AppTech Payments Corp 10-Q for FY2021 Q2
AppTech Payments Corp. (APCX)
About this 10-Q
AppTech Payments Corp filed this 10-Q on August 16, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $151.02K
- up 94.0% from $77.85K a year earlier
- Net loss
- $6.34M
- compared with a net loss of $326.42K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ________________________
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or other jurisdiction of incorporation or organization) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| OTC Pink Open Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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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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As of August 13, 2021, the latest practicable date, the registrant had shares of common stock (par value 0.001).
AppTech Corp.
Form 10-Q
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this Quarterly on Form 10-Q of AppTech Corp. (we, our, AppTech or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include:
| ● | uncertainty associated with anticipated launch of our digital banking, text payment platform and other potential advanced payment solutions we intend to launch in the future; | |
| ● | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; | |
| ● | dependence on third-party channel and referral partners, who comprise a significant portion of our sales force, for gaining new clients; | |
| ● | a slowdown or reduction in our sales in due to a reduction in end user demand, unanticipated competition, regulatory issues, or other unexpected circumstances; |
| 2 |
| ● | uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer in the future; | |
| ● | dependence on third-party payment processors to facilitate our merchant services capabilities; | |
| ● | delay in or failure to obtain regulatory approval of our digital banking, text payment system or any future products in additional countries; | |
| ● | our ability to operate our business while timely making payments pursuant to our loan agreements; | |
| ● | our need to raise additional financing to fund daily operations and successfully grow our Company; | |
| ● | our ability to retain and recruit appropriate employees, in particular a productive sales force; | |
| ● | current and future laws and regulations; | |
| ● | general economic uncertainty associated with the Covid-19 pandemic; | |
| ● | the adverse effects of COVID-19, and its unpredictable duration, in regions where we have customers, employees and distributors; | |
| ● | the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of customers to visit our merchants’ businesses; | |
| ● | the possibility that the economic impact of COVID-19 will lead to changes in how consumers make purchases and we are unable to monetize such changes; | |
| ● | the possibility that the economic impact of COVID-19, and its associated high unemployment rate, will lead to less consumer spending thus resulting in loss of revenues; and | |
| ● | the possibility that the economic impact of COVID-19, will result in our merchants’ businesses failing to reopen once restrictions are further eased. |
All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).
We encourage you to read the discussion and analysis of our financial condition and our financial statements contained in this Quarterly Report on Form 10-Q. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates.
Unless the context otherwise requires, throughout this Quarterly Report on Form 10-Q, the words “AppTech” “we,” “us,” the “registrant” or the “Company” refer to AppTech Corp.
| 3 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
APPTECH CORP.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
| 4 |
APPTECH CORP.
BALANCE SHEETS
JUNE 30, 2021 AND DECEMBER 31, 2020
(UNAUDITED)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Capitalized prepaid software development and license | ||||||||
| Prepaid offering cost | ||||||||
| Note receivable | ||||||||
| Right of use asset | ||||||||
| Security deposit | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Right of use liability | ||||||||
| Stock repurchase liability | ||||||||
| Loans payable related parties | ||||||||
| Convertible notes payable, net of $ | ||||||||
| Convertible notes payable related parties | ||||||||
| Notes payable | ||||||||
| Notes payable related parties | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Accounts payable | ||||||||
| Right of use liability | ||||||||
| Notes Payable, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Series A preferred stock; $ par value; shares authorized; shares issued and outstanding at June 30, 2021 and December 31, 2020 | ||||||||
| Common stock, $ par value; shares authorized; and and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See accompanying notes to the financial statements.
| 5 |
APPTECH CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(UNAUDITED)
| For the Three Months | For the Six Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative, including stock based compensation of $, $81,554, $1,589,350 and $, respectively | ||||||||||||||||
| Excess fair value of equity issuance over assets received | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||||||||||
| Forgiveness of debt | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per common share | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted-average number of shares used basic and diluted per share amounts | ||||||||||||||||
See accompanying notes to the financial statements.
| 6 |
APPTECH CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS AND THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(UNAUDITED)
| Series A Preferred | Common Stock | Additional Paid- | Accumulated | Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | ||||||||||||||||||||||||||
| Balance March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | ||||||||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Issuance of stock options for board of directors | — | — | ||||||||||||||||||||||||||
| Issuance of stock options for services | — | — | ||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | ||||||||||||||||||||||||||
| Common stock issued for board of directors | — | |||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||
| Common stock issued for merchant equity | — | |||||||||||||||||||||||||||
| Common stock issued for judgment | — | |||||||||||||||||||||||||||
| Common stock issued for capitalized prepaid software development and license | — | |||||||||||||||||||||||||||
| Common stock cancelled | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | ||||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Issuance of stock options for board of directors | — | — | ||||||||||||||||||||||||||
| Issuance of stock options for services | — | — | ||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | ||||||||||||||||||||||||||
| Common stock issued for board of directors | — | |||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||
| Common stock issued for merchant equity program | — | |||||||||||||||||||||||||||
| Common stock issued for convertible notes payable, accrued interest, derivative liabilities, and accounts payable | — | |||||||||||||||||||||||||||
| Proceeds from sale of repurchase option | — | — | ||||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See accompanying notes to the financial statements.
| 7 |
APPTECH CORP.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(UNAUDITED)
| June 30, | June 30, | |||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Issuance of stock options for board of directors | ||||||||
| Issuance of stock options for service | ||||||||
| Stock issued for board of directors | ||||||||
| Stock issued for services | ||||||||
| Stock issued for merchant equity | ||||||||
| Stock issued for purchase of judgment | ||||||||
| Stock issued for excess fair value of equity over assets received | ||||||||
| Stock issued for excess fair value of equity issuance | ||||||||
| Imputed interest on notes payable | ||||||||
| Amortization of debt discount | ||||||||
| Gain on extinguishment of accounts payable | ( | ) | ||||||
| Change in fair value of derivative liabilities | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Right of use asset and liability | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Deposit escrow | ||||||||
| Capitalized prepaid software development and license | ( | ) | ||||||
| Security deposit | ( | ) | ||||||
| Net cash provided (used) by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments for offering costs | ( | ) | ||||||
| Proceeds on loans payable – related parties | ||||||||
| Payments on loans payable - related parties | ( | ) | ( | ) | ||||
| Repurchase of common stock - related party | ( | ) | ||||||
| Proceeds from sale of repurchase options | ||||||||
| Net cash provided by financing activities | ||||||||
| Changes in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non cash investing and financing activities: | ||||||||
| Common stock issued for conversion of accounts payable | $ | |||||||
| Forgiveness of debt through conversion of accounts payable | $ | |||||||
| Common stock issued convertible notes, accrued interest and derivative liabilities | $ | |||||||
| Common stock and options issued for capitalized software and licensing costs | $ | $ | ||||||
See accompanying notes to the financial statements.
| 8 |
APPTECH CORP.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
AppTech Corp. (“AppTech” or the “Company”) is a Wyoming Corporation incorporated on July 2, 1998.
AppTech Corp. is a FinTech company providing electronic payment processing technologies and merchant services. These technologies allow businesses to accept cashless and/or contactless payments, such as credit cards, ACH, wireless payments, and more. Their patented, exclusively licensed and/or proprietary merchant services software offers or will offer integrated solutions for frictionless digital and mobile payment acceptance; AppTech is supplementing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based issuer processing for card, digital tokens, and payment transfer transactions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Also see Note 3.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, realization of tax deferred tax assets and capitalization of software development. 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 $
The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses six financial institutions to service their merchants for which represented 100% of accounts receivable as of June 30, 2021 and 2020. The loss of one of these financial institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company. For the six months ended June 30, 2021 and 2020, the one merchant (customer) represented approximately 46% and 41% of the total revenues, respectively. The loss of this customer would have significant impact on the Company’s operations.
Software Development Costs
The Company capitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred.
| 9 |
Revenue Recognition
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, codified as Accounting Standards Codification (“ASC”) 606 Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted ASC 606 effective January 1, 2019 using modified retrospective basis and the cumulative effect was immaterial to the financial statements.
The Company provides merchant processing solutions for credit cards and electronic payments. In all cases, the Company acts as an agent between the merchant which generates the credit card and electronic payments, and the bank which processes such payments. The Company’s revenue is generated on services priced as a percentage of transaction value or a specified fee transaction, depending on the card or transaction type. Revenue is recorded as services are performed which is typically when the bank processes the merchant’s credit card and electronic payments.
Consideration paid to customers such as amounts earned under our customer equity incentive program, are recorded as a reduction to revenues. There were no amounts paid or incurred during the six months ended June 30, 2021 and 2020.
Fair Value Measurements
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclosure the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term mature of these financial instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
The following table presents liabilities that are measured and recognized at fair value as of June 30, 2021 and December 31, 2020 on recurring basis:
| 10 |
| Schedule of derivative liabilities | ||||||||||||||||
| June 30, 2021 | ||||||||||||||||
| Total Carrying | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||
| Derivative liabilities | ||||||||||||||||
| December 31, 2020 | ||||||||||||||||
| Total Carrying | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||
| Derivative liabilities | ||||||||||||||||
See Note 7 for discussion of valuation and roll forward related to derivative liabilities.
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 10,315,337 and 5,540,288 for the six months ended June 30, 2021 and 2020, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive.
| Schedule of anti dilutive stock | ||||||||
| June 30, 2021 | June 30, 2020 | |||||||
| Series A preferred stock | ||||||||
| Convertible debt | ||||||||
| Warrants | ||||||||
| Options | ||||||||
| Common stock | ||||||||
| Total | ||||||||
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – GOING CONCERN
As reflected in the accompanying financial
statements, during the six months ended June 30, 2021 and 2020, the Company incurred a net loss of $
While the Company is continuing operations
and generating revenues, the Company’s cash position is not significant enough to support the Company’s daily operations.
To fund operations and reduce the working capital deficit, the Company intends to raise additional funds through public or private
debt and/or equity offerings. During 2021, the Company received $
| 11 |
Risks and Uncertainties
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. Since the Company derives its revenues from processing of purchases from our merchant services clients, a downturn in economic activity, such as associated with the current coronavirus pandemic, could reduce the volume of purchases it processes, and thus its revenues. In addition, such a downturn could cause its merchant customers to cease operations permanently decreasing our payment processing unless new customers are found. We may also face additional difficulty in raising capital during an economic downturn. The effects of the pandemic had significant impact on revenue at the beginning of the pandemic and the processors gave significant concessions of reduced fees to minimize the impact of the pandemic. The revenue began to increase after several months as the economy began to open up using different methods of purchasing especially online purchasing, as well as, the Company has been able to add new customers. The continuing effects of the potential impact cannot be estimated at this time.
Additionally, it is reasonably possible that the estimates made in the financial statements have been, or will be materially and adversely impacted in the near term as a result of these conditions. Also, if the development of the Company’s payment platform is not successful, the software development costs will need to be expensed instead of capitalized.
NOTE 4 – PATENTS
Patents
On June 22, 2017, AppTech executed an
Amendment to Asset Purchase Agreement with GlobalTel Media, Inc. In connection with the asset purchase agreement, shares
of common stock were issued to GlobalTel Media, Inc. The Company valued the common stock issuance at $
See Note 9 for more information on capitalized prepaid software development and license.
| 12 |
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities as of June 30, 2021 and December 31, 2020 consist of the following:
| Schedule of Accrued Liabilitie | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Accrued interest – related parties | $ | $ | ||||||
| Accrued interest – third parties | ||||||||
| Accrued payroll | ||||||||
| Accrued PTO | ||||||||
| Accrued residuals | ||||||||
| Accrued merchant equity | ||||||||
| Other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
Accrued Interest
Notes payable and convertible notes
payable incur interest at rates between
Accrued Residuals
The Company pays commissions to independent agents which refer merchant accounts. The amounts payable to these independent agents is based upon a percentage of the amounts processed on a monthly basis by these merchant accounts.
Accrued Merchant Equity Liability
The Company provided all merchants the opportunity to earn shares of the Company’s common stock through their Merchant Equity Program (the “Program”). Under the Program, the merchant earned 1% of their total Visa/MasterCard volume processed during the first year of their contract. For example, if a merchant processes $1.0 million in credit card charges, the merchant will receive 10,000 shares of the Company’s common stock. The merchant must process with the Company for a period of three years for the shares to vest. All merchants became fully vested when the Company ended the program effective December 31, 2015.
The Company accounts for the value of
the shares under the program as a sales incentive and thus the amounts in connection with the Program are recorded as a reduction
to revenues. As of June 30, 2021, the Company has an obligation to issue approximately
NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The Company funds operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of June 30, 2021 and 2020. Related parties noted below are either members of management, board of directors, significant shareholders or individuals in which have significant influence over the Company.
Loans Payable – Related Parties
During the six months ended June 30,
2021 and 2020, the Company obtained (paid) $(
Subordinated Notes Payable
In 2016, the Company issued $
| 13 |
Convertible Notes Payable
In 2020, the Company entered into a
Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $
In the event of a default of the Note, the Holder in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.
The embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 200,000 shares of common stock exercisable at one dollar and fifty cents ($1.50) 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.
Total interest expense on convertible
notes payable, inclusive of amortization of debt discount of $
| Schedule of notes and convertible notes payable | ||||||||
| June 30, 2021 | December 31, 2021 | |||||||
| Convertible note payable | $ | $ | ||||||
| Warrants | ||||||||
| Total notes and convertible notes payable | $ | $ | ||||||
See Note 9 – Convertible note and warrant lawsuit.
In 2017, the Company received $
| Schedule of Convertible note and warrant lawsuit | ||||
| Convertible note payable | $ | |||
| Accrued interest | ||||
| Excess fair value of equity issuance | ||||
| Total | $ |
| 14 |
In 2015, the Company issued $
In 2014, the Company issued $
In 2008 and 2009, the Company issued
$320,000 in convertible notes payable, of which $150,000 was from related parties. The convertible notes payable are currently
due on demand, incur interest at 15% per annum, and convertible at $0.60 per share. As of December 31, 2020, accrued interest related
to the convertible notes was $
| Schedule of convertible notes payables | ||||
| Convertible notes payable | $ | |||
| Convertible notes payable – related parties | ||||
| Accrued interest | ||||
| Accrued interest – related parties | ||||
| Excess fair value of equity issuance | ||||
| Excess fair value of equity issuance – related parties | ||||
| Total | $ |
Notes Payable
In 2020, the Company entered into a
30-year unsecured note payable with U.S. Small Business Administration for $68,200 in proceeds. The notes payable incurred a $100
fee upon issuance and incurs interest at 3.75% per annum. All payments of principal and interest are deferred for twelve months
with the first $333 payment due July 1, 2021. As of June 30, 2021 and December 31, 2020 the balance of the note payable was $
In 2016, the Company issued $143,000 in notes payable to third parties. The notes payable were due in ninety days or less. During 2019, the Company paid $36,000 in notes payable. The Company is currently in default of the note agreements.
Two significant shareholders funded the Company’s operations through notes payable in primarily 2009 and 2010. The notes payable incur interest at 10% per annum and were due on December 31, 2016. The Company is currently in default of the note agreements. As of June 30, 2021 and December 31, 2020, the aggregate balance of the notes payable was $620,355 and accrued interest was $367,873 and $638,016, respectively. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with a significant shareholder. The parties agreed to reduce the outstanding accrued interest in the amount of $275,000.
| 15 |
In 2008, the Company entered into a note payable with a third party for $10,000 in total proceeds. The note payable is currently in default and has a flat interest amount due of $21,000. As of June 30, 2021 and 2020, the Company was in default of the note agreement and the entire amount of $21,000 has been included within accrued interest. Since the notes payable do not incur interest, the Company imputed interest at $500 and $500, respectively, which represented an interest rate of 10% per annum during the six months ended June 30, 2021 and 2020.
In 2008, the Company entered into notes payable with a third party for $26,000 in total proceeds. The notes payable have a flat interest amount due of $80,000. During 2015, the Company received another $50,000 from the third party. During 2017, the Company entered into an agreement whereby they would repay the principal and accrued interest in the amount of $145,000 by April 4, 2018 and issue the holders 800,000 shares of common stock. The Company recorded the fair market value of the common stock issued at $336,000 based on the date of issuance as interest expense. Other than the issuance of shares of common stock, the Company did not perform under the agreement. The Company is currently in default of the note agreement.
In 2007 and 2008, the Company entered into notes payable with a related party for $46,000 in proceeds. The notes payable were due on demand and incurred interest at 12% per annum. These were combined into a single note agreement in 2014. As of June 30, 2021 and December 31, 2020, the balance on the note payable was $88,136 and accrued interest related to the note payable was $65,228 and $59,900, respectively. The Company is currently in default of the note payable agreement.
In 2007, the Company entered into note payable with a third party for $128,000 in proceeds. Under the terms of the agreement the holder received a flat interest amount of $37,496. The Company is currently in default of the note payable agreement and the entire amount of $37,496 has been included within accrued interest. Since the note payable did not incur interest, the Company imputed interest at $6,400 and $6,400, respectively, which represented an interest rate of 10% per annum during the six months ended June 30, 2021 and 2020.
In 2007, the Company entered into note payable with a third party for $221,800 in proceeds. The note payable is currently in default and incurs interest at 10% per annum. On December 31, 2013, the holder received an arbitration settlement for the principal and accrued interest. As of June 30, 2021 and December 31, 2020, the Company was in default of the arbitration settlement. As of June 30, 2021 and December 31, 2020, accrued interest related to the note payable was $490,284 and $470,143, respectively.
In 2007, the Company entered into note payable with a significant shareholder for $58,600 in proceeds. The note payable is currently due on demand and incurs interest at 10% per annum. As of June 30, 2021 and December 31, 2020, accrued interest related to the note payable was $79,303 and $76,372, respectively. The Company is currently in default of the note agreement.
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 at June 30, 2021 and December 31, 2020.
Based on the convertible notes described in Note 6, the derivative liability day one loss is $389,712 and the change in fair value at June 30, 2021 and December 31, 2020 is $30,351 and $71,464. The fair value of applicable derivative liabilities on note, warrants and change in fair value of derivative liability are as follows for the six months ended June 30, 2021.
| Schedule of fair value of derivative liabilities | ||||||||||||
| Derivative Liability Convertible Notes | Derivative Liability Warrants | Total | ||||||||||
| Balance as of December 31, 2020 | ||||||||||||
| Change in fair value | ( | ) | ||||||||||
| Change in fair value due to conversion | ( | ) | ( | ) | ||||||||
| Balance as of June 30, 2021 | $ | $ | $ | |||||||||
| 16 |
At June 30, 2021, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
| Schedule of pricing mode with assumptions | ||||
| Market value of common stock | $ | |||
| Expected volatility | % | |||
| Expected term (in years) | ||||
| Risk-free interest rate | % |
At June 30, 2021, 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 | % |
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
Years ended December 31:
| Schedule of Future Minimum Rental Payments for Operating Leases | |||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Operating Lease Total | $ | ||||
| Less: Imputed interest | ( | ) | |||
| Total | $ |
The rent expense was $
NOTE 9 - COMMITMENTS AND CONTIGENCIES
Litigation
Former Shareholders Lawsuit
| 17 |
In November 2017, two shareholders of AppTech, one who previously filed the 2014 lawsuit in the State of Washington, filed another lawsuit against the Company in the State of California, claiming the same accusations as the previously filed lawsuit which was dismissed. The lawsuit has been transferred to the United States District Court for the Southern District of California. The Company filed the defendants answer, affirmative defenses and counter claims. Management believes that the Plaintiff misrepresented and misled AppTech during the merger. The court has encouraged the parties to settle. Even though the Company believes the lawsuit is without merit and will vigorously defend, the Company has made several offers to settle. On December 19, 2019, the Company entered into a settlement and release agreement. The Company has recorded the liability as of December 31, 2019 for the total obligation of $240,000 to be paid out over three years beginning February 15, 2020. The 2019 impact is recorded in general and administrative expenses. On January 24, 2021, the parties entered a stipulation modifying the repayment schedule of the settlement. The Company is current on the following modified repayment schedule.
Years ended December 31:
| Schedule of payment of lawsuit | |||||
| 2021 | $ | ||||
| 2022 | |||||
| Total | $ |
Patent Acquisition Lawsuit
In September 2018, a complaint was filed
in San Diego superior court for a breach of contract arising from a written agreement for the purchase of a judgment to which AppTech
was not a party. The purchase of the judgment was part of the transaction to acquire the patents. AppTech substantially performed
under the agreement but the second agreement to extend the final payment was executed under alleged duress. On October 26, 2018,
the Company filed an answer that denied each and every purported allegation and cause of action and further denied that they caused
any damage or loss. On December 3, 2019, the Company entered into a conditional settlement providing the terms of the conditional
settlement have been completed by October 1, 2020. The conditional settlement amount of $150,000 was paid in monthly installments
of $15,000. The settlement installments paid for the year ended December 31, 2020 was $
Other Lawsuit
In July of 2020, an owner and corporation having a business opportunity filed a lawsuit in the State of California alleging a breach of contract, intentional misrepresentation, fraudulent inducement of contract, negligent misrepresentation and unjust enrichment relating to a non-binding memorandum of understanding (“MOU”) between the parties and its associated circumstances in 2016 and other alleged representations associated with the proposed partnership between the parties. Process was served on January 8, 2021. The Plaintiffs filed an amended complaint on March 15, 2021. The Company filed an answer with affirmative defenses on April 26, 2021. The lawsuit is in the beginning stages of discovery. Management believes the agreement was non-binding, the statute of limitation has expired and the allegations have no merit. We currently own a judgment against the owner and corporation in the amount of $516,932 plus statutory interest.
Convertible Note and Warrant Lawsuit
In July 2021, an entity possessing a convertible note and warrant filed a lawsuit in the Southern District of New York for specific performance, breach of contract, permanent injunction, and attorney’s fees. The Company believes that the plaintiff is acting as an unlicensed dealer and utilized unlicensed brokers to induce the Company into the contracts thereby voiding the agreements. Prior to the plaintiff filing suit, the Company provided demand letters to the plaintiff and their coconspirators, and filed complaints with the SEC, FINRA and California Division of Corporations. The Company has not yet filed its answer but anticipates filing counter and cross suits in the near future.
Significant Contracts
Capital Raise
In January 2019, the Company entered into an agreement with a broker dealer to provide capital raising activities. Under the terms of the agreement the broker dealer is to make a minimum of $90,000 in advisory fees. In addition, there are various other provisions within the agreement which include a 10% placement fee, warrants to purchase common stock, a 4% transaction fee, etc.
| 18 |
In February 2021, the Company entered into an engagement letter with Maxim Group LLC (“Maxim”) as the lead management underwriter for a follow-on offering which is non-binding. This engages Maxim through September 30, 2021 as exclusive financial advisor, lead managing underwriter and sole book running manager and investment banker in connection with the offering. The offering shall consist of approximately fifteen million worth of securities subject to the due diligence examination of the Company. The actual size of the offering, the precise number of securities to be offered by the Company and Maxim will depend upon the capitalization of the Company among other various factors. Maxim shall be granted an option to acquire an additional 15% of the total number of securities as an over-allotment, an underwriting discount of 7% and an expense allowance equal to 1%.
Silver Alert Services, LLC
In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC. doing business as Lifelight Systems (“Lifelight”), expanding into the telehealth sphere. The partnership will expand AppTech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets. The strategic partnership provides a promissory note to Lifelight for up to $1.0 million dollars with an interest rate of three percent per annum upon successful completion of Lifelight’s Personal Emergency Response System (“PERS”) pilot program. Also, Lifelight is granted an option for the right to purchase 4,500,000 shares of AppTech Corp. for which 1 million are exercisable at $0.01 and 3,500,000 are exercisable at $0.25 for which vest upon the successful completion of the PERS pilot program and are exercisable for 24 months. These options had a grant date fair value of at $1,549,999 and $5,424,987, respectively using a Black-Scholes options pricing model. No stock-based compensation was recorded during the six months ended June 30, 2021 as vesting was determined to be highly improbable.
On December 30, 2020, the Company amended its strategic partnership agreement and purchase option agreement with Silver Alert dated August 21, 2020. The amendment altered and/or added certain definitions and the loan disbursements in the strategic partnership agreement. Further, the purchase option agreement was amended to incorporate a vesting schedule related to the gross revenue generated from the partnership. The options will vest based on reaching various gross revenue benchmarks for which expire two years after each tranche vests.
On March 29, 2021, the Company amended its strategic partnership agreement and purchase option agreement dated December 30, 2020. The amendment altered the agreement reducing the options to purchase to one million shares at a price of $0.01 and two million five thousand shares of stock at $0.25. These options had a grant date fair value of $2,329,999 and $5,824,980, respectively using a Black-Scholes options pricing model. No stock-based compensation was recorded during the six months ended June 30, 2021 as vesting was determined to be highly improbable.
The Company’s ability to deliver on the $1,000,000 loan and fulfill its 50% obligation in 2020 was greatly impacted by the ongoing Covid 19 pandemic. Nursing homes and other senior living facilities were in lock down which did not allow the Silver Alert team into facilities for set-up and equipment training. As of August 9, 2021, the team still does not have access to these facilities and thus revenue could not be generated. Both parties agreed the delay was in the best interest of the long-term growth of the partnership. The Company will assess the probability of vesting at the end of each reporting period.
On April 27, 2021, the Company entered an amended and restated strategic partnership agreement and purchase option agreement with Silver Alert Services, LLC which amends and restates earlier agreements dated August 21, 2020, as amended on December 30, 2020 and March 29, 2021. The amended and restated agreements provide for an equity transaction whereby the Company receives a 70% (seventy percent) ownership in Silver Alert, LLC upon certain revenue goals being achieved. Further, upon the occurrence of the revenue goals, the revenue sharing between the companies shall be altered resulting in the Company retaining 70% (seventy percent).
| 19 |
NEC Payments
On October 1, 2020, the Company entered into a strategic partnership with NEC Payments B.S.C (“NECP”) through a series of agreements, which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”).
The intent of the Agreements was for the Company to deploy NECP’s technologies, allowing the Company to extend its product offering to include flexible, scalable and secure payment acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legally payment types to distanced and contactless card and real time payment transactions. NECP will assist the Company to complete the development of its text payment solution and provide “best in class” software that complements the Company’s intellectual property. The Agreements, among other things:
| (a) | provide the Company a license to access and use NECP’s digital banking and payment technology solutions, as identified in the Subscription License Order Form; | |
| (b) | grant the Company conditional exclusivity in the United States for all of NECP’s payment acceptance processing technologies contingent upon the Company reaching transaction volume target goals; |
| (c) | grant NECP a license to develop software without the possibility of infringing upon the Company’s intellectual property; | |
| (d) | creates the parameters in which NECP shall assist the Company in completing the development of its text payment system related to the Company’s patents; | |
| (e) | award NECP a fifteen percent (15%) equity stake in the Company, on a fully diluted basis; | |
| (f) | set revenue sharing splits between AppTech and NECP for all revenues generated from digital banking technologies licensed to AppTech. |
Under the Agreements, either party had the right to terminate the agreement should the Company fail to secure a funding in the amount of $3,000,000 within 45 days from the effective date of the Agreements.
On November 19, 2020, the Company entered into Amendment No. 1 to the Subscription License and Services Agreement whereby the funding date was amended to amended to no later than December 18, 2020. All other terms of the original Agreements remained in full force and effect.
On February 11, 2021, the Company entered into an amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License Order Form with NECP (collectively the “Restated Agreements”). The Restated Agreement created an engagement fee of $100,000 due within three business days from the effective date, reduced the funding amount triggering the enforceability of the Restated Agreements to $707,500 (“Funding”), altered the date in which initial fees are payable to no later than March 5, 2021 (the “Funding Date”) and provided terms to prevent dilution for NECP’s equity compensation for future funding secured by the Company. The fees in the Restated Agreements are payable within three business days from the effective date, at or before the Funding Date, at the Subscription Service Ready Date annually and monthly. The gross total fees due under the Restated Agreements are $2,212,500, excluding pass-through costs associated with infrastructure hosting fees.
On February 19, 2021, the Company completed and validated its contractual obligations and paid to NECP the $100,000 engagement fee. On February 29, 2021, the Company paid the initial fee of $707,500 to NECP prior to the Funding Date. On March 25, 2021, the Company issued 18,011,515 shares of common stock to NEC on a fully diluted basis with piggyback rights. The Company valued the common stock issuance at $67,543,182 based upon the closing market price on the effective date of the transaction based on the closing market price of the Company’s common stock. The issuance was recorded as a $5,000,000 asset, as capitalized prepaid software development and licensing and $62,543,182 as an expense, as excess fair value of equity issuance over assets received, as of June 30, 2021 based on the estimated fair market value of services had the Company developed improvements and additional functionality of the NECP platform. The estimated amortization is a 5 years life based on the term of the licensing agreement. The Company may revise the value of the asset and estimated life as more information is made available.
| 20 |
The initial fees paid within three business days from the effective date and at or before the Funding Date included the following costs:
| Schedule of fees paid to NECP platform | ||||
| Engagement Fee | $ | |||
| License subscription fee (50% due at Funding Date) | ||||
| Annual maintenance subscription fee (first year) | ||||
| Implementation fee (50% due at Funding Date) | ||||
| Infrastructure implementation fee (50% due at Funding Date) | ||||
| Training fee (50% due at Funding Date) | ||||
| Total | $ |
As of June 30, 2021, the following payments are due in the intervals noted over the five-year life of the Restated Agreements:
| License subscription fee (second 50% due at Subscription Ready Date) | $ | |||
| Annual maintenance subscription fees ($112,500 annually) | ||||
| Implementation fees (50% due at Subscription Ready Date) | 162,500 | |||
| Infrastructure implementation fees (50% due at Subscription Ready Date) | ||||
| Training fees (50% due at Subscription Ready Date) | ||||
| Infrastructure support fees ($6,000 monthly after Subscription Ready Date) | ||||
| Total | $ | * |
| * |
Innovations Realized LLC
On October 2, 2020, the Company entered into an independent contractor services agreement with Innovations Realized, LLC (“IR”) to develop a strategic operating plan focused on the design, execution and go to market implementation of the NECP platform to enter the United States market.
On February 18, 2021, the Company entered into an amended independent contractor services agreement with IR. On February 19, 2021, the initial payment of $76,000 was made and on February 24, 2021 the second payment of $76,000 was made, on April 5, 2021 the third payment of $152,000 and on May 5, 2021, the fourth and fifth payment of $114,000 was made. The following payments are due over the life of the contract:
| Schedule of service agreement with IR | |||||
| July 5, 2021 | |||||
| August 5, 2021 | |||||
| Total | $ |
Under the October 2020 agreement, the Company granted options to purchase 400,000 shares at a price of $0.01 and 2,500,000 shares at $0.25 and exercisable for two years after vesting. These options vest in equal monthly installments over 24 months. In addition, the options early vesting based on the completion date of the statement of work or the IR principle becoming an employee of AppTech Corp. These options had a grant date fair value of $1,399,992 and $8,749,701 using a Black Scholes pricing model. The options to purchase 400,000 shares valued at $1,399,992 were recorded as an expense, as excess fair value of equity issuance, and to purchase 141,411 shares valued at $491,421 were recorded as an asset, as capitalized prepaid software development and licensing, as of June 30, 2021 based on the estimated fair market value of services had the Company developed the platform. The estimated amortization is a 5 years life based on the term of the licensing agreement. The Company may revise the estimated life upon completion of the platform.
On December 21, 2020, the Company sold the domain “bubblepay.com” for $72,500 to a third party.
| 21 |
Employee versus Contractor Classification
The Company compensated various individuals as consultants. Annually, the Company issues Form 1099s for amounts paid to them. In addition, a portion of these consultants did not have arrangements which specified compensation payable to them. The Company risks potential tax and legal actions should these consultants be deemed to be employees by governmental agencies. The Company added all relevant independent contractors as paid full-time employees on April 22nd and April 28th, 2021.
Executive Compensation
On April 28, 2021, the Company entered into new employment and stock options agreements with its named executive officers. The agreements, among other things, each employment agreement, apart from the Chief Executive Officer which implements a guaranteed bonus structure, shall provide for a starting base salary and potential business development revenue sharing at rates ranging from 20-50% of net processing revenue. Each Employment Agreement also provides a potential annual bonus, which is subject to adjustment by the Board from time to time. Further, stock option awards for certain named executives were provided, subject to the applicable vesting schedule. Each Employment Agreement provides that the applicable named executive officer’s employment with us is “at will”. The named executive officers are entitled to receive all other benefits generally available to our executive officers.
NOTE 10 – STOCKHOLDERS’ DEFICIT
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 June 30, 2021 and December 31, 2020. The holders of Series A preferred stock are entitled to one vote per share on an “as converted” basis on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of Series A preferred stock are entitled to any dividends that may be declared by the Board of Directors out of funds legally available, therefore on a pro rata basis according to their holdings of shares of Series A preferred stock, on an as converted basis. In the event of liquidation or dissolution of the Company, holders of Series A preferred stock are entitled to share ratably in all assets remaining after payment of liabilities and have no liquidation preferences. Holders of Series A preferred stock have a right to convert each share of Series A into 780 shares common stock.
Common Stock
The Company is authorized to issue shares of $ par value common stock. There were and , respectively, shares of common stock outstanding as of June 30, 2021 and December 31, 2020. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available, therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions against the payment of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock into any other securities.
During the six months ended June 30,
2021 and 2020, the Company issued
| 22 |
During the year ended December 31, 2020,
the Company granted shares of common stock to the board of directors valued at $
During the six months ended June 30, 2021, the Company issued 5,000 shares of common stock to a merchant in connection with a new contract extension. The Company valued the common stock issuance at $16,250 based upon the closing market price of the Company’s common stock on the date of the agreement. The amount was reflected as a reduction of revenue on the accompanying statement of operations.
During the six months ended June 30, 2021, the Company issued 200,000 shares of common stock in connection with a judgment purchase agreement from a third party. The judgment is for damages in the amount of $516,932 plus statutory interest against FlowPay Corporation and R. Wayne Steiger. The Company valued the common stock issuance at $1,000,000 based on the closing market price of the Company’s common stock on the date of the judgment purchase.
During the six months ended June 30, 2021, the Company issued 26,250 shares of common stock to two merchants in connection with the merchant equity program. The Company recorded the common stock issuance at the historical price of $2,121 based upon the closing market price of the Company’s common stock on the date of the qualification. The amount was reflected as a reduction of the merchant equity liability.
During the six months ended June 30, 2021, the Company issued 4,555,896 shares of common stock to several convertible notes payable holders of which 3,761,500 shares of common stock were issued to related parties in connection with debt conversions. The closing market price of the Company’s common stock on the date of the agreement was used to value the excess fair value of equity issuance. The amounts were reflected as a reduction of convertible notes payable and accrued interest, as well as, excess fair value of equity issuance as follows:.
| Schedule of convertible related party | ||||
| Convertible notes payable | $ | |||
| Convertible notes payable – related parties | ||||
| Accrued interest | ||||
| Accrued interest – related parties | ||||
| Excess fair value of equity issuance | ||||
| Excess fair value of equity issuance – related parties | ||||
| Total | $ |
See Note 9 – Significant Contracts for additional common stock issuance.
Stock Options
On July 28, 2020, the Company entered
into an agreement for board of director services. As compensation the Company granted options to purchase shares at a price
of $
On August 25, 2020, the Company entered
into an agreement for accounting services in general and administrative expenses. As compensation the Company granted options to
purchase shares of common stock at a price of $
On September 21, 2020, the Company entered
into an agreement for sales and marketing services in general and administrative expenses. As compensation the Company granted
options to purchase shares at a price of $
| 23 |
On September 22, 2020, the Company entered
into an agreement for IT services in general and administrative expenses. As compensation the Company granted options to purchase
shares at a price of $
On October 29, 2020, the Company entered
into an agreement for sales and marketing in general and administrative expenses. As compensation the Company granted options to
purchase shares of common stock at a price of $
On April 22, 2021, the Company entered
into four agreements for administrative services, sales and marketing services in general and administrative expenses. As compensation
the Company granted non-statutory stock options to purchase shares at a price of $
On April 22, 2021, the Company entered
into three agreements for executive officers compensation in general and administrative expenses. As compensation the Company granted
non-statutory stock options to purchase shares at a price of $
See Note 9 – Significant Contracts for additional stock options granted.
The fair value of the options is estimated using a Black-Scholes option pricing model with the following range of assumptions:
| Schedule of Black Scholes option pricing | ||||
| Market value of common stock on issuance date | $ | |||
| Expected price | $ | |||
| Expected volatility | % – % | |||
| Expected term (in years) | – | |||
| Risk-free interest rate | ||||
| Expected dividend yields |
The following table summarizes option activity:
| Schedule of option activity | |||||||||||||
| Weighted | Weighted | ||||||||||||
| Number of | Average | Average | |||||||||||
| shares | exercise price | remaining years | |||||||||||
| Outstanding December 31, 2020 | $ | ||||||||||||
| Issued | $ | ||||||||||||
| Cancelled | ( | ) | $ | ||||||||||
| Outstanding as of June 30, 2021 | $ | ||||||||||||
| Outstanding as of June 30, 2021, vested | $ | ||||||||||||
The remaining expense outstanding through June 30, 2021 is $8,869,318 for which $1,701,755 is expected to be expensed over the next 33 months in general and administrative expense and $7,167,563 is expected to be recorded over the next 19 ½ months as an asset, as capitalized prepaid software development and licensing or as an expense excess fair value of equity issuance over assets received.
On July 28, 2020, the board authorized the Company’s AppTech Equity Incentive Plan in order to facilitate the grant of equity incentives to employees (including our named executive officers), directors, independent contractors, merchants, referral partners, channel partners and consultants of our company to enable our company to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term success. A total of 5,000,000 shares of common stock were authorized under the AppTech Equity Incentive Plan, for which as of June 30, 2021 a total of 3,224,500 are available for issuance.
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Warrants
In 2020, the Company entered into a security purchase agreement with an investor pursuant to which the Company agreed to sell the investor a $300,000 convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 200,000 shares of common stock, with an exercise term of five (5) years, at a per share price of one dollar and fifty cents ($1.50) which may be exercised by cashless exercise. The warrants were deemed a derivative liability and were recorded as a debt discount at date of issuance. See Note 7.
Common Stock Repurchase Option
On February 3, 2021, the Company entered
into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign
shares of common stock from a third party at $ per share. The Company assigned its rights to the repurchase option agreement
to a third party in exchange for compensation. The common stock repurchase option for shares was exercised on February 11,
2021 for which the Company received $
On February 3, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 350,000 shares was exercised on February 17, 2021 for which the Company received $222,250 in proceeds which was recorded as additional paid-in capital.
On February 3, 2021, the Company entered into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign 2,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 850,000 shares was exercised on February 19, 2021 for which the Company received $539,750 in proceeds which was recorded as additional paid-in capital.
On February 3, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 1,000,000 shares of common stock from a third party at $0.20 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 750,000 shares was exercised on February 22, 2021 for which the Company received $881,250 in proceeds which was recorded as additional paid-in capital.
On February 23, 2021, the Company entered
into a common stock repurchase option agreement to purchase or assign shares of common stock from a third party at $
per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option for shares was exercised on March 1, 2021 for which the Company received $
On February 23, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign 500,000 shares of common stock from a third party at $0.225 per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The common stock repurchase option for 150,000 shares was exercised on March 5, 2021 for which the Company received $102,000 in proceeds which was recorded as additional paid-in capital.
On March 4, 2021, the Company entered into a common stock repurchase option agreement to purchase or assign shares of common stock from a related party at $ per share. The common stock repurchase option for of the 2,000,000 shares was exercised on March 10, 2021. On March 10, 2021, the Company cancelled the 50,000 shares exercised.
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On March 15, 2021, the Company entered
into a common stock repurchase option agreement to purchase or assign shares of common stock from a third party at $
per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option was exercised on April 7, 2021 for which the Company received $
On March 17, 2021, the Company entered
into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign
shares of common stock from a third party at $ per share. The Company assigned its rights to the repurchase option agreement
to a third party in exchange for compensation. The common stock repurchase option for shares was exercised on April 8, 2021
for which the Company received $
On June 17, 2021, the Company entered
into a common stock repurchase option agreement with a former officer and significant shareholder to purchase or assign
shares of common stock from a third party at $ per share. The Company assigned a portion of the repurchase option agreement
to a third party in exchange for compensation. The common stock repurchase option for shares was exercised on June 18,
2021 for which the Company received $
On June 18, 2021, the Company entered
into a common stock repurchase option agreement to purchase or assign shares of common stock from a third party at $
per share. The Company assigned the repurchase option agreement to a third party in exchange for compensation. The common stock
repurchase option for shares was exercised on June 18, 2021 for which the Company received $
NOTE 11 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements, such as statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.
Business Overview
We intend to simplify and streamline digital financial services for corporations, small and midsized enterprises (“SMEs”) and consumers through innovative payment processing, reconciliation and digital banking technologies that complement our core merchant services capabilities. Our company’s merchant services provide financial processing for businesses to accept cashless and/or contact less payments, such as credit cards, ACH, wireless payments, and more. Our patented, exclusively licensed, and proprietary merchant services software offers, or will offer, integrated solutions for friction less digital and mobile payment acceptance including acceptance of alternative payment methods (“APMs”). We are supplementing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based issuer processing for card, digital tokens, and payment transfer transactions. Our scalable business model allows for expansive white-labeling, SaaS, and embedded payment solutions that will drive the digital transformation of financial services and generate diverse revenue streams for our company.
We believe the financial services industry is going through a period of intensive change driven by the advancement of technology, the adaptation to societal changes resulting from COVID-19, and otherwise, and the rapid rise of contactless transactions. End-users are beginning to expect ease of use and an enhanced user experience in all their daily financial transactions. In this rapidly evolving digital marketplace, merchants have broad and frequently changing requirements for payment processing to meet consumer expectations and operational requirements.
Merchants and independent software vendors (“ISVs”) that require integrated financial technology solutions to best serve their customers are looking beyond basic payment acceptance and “lowest price” models. These entities recognize that staying competitive in the digital age requires a partner that provides a platform capable of delivering flexibility and growth while streamlining operations to continue increase revenue and profitability. While we offer extremely competitive pricing, we believe the value we create for merchants, SMEs, ISVs and regional banking institutions through our technology, services and consultative approach will create true differentiation from our competitors.
Our flexible and configurable financial services platform will enable us to provide solutions that meet each merchant’s current needs while providing scope to solve for their future development plans and opportunities allowing merchants to take advantage of future platform development and new innovative digital financial solutions through clean APIs and our scalable global infrastructure. By taking a holistic view of all aspects of our clients’ business, including risk, volume, user experience, integration capabilities and technical needs, we will create optimal and extensible financial technology solutions.
Through exclusive licensing and partnership agreements, we believe we will become leaders in the embedded payment and digital banking sectors by supporting digital, tokenized, multi-channel, embedded API-driven transactions. We will augment this position through the integration of our merchant services and secure text payment solution with extensive digital account-based and multi-channel issuer payment processing capabilities. This will enable us to provide our merchant customers an end-to-end payment acceptance and digital banking solution and will power straight-through processing and embedded payments opportunities in the B2B space.
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A key to the company’s success and market penetration is the continued development of enterprise-grade, patent protected software for SMS text payments via a mobile device. Our patented technology manages text messaging for processing payments, notification, response, authentication, marketing, advertising, information queries and reports. Once an account is established through a multi-currency digital wallet, internet connectivity or a specific application are not required to process payments between merchants and end-users. These features will be particularly beneficial for the unbanked and under banked individuals in developing and emerging markets where access to the internet on a mobile device and modern banking institutions may not be readily available.
Our software platform will extend merchants’ marketplace capabilities creating new avenues and channels to request and receive frictionless, digital payments and engage end-users utilizing a familiar, convenient and widely adopted technology.
We believe our technologies will greatly increase the adoption of mobile payments and alternate banking solutions in a sector that appears to have little alternative but to adapt and migrate towards new technologies that facilitate convenient and safe contactless payments. To survive and succeed in this environment, businesses may need to adopt new technologies to engage, communicate and process payments with their customers. We believe that, by embracing technological advancement in the payment and banking industries, we are aligned in the precise direction that our current and prospective customer base is trending towards. We intend for our current and future products to be at the forefront in providing solutions that enable and facilitate these anticipated changes.
We are also expanding upon our financial technology foundation into the telehealth and remote patient monitoring sectors in response to cultural shifts and new healthcare demands of society. We have identified a need for the integration of payment acceptance technologies into the burgeoning telehealth sector. We believe this sector’s focus to date has been on providing health-related telecommunications but the way in which fees and payments for these services are requested and accepted is being overlooked. We intend to fill this identified shortfall by developing technologies and payment-related services to aid companies providing telehealth solutions. Through a strategic partnership, we plan to help bring to market personal emergency response and remote patient monitoring services and equipment to help ensure the safety of the elderly, injured or sick patients while providing peace of mind to family members, care givers and retirement communities. These solutions increase patients’ access to comprehensive care options and allow medical teams to intervene in a timely manner to avoid more serious health concerns. By providing financial and administrative services we will have the opportunity to receive substantial revenue share from recurring revenue billed through Medicare with the potential for substantial growth and substantial profit margins.
We are an OTC Pink Open Market traded corporation headquartered in Carlsbad, CA. Our stock trades under the symbol “APCX.” We were founded in 1998 as Health Express USA, Inc. Our business went through name changes in 2005 (CSI Business, Inc.), 2006 (Natural Nutrition Inc.) and 2009 (AppTech Corp.) In 2013, we merged with Transcendent One, Inc., whereby Transcendent One, Inc. and its management took controlling ownership of the Company. From this point forward, we have operated as a merchant services provider, continuing the business conducted by Transcendent One, Inc. In 2017, we acquired certain assets from GlobalTel Media, Inc., or GTM, which included patented, enterprise-grade software for advanced text messaging. In addition to the software and associated databases, the acquisition included four patents and additional intellectual property for mobile payments.
Effects of the COVID-19 Pandemic
The unprecedented and adverse effects of COVID-19, and its unpredictable duration, in the regions where we have merchants, employees and consumers has an adverse effect on our processing volume and may in the future have a material adverse effect on our liquidity and financial condition.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
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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 the three-month periods ended June 30, 2021 and 2020, respectively. We have derived this data from our financial statements included elsewhere in this registration statement.
The Three Months Ended June 30, 2021
Compared to the Three Months Ended June 30, 2020
The following table presents our historical results of operations for the periods indicated:
| Three Months Ended June 30 | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Revenue | $ | 151.0 | $ | 77.8 | ||||
| Cost of revenue | 35.9 | 31.7 | ||||||
| Gross profit | 115.1 | 46.1 | ||||||
| Operating expenses | ||||||||
| General and administrative | 3,560.7 | 276.2 | ||||||
| Excess fair value of equity issuance over assets received | 1,090.7 | — | ||||||
| Research and development | — | 34.2 | ||||||
| Total operating expenses | 4,651.4 | 310.4 | ||||||
| Loss from operations | (4,536.3 | ) | (264.3 | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense, net | (2,431.7 | ) | (71.1 | ) | ||||
| Change in fair value derivative liability | 452.4 | — | ||||||
| Forgiveness of debt | — | 9.0 | ||||||
| Other income | 175.1 | — | ||||||
| Total other income (expenses) | (1,804.2 | ) | (62.1 | ) | ||||
| Loss before provision for income taxes | (6,340.5 | ) | (326.4 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net Loss | $ | (6,340.5 | ) | $ | (326.4 | ) | ||
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The Six Months Ended June 30, 2021
Compared to the Six Months Ended June 30, 2020
The following table presents our historical results of operations for the periods indicated:
| Six Months Ended June 30 | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Revenue | $ | 251.6 | $ | 136.1 | ||||
| Cost of revenue | 70.3 | 55.0 | ||||||
| Gross profit | 181.3 | 81.0 | ||||||
| Operating expenses | ||||||||
| General and administrative | 5,340.9 | 1,692.1 | ||||||
| Excess fair value of equity issuance over assets received | 65,033.9 | — | ||||||
| Research and development | — | 46.2 | ||||||
| Total operating expenses | 70,374.8 | 1,738.3 | ||||||
| Loss from operations | (70,193.5 | ) | (1,657.3 | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense, net | (2,560.6 | ) | (142.2 | ) | ||||
| Change in fair value derivative liability | (55.1 | ) | — | |||||
| Forgiveness of debt | — | 9.0 | ||||||
| Other income | 175.2 | — | ||||||
| Total other income (expenses) | (2,440.5 | ) | (133.2 | ) | ||||
| Loss before provision for income taxes | (72,634.0 | ) | (1,790.5 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net Loss | $ | (72,634.0 | ) | $ | (1,790.5 | ) | ||
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Revenue
Revenue increased to $151,021 from $77,853 and $251,538 from $136,010, or 94% and 85%, for the three months and six months ended June 30, 2021 and 2020. This increase was principally driven by an increase in new accounts and an increase in processing volume along with a decrease in processing fees assessed to the Company.
Cost of Revenue
Cost of revenue increased to $35,860 from $31,737 and $70,258 from $54,962, or 13% and 28%, for the three months and six months ended June 30, 2021 and 2020. This increase was driven primarily by an increase in new accounts and an increase in processing volume.
General and Administrative Expenses
General and administrative expenses increased to $3,560,692 from $276,207 and $5,340,907 from $1,692,104 for the three months and six months ended June 30, 2021 and 2020, the increase was primarily driven by stock-based compensation due to several significant consulting agreements for marketing and professional related services along with stock-based compensation due to executive management and employee contracts.
Excess Fair Value of Equity Issuance Over Assets Received
Excess fair value of equity issuance over assets received expenses increased to $1,090,716 from $0 and $65,033,890 from $0 for the three months and six months ended June 30, 2021 and 2020. The increase was due to two major equity issuances for services.
Research and Development Expenses
Research and development expenses decreased to $0 from $34,250 and $0 from $46,251, for the three months and six months ended June 30, 2021 and 2020. This decrease was primarily due to various insignificant factors.
Interest Expense, net
Interest expense, net increased to $2,440,457 from $71,083 and $2,835,558 from $142,167 for the three months and six months ended June 30, 2021 and 2020. The increase was primarily due to a one-time expense of excess fair value of equity issuance for accrued interest on convertible notes payable conversion.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability increased to $452,443 from $0 and decreased to $(55,099) from $0, for the three months and six months ended June 30, 2021 and 2020. The increase and decrease were primarily due to a new convertible note agreement.
Liquidity and Capital Resources
While the company is continuing operations and generating revenues, the company’s cash position is not significant enough to support the company’s daily operations. To the extent that additional funds are necessary to finance operations and meet our long-term liquidity needs as we continue to execute our strategy, we anticipate that they can be obtained through additional indebtedness, equity or debt issuances or both. Using currently available capital resources, management believes we can conduct planned operations for 45 days. Further, management believes we need to raise $3,000,000 to remain in business for the next 12 months.
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Since we derive our revenues principally from processing of purchases from our merchant services clients, a downturn in economic activity, such as that associated with the current coronavirus pandemic could continue to reduce the volume of purchases we process, and thus our revenues. In addition, such a downturn could cause our merchant customers to cease operations permanently decreasing our payment processing unless new customers were found. We may also face additional difficulty in raising capital during an economic downturn.
Cash Flows
The following table presents a summary of cash flows from operating, investing and financing activities for the following comparative periods.
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (725,166 | ) | $ | (213,011 | ) | ||
| Net cash provided by (used in) investing activities | $ | (1,339,500 | ) | $ | 23,411 | |||
| Net cash provided by financing activities | $ | 2,361,350 | $ | 174,981 | ||||
Cash Flow from Operating Activities
Net cash used in operating activities increased by $512,155 for the six months ended June 30, 2021 from the six months ended June 30, 2020. This increase was principally driven by an increase in residual payouts, professional fees and services, as well as, new executive management and employee contracts.
Cash Flow from Investing Activities
Net cash used by investing activities increased by $1,316,089 for the six months ended June 30, 2021 from the six months ended June 30, 2020. This increase was principally driven by a significant investment in a capitalized asset.
Cash Flow from Financing Activities
Net cash provided by financing activities increased by $2,186,369 for the six months ended June 30, 2021 from the six months ended June 30, 2020. This increase was principally driven by the increase in proceeds from the sale of repurchase options.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, derivative financial instruments, and equity-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
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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 September 30, 2020, there have been no significant changes to our critical accounting estimates, except as described in Note 2 to our financial statements.
Recent Accounting Pronouncements
As of June 30, 2021, there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our financial statements.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable for smaller reporting companies.
Item 4. Control and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the three-month period ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
In November 2017, two shareholders of AppTech, filed a lawsuit against us in the State of California, claiming conversion, aiding and abetting conversion, breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and declaratory relief. The lawsuit was transferred to the United States District Court for the Southern District of California. We filed an answer, affirmative defenses and counter claims. Management believes that the Plaintiff misrepresented and mislead us during our merger with Transcendent One, Inc. The court encouraged the parties to settle. Even though the Company believes the lawsuit was without merit, the Company has made several offers to settle. On December 19, 2019, the Company entered into a settlement and release agreement. The Company has recorded the liability as of December 31, 2019 for the total obligation of $240,000 to be paid out over three years, which began on February 15, 2020. On January 24, 2021, the parties entered a stipulation modifying the repayment schedule of the settlement to which altered the timing of payments over the three year repayment period. We are current on the modified repayment schedule.
Other Lawsuit
In July of 2020, an owner and corporation having a business opportunity filed a lawsuit in the State of California alleging a breach of contract, intentional misrepresentation, fraudulent inducement of contract, negligent misrepresentation and unjust enrichment relating to a non-binding memorandum of understanding (“MOU”) between the parties and its associated circumstances in 2016 and other alleged representations associated with the proposed partnership between the parties. Process was served on January 8, 2021. The Plaintiffs filed an amended complaint on March 15, 2021. The Company filed an answer with affirmative defenses on April 26, 2021. The lawsuit is in the beginning stages of discovery. Management believes the agreement was non-binding, the statute of limitation has expired and the allegations have no merit. We currently own a judgment against the owner and corporation in the amount of $516,932 plus statutory interest.
Convertible Note and Warrant Lawsuit
In July 2021, an entity possessing a convertible note and warrant filed a lawsuit in the Southern District of New York for specific performance, breach of contract, permanent injunction, and attorney’s fees. The Company believes that the plaintiff is acting as an unlicensed dealer and utilized unlicensed brokers to induce the Company into the contracts thereby voiding the agreements. Prior to the plaintiff filing suit, the Company provided demand letters to the plaintiff and their coconspirators, and filed complaints with the SEC, FINRA and California Division of Corporations. The Company has not yet filed its answer but anticipates filing counter and cross suits in the near future.
Item 1A. Risk Factors.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the six months ended June 30, 2021, we assigned our rights to stock repurchase option agreements to third parties resulting in net proceeds of $2,430,750.
During the six months ended June 30, 2021, 353,053 shares of common stock were issued to several consultants in connection with business development and professional services rendered valued at $491,001.
During the six months ended June 30, 2021, 175,000 shares of common stock were issued to members of the Board of Directors valued at $98,349.
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During the six months ended June 30, 2021, 200,000 shares of common stock were issued to purchase a judgment valued at $1,000,000.
During the six months ended June 30, 2021, 31,250 shares of common stock were issued to a merchant valued at $18,371.
During the six months ended June 30, 2021, 18,011,515 shares of common stock were issued in connection with a strategic partnership valued at $67,543,182.
During the six months ended June 30, 2021, 400,000 and 2,500,000 options to purchase common stock were issued at a price of $0.01 and $0.25 valued at $1,399,992 and $8,749,701, respectively.
All Issuances were exempt from registration requirements of Section 5 of the Securities Act of 1933 as they did not involve a public offering under Section 4(a)(2) and were issued as restricted securities as defined in Rule 144 of the Act.
Item 3. Defaults Upon Senior Securities.
All subordinated notes payable, convertible notes payable and notes payable, with the exception of our convertible note payable to EMA Financial, LLC and our note payable to S.B.A. EDL, with outstanding balances, as of June 30, 2021, of $279,500 and, $68,300, respectively, are currently in default.
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Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
EXHIBIT INDEX
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AppTech Corp. | ||
| Date: August 16 2021 | By: | /s/ Luke D’Angelo |
| Luke D’Angelo | ||
| Chief Executive Officer and Chairman | ||
| Date: August 16, 2021 | By: | /s/ Gary Wachs |
| Gary Wachs | ||
| Chief Financial Officer | ||
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