 31, 2023 and December 31,
2022, the convertible note payable balance was $
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Convertible Notes Payable (Forbearance)
In 2014, the Company issued $400 thousand
in convertible notes payable with interest rates ranging from 10% to 12% and an original maturity date of September 30, 2022. 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 note was $
Notes Payable
In 2020,
the Company entered into a 30-year unsecured note payable with U.S. Small Business Administration for $
As of December 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 later entered into a forbearance agreement in exchange for not enforcing the terms of the original agreement. 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 later entered into forbearance agreements in exchange for not enforcing the terms of the original agreement. In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six months. In February 2023, the Company paid off the notes and accrued interest in its entirety.
Note payable - related party
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. In February 2023, the Company paid off the note and accrued interest in its entirety.
As of December 31, 2023 and 2022, the
balance of the notes payable was
and $
As of December 31, 2023 and 2022, the
balance of the related party notes payable was
and $
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NOTE 7 – DERIVATIVE LIABILITIES
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and revalued each reporting period and upon extinguishment. The fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model.
At the end of December 31, 2023, the derivative liabilities were zero as the Company settled the convertible note and also extinguished its warrants related to its derivative liability as a result of the settlement.
See Note 9 - Commitment and Contingencies.
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, 2021 | $ | $ | $ | |||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of December 31, 2022 | ||||||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||
| Extinguishment of the derivative liability | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of December 31, 2023 | $ | $ | $ | |||||||||
During the year ended December 31, 2023, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
| Assumptions | ||||
| Market value of common stock | ||||
| Expected volatility | ||||
| Expected term (in years) | ||||
| Risk-free interest rate |
During the year ended December 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 |
| 46 |
NOTE 8 – RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Company entered into a lease agreement commencing February 8, 2020 for its current facility, which expires in 2025. The term of the lease is for five years. 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 December 31, 2023, including the total amount of imputed interest related (in thousands):
| 2024 | $ | |||
| 2025 | ||||
| Operating Lease Total | $ | |||
| Less: Imputed interest | ( | ) | ||
| Total | $ |
The rent expense was and $
NOTE 9 – COMMITMENTS AND CONTINGENCIES
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 alleging breach of contract. 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. On December 8, 2022, the United States District Court for
the Southern District of New York awarded damages to EMA 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 $
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. NCR filed a motion to dismiss, motion to transfer venue and motion to compel arbitration. Both parties are actively working to settle the claim.
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”).
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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.
In the years of 2021 and 2022, the Company paid
Infinios $
On May 4, 2023, unsatisfied with Infinios’ performance of its contractual obligations, the Company notified Infinios of its intent to terminate its relationship and commenced a good-faith negotiation with Infinios regarding the termination terms.
In June 2023, Infinios turned off all its services,
and the Company wrote off the $
On or about October 5, 2023, Infinios filed a demand for arbitration and a Statement of Claim before the International Centre for Dispute Resolution, Case No. 01-23-0004-3881 (the “Arbitration Claim”). In the Arbitration Claim, Infinios asserts claims for breach of contract, quantum meruit, and account stated. Infinios alleges damages of $598,525, and asserts a demand for the grant and registration of shares.
On November 13, 2023, the Company filed an Answer to the Arbitration Claim, along with Counterclaims for breach of contract, fraudulent inducement, unjust enrichment, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing.
At a Preliminary Hearing held on February 22, 2024, hearing dates of August 12 and 13, 2024, August 19 and 20, 2024, and October 21 and 22, 2024 were scheduled.
While the Company will continue to pursue consensual means of resolving this dispute, it intends to vigorously defend the claims in the Arbitration Claim, and prosecute the causes of action in its Counterclaims.
NOTE 10 – STOCKHOLDERS’ EQUITY
Series A Preferred Stock
The Company is authorized to issue shares
of $ par value Series A preferred stock (“Series A”). There were fourteen () shares of Series A preferred stock outstanding
as of December 31, 2023 and 2022. The holders of Series A preferred stock are entitled to one vote per share on an “as converted”
basis on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The
holders of Series A preferred stock are entitled to any dividends that may be declared by the Board of Directors out of funds legally
available, therefore on a pro rata basis according to their holdings of shares of Series A preferred stock, on an as converted basis.
In the event of liquidation or dissolution of the Company, holders of Series A preferred stock are entitled to share ratably in all assets
remaining after payment of liabilities and have no liquidation preferences.
Common Stock
The Company is authorized to issue shares of $ par value as of December 31, 2023 and 2022. There were and , respectively, shares of common stock outstanding as of December 31, 2023 and 2022. 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.
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In February 2023, the Company completed an underwritten
public offering of its common stock and warrants, raising gross proceeds of approximately $
On October 24, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with a certain accredited and institutional investor (the “Purchaser”) pursuant to which the Company has agreed to issue and sell to Purchaser an aggregate of: (i) shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and (ii) warrants (the “Purchase Warrants”) to purchase up to shares of Common Stock, exercisable at $2.74 per share (the “Offering”). The offering price per Share and associated Purchase Warrants is $2.10. The October Warrants will expire five years from the date on which they become exercisable.
On October 26, 2023, the Company closed the Offering and raised $
In August 2023, the Company entered into a
sales agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to
$18.0 million through “at-the-market” offerings (ATM), pursuant to its shelf registration statement on Form S-3 on file
with the SEC. During the year ended December 31, 2023, the Company sold
shares of common stock under the ATM, for which the Company received net proceeds of $
During the years ended December 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 years ended December 31, 2023
and 2022, the Company granted and shares of common stock to the board of directors valued at $
During the year ended December 31, 2023, the Company reserved shares of common stock for HotHand's shareholders in relation to incomplete HotHand shareholder contact information and or unexecuted APCX shareholder issuance agreements. These said shares will remain in escrow until each party is identified and new issuance agreement is fully executed.
On October 26, 2023 (the “Closing Date”), the Company completed acquisition of Alliance Partners, LLC, a Nevada limited liability company (“Alliance Partners”, “FinZeo”). On October 31, 2023, the Company issued shares of common stock valued at $2.44 per share to an entity owned by the Seller. In exchange for the shares, the Seller waived, cancelled, and forgave the long-term debt of FinZeo. Also, the entire FinZeo team elected to join AppTech and certain employees received non-guaranteed stock options based on performance.
See Note 1 - Purchase of Alliance Partners, LLC and Note 3 - Acquisition
On November 27, 2023, the Company issued shares of common stock, valued approximately at $ to a previous investor to retire a Right of Participation from a previous agreement. It was recorded within selling, general and administrative expenses in the accompanying statement of operations.
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Stock Options
The options vest in equal monthly installments ranging from instantly to 12 months. The fair value of the options were valued using a Black-Scholes options pricing model with the following range of assumptions:
| Fair value of stock options - assumptions | ||||
| Market value of common stock on issuance date | ||||
| Exercise price | ||||
| Expected volatility | % - % | |||
| Expected term (in years) | ||||
| Risk-free interest rate | % - % | |||
| Expected dividend yields |
During the year ended December 31, 2023, options to purchase shares of common stock at a weighted average exercise price of $ were granted as compensation to employees and consultants.
In connection with the acquisition of FinZeo, the former management team was granted 1.5 million shares of AppTech's common stock, contingent upon the Company reaching specified sales milestones. Should they exit the Company before fulfilling these sales objectives, the options will be forfeited. The fair value of these options will be recognized as an expense at the point when vesting appears likely. These non-plan options carry a five-year life from the grant period. The options have an exercise price set at $2.26 per share, with their fair value on the issuance date being $2.08 per share.
The Company grants stock options as part of employee compensation and recognizes these options' expense over the vesting period. If an employee does not meet certain conditions such as sales targets or leaves the Company before the options vest, these options are forfeited as they occur.
During the year ended December 31, 2023, the weighted average grant date fair value of of the options issued during the year, excluding the 1.5 million options to the previous management team of FinZeo, is approximately $1.50 per share.
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 December 31, 2023 | $ | |||||||||||
| Outstanding as of December 31, 2023, vested | $ | |||||||||||
The Company recorded $ option expenses for the year ended December 31, 2023, including expenses from repricing of the options at $. The remaining expense outstanding through December 31, 2023 is $ which is expected to be expensed over approximately one year.
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. The shareholders approved an additional 700,000 shares for the Company's Equity Incentive plan in May 2023. A total of shares of common stock were authorized under the Equity Incentive Plan, for which as of December 31, 2023, a total of are available for issuance.
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In May 2023, the shareholders approved the Company's proposed resolution to re-price its options. In total, 615,264 employee options were repriced to $0.715, and 250,658 options for board of directors and consultants' options were repriced to $1.430. The Company recorded the modification expense of $711 thousand during the year ended December 31, 2023.
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. As of December 31, 2023, the derivative liabilities are zero as the Company settled the convertible note and also extinguished its warrants related to its derivative liability as a result of the settlement.See Note 9 - Commitment and Contingencies.
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 has an exercise price of $4.64 per share of common stock and are exercisable on and after August 1, 2023. The Warrants 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. The offering that was completed in February 2023, caused a reset to the exercise price of existing warrants from the S-1 offering that had a strike price of $5.19 and a future offerings floor price of $4.15. Accordingly, the floor price was reset to $4.15 in February 2023. 4,156,626 warrants were reset and $763 thousand was recorded to additional paid-in capital and accumulated deficit as a result of the reset.
On October 26, 2023, the Company announced the closing of a $3.5 million registered direct offering. This offering involved the sale of 1,666,667 shares of common stock and an equal number of warrants (the “October Warrants”) with a combined purchase price of $2.10 for one share and one warrant. Each of the Warrants has an exercise price of $2.74 and are exercisable on and after October 26, 2023. The Warrants expire five years from the date on which they become exercisable. As a condition to the raise, the Company and the holder of the February warrant agreed to modify the exercise price of the February warrants from $4.64 to $2.74. As this was considered a cost of the offering, the Company recorded $97 thousand to additional paid-in capital and offering cost within equity, resulting in no net effect.
See additional warrants granted discussed in the Common Stock section above.
In total, the Company has
The following table summarizes warrant activity:
| Schedule of warrant activity | ||||||||||||
| Number of shares | Weighted Average exercise price | Weighted Average remaining years | ||||||||||
| Outstanding December 31, 2022 | $ | |||||||||||
| Cancelled | ( | ) | $ | |||||||||
| Issued | $ | |||||||||||
| Outstanding as of December 31, 2023 | $ | |||||||||||
See Note 1 for information on warrants issued during the Offering.
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NOTE 11 – INCOME TAXES
The Company’s net deferred tax assets at
December 31, 2023 and 2022 is approximately $
At December 31, 2023 and 2022, the applicable federal rate used in calculating the deferred tax provision was 21%.
The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for all periods starting in 2020. The Company currently is not under examination by any tax authorities.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to the December 31, 2023, the Company sold 423,180 shares of common stock under its “at-the-market” offerings (“ATM”), for which the Company received net proceeds of $701 thousand, after deducting commissions, fees and expenses.
On January 23, 2024, the Company granted 1 million options to a consultant with an exercise price of $1.58 and an expiration term of one year. The options are contingent on the consultant achieving certain sales targets and they will be forfeited if those goals are not achieved. There was no stock base compensation expense recorded as of the date of this filing.
On March 1, 2024, the Company issued 15,000 shares of common stock issued to the former owner of Alliance Partners, LLC as consideration for extending the payment due date for the remaining balance due of the acquisition consideration.
On March 26, 2024, AppTech Payments Corp. (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton LLC, as representative of the several underwriters (the “Underwriters”), relating to the public offering of 2,000,000 shares of common stock, par value $0.001 per share (“Common Stock”), at a purchase price per share to the public of $1.00 (the “Offering Price”). Pursuant to the Underwriting Agreement, the Company granted the Underwriters a 45-day option to purchase up to an additional 300,000 shares of Common Stock at the Offering Price, less any underwriting discounts and commissions, for use solely in covering any over-allotments.
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EXHIBIT INDEX
| Exhibit Number | Exhibit Title | |
| 2.1 | Agreement and Plan of Merger dated as of April 18, 2022, by and among AppTech Payments Corp., AppTech IP Corp., and HotHand, Inc., (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, as filed on April 21, 2022, and incorporated herein by reference) | |
| 3.1 | AppTech Corp. Articles of Conversion filed October 25, 2006 (filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.2 | AppTech Corp. Articles of Incorporation filed October 25, 2006 (filed as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.3 | AppTech Corp. Certificate of Designation filed May 09, 2007 (filed as Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.4 | AppTech Corp. Certificate of Correction filed June 04, 2007 (filed as Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.5 | AppTech Corp. Certificate of Designation filed June 06, 2007 (filed as Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.6 | AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed November 17, 2008 (filed as Exhibit 3.6 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.7 | AppTech Corp. Certificate of Amendment filed October 26, 2009 (filed as Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.8 | AppTech Corp. Certificate of Amendment filed October 27, 2009 (filed as Exhibit 3.8 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.9 | AppTech Corp. Certificate of Designation filed April 21, 2010 (filed as Exhibit 3.9 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.10 | AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed April 27, 2010 (filed as Exhibit 3.10 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.11 | AppTech Corp. Certificate of Change filed July 22, 2010 (filed as Exhibit 3.11 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.12 | AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed October 26, 2010 (filed as Exhibit 3.12 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.13 | AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed October 26, 2010 (filed as Exhibit 3.13 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.14 | AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed October 28, 2010 (filed as Exhibit 3.14 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.15 | AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed April 08, 2011 (filed as Exhibit 3.15 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) |
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| Exhibit Number | Exhibit Title | |
| 3.16 | AppTech Corp. Certificate of Amendment filed June 06, 2011 (filed as Exhibit 3.16 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.17 | AppTech Corp. Articles of Domestication filed July 18, 2011 (filed as Exhibit 3.17 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.18 | AppTech Corp. Bylaws dated May 07, 2013 (filed as Exhibit 3.18 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.19 | AppTech Corp. Certificate of Domestication filed July 09, 2013(filed as Exhibit 3.19 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.20 | AppTech Corp. Articles of Amendment filed October 31, 2013 (filed as Exhibit 3.20 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.21 | AppTech Corp. Certificate of Incorporation filed July 29, 2015 (filed as Exhibit 3.21 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.22 | AppTech Corp. Bylaws (Amended and Restated) dated March 27, 2020 (filed as Exhibit 3.22 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 3.23 | AppTech Certificate of Incorporation filed with the Secretary of State of Delaware dated December 13, 2021 (filed as Exhibit 3.23 to the Registrant’s Registration Statement on Form S-1, as filed on December 15, 2021, and incorporated herein by reference) | |
| 3.24 | AppTech Certificate of Correction filed with the Secretary of State of Delaware dated December 23, 2021 (filed as Exhibit 3.24 to the Registrant’s Registration Statement on Form S-1, as filed on December 23, 2021, and incorporated herein by reference) | |
| 3.25 | AppTech Certificate of Conversion filed with the Secretary of State of Delaware dated December 23, 2021 (filed as Exhibit 3.25 to the Registrant’s Registration Statement on Form S-1, as filed on December 23, 2021, and incorporated herein by reference) | |
| 3.26 | AppTech Certificate of Correction filed with the Secretary of State of Delaware dated December 23, 2021 (filed as Exhibit 3.26 to the Registrant’s Registration Statement on Form S-1, as filed on January 3, 2022, and incorporated herein by reference) | |
| 3.27 | AppTech Certificate of Amendment filed with the Secretary of State of Delaware dated December 27, 2021 (filed as Exhibit 3.27 to the Registrant’s Registration Statement on Form S-1, as filed on January 3, 2022, and incorporated herein by reference) | |
| 3.28 | AppTech Amended and Restated Bylaws (filed as Exhibit 3.22 to the Registrant’s Registration Statement on Form S-1, as filed on December 17, 2021, and incorporated herein by reference) | |
| 4.1 | Specimen Stock Certificate of AppTech Corp.’s Common Stock (incorporated by reference to Exhibit 4.1 to Form 10-12G/A filed February 14, 2020) | |
| 4.2 | AppTech Code of Business Conduct (filed as Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 4.3 | AppTech Corp. Audit Committee Charter (filed as Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q, as filed on November 16, 2020, and incorporated herein by reference) | |
| 4.4 | AppTech Corp. Compensation Committee Charter (filed as Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q, as filed on November 16, 2020, and incorporated herein by reference) | |
| 4.5 | AppTech Corp. Corporate Governance and Nominating Committee Charter (filed as Exhibit 99.3 to Form S-1 as filed on February 16, 2021 and incorporated herein by reference) |
| 54 |
| Exhibit Number | Exhibit Title | |
| 4.6 | Form of Purchase Warrant (filed as Exhibit 4.1 to Form 8-K as filed on January 31, 2023 and incorporated herein by reference) | |
| 4.7 | Form of Purchase Warrant (filed as Exhibit 4.1 to Form 8-K as filed on October 24, 2023 and incorporated herein by reference) | |
| 4.8 | Description of Securities (filed as Exhibit 4.6 to Form 10-K/A as filed on August 21, 2023 and incorporated herein by reference) | |
| 10.1 | AppTech Equity Incentive Plan ratified by shareholders at the Annual Meeting of the Shareholders on July 28, 2020 Amendment to Asset Purchase Agreement dated June 22, 2017 (filed as Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 10.2 | Lease & Purchase Option Agreement dated January 22, 2020 (filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K, as filed on March 30, 2020, and incorporated herein by reference) | |
| 10.3 | Strategic Partnership Agreement dated as of August 21, 2020, by and among AppTech Corp. and Silver Alert Services LLC, doing business as LifeLight Systems. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on August 26, 2020, and incorporated herein by reference) | |
| 10.4 | Subscription License and Service Agreement dated as of October 02, 2020, by and among AppTech Corp. and NEC Payments B.S.C. (c). (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on October 07, 2020, and incorporated herein by reference) | |
| 10.5 | Digital Banking Platform Operating Agreement dated as of October 02, 2020, by and among AppTech Corp. and NEC Payments B.S.C. (c). (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed on October 07, 2020, and incorporated herein by reference) | |
| 10.6 | Subscription License Order Form dated as of October 02, 2020, by and among AppTech Corp. and NEC Payments B.S.C. (c). PURSUANT TO REG S-K ITEM 601, CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED. (filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, as filed on October 07, 2020, and incorporated herein by reference) | |
| 10.7 | Registration Rights Agreement dated as of October 02, 2020, by and among AppTech Corp. and NEC Payments B.S.C. (c). (filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, as filed on October 07, 2020, and incorporated herein by reference) | |
| 10.8 | Warrant Agency Agreement, dated as of January 7, 2022, between the Company and Transfer Online, Inc. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on January 10, 2022), an incorporated herein by reference) | |
| 10.9 | Securities Purchase Agreement, dated January 30, 2023, by and between AppTech Payments Corp. and the Purchaser (filed as Exhibit 10.1 to Form 8-K as filed on January 31, 2023 and incorporated herein by reference) | |
| 10.10 | Form of Lock-Up Agreement (filed as Exhibit 10.2 to Form 8-K as filed on January 31, 2023 and incorporated herein by reference) | |
| 10.11 | Master Services and Development Agreement(filed as Exhibit 10.1 to Form 8-K as filed on June 21, 2023 and incorporated herein by reference) | |
| 10.12 | Membership Interest Purchase Agreement, dated as of October 13, 2023, by and among AppTech Payments Corp., Alliance Partners, LLC, and Chris Leyva. (filed as Exhibit 10.1 to Form 8-K as filed on October 16, 2023 and incorporated herein by reference) | |
| 10.13 | Securities Purchase Agreement, dated October 24, 2023, by and between AppTech Payments Corp. and the Purchaser (filed as Exhibit 10.1 to Form 8-K as filed on October 24, 2023 and incorporated herein by reference) |
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* Filed herewith.
** Furnished herewith.
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Signatures
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Carlsbad, California, on April 1, 2024.
| AppTech Payments Corp. | ||
| By: | /s/ Luke D’Angelo | |
| Name: | Luke D’Angelo | |
| Title: | Chief Executive Officer | |
| By: | /s/ Meilin Yu | |
| Meilin Yu | ||
| Chief Financial Officer and Treasurer | ||
Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Luke D’Angelo | Chief Executive Officer, Chairman and Director | April 1, 2024 | ||
| Luke D’Angelo | ||||
| /s/ Virgil Llapitan | President, Chief Operation Officer and Director | April 1, 2024 | ||
| Virgil Llapitan | ||||
| /s/ William Huff | Director | April 1, 2024 | ||
| William Huff | ||||
| /s/ Mengyin H. Liang “Roz Huang” | Director | April 1, 2024 | ||
| Mengyin H. Liang “Roz Huang” | ||||
| /s/ Michael O’Neal | Director | April 1, 2024 | ||
| Michael O’Neal | ||||
| /s/ Christopher Williams | Director | April 1, 2024 | ||
| Christopher Williams |
| 57 |
Exhibit 21.1
List of Subsidiaries
| Name | Jurisdiction |
| AppTech Holdings, LLC | Texas |
| Alliance Partners, LLC | Nevada |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 333-265526) of our report dated April 1, 2024, relating to the financial statements of AppTech Payments Corp for the years ended December 31, 2023 and 2022, which appear in the Annual Report on Form 10-K.
/s/ dbbmckennon
San Diego, California
April 1, 2024
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-K 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: April 1, 2024 | /s/ Luke D’Angelo |
| Luke D’Angelo | |
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Meilin Yu, certify that:
| 1. | I have reviewed this report on Form 10-K 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: April 1, 2024 | /s/ Meilin Yu |
| Meilin Yu | |
| Chief Financial Officer and Treasurer |
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 Annual Report of AppTech Payments Corp. on Form 10-K for the annual period ended December 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: April 1, 2024 | /s/ Luke D’Angelo |
| Luke D’Angelo | |
| Chief Executive Officer |
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 Annual Report of AppTech Payments Corp. on Form 10-K for the annual period ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Meilin Yu, 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: April 1, 2024 | /s/ Meilin Yu |
| Meilin Yu | |
| Chief Financial Officer and Treasurer |
Exhibit 97
APPTECH PAYMENTS CORP.
Incentive Compensation Recovery Policy (the “Policy”)
1. Recovery of Excess Incentive Compensation. If AppTech Payments Corp. (the “Company”) is required to prepare a Restatement, the Company’s board of directors (the “Board”) shall, unless the Board’s Compensation Committee determines it to be Impracticable, take reasonably prompt action to recover all Recoverable Compensation from any Covered Person. The Company’s obligation to recover Recoverable Compensation is not dependent on if or when the restated financial statements are filed. Subject to applicable law, the Board may seek to recover Recoverable Compensation by requiring a Covered Person to repay such amount to the Company; by adding “holdback” or deferral policies to incentive compensation; by adding post-vesting “holding” or “no transfer” policies to equity awards; by set-off of a Covered Person’s other compensation; by reducing future compensation; or by such other means or combination of means as the Board, in its sole discretion, determines to be appropriate. This Policy is in addition to (and not in lieu of) any right of repayment, forfeiture or off-set against any Covered Person that may be available under applicable law or otherwise (whether implemented prior to or after adoption of this Policy). The Board may, in its sole discretion and in the exercise of its business judgment, determine whether and to what extent additional action is appropriate to address the circumstances surrounding any Restatement to minimize the likelihood of any recurrence and to impose such other discipline as it deems appropriate.
2. Administration of Policy. The Board shall have full authority to administer, amend or terminate this Policy. The Board shall, subject to the provisions of this Policy, make such determinations and interpretations and take such actions in connection with this Policy as it deems necessary, appropriate or advisable. All determinations and interpretations made by the Board shall be final, binding and conclusive. The Board may delegate any of its powers under this Policy to the Compensation Committee of the Board or any subcommittee or delegate thereof.
3. Acknowledgement by Executive Officers. The Board shall provide notice to and seek written acknowledgement of this Policy from each Executive Officer; provided that the failure to provide such notice or obtain such acknowledgement shall have no impact on the applicability or enforceability of this Policy.
4. No Indemnification. Notwithstanding the terms of any of the Company’s organizational documents, any corporate policy or any contract, no Covered Person shall be indemnified against the loss of any Recoverable Compensation.
5. Disclosures. The Company shall make all disclosures and filings with respect to this Policy and maintain all documents and records that are required by the applicable rules and forms of the U.S. Securities and Exchange Commission (the “SEC”) (including, without limitation, Rule 10D-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and any applicable Exchange listing standard.
6. Definitions. In addition to terms otherwise defined in this Policy, the following terms, when used in this Policy, shall have the following meanings:
“Applicable Period” means the three completed fiscal years preceding the earlier to occur of: (i) the date that the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare a Restatement; or (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare a Restatement. “Applicable Period” also includes, in addition to the three fiscal year period described in the preceding sentence, any transition period (that results from a change in the Company’s fiscal year) within or immediately following that completed three fiscal year period; provided, further, a transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months would be deemed a completed fiscal year.
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“Covered Person” means any person who receives Recoverable Compensation.
“Exchange” means any national securities exchange or national securities association upon which the Company has a class of securities listed.
“Executive Officer” includes the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person (including any executive officer of the Company’s subsidiaries or affiliates) who performs similar policy-making functions for the Company. At a minimum, the term “Executive Officer” shall include all executive officers identified in SEC filings pursuant to Item 401(b) of Regulation S-K, 17 C.F.R. §229.401(b).
“Financial Reporting Measure” means a measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measure that is derived wholly or in part (including “non-GAAP” financial measures, such as those appearing in earnings releases) from such measures; provided, however, that any such measure need not be presented within the Company’s financial statements or included in a filing made with the SEC. Examples of Financial Reporting Measures include measures based on: revenues, net income, operating income, financial ratios, EBITDA, liquidity measures (such as free cash flow), return measures (such as return on assets or return on invested capital), profitability of one or more segments, and cost per employee. Stock price and total shareholder return (“TSR”) also are Financial Reporting Measures.
“Impracticable” means, after exercising a normal due process review of all the relevant facts and circumstances and taking all steps required by Exchange Act Rule 10D-1 and any applicable Exchange listing standard, the Compensation Committee determines that recovery of the Recoverable Compensation is impracticable because: (i) it has determined that the direct expense that the Company would pay to a third party to assist in enforcing this Policy and recovering the otherwise Recoverable Compensation would exceed the amount to be recovered; (ii) it has concluded that the recovery of the Recoverable Compensation would violate home country law adopted prior to November 28, 2022; or (iii) it has determined that the recovery of the Recoverable Compensation would cause a tax-qualified retirement plan, under which benefits are broadly available to the Company’s employees, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder. The Company must: (i) in the case of clause (i) of the preceding sentence, prior to making that determination, make a reasonable attempt to recover any Recoverable Compensation, document such reasonable attempt(s) to recover, and provide that documentation to the Exchange; and (ii) in the case of clause (ii) of the preceding sentence, obtain an opinion of home country counsel, acceptable to the Exchange, that recovery would result in such a violation, and provide that opinion to the Exchange.
“Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a Financial Reporting Measure; however it does not include: (i) base salaries; (ii) discretionary cash bonuses; (iii) awards (either cash or equity) that are based upon subjective, strategic or operational standards; and (iv) equity awards that vest solely on the passage of time.
“Received” – Incentive-Based Compensation is deemed “Received” in any Company fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment or grant of the Incentive-Based Compensation occurs after the end of that period.
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“Recoverable Compensation” means all Incentive-Based Compensation (calculated on a pre-tax basis) Received after October 2, 2023 by a Covered Person: (i) after beginning service as an Executive Officer; (ii) who served as an Executive Officer at any time during the performance period for that Incentive-Based Compensation; (iii) while the Company had a class of securities listed on an Exchange; and (iv) during the Applicable Period, that exceeded the amount of Incentive-Based Compensation that otherwise would have been Received had the amount been determined based on the Financial Reporting Measures, as reflected in the Restatement. With respect to Incentive-Based Compensation based on stock price or TSR, when the amount of erroneously awarded compensation is not subject to mathematical recalculation directly from the information in an accounting restatement: (i) the amount must be based on a reasonable estimate of the effect of the Restatement on the stock price or TSR upon which the Incentive-Based Compensation Received by the Covered Person originally was based; and (ii) the Company must maintain documentation of the determination of the reasonable estimate and provide such documentation to the Exchange.
“Restatement” means an accounting restatement of any of the Company’s financial statements due to the Company’s material noncompliance with any financial reporting requirement under U.S. securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (often referred to as a “Big R” restatement), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (often referred to as a “little r” restatement). A Restatement does not include situations in which financial statement changes did not result from material non-compliance with financial reporting requirements, such as, but not limited to retrospective: (i) application of a change in accounting principles; (ii) revision to reportable segment information due to a change in the structure of the Company’s internal organization; (iii) reclassification due to a discontinued operation; (iv) application of a change in reporting entity, such as from a reorganization of entities under common control; (v) adjustment to provision amounts in connection with a prior business combination; and (vi) revision for stock splits, stock dividends, reverse stock splits or other changes in capital structure.
Adopted by the Board of Directors on November 28, 2023
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