UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10
GENERAL FORM FOR
REGISTRATION OF SECURITIES
PURSUANT TO SECTION
12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
APPTECH CORP.
(Exact name of registrant
as specified in its charter)
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Wyoming
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65-0847995
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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2032 Corte Del Nogal, Suite 120
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Carlsbad, California
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92011
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(Address of principal executive offices)
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(Zip Code)
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(760) 707-5959
(Registrant's telephone
number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title
of each class
to be so registered
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Name
of each exchange on which
each class is to be registered
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Common Stock, par value $0.001 per share
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None
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Securities to be registered pursuant
to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an 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.
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Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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Smaller
reporting company
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☒
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Emerging
growth company
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☒
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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. ☐
Business Overview
We are a financial technology company
utilizing innovative payment processing technologies to complement our core merchant services capabilities. Our patented and proprietary
software for merchant services, text marketing and lead generation are licensable or available through a suite of synergistic offerings
directly to our clients. We are developing an enterprise-grade text payment system using the simplicity and familiarity of text
messaging with multi-factor authentication to ensure security.
Our company's merchant services provide
financial processing for businesses to accept traditional means of cashless payments, such as credit cards, ACH, wireless payments,
and more. Through partnerships and proprietary software, we offer our merchants advanced capabilities such as online payment gateways
and payment splitting to protect, enhance and expand their business. Further, in part through our intellectual property and patents,
we offer integrated, advanced solutions for mobile payment processing, payment facilitation, digital marketing, software development,
mobile app development, website development and website hosting.
We are expanding our merchant
processing services to include enterprise-grade, patent protected software and intellectual property for secure short message
system, or SMS, payments and advanced text messaging for lead generation. Our patent protected software and technology
manages text messaging for notification, response, authentication, marketing, advertising, information queries and reports.
Our software platforms incorporate advanced intellectual property to transact mobile payments via secure text messaging based
on secure multi-factor authentication, or MFA, technology, thereby extending merchants' marketplace and avenues to receive
payments.
Mobile payment systems have become essential
to the operations of businesses and government agencies, as consumers demand ease of payment for their purchases. According to
Market Watch, global mobile payments revenues are forecasted to increase at a CAGR of 39.1% through 2020 and reach $2.89 trillion
in revenues. The security of mobile payments is a concern to the adoption of mobile payments with 70% of the U.S. population noting
it as a concern, according to Pew Trusts Research. We believe that our technology will greatly increase the adoption of mobile
payment through ease of use including text-based security protocols.
Text messaging has become the
preferred communication platform for the world. As a result, text messaging technologies aimed to assist businesses
meet the needs of their customers are important. According to Next Web, SMS text messaging is the most widely used data
application, adopted by 80% of mobile subscribers with a 90% read rate in minutes. According to Transactional Messaging
Consumer Report by Vibes, 78% of US consumers say receiving a text message is the fastest way to reach them for important
service updates and purchases. To succeed, businesses may need to adopt text messaging to engage with their customers. We
believe that our patent protected text platform will allow businesses to communicate regularly with their customers,
suppliers and partners knowing that their texts are being read and welcomed.
We seek to grow our business by pursuing
the following strategies:
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Increasing our customer base by offering
unique, patent protected technologies;
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Rolling-out our secure text payment system
which does not require a data plan or an application;
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Expanding our lead generation services enabling
businesses to better engage their customers;
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Maintaining technological leadership by continuing
to innovate and improve our technology;
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Pursuing strategic acquisitions to complement
and bolster our suite of fintech products;
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Creating cross-selling synergies by providing
a holistic suite of products and services to merchants;
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Utilizing a scalable business model to eliminate
certain barriers to rapid growth.
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We are an OTC 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 and advanced MFA security protocols.
Industry Overview
The financial technology and transaction
processing industries are an integral part of today's worldwide financial structure. The electronic payments industry is
massive, with growth fueled by powerful long-term trends that continue to increase the acceptance and use of electronic-based
payments compared to paper-based payments. According to The Nilson Report, purchase volume on credit, debit and prepaid cards
in the United States was approximately $6.1 trillion in 2018 and is estimated to reach nearly $10.4 trillion by 2027, a compound
annual growth rate, or CAGR, of 6.1%.
Historically, to facilitate the acceptance
of card-based payments at the point-of-sale ("POS"), banks began providing payment services to their local merchants.
Providers of these services, both divisions of banks and independent companies, became known as merchant acquirers. The merchant
acquiring industry has grown significantly as more and more merchants and organizations accept card-based payments in response
to their growing adoption by consumers. According to First Annapolis, there are over 27 million merchants in the United States
that can potentially accept payments at a POS.
The payment processing industry continues
to evolve rapidly, based on the application of new technology and changing customer needs. Changes in technology allow for new
payment methods, such as mobile payments, and merchants increasingly need new methods of interacting with their customers to ensure
loyalty and repeat business. As consumers continue to integrate mobile devices into their lives, there will be increased
demand to conduct business on these devices.
According to TechForce, global mobile
payments increased from $620 billion in 2016 and is expected to reach over $1.09 trillion in 2019. Mobile payments in the United
States are expected to grow at a CAGR of 16.8% from 2018 to 2023. According to Statista, in 2020, the number of global mobile phone
users is forecasted to reach 4.78 billion.
GSMA Intelligence reported that globally,
there are more than 9.2 billion mobile connections and 5.1 billion mobile subscribers with text messaging capabilities. Statista
asserted that just over 3.9 billion of these devices have access to mobile internet.
According to creditcards.com, consumers
are concerned about the security of paying with a smartphone. In a 2016 survey, Accenture found 21% of respondents were reluctant
to enter their payment card details into their smartphones, and 19% said they believed paying with their phones could lead to fraud.
In a poll conducted by Business 2 Community, over 47% have doubts about the security of current mobile payment systems and only
23% are confident that their personal data is safe. Despite this, according to Accenture, digital payments are on the verge of
becoming mainstream— consumers will use digital payments more in 2020 with 73% of consumers trusting traditional card providers
the most as their mobile payments' provider.
As businesses adopt mobile payment solutions
in response to user demand, they need to better educate their customers on the security of mobile payments. According to creditcards.com,
consumers need to recognize that mobile payment methods offered by major providers are more secure than physical cards and cash
because mobile wallets use methods such as encryption and tokenization to mask payment card account numbers as you enter
them and when you pay. Nonetheless, consumer satisfaction is high with mobile payments. In fact, Accenture reports
that most mobile payments users are satisfied—76% are happy using mobile banking apps to make payments.
Our Strategy
From traditional merchant accounts to
customizable solutions, we intend to modernize and enhance the payment processing capabilities for merchants throughout the world.
Our business objective is to generate revenues based on licensing fees, synergistic product lines and continual advancement of
our IP portfolio.
Our target market is major brands and
corporations seeking to create payment channels. As well as SMBs looking to integrate technological advancement in their
payment processing services. For larger corporations, we will utilize a reseller model, which offers our technology and services
via software licenses with revenue sharing and annual fees. Conversely, by offering SMBs a full array of merchant processing and
lead generation services, we will allow them to better interact with their customers and provide additional, dynamic means of
processing payments. SMBs generally lack the resources of large enterprises to invest heavily in technology. As a result,
they are more dependent on service providers, such as us, to handle critical functions including payment acceptance and
other support services.
Businesses' financial technology needs
are increasingly complex. As electronic and mobile commerce continue to grow, businesses are likely to use technology to better
reach their customers. By delivering simple and secure payment processing based on patent protected technology utilizing standard
text messaging, as well as offer lead generation services tailored to their specific customers, suppliers and partners, we believe
there will be high demand for our products and services.
We seek to grow our business by pursuing
the following strategies:
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Increasing our customer
base by offering unique, patent protected technologies. We believe that our unique, patent protected technologies will
allow us to offer our current and new clients a more complete system for reaching and servicing their clients. Our existing
clients increasingly need integrated solutions to better meet their business needs. We believe that our mobile payment and
lead generation services will appeal to new and existing clients.
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Rolling-out our secure text payment system
which does not require an application. As businesses look to meet consumer demand for a secure mobile payment system, we will
introduce our text payment processing system in the near future. Our secure text payment system, which does not require internet
access, a data plan or a mobile app, will expand the number of people who will be able to use mobile payments both in the US and
abroad, increasing our clients' ability to generate revenues.
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Expanding our lead generation services enabling
businesses to better engage their customers. We will leverage our experience and expertise in lead generation with our text
message platform to enable our customers to better interact with their customers. Businesses need to better engage with their
customers in a manner that the customers prefer. Text messaging is easy, reliable and popular with consumers.
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Maintaining technological leadership by continuing
to innovate and improve our technology. At the core of our services is a strong technological system. In order to meet our
client's current and future needs, we need to continue to innovate and introduce new products and services that allow them to
succeed. Our strong patent protection allows us to offer sophisticated products allowing businesses to meet the needs of their
customers.
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Pursuing strategic acquisitions to complement
and bolster our suite of fintech products. We expect to pursue acquisitions that would allow us to expand our customer base
or product and service offerings and acquisitions that would further our intellectual property. There is ongoing consolidation
in the payments industry being driven by benefits of scale, merchant demand for integrated payment and software solutions
and by service providers seeking access to new, high-growth markets and geographies.
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Creating cross-selling synergies by providing
a holistic suite of products and services to merchants. We offer a holistic suite of products and services that allow, or
will allow, businesses to engage us for a customizable variety of payment processing, marketing and lead generation needs. Our
products and services are complimentary, opening further opportunities for growth.
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Utilizing a scalable business model to eliminate
certain barriers to rapid growth. Management is confident that the performance and reliability of our proprietary software
will not be compromised as the workload and/or scope increases. Additionally, with no physical inventory and the ability
to offer licensable products, we believe we are able to eliminate complicated barriers to rapid growth.
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Vital to our future success is the market
penetration of our current and future products. Our market penetration strategy includes four elements: (1) royalty-free licenses;
(2) engaging close industry contacts; (3) utilizing potential market share shifting IP; and (4) illustrating a need for our products
in fintech.
At the outset, to gain a foothold, we
will offer royalty-free licenses for our text messaging platform in exchange for the processing payments using our secure text
payment system. By incentivizing potential clients with free access to patented texting software, we give clients the ability to
bolster and enhance their fintech capabilities, while creating further revenue streams for our full suite of products.
With years of fintech experience, management
believes we can leverage our industry contacts and past clients in order to gain valuable contracts with businesses. Engaging individuals
with the ability to integrate our products may prove invaluable. Further, through our channel partnerships, we have an expansive
network of potential clients to integrate our technology into their payment processing needs.
Management believes our products allow
for swift entry into the mobile payments market because we possess the industry's first text payment system that incorporates multi-factor
authentication or MFA. Our product is more secure than our competitors and helps to ensure an individual's financial information
is protected. Because of this differentiation, the scalability of our product and the apparent industry need, we believe our text
payment system will be rapidly adopted.
Companies are regularly attempting to
identify ways to stay in contact with their customers and create new payment channels. Our products do precisely this. When customers
sign up for our secure text payment system, clients will have the ability to integrate a text messaging waiver into the registration
process. This allows for clients to have fresh, opted-in contact information which can be paired with our text messaging services
for notification, response, authentication, marketing, advertising, information queries and reports. It is our intent to market
these identifiable benefits to companies in order to illustrate the advantages of partnering with us. Specific industries that
could utilize our secure text payment system are pharmacies, collection agencies, charitable and religious organizations, utility
companies, property management companies and any business that relies upon recurring business.
Our Products and Services
Merchant Services
Our core business is merchant transaction
services. We create revenue by processing payments for credit and debit cards via POS (point of sale) equipment, e-commerce gateways,
periodic ACH (automatic clearing house) payments and gift & loyalty programs. We currently support over 100 merchants representing
dozens of market verticals in managing their financial transactions.
Each merchant has unique requirements
for payment processing. As a result, we have a variety of processing partners to meet each merchant's requirements. In
addition to these needs, we take into consideration certain aspects of each business in choosing the optimal processing partner
including risk, volume, customer service, integration capabilities, product features and profitability.
Our processing partners include TSYS/ProPay,
HarborTouch, TransFirst and Cynergy Data Group, with each providing products and services that meet each of our merchants'
needs. However, TSYS/ProPay provides advanced features and services aligned with our plans to integrate advanced processing capabilities,
including offering secure text payments globally.
Currently, TSYS/ProPay manages our backend
payment processing needs in addition to managing risk and compliance on our behalf. Through the implementation of our proprietary
payment processing protocols as we grow our customer base, we will manage the risk and compliance ourselves, which will increase
our margins on each transaction processed.
Using our proprietary software, together
with our partnerships, we are able to offer our merchants efficient online onboarding through our website development and hosting
services, payment integration APIs including data encryption, payment tokenization and issuing banking authorization, and the creation
of white-label, merchant-specific mobile applications.
Further, our partnerships allow us to
expand our merchant services to:
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Operate
in the US, Canada, Australia and New Zealand;
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Perform
transactions in over thirty-six currencies;
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Offer
splitting a single transaction in multiple ways, reduction in costs for account transfers,
sub-merchant funding, customized mobile processing and others;
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Expand
and enhance our infrastructure to support increased on-boarding, underwriting, integration
and customer services.
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Secure Text Payment System
Soon we will bring to market a
comprehensive and broad mobile payment platform that has been supplemented with advanced features that include SMS MFA. By
integrating our payment processing with secure text messaging and advanced MFA, we offer the mobile payment industry's first
and only patent protected multi-factor authenticated text payment system. The integration of direct, reliable, instant, and
familiar text messaging with secure payments is how we believe we bridge the gap between fintech and mobile wireless
systems.
Features of our secure mobile payments
include:
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Utilization
of standard SMS (Short Message Services) text messaging;
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A
payment platform that does not require mobile internet, a data plan or a mobile application;
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A
secure text payment protocol that can be used on all traditional and smart cellular phones
on all major global carriers without any additions or modifications to the mobile user
wireless plan;
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Simple
to use multi-factor authentication of the end-user.
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Our secure text payment system is a
simple, three-step SMS text process utilizing a digital wallet, necessary to verify payee and payor identification, account numbers
and fund availability for preregistered users. Payment may be engaged by the mobile user messaging a set of keywords to an established
short code managed by us, or a merchant can contact an opted-in mobile user inquiring whether they desire to make a payment. The
registered user will authorize the amount and company in which they intend to remit payment. Thereafter, the mobile user will receive
another text message requesting multi-factor authentication, which requests randomized characters from a set of three previously
established passwords. The characters and their order will change with each payment authorized, but the codes (passwords) remain
constant.
Within the secure text payment platform
there are four distinct services that are used. These include: (1) our patented text messaging platform, (2) our multi-factor authentication
system, (3) a digital wallet and (4) payment processing. Depending on the needs of the merchant, we may provide all four services
or only license our text messaging platform and MFA system to a business that utilizes their own/third-party digital wallet and
alternate payment processors. We have developed application programming interfaces (APIs) to allow licensees to develop their own,
white-labeled software applications. This flexible approach allows for an opportunity for greater market penetration.
Our secure text payment system will
be used by businesses seeking to maintain contact with customers and find new ways to receive payments. A utility company could
contact a customer via text message informing them their bill is due, then ask if they would like to pay their bill by a few simple
text messages, or a church could contact their parishioners asking to contribute their weekly tithe.
As most cellular users are aware, SMS
texting is not secure, but we have developed a proprietary technology to authenticate the identity of end user customers using
simple text messaging. Based upon MFA, end users will use the same simple and basic core technology of SMS for verifying and validating
their mobile purchases.
We believe this simple payment process
has widespread application and adoption by mobile users because it utilizes a technology many end users are comfortable with and
use daily. The process is quick and user-friendly allowing businesses to simply expand their payment receiving capabilities. No
other product exists that provides verification of accounts and funds, authentication of user identity, and the authorization of
payment processing.
The following is a visual depiction
of the Secure Text Payment System:
Lead Generation
For many of our merchant services
clients, lead generation has relied on thousands of "cold calls" that were rarely answered. According to the Mobile
Marketing Association, the only wireless technology that is opened 98% of the time is SMS text message. As a supplement to
our merchant services business, we offer a patent protected SMS text messaging lead generation service for advertising,
marketing and alerting our merchants' customers directly.
Using the merchant's own opted-in mobile
number database, our lead generation service can regularly offer the merchants' customers with the latest in the merchant's products
and services, promotions, discounts, appointment scheduling as well as payment reminders, which can then be purchased via our secure
text payments should merchants choose to utilize this service.
Soliciting consumers requires added
incentive and, as a solution, we are creating a text rewards program; by partnering with national brands, we will be offering cash
awards redeemable where the merchants' customers shop, eat, and are entertained. Management believes this will increase our merchant
customers' revenues and increase our customer base.
Our lead generation platform utilizes
our patented text messaging capabilities to deliver text marketing services. Currently, in association with a partnership, we are
capable of delivering 300 texts per second, per short code from our consumer mobile phone database of over 125 million cell phone
numbers.
By offering merchants our lead generation
services, it provides an opportunity for cross-selling our secure text payment system. For example, a pharmacy using our services
to inform their consumer that their prescription is filled can then send a follow-up text asking if the consumer is interested
in paying for the prescription via our secure text payment. Management believes this cross-selling synergy has the ability to increase
revenues for all the services we offer.
Our web-based advanced text messaging
for marketing, advertising, information queries and alert notifications has extensive applications across numerous industries.
Our past, present, and future clients will have direct access to their end user customers offering them targeted information and
new services. Just as important, our technology is scalable, easily allowing us to meet the needs of our growing customer base.
The following is a visual representation
of our lead generation system:
Intellectual
Property
Our Intellectual Property is critical to
our business. Our strategy is to continue to build on our existing patent base and further develop additional patents and
intellectual property as we grow our business domestically and internationally. Our management has a track record of
successfully developing patent based software products, integrating new technologies and creating intellectual property that
have significantly contributed to our performance.
We have incorporated four USPTO patents
into our operational, enterprise-grade text messaging platform for SMS marketing, advertising and sales. By integrating our SMS
technology with our MFA payment system, we will offer secure text payments. In addition to secure text payments, our MFA
allows users to authenticate and validate in order to access private data and complete online transactions and inquiries. Our
proprietary text messaging capabilities also allow users to send and receive a text message from a short code and initiate two-way
chat from a mobile to a computer using only text-messaging.
We currently have one additional patent
pending. We anticipate seeking additional patents, including derivative patents, as we continue to innovate to better meet our
customer's needs. In addition to incorporating our intellectual property into our offerings, we will license all or some of our
technology to third-parties to increase our revenue and speed market acceptance of our products and services.
Regulations
Various aspects of our business are
subject to U.S. and non-U.S. federal, state and local regulation. Many domestic laws and regulations that affect companies conducting
business on the Internet and companies transmitting user information and payments via text message or other electronic means are
still evolving and the interpretation of such laws and regulations are often uncertain. Failure to comply with applicable laws
and regulations may result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination
of services and/or the imposition of civil and criminal penalties and/or fines. Our services to mobile phone carriers are also
further subject to certain of the rules and policies of such carriers and ongoing contractual covenants with such carriers, the
violation of which may result in penalties and/or fines and possible termination of our services. Certain services we offer are
also subject to rules set by various payment networks, such as Visa and MasterCard.
Association and Network Rules.
While not legal or governmental regulation, we are subject to the network rules of Visa, MasterCard and other payment networks.
In order to provide processing services, we are registered with Visa and/or MasterCard as a service provider for member institutions.
As a processor level member of numerous networks, we are also subject to various network rules in connection with processing services
and other services we provide. As such, we are subject to applicable card association, networks and national scheme rules that
could subject us to fines or penalties. The payment networks routinely update and modify their requirements. Under these rules,
we may potentially receive notices of non-compliance and fines, which might be related to excessive chargebacks by a merchant or
data security failures. Our failure to comply with the networks' requirements or to pay the fines they impose could cause the termination
of our registration and require us to stop providing payment services.
Dodd-Frank Act. In July 2010,
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law in the United States. The Dodd-Frank
Act has resulted in significant structural and other changes to the regulation of the financial services industry.
The Dodd-Frank Act provided two self-executing
statutory provisions limiting the ability of payment card networks to impose certain restrictions that became effective in July
2010. The first provision allows merchants to set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card
(and allows federal governmental entities and institutions of higher education to set maximum amounts for the acceptance of credit
cards). The second provision allows merchants to provide discounts or incentives to entice consumers to pay with cash, checks,
debit cards or credit cards, as the merchant prefers.
Separately, the so-called Durbin Amendment
to the Dodd-Frank Act provided that interchange fees that a card issuer or payment network receives or charges for debit transactions
will now be regulated by the Federal Reserve and must be "reasonable and proportional" to the cost incurred by the card
issuer in authorizing, clearing and settling the transaction. Payment network fees, such as switch fees may not be used directly
or indirectly to compensate card issuers in circumvention of the interchange transaction fee restrictions. In July 2011, the Federal
Reserve published the final rules governing debit interchange fees. Effective in October 2011, debit interchange rates for card
issuing financial institutions with more than $10 billion of assets are capped at $0.21 per transaction with an additional component
of five basis points of the transaction's value to reflect a portion of the issuer's fraud losses plus, for qualifying issuing
financial institutions, an additional $0.01 per transaction in debit interchange for fraud prevention costs. The debit interchange
fee would be $0.24 per transaction on a $38 debit card transaction, the average transaction size for debit card transactions. In
July 2013, the U.S. District Court for the District of Columbia determined that the Federal Reserve's regulations implementing
the Durbin Amendment were invalid. The U.S. Court of Appeals for the District of Columbia, or D.C. Circuit, reversed this decision
on March 21, 2014, generally upholding the Federal Reserve's interpretation of the Durbin Amendment and the Federal Reserve's rules
implementing it. On August 18, 2014, the plaintiffs in this litigation filed a petition for a writ of certiorari asking the U.S.
Supreme Court to review the D.C. Circuit's decision with respect to the interchange fee cap. We continue to monitor developments
in the litigation surrounding these rules. Regardless of the outcome of the litigation, the cap on interchange fees is not expected
to have a material direct impact on our results of operations.
In addition, the new rules contain prohibitions
on network exclusivity and merchant routing restrictions. Beginning in October 2011, (i) a card payment network may not prohibit
a card issuer from contracting with any other card payment network for the processing of electronic debit transactions involving
the issuer's debit cards and (ii) card issuing financial institutions and card payment networks may not inhibit the ability of
merchants to direct the routing of debit card transactions over any card payment networks that can process the transactions. Since
April 2012, most debit card issuers have been required to enable at least two unaffiliated card payment networks on each debit
card. We do not expect the prohibition on network exclusivity to impact our ability to pass on network fees and other costs to
our clients. These regulatory changes create both opportunities and challenges for us. Increased regulation may add to the complexity
of operating a payment processing business, creating an opportunity for larger competitors to differentiate themselves both in
product capabilities and service delivery.
Federal Trade Commission Act and
Other Laws Impacting our Customers' Business. All persons engaged in commerce, including, but not limited to, us and our merchants
are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, or UDAP. In addition,
there are other laws, rules and or regulations, including the Telemarketing Sales Act, that may directly impact the activities
of our merchant customers and in some cases may subject us, as the merchant's payment processor, to investigations, fees, fines
and disgorgement of funds in the event we are deemed to have aided and abetted or otherwise provided the means and instrumentalities
to facilitate the illegal activities of the merchant through our payment processing services. Various federal and state regulatory
enforcement agencies including the Federal Trade Commission, or FTC, and the states' attorney general have authority to take action
against nonbanks that engage in UDAP or violate other laws, rules and regulations and to the extent we are processing payments
for a merchant that may be in violation of laws, rules and regulations, we may be subject to enforcement actions and as a result
may incur losses and liabilities that may impact our business.
Anti-Money Laundering and Counter
Terrorist Regulation. We are also subject to U.S. federal anti-money laundering laws and regulations, including the Bank Secrecy
Act, as amended by the USA PATRIOT Act of 2001 (collectively, the BSA). The BSA requires, among other things, that money services
businesses to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity
and maintain transaction records.
We are additionally subject to economic
and trade sanctions programs administered by the Treasury Department's Office of Foreign Assets Control, or OFAC. These programs
prohibit or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances,
their nationals, narcotics traffickers, and terrorists or terrorist organizations. We are also subject to other countries' laws,
where applicable, regarding anti-money laundering, counter terrorist financing and proceeds of crime.
Anti-Corruption. We are subject
to applicable anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, in the jurisdictions in which we operate. Anti-corruption
laws generally prohibit offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly,
to a government official or private party in order to influence official action or otherwise gain an unfair business advantage.
Telephone Consumer Protection
Act. We are subject to restrictions regarding telemarketing practices. Under the Telephone Consumer Protection Act
("TCPA"), telephone solicitations and the use of automated phone equipment is subject to strict solicitation rules.
This includes the use of pre-recorded voice messages, automatic dialing, text messaging, and fax use. Absent informed consent
by the consumer, commercial telemarketers are prohibited from making unwanted, unsolicited sales calls to mobile devices. The
TCPA affects our ability to contact consumers in association with our secure text payment system and lead generation
services. Violations of the TCPA may be enforced by the FCC or by individuals through litigation, including class actions and
statutory penalties for TCPA violations ranging from $500 to $1,500 per violation, which is often interpreted to mean per
phone call. While we intend to implement processes and procedures to comply with the TCPA, any failure by us or the third
parties in which we rely on for data, to adhere to, or successfully implement, appropriate processes and procedures in
response to existing or future regulations could result in legal and monetary liability, fines and penalties, or damage to
our reputation in the marketplace, any of which could have a material adverse effect on our business, financial condition and
results of operations.
Controlling the Assault of Non-Solicited
Pornography and Marketing Act. We are subject to laws restricting the use of commercial messages, including text messaging.
The Act generally prohibits the use of deceptive subject lines, must accurately identify the sender, and denote the message as
an advertisement. In addition, recipients must include a clear and conspicuous explanation of how to opt-out of receiving the messages
and the sender must remove the recipient within 10 business days of the receiver opting-out.
Payment Card Industry Data Security
Standard. We are subject to the information security standard for organizations processing, storing or transmitting credit
card information. The standard was created to increase controls around cardholder data to reduce credit card fraud. As we continue
to process and store credit card information, the failure to adhere to the standards has the ability to have a material adverse
effect on our business, financial condition and results of operations. However, through partnerships with Total Systems Services,
Inc. and Oracle Corporation, we are able to utilize preventative measures when we store, process or transmit cardholder data, helping
us to meet PCI level 1 compliance.
Other Laws and Regulations
Since we collect certain information
from members and users on our platform, we will be subject to current and future government regulations regarding the collection,
use and safeguarding of consumer information over the Internet and mobile communication devices. These regulations and laws may
involve taxation, tariffs, user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic
contracts and other communications, consumer protection and electronic payment services. In many cases, it may be unclear how existing
laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet or mobile
communication services as the vast majority of these laws were adopted prior to the advent of these technologies and do not contemplate
or address the unique issues raised by the Internet and e-commerce.
There are a number of legislative proposals
that are anticipated or pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning
data protection which could affect us. Many states, for example, have already passed laws requiring notification to subscribers
when there is a security breach of personal data. It is possible that these laws may be interpreted and applied in a manner that
is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring
that we change our data practices, which could have an adverse effect on our business. In addition, some states are interpreting
their own statutes differently than federal law. This may create additional compliance burdens.
Legislation could be passed that limits
our ability to use or store information about our users. The Federal Trade Commission FTC and various states have established regulatory
guidelines issued under the Federal Trade Commission Act and various state acts, respectively, that govern the collection, use
and storage of consumer information, establishing principles relating to notice, consent, access and data integrity and security.
Our practices are designed to comply with these guidelines.
The foregoing list of laws and regulations
to which we are subject is not exhaustive, and the regulatory framework governing our operations changes continuously. Enactment
of new laws and regulations may affect our operations, and could potentially result in increased regulatory compliance costs, litigation
expense, adverse publicity, and/or loss of revenue. We believe our policies and practices comply with the FTC privacy guidelines
and other applicable laws and regulations. However, if our belief proves incorrect, or if these guidelines, laws or regulations
or their interpretations change or new legislation or regulations are enacted, we may be compelled to provide additional disclosures
to our users, obtain additional consents from our users before collecting or using their information or implement new safeguards
to help our users manage our (or others') use of their information, among other changes.
Employees
As of the date of this registration
statement, we have 9 employees. In addition to our employees, we utilize various consultants and contractors for other services
on an as-needed basis.
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.
|
Financial Information.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
of our financial condition and results of operations should be read together with the audited financial statements and related
notes included elsewhere in this registration statement. Certain statements contained in this registration statement, including
statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily
with respect to the future operating performance of our company and the products and services we expect to offer and other statements
contained herein regarding matters that are not historical facts, are "forward-looking" statements. Our Management's
Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve
risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our
actual results may differ materially from the results discussed in the forward-looking statements.
Executive Overview
We are a financial technology company
utilizing innovative payment processing technologies to complement our core merchant services capabilities. Our patented and proprietary
software for merchant services, text marketing and lead generation are licensable or available through a suite of synergistic offerings
directly to our clients. We are developing an enterprise-grade text payment system using the simplicity and familiarity of text
messaging with multi-factor authentication to ensure security.
Our Revenue and Expenses
Revenues
We devise our revenues 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.
How We Assess Our Business
We provide electronic payment processing
and merchant services. Our electronic payment processing and merchant services provide comprehensive payment solutions to businesses.
Key Operating Metrics
We evaluate our performance through
key operating metrics, including:
|
|
●
|
The dollar volume of payments our clients process
through us (payment volume); and
|
|
|
|
|
|
|
●
|
Period to period payment volume attrition
|
Our payment volume for the nine months
ended September 30, 2019 and 2018 represents a period to period growth rate of minus 1%. Our payment volume for the years ended
December 31, 2018 and 2017, represents a period to period growth rate of 0%. Payment volume reflects the addition of new clients
and the same client payment volume from existing clients, offset by client attrition during the period.
We measure period to period payment
volume attrition for all clients that were processing with us for the same period in the prior period. We exclude from our calculations
payment volume from new clients added during the period. We experience attrition in payment volume as a result of several factors,
including business closures and transfers of client's accounts to our competitors.
Results of Operations
This section includes a summary of our
historical results of operations, followed by detailed comparisons of our results for (i) the nine months ended September 30, 2019
and 2018 and (ii) the years ended December 31, 2018 and 2017. We have derived this data from our interim and annual consolidated
financial statements included elsewhere in this registration statement.
Nine Months Ended
September 30, 2019
Compared to Nine
Months Ended September 30, 2018
The following table presents our historical
results of operations for the periods indicated:
|
|
|
Nine Months ended September
|
|
Change
|
|
(in thousands)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
190.4
|
|
|
$
|
192.9
|
|
|
$
|
(2.5
|
)
|
|
|
(1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
75.1
|
|
|
|
86.1
|
|
|
|
(11.0
|
)
|
|
|
(13
|
%)
|
|
Gross Profit
|
|
|
115.3
|
|
|
|
106.8
|
|
|
|
8.5
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
743.2
|
|
|
|
1,604.4
|
|
|
|
(861.2
|
)
|
|
|
(54
|
%)
|
|
Research and development
|
|
|
62.4
|
|
|
|
237.2
|
|
|
|
(174.8
|
)
|
|
|
(74
|
%)
|
|
Total operating expenses
|
|
|
805.6
|
|
|
|
1,841.6
|
|
|
|
(1,036.0
|
)
|
|
|
(56
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(690.3
|
)
|
|
|
(1,734.8
|
)
|
|
|
(1,044.5
|
)
|
|
|
(60
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
217.7
|
|
|
|
393.1
|
|
|
|
(175.4
|
)
|
|
|
(45
|
%)
|
|
Total other expenses
|
|
|
217.7
|
|
|
|
393.1
|
|
|
|
(175.4
|
)
|
|
|
(45
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(908.0
|
)
|
|
|
(2,127.9
|
)
|
|
|
(1,219.9
|
)
|
|
|
(57
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(908.0
|
)
|
|
$
|
(2,127.9
|
)
|
|
$
|
(1,219.9
|
)
|
|
|
(57
|
%)
|
Revenue
Revenue decreased to $190,400 from $192,900,
or 1%, for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This decrease was principally
driven by various insignificant factors.
Cost of Revenue
Cost of revenue decreased to $75,100
from $86,100, or 13%, for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This decrease
was driven primarily by a significant decrease in merchant fees due to a change in our primary processing partner.
General and Administrative Expenses
General and administrative expenses
decreased to $743,200 from $1,604,400, or 54%, for the nine months ended September 30, 2019 from the nine months ended September
30, 2018. This decrease was primarily driven by elimination of some one-time stock compensation expense due to the expiration of
a significant consulting agreement.
Research and Development Expenses
Research and development expenses decreased
to $62,400 from $237,200, or 74%, for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This
decrease was primarily due to the decrease in development costs resulting from service agreements related to the development of
our software platforms.
Interest Expense, net
Interest expense, net decreased to $217,700
from $393,100, or 45%, for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This decrease
was primarily driven by the elimination of one-time interest charges for the amortization of the debt discount on new related party
notes payable and refinancing charges on other notes payable.
Year Ended December 31, 2018 Compared
to Year Ended December 31, 2017
The following table presents our historical
results of operations for the periods indicated:
|
|
|
Year ended December 31
|
|
Change
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
253.8
|
|
|
$
|
255.1
|
|
|
$
|
(1.3
|
)
|
|
|
(0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
108.4
|
|
|
|
111.4
|
|
|
|
(3.0
|
)
|
|
|
(3
|
%)
|
|
Gross profit
|
|
|
145.4
|
|
|
|
143.7
|
|
|
|
1.7
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,912.2
|
|
|
|
1,435.3
|
|
|
|
476.9
|
|
|
|
33
|
%
|
|
Research and development
|
|
|
279.7
|
|
|
|
1,810.6
|
|
|
|
(1,530.9
|
)
|
|
|
(85
|
%)
|
|
Total operating expenses
|
|
|
2,191.9
|
|
|
|
3,245.9
|
|
|
|
(1,054.0
|
)
|
|
|
(32
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(2,046.5
|
)
|
|
|
(3,102.2
|
)
|
|
|
(1,055.7
|
)
|
|
|
(34
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
464.6
|
|
|
|
753.4
|
|
|
|
(288.8
|
)
|
|
|
(38
|
%)
|
|
Total other expenses
|
|
|
464.6
|
|
|
|
753.4
|
|
|
|
(288.8
|
)
|
|
|
(38
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(2,511.1
|
)
|
|
|
(3,855.6
|
)
|
|
|
(1,344.5
|
)
|
|
|
(35
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,511.1
|
)
|
|
$
|
(3,855.6
|
)
|
|
$
|
(1,344.5
|
)
|
|
|
(35
|
%)
|
Revenue
Revenue decreased to $253,800 from $255,100,
or 0%, for the year ended December 31, 2018 from the year ended December 31, 2017. This decrease was principally driven by various
insignificant factors.
Cost of Revenue
Cost of revenue decreased to $108,400
from $111,400, or 3%, for the year ended December 31, 2018 from the year ended December 31, 2017. This decrease was principally
driven by the decrease in merchant fees due to a change of our primary processing partner.
General and Administrative Expenses
General and administrative expenses
increased to $1,912,200 from $1,435,300, or 33%, for the year ended December 31, 2018 from the year ended December 31, 2017. This
increase was primarily from an increase in stock compensation expense and fees for services rendered by the addition of new consultants
and professionals.
Research and Development Expenses
Research and development expenses decreased
to $279,700 from $1,810,600, or 85%, for the year ended December 3, 2019 from the year ended December 31, 2018. This decrease was
primarily due to the one-time costs associated with our asset acquisition from GTM.
Interest Expense, net
Interest Expense, net decreased to $464,600
from $753,400, or 38%, for the year ended December 31, 2018 from the year ended December 31, 2017. This decrease was primarily
driven by the elimination of one-time interest charges for the amortization of the debt discount on related party notes payable
and refinancing charges on other notes payable.
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.
Cash Flows
The following table presents a summary
of cash flows from operating, investing and financing activities for the following comparative periods.
Nine Months Ended September 30, 2019
and 2018
|
|
|
Nine months ended September 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(593,236
|
)
|
|
$
|
(135,462
|
)
|
|
Net cash used in investing activities
|
|
$
|
(50,000
|
)
|
|
$
|
—
|
|
|
Net cash provided by financing activities
|
|
$
|
735,500
|
|
|
$
|
150,800
|
|
Cash Flow from Operating Activities
Net cash used in operating activities
increased by $457,774 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This increase
was principally driven by a decrease in equity-based compensation from a significant consulting agreement in addition to the increase
in consulting and professional fees associated with our growth objectives.
Cash Flow from Investing Activities
Net cash used in investing activities
increased by $50,000 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This increase
was principally driven by a deposit placed in escrow, which was later agreed to be refunded.
Cash Flow from Financing Activities
Net cash provided by financing activities
increased by $584,700 for the nine months ended September 30, 2019 from the nine months ended September 30, 2018. This increase
was principally driven by increased proceeds from assigning our rights to stock repurchase option agreements to a third parties.
Year Ended December 31, 2018 and
2017
|
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(192,801
|
)
|
|
$
|
(436,408
|
)
|
|
Net cash used in investing activities
|
|
$
|
(5,948
|
)
|
|
$
|
—
|
|
|
Net cash provided by financing activities
|
|
$
|
173,847
|
|
|
$
|
461,808
|
|
Cash Flow from Operating Activities
Net cash used in operating activities
decreased by $243,607 for the year ended December 31, 2018 from the year ended December 31, 2017. This increase was principally
driven by a decrease in research and development costs and interest expense.
Cash Flow from Investing Activities
Net cash used in investing activities
increased by $5,948 for the year ended December 31, 2018 from the year ended December 31, 2017. This increase was principally from
the security deposit being refunded.
Cash Flow from Financing Activities
Net cash provided by financing activities
decreased by $287,961 the year ended December 31, 2018 from the year ended December 31, 2017. This decrease was principally driven
by a decrease in loans payable from related parties.
Critical Accounting Policies
Our discussion and analysis of our financial
condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition,
goodwill and intangible assets, derivative financial instruments, and equity-based compensation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.
Critical accounting policies are those
that we consider the most critical to understanding our financial condition and results of operations. The accounting policies
we believe to be most critical to understanding our financial condition and results of operations are discussed below. As of September
30, 2019, there have been no significant changes to our critical accounting estimates, except as described in Note 2 to our consolidated
financial statements. Further, as of September 30, 2019, there have been no significant changes to our recently issued accounting
pronouncements, except as described in Note 2 to our consolidated financial statements.
Emerging Growth Company
As an emerging growth company, we are exempt
from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934 (the "Exchange
Act"). Such sections are provided below:
Section 404(b) of the Sarbanes-Oxley Act of
2002 requires a public company's auditor to attest to, and report on, management's assessment of its internal controls.
Sections 14A(a) and (b) of the Exchange Act,
implemented by Section 951 of the Dodd-Frank Act, require companies to hold shareholder advisory votes on executive compensation
and golden parachute compensation. In addition, under Section 14(a) of the Exchange Act, we will be required to file preliminary
and definitive proxy statements to ensure that shareholders' rights are upheld.
We have already taken advantage of these reduced
reporting burdens in this registration statement, which are also available to us as a smaller reporting company as defined under
Rule 12b-2 of the Exchange Act.
As long as we qualify as an emerging growth
company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section
14A(a) and (b) of the Exchange Act.
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act of 1933, as amended (the "Securities Act"), for complying with new or revised accounting standards.
We are choosing to irrevocably opt into the extended transition period for complying with new or revised accounting standards under
Section 102(b)(2) of the JOBS Act.
We qualify as an "emerging growth
company" as defined in Section 101 of the Jumpstart our Business Startups Act ("JOBS Act") as we did not have more
than $1,070,000,000 in annual gross revenue and did not have such amount as of December 31, 2018, our last fiscal year.
We may lose our status as an emerging
growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1,070,000,000 or (ii) we issue
more than $1,070,000,000 in non-convertible debt in a three-year period. We will lose our status as an emerging growth company
if at any time we are deemed to be a large accelerated filer. We will lose our status as an emerging growth company on the last
day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an
effective registration statement.
As an emerging growth company, we may
take advantage of specified reduced reporting and other burdens that are otherwise applicable to generally reporting companies.
These provisions include:
|
|
●
|
A requirement to have only two years of audited
financial statements and only two years of related Management's Discussion and Analysis Disclosures;
|
|
|
●
|
Reduced disclosures about the emerging growth company's
executive compensation arrangements; and
|
|
|
●
|
No non-binding advisory votes on executive compensation
or golden parachute arrangements.
|
Smaller Reporting Company
As a smaller reporting company, as
defined in Item(f)(1) of Regulation S-K, we may choose to prepare our disclosures relying on scaled disclosure requirements for
smaller reporting companies in Regulation S-K and in Article 8 of Regulation S-X.
The scaled disclosure requirements
for smaller reporting companies permit us (i) to include less extensive narrative disclosure than required of other reporting companies,
particularly in the description of executive compensation and (ii) to provide audited financial statements for two fiscal years,
in contrast to other reporting companies, which must provide audited financial statements for three years.
We may lose our status as a smaller
reporting company on the last day of the fiscal year in which (i) our public float exceeds $250 million or (ii) if we have more
than $100 million in annual revenues and (a) have no public float or (b) have a public float or more than $700 million.
Equity-based Compensation
The Company records stock-based compensation
in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure
compensation cost for stock-based employee compensation at the fair market value on the grant date and recognize the expense over
the employee's requisite service period. The Company recognizes in the statement of operations the grant-date fair market value
of stock options and other equity-based compensation issued to employees and non-employees.
During the nine months ended September
30, 2019, 439,500 shares of common stock were issued to several consultants in connection with business development and professional
services rendered valued at $89,134.
During the year ended December 31, 2018,
1,758,000 shares of common stock were issued to several consultants in connection with business development and professional services
rendered valued at $1,547,388.
During the year ended December 31, 2017,
4,250,000 shares of common stock were issued management and members of the Board of Directors for services rendered valued at $615,025.
Also, during the year ended December 31, 2017, 1,918,000 shares of common stock were issued to several consultants in connection
with business development and professional services rendered value at $455,360.
Related Parties
See Item 7 for a full discussion of
related parties.
The
Company leases its office at 2032 Corte Del Nogal Suite 120, Carlsbad, California 92011.
|
Item 4.
|
|
Security Ownership of Certain Beneficial
Owners and Management.
|
The
following table sets forth certain information, as of September 30, 2019, with respect to the beneficial ownership of the Company's
outstanding common stock by (i) any holder of more than 5%; (ii) each of the Company's executive officers and directors; and (iii)
the Company's directors and executive officers as a group.
|
Name and Address
|
|
Number of Shares Owned
|
|
Percentage of Outstanding Shares
|
|
Executive Officers and Directors[1]
|
|
|
|
|
|
Luke D'Angelo
|
|
|
8,034,537
|
|
|
|
9.53
|
%
|
|
Gary Wachs
|
|
|
7,581,517
|
|
|
|
8.99
|
%
|
|
Michael Gross
|
|
|
7,281,537
|
*
|
|
|
8.63
|
%
|
|
Robert Sanchez
|
|
|
5,500,000
|
**
|
|
|
6.52
|
%
|
|
Christopher Williams
|
|
|
990,000
|
|
|
|
1.17
|
%
|
|
Bobby Bedi
|
|
|
2,130,000
|
|
|
|
2.53
|
%
|
|
All current executive officers and directors as a group (Total 6)
|
|
|
31,517,571
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
5% Shareholders
|
|
|
|
|
|
|
|
|
|
Steve Cox[2]
|
|
|
7,409,400
|
|
|
|
8.78
|
%
|
*1,000,000
shares are owned by Crossfire Marketing Group, in which Michael Gross is the sole owner
**5,000,000
shares are owned by GTM, in which Robert Sanchez is the controlling shareholder
|
|
Item 5.
|
Directors and Executive Officers.
|
The following table sets forth information
about our directors and executive officers.
|
Name
|
|
Age
|
|
Position
|
|
Luke
D'Angelo
|
|
51
|
|
Chairman
of the Board;
Interim Chief Executive Officer
Chief Investment Officer
|
|
Gary
Wachs
|
|
63
|
|
Chief
Financial Officer; Director
|
|
Robert
Sanchez
|
|
58
|
|
Chief
Technology Officer
|
|
Michael
Gross
|
|
64
|
|
Director
|
|
Christopher
Williams
|
|
68
|
|
Director
|
|
Bobby
Bedi
|
|
49
|
|
Director
|
[1]
The mailing address for each person is 2032 Corte Del Nogal Ste 120, Carlsbad, California 92011.
[2]
The mailing address for Steve Cox is 6682 Elegante Way, San Diego, CA 92130.
None of our directors serve as a director
of any other company reporting under the 1934 Act. "Reporting Companies" include companies with a class of securities
registered pursuant to Section 12 of the 1934 Act, or subject to the requirements of Section 15(d) of the 1934 Act, or any company
registered as an investment company under the 1940 Act.
Each of our directors serves for a concurrent
term of one year or until his or her successor is duly elected and qualified. Set forth below is a description of the business
and employment background of each director and executive officer.
Luke D'Angelo has served
as our Chairman of the Board since 2013 and Interim Chief Executive Officer since December 2019. Mr. D'Angelo served as the Company's
Chief Executive Officer from 2013 to 2017 and as Chief Investment Officer since 2017. Mr. D'Angelo has over 25 years' experience
in real estate, investment banking, venture capital and commercial operations. In 2006, he founded a merchant services company,
Transcendent One, Inc. which became an Inc. 500 fastest growing company, ranked at #105. Mr. D'Angelo's company was the first "Merchant
Owned" company in the United States, offering ownership in the company to customers based on their monthly credit card processing
volumes. In 2009, Mr. D'Angelo founded TransTech One, LLC a subsidiary to Transcendent One, Inc. that had a focus in the bill payment
and technology industries.
Michael Gross has served
as a Director since 2017 and as our Chief Executive Officer from 2017 until December 2019. Starting as a salesman, Mr. Gross eventually
became the president of Jones Boys Sales Promotions Co. in 1980, at the young age of 25, and began working directly with the owner
on company expansion and new product development. In 1997, Mr. Gross purchased Jones Boys Sales Promotions Co, now Crossfire Marketing
Group, Inc., and remains the owner. In addition to his work at Crossfire Marketing Group, Inc and with us, Mr. Gross works with
several AI companies on creating a conversation synthetic agent for lead generation as well as development for customer service
to improve efficiency. With over 40 years in the industry, Mr. Gross has worked with more than 400 U.S. and Canadian media companies,
setting up strategic campaigns and alliances.
Gary Wachs has served
as our Chief Financial Officer since 2013. Mr. Wachs is a Certified Public Accountant who has spent his career in high-level accounting,
finance and tax. Mr. Wachs served as Managing Partner of Blake and Shaffer, a Certified Public Accounting firm, and has been a
Managing Member of Blake and Wachs CPA, LTD (formerly Blake and Shaffer) since 1997. He manages corporate accounting and taxes,
is experienced in PCAOB accounting and certified audits, and a variety of other accounting, tax, and consulting areas.
Robert Sanchez has served
as our Chief Technology Officer since March 2018. Mr. Sanchez has over 35 years of experience in wireless technologies and management.
Prior to his work with us, Mr. Sanchez has served as Globalstar's Manager for the worldwide system deployment, integration and
test program, the GM for the Ancillary Test Products and Optimization Group. He also managed the digital cellular program
including the definition and development of industry standards for CDMA handsets and base stations for Qualcomm. Additionally,
he served as VP & Chief Architect and co-founder of inCode Telecom Group, a global technology consulting firm of over
500 employees with 16 offices around the world. Since 2006, Mr. Sanchez Robert has been the CEO & President of GlobalTel Media,
Inc. a technology firm responsible for developing several patents in A2P Short Messaging Services (SMS) and mobile payments.
Christopher Williams has
served as a Director since 2016. Mr. Williams is a corporate finance attorney with a 42-year background in corporate and entertainment
finance, investment property transactions and investment banking, including service on the board of directors and advisory boards
for several private equity funds and venture capital firms. He served as Outside Corporate Counsel for several publicly traded
companies and financial institutions assisting clients in raising over $500 Million in capital and alternate forms of financing.
Mr. William's prior experience also includes 20 years active duty as a Navy JAG officer, Police Officer, Special Criminal Investigator,
San Diego Superior Court Arbitrator, San Diego Superior Court Judge Pro Tem, San Diego Superior Court Special Settlement Conference
Panel Judge, State of California Special Master, Professor, Federal Magistrate - Military Review Officer, and San Diego County
Bar Arbitrator. In addition, Mr. Williams was selected to serve as Special Advisor to the Governor of California and acted as
Bond Counsel for several municipalities in California with over $2 Billion in underwriting.
Bobby Bedi has served
as a Director since July 2012. After moving to the United States in 1988, Mr. Bedi founded Rockon IT and Seasia Infotech USA.
Mr. Bedi operates a team of over 100 computer programmers and has worked on projects for multiple Fortune 500 companies
all the way to gaming platforms. Mr. Bedi is also a real estate developer with a strong background in hospitality
and entertainment and an investor/owner in restaurants and hotels.
|
|
Item 6.
|
Executive Compensation.
|
Our named executive officers, consisting
of our principal executive officer and other executive officers as of September 30, 2019 (the "Named Executive Officers"),
were:
|
|
●
|
Luke
D'Angelo, Chairman of the Board
|
|
|
●
|
Gary
Wachs, Chief Financial Officer
|
|
|
●
|
Robert
Sanchez, Chief Technology Officer
|
|
|
●
|
Michael
Gross, Chief Executive Officer[3]
|
[3]On
December 04, 2019, Mr. Gross resigned as Chief Executive Officer and Mr. D’Angelo became Interim Chief Executive Officer.
Summary Compensation
Table
The following table sets forth, for the
fiscal years ended December 31, 2018 and 2017, compensation awarded or paid to our Named Executive Officers.
|
Name
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock Awards
|
|
Option Awards
|
|
Non-Equity Incentive Plan Compensation
|
|
Non-Qualified Deferred Compensation Earnings
|
|
All Other Compensation
|
|
Total
|
|
Luke D'Angelo
|
|
|
2018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000 Restricted Shares($30,000 Fair Market Value)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
30,000
|
|
|
Michael Gross[4]
|
|
|
2018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000 Restricted Shares($30,000 Fair Market Value)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
30,000
|
|
|
Gary Wachs
|
|
|
2018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,000 Restricted Shares($30,000 Fair Market Value)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
30,000
|
|
|
Robert Sanchez
|
|
|
2018
|
|
|
$
|
2,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,800
|
|
|
|
|
|
2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outside
the compensation above, we have not paid any of our executive officers in the years ended December 31, 2018 and 2017, other than
for reimbursement expenses. We have not deferred any compensation. We intend to enter into appropriate compensation agreements
in the event we successfully obtain funding. The Company does not maintain any stock option or other equity compensation plan.
|
|
Item 7.
|
Certain Relationships and Related Transactions, and Director Independence.
|
Other than the following and as disclosed,
there have been no material transactions between us and our officers or directors, or any of their respective affiliates, during
the last two (2) years.
In 2019, 2018 and 2017, we obtained
$79,000, $41,047 and $13,035 loans payable from related parties. As of September 30, 2019, December 31, 2018 and 2017, the balance
of the loans payable was $133,082, $54,082 and $13,035, respectively. In October 2019, $25,000 of the loans were repaid. The loans
payable are due on demand, unsecured and non-interest bearing as there are no formal agreements
In 2019, 2018 and 2017, we reimbursed
expenses related to various marketing expenses, professional fees and other expenses advanced by two related parties and significant
shareholders through other business ventures. For the nine months ended September 30, 2019 and for the years ended December 31,
2018 and 2017, the reimbursement amounts were $139,500, $30,000 and $11,500, respectively.
In 2017, we received $222,000 in convertible
notes payable from related parties. The convertible notes payable are unsecured, were due in 180 days, incur interest at 10% per
annum and are convertible at $0.10 per share. As of September 30, 2019, December 31, 2018 and 2017, accrued interest related to
the convertible notes was $48,437, $31,787 and $9,588 respectively. On the date of the agreement, management calculated the beneficial
conversion feature in connection with the convertible notes payable and recorded a discount of $222,000. We amortized the discount
over the term of the convertible notes payable of 180 days. During the years ended December 31, 2018 and 2017, we amortized $100,258
and $121,742 to interest expense related to the discount, respectively. We are currently in default on the convertible notes payable.
[4]
Mr. Gross served as Chief Executive Officer until December 2019.
On June 22, 2017, we executed an Amendment
to Asset Purchase Agreement with GlobalTel Media, Inc. In connection with the asset purchase agreement, 5,000,000 shares of common
stock were issued to GlobalTel Media, Inc. We valued the common stock issuance at $1,000,000 based on the closing market price
of our common stock on the date in which the performance was complete. This amendment revived the original asset purchase agreement
dated December 4, 2013 to purchase the assets of GlobalTel Media, Inc., which include, but is not limited to, all intellectual
property, United States Patent Trademark Office ("USPTO") issued patents, enterprise-grade, patent protected software
and intellectual property for advanced messaging incorporating secure payments, databases, documentation, copyrights, trademarks,
registrations, and all current development work in process of USPTO application approval. We, as part of the various agreements,
agreed to pay $1,600,000 which included an assumption of certain liabilities, including costs incurred to continue development
of the patents, the purchase of a judgment from a third party, as well as contingent payment of 25% of the net proceeds on revenue
created by the patents up to $26,600,000. As of September 30, 2019, December 31, 2018 and 2017, amounts included in accounts payable
related to the assumption of liabilities in connection with the patents were $455,000, $470,000 and $455,000, respectively.
Two related parties and significant shareholders
helped fund 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. As of September 30, 2019 and December 31,
2018 and 2017, the aggregate balance of the notes payable was $620,356 and accrued interest was $559,846, $512,945 and $450,409,
respectively.
In 2008, we issued $150,000 in convertible
notes from related parties. The convertible notes payable are currently due on demand, incur interest at 15% per annum and convertible
at $0.60 per share. As of September 30, 2019 and December 31, 2018 and 2017, accrued interest related to the convertible notes
was $237,750, $220,875 and $198,375, respectively. As of September 30, 2019, we were in default of convertible notes payable.
Director Independence
We are not subject to the listing requirements
of any national securities exchange or national securities association and, as a result, we are not at this time required to have
our Board comprised of a majority of "Independent Directors." One of our five Directors is independent as defined under
the Nasdaq Marketplace Rules.
|
Item 8.
|
|
Legal Proceedings.
|
In September 2018, a complaint was filed
in San Diego Superior Court for a breach of contract arising from a subsequent agreement regarding the purchase of a judgment to
which we were not a party. The purchase of the judgment was part of the transaction to acquire our IP portfolio. We substantially
performed under the original agreement, but the plaintiffs allege we breached the subsequent agreement which was executed to extend
the final payment. On October 26, 2018, we filed an answer that denied each and every purported allegation and cause of action,
further denied that they caused any damage or loss and asserted the affirmative defense of duress. We recorded as a liability as
of September 30, 2019 and December 31, 2018. On November 25, 2019, the parties entered into a conditional settlement agreement
whereby we agreed to pay $150,000 on a payment schedule ending October 1, 2020. Should the repayment enter default without being
cured, the court shall order an entry of judgment in favor of the Plaintiffs in the amount of $175,000 less any amounts paid under
the settlement, plus pre-judgment and post-judgment interest, court costs and reasonable attorney fees.
In September 2018, the landlord for
our former office space lease filed a limited civil lawsuit against us in the State of California. We reached an agreement that
resulted in a stipulation for judgment on October 28, 2018. The stipulated judgment was for $42,432 including attorney fees and
court costs plus interest for which we recorded as a liability as of September 30, 2019 and December 31, 2018. The stipulated judgment
was paid in full on August 16, 2019.
In July 2018, a former Board of Director's
member filed a lawsuit, in the United States District Court for the Southern District of California, alleging various claims for
relief. We reached an agreement, with no consideration paid, that resulted in a voluntary dismissal with prejudice and dismissed
all claims on November 14, 2018.
In November 2017, two shareholders of
AppTech, one who previously filed a 2014 lawsuit in the State of Washington, filed another lawsuit against us 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. We filed an answer, affirmative defenses and
counter claims. Management believes that the Plaintiff misrepresented and mislead us during the merger between ourselves and Transcendent
One, Inc. The court has encouraged the parties to settle. Even though we believe the lawsuit is without merit and will vigorously
defend, we have made several offers to settle. Thus, as of September 30, 2019 and December 31, 2018, we have recorded a provision
for lower end of its expected loss range for which we believe is probable. This is based upon the settlement offer of 200,000
shares of our common stock to which the fair market value was $134,000 at the time of offer.
In March 2016, a significant shareholder
("Plaintiff") of ours filed a lawsuit against us in the state of California alleging breach of contract, fraud and negligent
misrepresentation based on supposed oral promises in 2013 to give Plaintiff's company shares in exchange for stocks in another
company and a 2014 consulting agreement. We strongly disputed all claims made in the lawsuit. On April 20, 2017, we filed an answer
that denied each and every purported allegation and cause of action and further denied that they caused any damage or loss. We
reached an agreement resulting in a voluntary dismissal of the civil case on July 5, 2017. The Plaintiff was not able to fulfill
the proper documentation within the allotted 180 days and the 3,450,000 shares of our common stock were properly cancelled in 2019.
|
|
Item 9.
|
Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.
|
Our common stock is included
in the OTCPink Market under the symbol "APCX." The following table sets forth the range of high and low sales prices
of the Common Stock as reported by the OTCPink market:
|
|
|
High
|
|
Low
|
|
Fiscal Year Ended December 31, 2019
|
|
|
|
|
|
First Quarter
|
|
$
|
0.70
|
|
|
$
|
0.10
|
|
|
Second Quarter
|
|
$
|
0.70
|
|
|
$
|
0.10
|
|
|
Third Quarter
|
|
$
|
0.95
|
|
|
$
|
0.10
|
|
|
Fourth Quarter[5]
|
|
$
|
0.61
|
|
|
$
|
0.13
|
|
|
Fiscal Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
2.90
|
|
|
$
|
0.80
|
|
|
Second Quarter
|
|
$
|
1.13
|
|
|
$
|
0.60
|
|
|
Third Quarter
|
|
$
|
0.75
|
|
|
$
|
0.40
|
|
|
Fourth Quarter
|
|
$
|
0.51
|
|
|
$
|
0.25
|
|
|
Fiscal Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.29
|
|
|
$
|
0.04
|
|
|
Second Quarter
|
|
$
|
0.40
|
|
|
$
|
0.05
|
|
|
Third Quarter
|
|
$
|
0.69
|
|
|
$
|
0.30
|
|
|
Fourth Quarter
|
|
$
|
1.21
|
|
|
$
|
0.23
|
|
[5]
Through December 06, 2019
|
|
Item 10.
|
Recent Sales of Unregistered Securities.
|
During
the nine months ended September 30, 2019, 439,500 shares of common stock were issued to several consultants in connection with
business development and professional services rendered valued at $89,134; 37,193 shares of common stock were issued to several
merchants under the merchant equity program valued at $14,877; and 275,000 shares of common stock for subscription agreements in
the amount of $68,750. During the nine months ended September 30, 2019, we assigned our rights to stock repurchase option agreements
to third parties resulting in net proceeds of $623,750. During the nine months ended September 30, 2019, no shares of common stock
were issued to the management or members of the Board of Directors.
During
the year ended December 31, 2018, 1,758,000 shares of common stock were issued to several consultants in connection with business
development and professional services rendered valued at $1,547,388; 50,000 shares of common stock were issued in lieu of rent
valued at $25,500; 55,094 shares of common stock were issued to several merchants under the merchant equity program valued at
$13,504; and 482,000 shares of common stock were issued for subscription agreements in the amount of $95,300. During the year
ended December 31, 2018, we assigned our rights to a stock repurchase option agreement to a third party resulting in net proceeds
of $37,500. During the year ended December 31, 2018, no shares of common stock were issued to management or members of
the Board of Directors.
During
the year ended December 31, 2017, 4,250,000 shares of common stock were issued to management and members of the Board of Directors
for services rendered valued at $615,025; 1,918,000 shares of common stock were issued to several consultants in connection with
business development and professional services rendered valued at $455,360; 5,000,000 shares of common stock were issued to GlobalTel
Media, Inc. in connection with the asset purchase agreement and the patent acquisition valued at $1,000,000 on the date of
performance; 2,240,000 shares of common stock were issued for subscription agreements in the amount of $220,000; 860,000 shares
of common stock were issued for interest on several notes payable valued at $340,800; and 250,000 shares of common stock were
issued when the holder of the option exercised the option for $7,500.
All
Issuances were exempt from registration requirements of Section 5 of the Securities Act of 1933 as they did not involve a public
offering under Section 4(a)2(2) and were issued as restricted securities as defined in Rule 144 of the Act.
|
|
Item 11.
|
Description of Registrant's Securities to be Registered.
|
Authorized Capital Stock
Our authorized capital stock consists
of 1,000,000,000 shares of $0.001 par value common stock and 100,000 shares of $0.001 par value Series A preferred stock ("Series
A").
Common Stock
As of September 30, 2019, there were
84,098,825 shares of our common stock issued and outstanding.
The holders of our common stock have
equal ratable rights to dividends from funds legally available if and when declared by our Board of Directors and are entitled
to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding
up of our affairs. Our common stock does not provide the right to a preemptive, subscription or conversion rights and there are
no redemption or sinking fund provisions or rights. Our common stockholders are entitled to one non-cumulative vote per share on
all matters on which shareholders may vote.
We refer you to our Articles of Incorporation,
Bylaws and the applicable statutes of the state of Wyoming for a more complete description of the rights and liabilities of holders
of our securities. All material terms of our common stock have been addressed in this section.
Holders of shares of our common stock
do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election
of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining
shares will not be able to elect any of our directors.
Preferred Stock
As of September 30, 2019, there were
fourteen (14) shares of our Series A preferred stock issued and outstanding.
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 preferred
stock into 780 shares of common stock.
|
|
Item 12.
|
Indemnification of Directors and Officers.
|
The Corporation Law of the State of Wyoming
and the Company's Bylaws provide for indemnification of our directors, officers, employees and agents (collectively, the "Covered
Persons") for liabilities and expenses that they may incur in such capacities. In general, the Covered Persons may be indemnified
with respect to actions taken in good faith and in a manner that the Covered Person reasonably believed to be in the best interest
of the Company, and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct was unlawful.
Regarding indemnification for liabilities
arising under the Securities Act, which may be permitted to directors or officers under Wyoming law, we are informed that, in the
opinion of the SEC, such indemnification is against public policy, as expressed in the Securities Act and is, therefore, unenforceable.
We have not entered into any agreements
with our directors and executive officers that require us to indemnify these persons against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred (including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by reason of the fact that the person is or was a director
or officer of our Company or any of our affiliated enterprises.
We do not maintain any policy of directors'
and officers' liability insurance that insures its directors and officers against the cost of defense, settlement or payment of
a judgment under any circumstances.
|
|
Item 13.
|
Financial Statements and Supplementary Data.
|
Our consolidated financial statements
are included in this Form 10 in Item 15 below.
|
|
Item 14.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
None.
|
|
Item 15.
|
Financial Statements and Exhibits.
|
(a)
Financial Statements
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2018 AND 2017
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2019 AND 2018
(UNAUDITED)
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of AppTech Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of AppTech Corp. (the "Company") as of December 31, 2018 and 2017, the related consolidated statements
of operations, stockholders' deficit, and cash flows, for the years then ended, and the related notes (collectively referred to
as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the
Company has suffered recurring losses from operations and has a negative working capital, which raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ dbbmckennon
We have served as the Company's auditor since
2014.
San Diego, California
October 23, 2019
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 (UNAUDITED), DECEMBER
31, 2018 AND 2017
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
93,648
|
|
|
$
|
1,384
|
|
|
$
|
26,286
|
|
|
Accounts receivable
|
|
|
29,208
|
|
|
|
23,802
|
|
|
|
23,800
|
|
|
Deposit escrow
|
|
|
50,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Total current assets
|
|
|
172,856
|
|
|
|
25,186
|
|
|
|
50,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security deposit
|
|
|
5,948
|
|
|
|
5,948
|
|
|
|
—
|
|
|
Property and equipment, net
|
|
|
16
|
|
|
|
65
|
|
|
|
194
|
|
|
TOTAL ASSETS
|
|
$
|
178,820
|
|
|
$
|
31,199
|
|
|
$
|
50,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,566,092
|
|
|
$
|
1,557,405
|
|
|
$
|
1,423,594
|
|
|
Accrued liabilities
|
|
|
2,391,852
|
|
|
|
2,194,809
|
|
|
|
1,710,875
|
|
|
Stock repurchase liability
|
|
|
430,000
|
|
|
|
430,000
|
|
|
|
430,000
|
|
|
Loans payable related parties
|
|
|
133,082
|
|
|
|
54,082
|
|
|
|
13,035
|
|
|
Convertible notes payable
|
|
|
620,000
|
|
|
|
620,000
|
|
|
|
620,000
|
|
|
Convertible notes payable related parties, net discount of
$0, $0 and $100,258, respectively
|
|
|
372,000
|
|
|
|
372,000
|
|
|
|
271,742
|
|
|
Notes payable
|
|
|
1,133,618
|
|
|
|
1,169,618
|
|
|
|
1,169,618
|
|
|
Notes payable related parties
|
|
|
678,956
|
|
|
|
678,956
|
|
|
|
678,956
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
7,325,600
|
|
|
|
7,076,870
|
|
|
|
6,317,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock; $0.001 par value; 100,000 shares authorized; 14 shares issued and outstanding at September 30, 2019 and December 31, 2018 and 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 84,098,825, 86,797,132 and 86,052,038 outstanding at September 30, 2019 and December 31, 2018 and 2017, respectively
|
|
|
84,099
|
|
|
|
86,797
|
|
|
|
86,052
|
|
|
Additional paid-in capital
|
|
|
33,094,294
|
|
|
|
32,284,735
|
|
|
|
30,552,488
|
|
|
Accumulated deficit
|
|
|
(40,325,173
|
)
|
|
|
(39,417,203
|
)
|
|
|
(36,906,080
|
)
|
|
Total stockholders deficit
|
|
|
(7,146,780
|
)
|
|
|
(7,045,671
|
)
|
|
|
(6,267,540
|
)
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
178,820
|
|
|
$
|
31,199
|
|
|
$
|
50,280
|
|
See accompanying notes to the consolidated
financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
AND 2018 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 2018
AND 2017
|
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2018
|
|
2017
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
190,411
|
|
|
$
|
192,902
|
|
|
$
|
253,785
|
|
|
$
|
255,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
75,099
|
|
|
|
86,101
|
|
|
|
108,389
|
|
|
|
111,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
115,312
|
|
|
|
106,801
|
|
|
|
145,396
|
|
|
|
143,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative, including stock-based
compensation of $89,134, $1,505,448 $1,547,388 and $1,080,560, respectively
|
|
|
743,210
|
|
|
|
1,604,406
|
|
|
|
1,912,218
|
|
|
|
1,435,295
|
|
|
Research and development
|
|
|
62,350
|
|
|
|
237,178
|
|
|
|
279,685
|
|
|
|
1,810,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
805,560
|
|
|
|
1,841,584
|
|
|
|
2,191,903
|
|
|
|
3,245,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(690,248
|
)
|
|
|
(1,734,783
|
)
|
|
|
(2,046,507
|
)
|
|
|
(3,102,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(217,722
|
)
|
|
|
(393,119
|
)
|
|
|
(464,616
|
)
|
|
|
(753,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(217,722
|
)
|
|
|
(393,119
|
)
|
|
|
(464,616
|
)
|
|
|
(753,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(907,970
|
)
|
|
|
(2,127,902
|
)
|
|
|
(2,511,123
|
)
|
|
|
(3,855,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net loss
|
|
$
|
(907,970
|
)
|
|
$
|
(2,127,902
|
)
|
|
$
|
(2,511,123
|
)
|
|
$
|
(3,855,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
Weighted-average number of shares used basic and diluted per share amounts
|
|
|
84,482,903
|
|
|
|
79,938,311
|
|
|
|
87,346,661
|
|
|
|
78,582,011
|
|
See accompanying notes to the consolidated
financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2018 AND
2017
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2019
(UNAUDITED)
|
|
|
Series A Preferred
|
|
Common Stock
|
|
Additional Paid-
|
|
Accumulated
|
|
Stockholders
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
in Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2016
|
|
|
14
|
|
|
$
|
—
|
|
|
|
73,334,038
|
|
|
$
|
73,334
|
|
|
$
|
27,690,946
|
|
|
$
|
(33,050,447
|
)
|
|
$
|
(5,286,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,855,633
|
)
|
|
|
(3,855,633
|
)
|
|
Imputed interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,400
|
|
|
|
—
|
|
|
|
3,400
|
|
|
Discount on convertible note payable related party
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
222,000
|
|
|
|
—
|
|
|
|
222,000
|
|
|
Common stock issued for interest
|
|
|
—
|
|
|
|
—
|
|
|
|
860,000
|
|
|
|
860
|
|
|
|
339,940
|
|
|
|
—
|
|
|
|
340,800
|
|
|
Common stock issued for subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
2,240,000
|
|
|
|
2,240
|
|
|
|
217,760
|
|
|
|
—
|
|
|
|
220,000
|
|
|
Common stock issued for exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
|
250
|
|
|
|
7,250
|
|
|
|
—
|
|
|
|
7,500
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
4,368,000
|
|
|
|
4,368
|
|
|
|
1,076,192
|
|
|
|
—
|
|
|
|
1,080,560
|
|
|
Common stock issued for patents acquisition
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
995,000
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2017
|
|
|
14
|
|
|
|
—
|
|
|
|
86,052,038
|
|
|
|
86,052
|
|
|
|
30,552,488
|
|
|
|
(36,906,080
|
)
|
|
|
(6,267,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,511,123
|
)
|
|
|
(2,511,123
|
)
|
|
Imputed interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,800
|
|
|
|
—
|
|
|
|
13,800
|
|
|
Common stock issued for rent
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
25,450
|
|
|
|
|
|
|
|
25,500
|
|
|
Common stock issued for subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
482,000
|
|
|
|
482
|
|
|
|
94,818
|
|
|
|
—
|
|
|
|
95,300
|
|
|
Common stock issued for merchant equity program
|
|
|
—
|
|
|
|
—
|
|
|
|
55,094
|
|
|
|
55
|
|
|
|
13,449
|
|
|
|
—
|
|
|
|
13,504
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
1,758,000
|
|
|
|
1,758
|
|
|
|
1,545,630
|
|
|
|
—
|
|
|
|
1,547,388
|
|
|
Common stock cancelled from AppTech Corp officer
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,600,000
|
)
|
|
|
(1,600
|
)
|
|
|
1,600
|
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from sale of repurchase option
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,500
|
|
|
|
—
|
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018
|
|
|
14
|
|
|
|
—
|
|
|
|
86,797,132
|
|
|
|
86,797
|
|
|
|
32,284,735
|
|
|
|
(39,417,203
|
)
|
|
|
(7,045,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(907,970
|
)
|
|
|
(907,970
|
)
|
|
Imputed interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,350
|
|
|
|
—
|
|
|
|
10,350
|
|
|
Common stock issued for subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
275,000
|
|
|
|
275
|
|
|
|
68,475
|
|
|
|
—
|
|
|
|
68,750
|
|
|
Common Stock issued for Merchant equity program
|
|
|
—
|
|
|
|
—
|
|
|
|
37,193
|
|
|
|
37
|
|
|
|
14,840
|
|
|
|
—
|
|
|
|
14,877
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
439,500
|
|
|
|
440
|
|
|
|
88,694
|
|
|
|
—
|
|
|
|
89,134
|
|
|
Common stock cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,450,000
|
)
|
|
|
(3,450
|
)
|
|
|
3,450
|
|
|
|
—
|
|
|
|
—
|
|
|
Proceeds from sale of repurchase option
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
623,750
|
|
|
|
—
|
|
|
|
623,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2019 (unaudited)
|
|
|
14
|
|
|
$
|
—
|
|
|
|
84,098,825
|
|
|
$
|
84,099
|
|
|
$
|
33,094,294
|
|
|
$
|
(40,325,173
|
)
|
|
$
|
(7,146,780
|
)
|
See accompanying notes to the consolidated
financial statements.
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
AND 2018 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 2018
AND 2017
|
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2018
|
|
2017
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(907,970
|
)
|
|
$
|
(2,127,902
|
)
|
|
$
|
(2,511,123
|
)
|
|
$
|
(3,855,633
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for patents
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
Stock issued for interest and note extension
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
340,800
|
|
|
Stock issued for services
|
|
|
89,134
|
|
|
|
1,505,448
|
|
|
|
1,547,388
|
|
|
|
1,080,560
|
|
|
Stock issued for rent
|
|
|
—
|
|
|
|
—
|
|
|
|
25,500
|
|
|
|
—
|
|
|
Increase in principal due to extension
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
|
|
Imputed interest on notes payable
|
|
|
10,350
|
|
|
|
10,350
|
|
|
|
13,800
|
|
|
|
3,400
|
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
100,258
|
|
|
|
100,258
|
|
|
|
121,742
|
|
|
Depreciation and amortization
|
|
|
49
|
|
|
|
96
|
|
|
|
129
|
|
|
|
131
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,406
|
)
|
|
|
(428
|
)
|
|
|
(2
|
)
|
|
|
(597
|
)
|
|
Accounts payable
|
|
|
8,687
|
|
|
|
79,842
|
|
|
|
133,810
|
|
|
|
579,729
|
|
|
Accrued liabilities
|
|
|
211,920
|
|
|
|
296,874
|
|
|
|
497,439
|
|
|
|
263,460
|
|
|
Net cash used in operating activities
|
|
|
(593,236
|
)
|
|
|
(135,462
|
)
|
|
|
(192,801
|
)
|
|
|
(436,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit escrow
|
|
|
(50,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Security deposit
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,948
|
)
|
|
|
—
|
|
|
Net cash used in investing activities
|
|
|
(50,000
|
)
|
|
|
—
|
|
|
|
(5,948
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans payable - related parties
|
|
|
79,000
|
|
|
|
18,000
|
|
|
|
41,047
|
|
|
|
239,245
|
|
|
Payments on notes payable
|
|
|
(36,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,937
|
)
|
|
Proceeds from sale of repurchase option
|
|
|
623,750
|
|
|
|
37,500
|
|
|
|
37,500
|
|
|
|
—
|
|
|
Proceeds from sale of common stock
|
|
|
68,750
|
|
|
|
95,300
|
|
|
|
95,300
|
|
|
|
227,500
|
|
|
Net cash provided by financing activities
|
|
|
735,500
|
|
|
|
150,800
|
|
|
|
173,847
|
|
|
|
461,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in cash and cash equivalents
|
|
|
92,264
|
|
|
|
15,338
|
|
|
|
(24,902
|
)
|
|
|
25,400
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,384
|
|
|
|
26,286
|
|
|
|
26,286
|
|
|
|
886
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
93,648
|
|
|
$
|
41,624
|
|
|
$
|
1,384
|
|
|
$
|
26,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,805
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for merchant equity liability
|
|
$
|
14,877
|
|
|
$
|
13,504
|
|
|
$
|
13,504
|
|
|
$
|
—
|
|
|
Discount to convertible note payable related party
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
222,000
|
|
|
Conversion of accrued interest into note payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,000
|
|
See accompanying notes to the consolidated
financial statements.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED 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. This includes credit card processing, Automated Clearing House
("ACH") processing, gift and loyalty cards and e-commerce. The Company expanded its core services to include global Short
Messaging Service ("SMS") patented text messaging and secure mobile payments based on Multi-factor authentication technologies.
The patented two-way text chat platform enables secure SMS services including mobile payments, notifications, authentication, marketing,
information queries and reporting. Other services include digital marketing, lead generation, mobile app development, and intellectual
property rights development.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Company's consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
The interim consolidated financial statements as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018
are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for
a fair presentation of our balance sheets, operating results, and cash flows for the periods presented. Operating results for the
interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Certain information and footnote disclosures normally included in consolidated interim financial statements prepared in accordance
with U.S. GAAP have been omitted. These interim financial statements should be read in conjunction with the audited consolidated
financial statements and accompanying notes which have been included herein. Also see Note 3.
Principles of Consolidation
The Company's accounts include financials of
the Company and its wholly owned subsidiaries, Transcendent One, Inc. and TransTech One, LLC. All significant inter-company transactions
have been eliminated in consolidation. The operations of Transcendent One, Inc. and TransTech One, LLC are insignificant to which
the Company is in the process of dissolving.
Use of Estimates
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include
the estimated useful lives of property and equipment, estimated liabilities related to various vendors in which communications
have ceased, contingent liabilities, and realization of tax deferred tax assets. Actual results could differ from those estimates.
Concentration of Credit Risk
Cash and cash equivalents are maintained at
financial institutions and, at times, balances may exceed federally insured limits of $250,000 per institution that pays Federal
Deposit Insurance Corporation ("FDIC") insurance premiums. The Company has never experienced any losses related to these
balances.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The accounts receivable from merchant services
are paid by the financial institutions on a monthly basis. The Company currently uses three financial institutions to service their
merchants for which represented 100% of accounts receivable as of September 30, 2019 and 2018, December 31, 2018 and 2017. The
loss of one of these financial institutions would not have a significant impact on the Company's operations as there are additional
financial institutions available to the Company. For the nine months ended September 30, 2019 and 2018, and the years ended December
31, 2018 and 2017, the one merchant (customer) represented approximately 40%, 34%, 35% and 28% of the total revenues, respectively.
The loss of this customer would have significant impact on the Company's operations.
Cash and Cash Equivalents
The Company classifies its highly liquid investments
with maturities of three months or less at the date of purchase as cash equivalents. Management determines the appropriate classification
of its investments at the time of purchase and reevaluates the designations of each investment as of the balance sheet date for
each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument's underlying
contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those with maturities
greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification method.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable is recorded net of an allowance
for doubtful accounts, if needed. The Company considers any changes to the financial condition of its financial institutions used
and any other external market factors that could impact the collectability of its receivables in the determination of its allowance
for doubtful accounts. The Company does not expect to have write-offs or adjustments to accounts receivable which could have a
material adverse effect on its consolidated financial position, results of operations or cash flows as the portion which is deemed
uncollectible is already taken into account when the revenue is recognized.
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 consolidated financial statements.
The Company provides merchant processing solutions
for credit cards and electronic payments. In all cases, we act 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.
The Company provides various Cloud services
to business clients. Revenues generated from the services as agreed upon in a Cloud Service Agreement. The revenue is recorded
as the services are performed and billed in advance on a monthly basis. Revenues from these services represent less than 5% of
the Company's total revenues.
Consideration paid to customers, such as amounts
earned under our customer equity incentive program, are recorded as a reduction to revenues.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs
that may be used to measure fair value:
The fair value hierarchy prioritizes the inputs
used in valuation techniques into three levels as follows:
|
Level 1
|
|
Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;
|
|
|
|
|
|
Level 2
|
|
Observable inputs – other than the quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and
|
|
|
|
|
|
Level 3
|
|
Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable.
|
The Company's financial instruments
consist of cash and cash equivalents, accounts receivable, vendor deposits, accounts payable, accrued expenses, etc. The carrying
value of these assets and liabilities is representative of their fair market value, due to the short maturity of these instruments.
Research and Development
In accordance with ASC 730,
Research and Development ("R&D") costs are expensed when incurred. R&D costs include costs of acquiring
patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code
texting platform, contract and other outside services. Total R&D costs for the nine months ended September 30, 2019 and 2018
and for the years ended December 31, 2018 and 2017 were $62,350, $237,178, $279,685, $1,810,610, respectively.
Property and Equipment
Property and equipment is recorded at cost.
Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated
residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of equipment, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of
operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment
when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may
not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset
group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount
of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets
to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell
and are not depreciated. As of September 30, 2019 and December 31, 2018 and 2017, there were no asset impairments.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements
or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than
not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the
period that includes the enactment date.
The Company's income tax returns are based
on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition,
the calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is
to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While
the Company believes it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the
potential outcomes of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company
continually assesses the likelihood and amount of potential adjustments and adjusts the income tax provision, income taxes payable
and deferred taxes in the period in which the facts that give rise to a revision become known. As of September 30, 2019, December
31, 2018 and 2017, the Company does not believe any provisions are required in connection with uncertain tax positions as there
are none.
Per Share Information
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 period.
Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of
common stock and potentially outstanding shares of common stock during the period.
As of September 30, 2019, December 31, 2018
and 2017, the Company had potential dilutive securities related to options, warrants, Series A preferred stock and convertible
notes payable. These dilutive securities were not included within the calculation of dilutive net loss per common share as the
effects would have been anti-dilutive.
Convertible Debt
Convertible debt is accounted for under the
guidelines established by ASC 470-20 Conversion and Other Options. ASC 470-20 governs the calculation of an embedded beneficial
conversion, which is treated as an additional discount to the instruments where derivative accounting does not apply. The amount
of the value of additional stock and other consideration in addition to the beneficial conversion feature may reduce the carrying
value of the instrument to zero, but no further. The discounts are accreted over the term of the debt using the straight line method
due to the short terms of the notes.
The Company accounts for modifications of its
embedded beneficial conversions, in accordance with ASC 470-50 Modifications and Extinguishments. ASC 470-50 requires the
modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent
recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation
The Company recognizes as compensation expense
all share-based payment awards made to employees, directors, and consultants including grants of stock options and warrants, based
on estimated fair values. Fair value is generally determined based on the closing price of the Company's common stock on the date
of grant and is recognized over the service period. The Company has several consulting agreements that have share based payment
awards based on performance. These agreements typically require the Company to issue common stock to the consultants on a monthly
basis. The Company records the fair market value of the common stock issuable at each month end when the performance is complete
based upon the closing market price of the Company's common stock. The Company has entered into board of directors agreements that
have share based payment awards based on service. These agreements require the Company to issue common stock to the directors,
earned on a monthly basis, over the one year term of the agreement. The Company records the fair market value of the common stock
issuable at the end of the month when the director is appointed to the board based upon the closing market price of the Company's
common stock. See Note 5 for discussion of common stock issued under the Company's Merchant Equity Program for which the fair value
of the common stock earned is recorded as reduction of revenues.
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.
The Company adopted ASC 606 on January 1, 2019
on a modified retrospective basis. There were no changes to the consolidated statements of operations as a result of the adoption,
and the timing and amount of its revenue recognition remained substantially unchanged under this new guidance.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease
liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for a public
entity. Early adoption of the amendments in this standard is permitted for all entities, and the Company must recognize and measure
leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the
process of evaluating the effect this guidance will have on its consolidated financial statements and related disclosures.
NOTE 3 – GOING CONCERN
As reflected in the accompanying consolidated
financial statements, during the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company incurred
a net loss of $907,970 and $2,511,123 and used cash of $593,236 and $192,801 in operating activities. In addition, the Company
had negative working capital of $7,152,744 and $7,051,684 and an accumulated deficit of $40,325,173 and $39,417,203 at September
30, 2019 and December 31, 2018. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.
We have evaluated the conditions or events that raise substantial doubt about the Company's ability as a going concern within one
year of issuance of the consolidated financial statements.
While the Company is continuing operations
and generating revenues, the Company's cash position is not significant enough to support the Company's daily operations. To fund
operations and reduce the working capital deficit, we intend to raise additional funds through public or private debt and/or equity
offerings. During 2019, the Company raised $120,000 in debt offerings from related parties and $68,750 in subscription offers to
fund operations. Management believes that the actions presently being taken to further implement its business plan and generate
revenues provide the opportunity for the Company to continue as a going concern, however, such are not guaranteed. While the Company
believes in the viability of its strategy to generate revenues and in its ability to raise additional funds, there can be no assurances
to that effect, nor can there be assurance that such funds will be at acceptable terms. As of the date of these consolidated financial
statements, the Company has not finalized a commitment for additional capital. The ability of the Company to continue as a going
concern is dependent upon our ability to further implement its business plan and generate revenues and cash flows. The consolidated
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – PATENTS AND PROPERTY AND
EQUIPMENT
Patents
On June 22, 2017, AppTech executed an Amendment
to Asset Purchase Agreement with GlobalTel Media, Inc. In connection with the asset purchase agreement, 5,000,000 shares of common
stock were issued to GlobalTel Media, Inc. 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 in which the performance was complete. This amendment revived the original asset
purchase agreement dated December 4, 2013 to purchase the assets of GlobalTel Media, Inc. (AppTech and GlobalTel agree that the
asset purchase agreement dated September 30, 2015 is null and void), which include, but is not limited to, all intellectual property,
United States Patent Trademark Office ("USPTO") issued patents, enterprise-grade, patent protected software and intellectual
property for advanced messaging incorporating secure payments, databases, documentation, copyrights, trademarks, registrations,
and all current development work in process of USPTO application approval; more specifically but not limited to USPTO 8,073,895
& 8,572,166 "System and Method for Delivering Web Content to a Mobile Device", USPTO 8,315,184 "Computer to
Mobile Two-Way Chat System and Method", and USPTO 8,369,828 "Mobile-to-Mobile Payment System and Method". GlobalTel's
technology focuses on SMS text-based applications, social media and mobile payment. The USPTO assigned the patents to AppTech on
July 25, 2017. AppTech, as part of the various agreements, agreed to pay $1,600,000 which included an assumption of certain liabilities,
including costs incurred to continue development of the patents, as well as guaranteed payment of 25% of the net proceeds on revenue
created by the patents up to $26,600,000. As of September 30, 2019, December 31, 2018 and 2017, amounts included in accounts payable
related to the assumption of liabilities in connection with the patents were $455,000, $470,000 and $455,000, respectively. The
Company has expensed the cost of the patents as research and development costs as the future estimated cash flow expected cannot
be reasonably estimated.
Property and Equipment
Property and equipment at September 30, 2019,
December 31, 2018 and 2017 consisted of the following:
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
24,254
|
|
|
$
|
24,254
|
|
|
$
|
24,254
|
|
|
Less: Accumulated depreciation
|
|
|
(24,238
|
)
|
|
|
(24,189
|
)
|
|
|
(24,060
|
)
|
|
|
|
$
|
16
|
|
|
$
|
65
|
|
|
$
|
194
|
|
Property and equipment primarily consists
of computer equipment which is depreciated over five years. Depreciation expense for the nine months ended September 30, 2019
and 2018 and the years ended December 31, 2018 and 2017 was $49, $96, $129 and $131, respectively.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2019,
December 31, 2018 and 2017 consist of the following:
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
|
Accrued interest - related parties
|
|
$
|
915,082
|
|
|
$
|
830,260
|
|
|
$
|
717,165
|
|
|
Accrued interest - third parties
|
|
|
1,176,359
|
|
|
|
1,059,595
|
|
|
|
822,950
|
|
|
Accrued residuals
|
|
|
38,333
|
|
|
|
36,509
|
|
|
|
37,121
|
|
|
Accrued merchant equity
|
|
|
91,023
|
|
|
|
105,900
|
|
|
|
119,405
|
|
|
Other
|
|
|
171,055
|
|
|
|
162,545
|
|
|
|
14,234
|
|
|
Total accrued liabilities
|
|
$
|
2,391,852
|
|
|
$
|
2,194,809
|
|
|
$
|
1,710,875
|
|
Accrued Interest
Notes payable and convertible notes payable
incur interest at rates between 10% and 15%, per annum. The accrued interest in most cases is currently in technical default due
to the notes being past their maturity date.
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.
For merchants in which the shares of common
stock are not known as they are within the one-year period, the Company estimates on a quarterly basis as to the estimated amount
of shares based upon the expected amount to be processed by the merchant on an annual basis. At the end of the first year, when
the number of shares issuable is known, the Company makes an adjustment to the value of the shares, if needed.
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 September 30, 2019, the Company has an obligation to issue approximately 776,000 shares of the Company's common stock issuable
under the Program. During the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company issued 37,193
and 55,094 shares of common stock relieving $14,877 and $13,504 in liability under the Program, respectively. All merchants became
fully vested when the Company ended the program effective December 31, 2015.
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 September 30, 2019, December 31, 2018 and 2017. Related parties noted below are either members of management, board of directors,
significant shareholders or individuals in which have significant influence over the Company.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Loans Payable – Related Parties
In 2019, 2018 and 2017, the Company obtained
$79,000, $41,047 and $13,035 loans payable from related parties, net. As of September 30, 2019, December 31, 2018 and 2017, the
balance of the loans payable was $133,082, $54,082 and $13,035, respectively. The loans payable are due on demand, unsecured and
non-interest bearing as there are no formal agreements executed.
Subordinated Notes Payable
In 2016, the Company issued $350,000 in subordinated
notes payable to third parties. The subordinated notes payable were due in 30 to 180 days and incurred interest at 10% per annum.
As of September 30, 2019, December 31, 2018 and 2017, accrued interest related to the subordinated notes was $109,795, $83,545
and $48,545, respectively. As of September 30, 2019, the Company was in default of the subordinated note agreements.
Convertible Notes Payable
In 2017, the Company received $222,000 in convertible
notes payable from related parties. The convertible notes payable are unsecured, were due in 180 days, incur interest at 10% per
annum and are convertible at $0.10 per share. As of September 30, 2019, December 31, 2018 and 2017, accrued interest related to
the convertible notes was $48,437, $31,787 and $9,588 respectively. On the date of the agreement, Management calculated the beneficial
conversion feature in connection with the convertible notes payable and recorded a discount of $222,000. The Company amortized
the discount over the term of the convertible notes payable of 180 days. During the years ended December 31, 2018 and 2017, the
Company amortized $100,258 and $121,742 to interest expense related to the discount, respectively. The Company is currently in
default on the convertible notes payable.
In 2015, the Company issued $50,000 in convertible
notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible
at $1.00 per share. As of September 30, 2019 and December 31, 2018 and 2017 the accrued interest related to the convertible notes
was $19,583, $15,833 and $10,833 respectively. The Company is currently in default on the convertible note payable.
In 2014, the Company issued $400,000 in convertible
notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest between 10%
to 12% per annum and are convertible at prices ranging from $0.33 to $1.00 per share. In addition, the Company issued 400,000 shares
of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 400,000 shares
of common stock at $1.00 per share within one year of the note issuance date. As of September 30, 2019, December 31, 2018 and 2017,
the Company held the obligation to repurchase the shares for $400,000. As of September 30, 2019 and December 31, 2018 and 2017,
the accrued interest related to the convertible notes was $175,833, $145,083 and $104,083, respectively. As of September 30, 2019,
the Company was in default of the note agreements.
In 2008 and 2009, the Company issued $320,000
in convertible notes payable, of which $150,000 was from related parties. The convertible notes payable are currently due on demand,
incur interest at 15% per annum, and convertible at $0.60 per share. As of September 30, 2019 and December 31, 2018 and 2017, accrued
interest related to the convertible notes was $504,012, $468,012 and $420,013 of which $237,750, $220,875 and $198,375, respectively,
was due to related parties. As of September 30, 2019, the Company was in default of the notes payable agreements.
Notes Payable
In 2016, the Company issued $143,000 in notes
payable to third parties. The notes payable were due in ninety days or less. During 2017, the Company issued a third party note
holder 60,000 shares of common stock in lieu of interest. The Company recorded the fair market value of the common stock issued
of $4,800 based on the date of issuance as interest expense. The Company is in default of the note agreements.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In 2007 and 2008, the Company entered into
notes payable with a third party for $46,000 in proceeds. The notes payable were due on demand and incurred interest at 12% per
annum. These were combined into a single note agreement in 2014. As of September 30, 2019 and December 31, 2018 and 2017, the balance
on the note payable was $88,136 and accrued interest related to the note payable was $46,599, $39,921 and $30,057, respectively.
As of September 30, 2019, the Company was 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.
As of September 30, 2019 and December 31, 2018 and 2017, the Company was 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 $9,600, $12,800 and $12,800, respectively, which represented an interest rate of 10% per annum during the nine months
ended September 30, 2019 and for the years ended December 31, 2018 and 2017.
In 2008, the Company entered into notes payable
with a third party for $10,000 in total proceeds. The notes payable are currently in default and have a flat interest amount due
of $21,000. As of September 30, 2019 and December 31, 2018 and 2017, 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 $750, $1,000 and $1,000, respectively, which represented an interest rate of 10% per annum during the nine months ended
September 30, 2019 and the years ended December 31, 2018 and 2017.
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 $39,000. 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. As of September 30, 2019 and
December 31, 2018, the Company was in default of the note agreement.
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
September 30, 2013, the holder received an arbitration settlement for the principal and accrued interest. As of September 30, 2019
and December 31, 2018 and 2017, the Company was in default of the arbitration settlement. As of September 30, 2019 and December
31, 2018 and 2017, accrued interest related to the note payable was $419,791, $389,580 and $349,298, 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 September 30, 2019 and December 31, 2018 and 2017, accrued interest related to the note payable was $69,048, $64,653
and $58,793, respectively. As of September 30, 2019, the Company was in default of the note agreement.
Two significant shareholders funded the Company's
operations through notes payable in primarily 2009 and 2010 and continue to support operations on a limited basis. The notes payable
incur interest at 10% per annum and were due on December 31, 2016. As of September 30, 2019 and December 31, 2018 and 2017, the
Company was in default of the note agreements. As of September 30, 2019 and December 31, 2018 and 2017, the aggregate balance of
the notes payable was $620,356 and accrued interest was $559,846, $512,945 and $450,409, respectively.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company entered into a lease agreement
for office space commencing December 1, 2015 through November 30, 2018. The lease was guaranteed by various members of Management.
The monthly rent under the lease agreement is as follows:
|
December 1, 2017 – November 30, 2018
|
|
|
$
|
7,072
|
|
The Company entered into a lease agreement
for office space commencing November 15, 2018 through January 14, 2022. The monthly rent under the lease agreement is as follows:
|
November 15, 2018 – November 14, 2019
|
|
|
$
|
5,443
|
|
|
November 15, 2019 – November 14, 2020
|
|
|
$
|
5,606
|
|
|
November 15, 2020 – November 14, 2021
|
|
|
$
|
5,774
|
|
|
November 15, 2021 – January 14, 2022
|
|
|
$
|
5,948
|
|
The month December 15, 2018 – January
14, 2019 is a free rent month per the terms of the agreement.
The following are the future minimum annual
payment related to the non-cancellable lease as of December 31, 2018:
|
For year ending December 31, 2019
|
|
|
$
|
60,036
|
|
|
For year ending December 31, 2020
|
|
|
|
67,612
|
|
|
For year ending December 31, 2021
|
|
|
|
69,640
|
|
|
|
|
|
$
|
197,288
|
|
Total rent expense for the nine months ended
September 30, 2019 and 2018 and for the years ended December 31, 2018 and 2017 was $61,117, $56,576, $101,663 and $83,780, respectively.
On November 29, 2018, the Company entered into
an option to purchase its current facility under the terms and conditions of the lease along with a $50,000 deposit. The option
to purchase the facility was never executed and per the terms of the September 26, 2019 settlement and mutual release agreement
the $50,000 deposit will be returned, with $25,000 returned on October 8, 2019 and the balance within 180 days of the agreement
date on based several factors agreed to by the parties.
Litigation
Shareholder Lawsuit
In March 2016, a significant shareholder ("Plaintiff")
of the Company filed a lawsuit against the Company in the state of California alleging breach of contract, fraud and negligent
misrepresentation based on supposed oral promises in 2013 to give Plaintiff's company shares in exchange for stocks in another
company and a 2014 consulting agreement. The Company strongly disputed all claims made in the lawsuit. On April 20, 2017, 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. The Company reached an agreement resulting in a voluntary dismissal of the civil case on July 5, 2017. The
Plaintiff was not able to fulfill the proper documentation within the allotted 180 days and the 3,450,000 shares of AppTech Corp
stock were properly cancelled in 2019.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Former Shareholders Lawsuits
In April 2014, a shareholder of AppTech filed
a lawsuit against the Company in the State of Washington claiming breach of contract related to the sale / transfer of unregistered
shares at the time of AppTech acquisition. On August 13, 2014, the Company notified the transfer agent and placed a 'Stop Order'
on the shares. The shareholder claims that the 2.5 million shares received are unrestricted and should be reflected as such. On
August 19, 2014, the Company filed a motion to dismiss the lawsuit. The lawsuit was dismissed on October 31, 2014.
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 mislead 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. Thus, as of September 30, 2019 and December 31, 2018, the Company has recorded
a provision for lower end of its expected loss range for which the Company believes is probable due to the settlement offer
of 200,000 shares of the Company's common stock to which the fair value was $134,000 at the time of offer based upon the closing
market price of the Company's common stock.
Former Board of Director Member Lawsuit
In July 2018, a former Board of Director's
member filed a lawsuit, in the United States District Court for the Southern District of California, alleging various claims for
relief. The Company reached an agreement, with no consideration paid that resulted in a voluntary dismissal with prejudice and
dismissed all claims on November 14, 2018.
Former Landlord Lawsuit
In September 2018, the landlord for our former
office space lease filed a limited civil lawsuit against the Company in the State of California. The Company reached an agreement
that resulted in a stipulation for judgment on October 28, 2018. The stipulated judgment was for $42,432 including attorney fees
and court costs plus interest for which the Company recorded as a liability as of September 30, 2019 and December 31, 2018. The
stipulated judgment was paid in full on August 16, 2019.
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 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. The Company recorded as a liability as of September 30, 2019 and December 31, 2018 the balance due upon transfer of the
patents for which the Company estimates is the amount in which is probable of $175,000 should the plaintiff be successful. The
Company expects to vigorously defend, however, the Company is in the process of trying to settle this matter prior to trial.
Significant Contract
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 Company 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.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Employee versus Contractor Classification
The Company compensates various individuals
as consultants. Annually, these consultants are issued Form 1099s for amounts paid to them. In addition, these consultants do not
have arrangements in which specify compensation payable to them. The Company risks potential tax and legal actions if these consultants
are deemed to be employees by governmental agencies.
NOTE 8 – STOCKHOLDERS' DEFICIT
Series A Preferred Stock
The Company is authorized to issue 100,000
shares of $0.001 par value Series A preferred stock ("Series A"). There were fourteen (14) shares of Series A preferred
stock outstanding as of September 30, 2019, December 31, 2018 and 2017. 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 1,000,000,000
shares of $0.001 par value common stock. There were 84,098,825, 86,797,132 and 86,052,038, respectively, shares of common stock
outstanding as of September 30, 2019, December 31, 2018 and 2017. The holders of common stock are entitled to one vote per share
on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The
holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available,
therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions
against the payment of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common
stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to
convert their common stock into any other securities.
During the nine months ended September 30,
2019 and 2018 and the years ended December 31, 2018 and 2017, the Company issued 439,500, 1,596,000, 1,758,000 and 1,918,000, respectively,
shares of common stock to several consultants in connection with business development and professional services. The Company valued
the common stock issuances at $89,134, $1,505,448, $1,547,388 and $455,360, respectively, based upon the closing market price of
the Company's common stock on the date in which the performance was complete. The amounts were expensed to general and administrative
expenses on the accompanying consolidated statements of operations.
During the year ended December 31, 2017, the
Company issued 4,250,000 shares of common stock to several members of the board of directors for various services rendered. The
Company valued the common stock issuances at $615,025 based upon the closing market price of the Company's common stock on the
date in which the performance was complete. The amounts were expensed to general and administrative expenses on the accompanying
consolidated statements of operations.
During the year ended December 31, 2018, the
Company issued 50,000 shares of common stock to the landlord in lieu of rent. The Company valued the common stock issuance at $25,500
based upon the closing market price of the Company's common stock on the date in which the performance was complete. The amount
was expensed to general and administrative expenses on the accompanying consolidated statements of operations.
APPTECH CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
See Note 4 for common stock issued in connection
with the acquisition of patents.
See Note 5 for common stock issued for the
merchant equity liability.
See Note 6 for common stock issued for interest
expense.
Stock Options
On August 11, 2016, the Company issued warrants
to purchase 250,000 shares of common stock at $0.03 per share. On August 9, 2017, the holder of the option exercised the option
for $7,500 and was issued 250,000 shares of common stock in satisfaction of the option.
Common Stock Repurchase Option
On May 1, 2018, the Company entered into a
common stock repurchase option agreement to purchase 500,000 shares of common stock from a third party at $0.10 per share. The
Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The common stock
repurchase options were exercised on May 15, 2018 and March 8, 2019 for which the Company received $37,500 and $123,750, respectively,
in proceeds from which was recorded as additional paid-in capital.
On June 3, 2019, the Company entered into a
common stock repurchase option agreement to purchase 2,000,000 shares of common stock from the former President of the Company
at $0.05 per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation.
The common stock repurchase option was exercised on June 3, 2019 for which the Company received $500,000 in proceeds for which
was recorded as additional paid-in capital.
NOTE 9 – INCOME TAXES
The Company's net deferred tax assets at December
31, 2018 and 2017 is approximately $1,781,000 and $1,608,000, respectively, which primarily consists of net operating loss carry
forwards and various accruals. As of December 31, 2018 and 2017, the Company provided a 100% valuation allowance against the net
deferred tax assets. During the years ended December 31, 2018 and 2017, the valuation allowance increased by approximately $173,000
and decreased by approximately $208,000, respectively.
At December 31, 2017, the applicable federal
rate used in calculating the deferred tax provision was 21%. The Tax Cuts and Jobs Act reduced the federal corporate tax rate used
in calculating the deferred income tax liability from 34% to 21%, as a result the Company has adjusted its deferred income tax
liabilities for this reduction. This resulted in a one-time reduction of approximately $654,000 to the net deferred tax assets
and corresponding valuation allowance for the year ended December 31, 2017.
The Company is subject to tax in the United
States ("U.S.") and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction. The Company
is subject to U.S. Federal, state and local income tax examinations by tax authorities for all periods starting in 2014. The Company
currently is not under examination by any tax authorities.
NOTE 10 – SUBSEQUENT EVENTS
Management has evaluated subsequent events
pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist.
See Note 7 for additional subsequent events.
(b)
Exhibits
The following documents are filed as
exhibits hereto:
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Exhibit No.
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Description
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3.1
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AppTech Corp. Articles of Conversion filed October 25, 2006
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3.2
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AppTech Corp. Articles of Incorporation filed October 25, 2006
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3.3
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AppTech Corp. Certificate of Designation filed May 09, 2007
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3.4
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AppTech Corp. Certificate of Correction filed June 04, 2007
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3.5
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AppTech Corp. Certificate of Designation filed June 06, 2007
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3.6
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AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed November 17, 2008
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3.7
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AppTech Corp. Certificate of Amendment filed October 26, 2009
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3.8
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AppTech Corp. Certificate of Amendment filed October 27, 2009
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3.9
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AppTech Corp. Certificate of Designation filed April 21, 2010
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3.10
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AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed April 27, 2010
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3.11
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AppTech Corp. Certificate of Change filed July 22, 2010
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3.12
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AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed October 26, 2010
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3.13
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AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed October 26, 2010
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3.14
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AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed October 28, 2010
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3.15
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AppTech Corp. Amendment to Certificate of Designation After Issuance of Class or Series filed April 08, 2011
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3.16
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AppTech Corp. Certificate of Amendment filed June 06, 2011
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3.17
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AppTech Corp. Articles of Domestication filed July 18, 2011
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3.18
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AppTech Corp. Bylaws dated May 07, 2013
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3.19
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AppTech
Corp. Certificate of Domestication filed July 09, 2013
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3.20
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AppTech Corp. Articles of Amendment filed October 31, 2013
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3.21
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AppTech Corp. Certificate of Incorporation filed July 29, 2015
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4.1
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Specimen
Stock Certificate of AppTech Corp.'s Common Stock
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10.1
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Asset Purchase Agreement dated December 04, 2013
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10.2
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Amendment to Asset Purchase Agreement dated June 22, 2017
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10.3
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Lease Agreement dated November 15, 2018
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10.4
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Engagement Letter dated September 23, 2019
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SIGNATURES
Pursuant to the
requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
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AppTech Corp.
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By:
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/s/ Luke D'Angelo
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Name:
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Luke D'Angelo
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Title:
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Interim Chief Executive
Officer
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By:
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/s/ Gary Wachs
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Name:
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Gary Wachs
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Title:
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Chief Financial Officer
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Date:
December 10, 2019
31