NOTES
TO THE UNAUDITED 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. 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”). Also see Note 3.
Accounting Method
The accompanying unaudited financial
statements of Apptech Corp. have been prepared in accordance with Accounting Principles Generally Accepted in the United States
of America (“GAAP”) for interim financial information and in accordance with Rule 8-03 of Regulation S-X. Certain information
and disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments
considered necessary for a fair presentation, have been included. These interim financial statements should be read in conjunction
with the audited annual financial statements of the Company as of and for the year ended December 31, 2019. The results of operations
for the three months and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected
for the full year.
Principles of Consolidation
The Company’s accounts 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
and the Company dissolved the subsidiaries on October 8, 2019.
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 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accounts receivable from merchant
services are paid by the financial institutions on a monthly basis. The Company currently uses four financial institutions to service
their merchants for which represented 100% of accounts receivable as of September 30, 2020 and 2019. The loss of one of these financial
institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available
to the Company. For the nine months ended September 30, 2020 and 2019, the one merchant (customer) represented approximately 36%
and 40% of the total revenues, respectively. The loss of this customer would have significant impact on the Company’s operations.
Cash and Cash Equivalents
The Company classifies its highly liquid
investments with maturities of three months or less at the date of purchase as cash equivalents. Management determines the appropriate
classification of its investments at the time of purchase and reevaluates the designations of each investment as of the balance
sheet date for each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument’s
underlying contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those
with maturities greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification
method.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable 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, the Company acts as an agent between the merchant which generates
the credit card and electronic payments, and the bank which processes such payments. The Company’s revenue is generated on services
priced as a percentage of transaction value or a specified fee transaction, depending on the card or transaction type. Revenue
is recorded as services are performed which is typically when the bank processes the merchant’s credit card and electronic payments.
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.
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:
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, 2020 and 2019 were $49,250 and
$62,350, respectively.
Property and Equipment
Property and equipment is recorded at
cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated
residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of equipment, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of
operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment
when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may
not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset
group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount
of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets
to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell
and are not depreciated. As of September 30, 2020 and December 31, 2019, there were no asset impairments.
Lease Commitment
The Company determines if an arrangement
is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control
the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an
underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially
all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease
components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease
expense for variable lease components are recognized when the obligation is probable.
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Operating lease right of use (“ROU”)
assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases
buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments
using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As
an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on
the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s
leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend
(or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate)
the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for
the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement
of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to
be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent
on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement
on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s
statement of operations in the same line as expense arising from fixed lease payments. As of September 30, 2020, management determined
that there were no variable lease costs.
Income Taxes
The Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial
statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences
are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more
likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the 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,
2020 and 2019, 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, 2020 and 2019,
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.
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative
literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued
to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv)
are not expected to have a significant impact on the Company.
NOTE 3 – GOING CONCERN
As reflected in the accompanying consolidated
financial statements, during the nine months ended September 30, 2020 and 2019, the Company incurred a net loss of $2,898,406 and
$907,970 and used cash of $303,235 and $593,236 in operating activities. In addition, the Company had a working capital deficit
of $7,735,022 and an accumulated deficit of $43,658,819 at September 30, 2020. These factors raise substantial doubt regarding
the Company’s ability to continue as a going concern. We have evaluated the conditions or events 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 2020, the Company raised $274,614 from eight sales of a repurchase option and $25,000 from warrants
exercised to fund operations. Management believes that the actions presently being taken to further implement its business plan
and generate revenues provide the opportunity for the Company 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Risks and uncertainties
On January 30, 2020, the World Health
Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10,
2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions
on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus
and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial
markets of many countries, including the geographical area in which the Company operates. Since we derive our revenues from processing
of purchases from our merchant services clients, a downturn in economic activity, such as associated with the current coronavirus
pandemic, could reduce the volume of purchases we process, and thus our revenues. In addition, such a downturn could cause our
merchant customers to cease operations permanently decreasing our payment processing unless new customers are found. We may also
face additional difficulty in raising capital during an economic downturn. The effects of the pandemic had significant impact on
revenue at the beginning of the pandemic and began to return to normal after several months. The continuing effects of the potential
impact cannot be estimate at this time.
Additionally, it is reasonably possible
that the estimates made in the financial statements have been, or will be materially and adversely impacted in the near term as
a result of these conditions.
NOTE 4 – PATENTS
Patents
On June 22, 2017, AppTech executed an
Amendment to Asset Purchase Agreement with GlobalTel Media, Inc. In connection with the asset purchase agreement, 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, 2020 and December 31, 2019, amounts included in accounts payable
related to the assumption of liabilities in connection with the patents were $340,500 and $415,000, 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.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities as of September
30, 2020 and December 31, 2019 consist of the following:
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|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Accrued interest – related parties
|
|
$
|
1,010,505
|
|
|
$
|
943,356
|
|
Accrued interest – third parties
|
|
|
1,352,090
|
|
|
|
1,215,699
|
|
Accrued residuals
|
|
|
55,068
|
|
|
|
39,064
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|
Accrued merchant equity
|
|
|
91,023
|
|
|
|
91,023
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|
Other
|
|
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44,026
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|
|
|
45,338
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|
Total accrued liabilities
|
|
$
|
2,552,712
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|
|
$
|
2,334,480
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|
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. All merchants became
fully vested when the Company ended the program effective December 31, 2015.
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, 2020, the Company has an obligation to issue approximately 776,000 shares of the Company’s common
stock issuable under the Program. During the year ended December 31, 2019, the Company issued 37,193 shares of common stock relieving
$14,877 in liability under the program.
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, 2020 and December 31, 2019. Related parties noted below are either members of management,
board of directors, significant shareholders or individuals in which have significant influence over the Company.
Loans Payable – Related
Parties
During the nine months ended September
30, 2020 and 2019, the Company obtained (paid) $(42,000) and $79,000 loans payable from related parties, net. As of September 30,
2020 and December 31, 2019, the balance of the loans payable was $51,401 and $93,401, respectively. The loans payable are due on
demand, unsecured and non-interest bearing as there are no formal agreements executed.
Subordinated Notes Payable
In 2016, the 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, 2020 and December 31, 2019, accrued interest related to the subordinated notes was $144,795
and $118,545, respectively. The Company is currently in default of the subordinated note agreements.
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Convertible Notes Payable
In 2017, the Company received $222,000
in convertible notes payable from related parties. The convertible notes payable are unsecured, were due in 180 days, incur interest
at 10% per annum and are convertible at $0.10 per share. As of September 30, 2020 and December 31, 2019, accrued interest related
to the convertible notes was $70,638 and $53,988, respectively. On the date of the agreement, Management calculated the beneficial
conversion feature in connection with the convertible notes payable and recorded a discount of $222,000. The Company amortized
the discount over the term of the convertible notes payable of 180 days. The Company is currently in default on the convertible
notes payable.
In 2015, the Company issued $50,000
in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum
and are convertible at $1.00 per share. As of September 30, 2020 and December 31, 2019, the accrued interest related to the convertible
notes was $24,584 and $20,833, respectively. The Company is currently in default on the convertible note payable.
In 2014, the Company issued $400,000
in convertible notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest
between 10% to 12% per annum and are convertible at prices ranging from $0.33 to $1.00 per share. In addition, the Company issued
400,000 shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the
400,000 shares of common stock at $1.00 per share within one year of the note issuance date. As of September 30, 2020 and December
31, 2019, the Company held the obligation to repurchase the shares for $400,000. As of September 30, 2020 and December 31, 2019,
the accrued interest related to the convertible notes was $216,833 and $186,083, respectively. The Company is currently in default
of the note agreements.
In 2008 and 2009, the Company issued
$320,000 in convertible notes payable, of which $150,000 was from related parties. The convertible notes payable are currently
due on demand, incur interest at 15% per annum, and convertible at $0.60 per share. As of September 30, 2020 and December 31, 2019,
accrued interest related to the convertible notes was $552,013 and $516,013 of which $260,250 and $243,375, respectively, was due
to related parties. The Company is currently in default of the notes payable agreements.
Notes Payable
In 2020, the Company entered into a
note payable with U.S. Small Business Administration for $68,200 in proceeds. The notes payable incurred a $100 fee upon issuance
and incurs interest at 3.75% per annum. All payments of principle and interest are deferred for twelve months with the first $333
payment due July 1, 2021. As of September 30, 2020 the balance of the note payable was $68,300 and accrued interest was $640.
In 2016, the Company issued $143,000
in notes payable to third parties. The notes payable were due in ninety days or less. During 2019, the Company paid $36,000 in
notes payable. The Company is currently in default of the note agreements.
In 2007 and 2008, the Company entered
into notes payable with a related party for $46,000 in proceeds. The notes payable were due on demand and incurred interest at
12% per annum. These were combined into a single note agreement in 2014. As of September 30, 2020 and December 31, 2019, the balance
on the note payable was $88,136 and accrued interest related to the note payable was $57,235 and $49,243, respectively. The Company
is currently in default of the note payable agreement.
In 2007, the Company entered into note
payable with a third party for $128,000 in proceeds. Under the terms of the agreement the holder received a flat interest amount
of $37,496. The Company is currently in default of the note payable agreement and the entire amount of $37,496 has been included
within accrued interest. Since the note payable did not incur interest, the Company imputed interest at $9,600 and $9,600, respectively,
which represented an interest rate of 10% per annum during the nine months ended September 30, 2020 and 2019.
In 2008, the Company entered into a
note payable with a third party for $10,000 in total proceeds. The note payable is currently in default and has a flat interest
amount due of $21,000. As of September 30, 2020 and December 31, 2019, 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 and $750, respectively, which represented an interest rate of 10% per annum during the nine months ended
September 30, 2020 and 2019.
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In 2008, the Company entered into notes
payable with a third party for $26,000 in total proceeds. The notes payable have a flat interest amount due of $80,000. During
2015, the Company received another $50,000 from the third party. During 2017, the Company entered into an agreement whereby they
would repay the principal and accrued interest in the amount of $145,000 by April 4, 2018 and issue the holders 800,000 shares
of common stock. The Company recorded the fair market value of the common stock issued at $336,000 based on the date of issuance
as interest expense. Other than the issuance of shares of common stock, the Company did not perform under the agreement. The Company
is currently in default of the note agreement.
In 2007, 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,
2020 and December 31, 2019, the Company was in default of the arbitration settlement. As of September 30, 2020 and December 31,
2019, accrued interest related to the note payable was $460,072 and $429,861, 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, 2020 and December 31, 2019, accrued interest related to the note payable was $74,908 and
$70,513, respectively. The Company is currently 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. The Company is currently in default of the
note agreements. As of September 30, 2020 and December 31, 2019, the aggregate balance of the notes payable was $620,355 and $591,114
accrued interest was $622,382 and $575,480, respectively.
NOTE 7 – RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Company entered
into a lease agreement commencing February 8, 2020 for its current facility which expires in 2025. The term of the lease is for
five years. The Company also entered into a six month option to purchase its current facility under terms and conditions of the
lease. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing
rate of 12% within the calculation. The following are the expected lease payments as of September 30, 2020, including the total
amount of imputed interest related:
Years ended December 31, :
2020
|
|
|
$
|
20,089
|
|
2021
|
|
|
|
82,561
|
|
2022
|
|
|
|
85,039
|
|
2023
|
|
|
|
87,590
|
|
2024
|
|
|
|
90,217
|
|
2025
|
|
|
|
7,536
|
|
|
|
|
$
|
373,032
|
|
Less: Imputed interest
|
|
|
|
(84,823
|
)
|
Total
|
|
|
$
|
288,209
|
|
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTIGENCIES
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.
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 misled AppTech during the merger. The court
has encouraged the parties to settle. Even though the Company believes the lawsuit is without merit and will vigorously defend,
the Company has made several offers to settle. On December 19, 2019, the Company entered into a settlement and release agreement.
The Company has recorded the liability as of December 31, 2019 for the total obligation of $240,000 to be paid out over three years
beginning February 15, 2020. The 2019 impact is recorded in general and administrative expenses. A stipulation for dismissal of
action has been filed with the courts. As of September 30, 2020, we are in default on the payment schedule. The plaintiffs have
filed a motion to enforce the settlement agreement and we have requested a modified payment schedule from the courts due to the
pandemic from the coronavirus outbreak and no settlement has been reached as of the date of the financial statement.
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 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. On December 3, 2019, the Company entered into a conditional settlement providing the terms of the conditional
settlement have been completed by October 1, 2020. The conditional settlement amount of $150,000 is paid in monthly installments
of $15,000. The settlement installments paid for the nine months ended September 30, 2020 was $74,500. On June 19, 2020, resulting
from the impact of Covid-19 pandemic, AppTech entered into a modified settlement payment schedule. The November 1, 2020 payment
was made timely and we are current on the following modified payment schedule:
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
November 1, 2020
|
|
|
|
20,000
|
|
December 1, 2020
|
|
|
|
20,000
|
|
January 2, 2021
|
|
|
|
20,500
|
|
Total
|
|
|
$
|
60,500
|
|
Significant Contract
In August 2020, the Company entered
into a strategic partnership with Silver Alert Services, LLC. doing business as Lifelight Systems (“Lifelight”), expanding
into the telehealth sphere. The partnership will expand Apptech’s reach into new markets and provide advanced technological solutions
for the telehealth and personal emergency response systems markets. The strategic partnership provides a promissory note for up
to one million dollars at a rate of three percent upon successful completion of Lifelight’s Personal Emergency Response System
(PERS) pilot program. Also Lifelight is granted the right to purchase four million five hundred thousand shares of Apptech Corp.
exercisable at $0.01 for one million shares and $0.25 for three million five hundred thousand shares upon the successful completion
of the PERS pilot program. In accordance with the agreement, the contract, and all such liabilities and rights, are contingent
upon a Lifelight’s successful completion of its PERS pilot program and AppTech securing financing.
In January 2019, the Company entered
into an agreement with a broker dealer to provide capital raising activities. Under the terms of the agreement the broker dealer
is to make a minimum of $90,000 in advisory fees. In addition, there are various other provisions within the agreement which include
a 10% placement fee, warrants to purchase common stock, a 4% transaction fee, etc.
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 9 – 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, 2020 and December 31, 2019. 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.
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
The Company is authorized to issue 1,000,000,000
shares of $0.001 par value common stock. There were 87,821,825 and 84,153,825, respectively, shares of common stock outstanding
as of September 30, 2020 and December 31, 2019. The holders of common stock are entitled to one vote per share on all matters submitted
to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The holders of common stock
are entitled to any dividends that may be declared by the board of directors out of funds legally available, therefore subject
to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions against the payment
of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock
into any other securities.
During the nine months ended September
30, 2020 and 2019, the Company issued 3,568,000 and 439,500, respectively, shares of common stock to several consultants in connection
with business development, accounts payable conversion and professional services. The Company valued the common stock issuances
at $2,357,125 and $89,134, respectively, based upon the closing market price of the Company’s common stock on the date in which
the performance was complete or issued based upon the vesting schedule and the closing market price of the Company’s common stock
on the date of the agreement. The amounts were expensed to general and administrative expenses on the accompanying consolidated
statements of operations. The accounts payable conversion was $152,500.
Stock Options
On August 25, 2020, the Company issued
an option to purchase 100,000 shares of common stock at $0.25 per share with an expiration date of February 25, 2021. The options
were valued at $140,945 and include within stock issued for business development consulting services. The Company valued the options
at $140,945 using the Black Scholes valuation model with the following variables; expected volatility of 100%, risk free rate of
0.11%, fair market value of the Company’s common stock of $1.48 on the date of grant, and an expected life of 0.50 years. The option
was exercised on August 26, 2020.
Common Stock Repurchase Option
On January 23, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 300,000 shares of common stock from a third party at $0.05
per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase options were exercised on January 26, 2020 for which the Company received $98,750 in proceeds which was
recorded as additional paid-in capital.
On February 26, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 266,115 shares of common stock from a third party at $0.05
per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option was exercised on February 27, 2020 for which the Company received $25,281 in proceeds which was
recorded as additional paid-in capital.
On March 18, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 250,000 shares of common stock from a third party at $0.05
per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option was exercised on March 19, 2020 for which the Company received $62,500 in proceeds which was recorded
as additional paid-in capital.
On April 24, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 55,000 shares of common stock from a third party at $0.05
per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option was exercised on April 27, 2020 for which the Company received $19,250 in proceeds which was recorded
as additional paid-in capital.
On August 26, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 250,000 shares of common stock from a third party at $0.07
per share. The Company assigned its rights to the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option was exercised on August 26, 2020 for which the Company received $45,000 in proceeds which was recorded
as additional paid-in capital.
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – SUBSEQUENT EVENTS
Management has evaluated subsequent
events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those
disclosed below.
On October 1, 2020, the Company entered
into a strategic partnership with NEC Payments B.S.C through the deployment of NECP’s technologies, Apptech will extend its product
offering to include flexible, scalable and secure payment acceptance and issuer payment processing that supports the digitization
of business and consumer financial services and the migration of cash and other legally payment types to distanced and contactless
card and real time payment transactions. NECP will assist Apptech to complete the development of its text payment solution and
provide best in class software that complements Apptech’s intellectual property. Apptech will also receive licenses to utilize
NECP’s digital banking platform, including exclusivity in the United States for its payment acceptance software.
All terms of this agreement are contingent
upon Apptech Corp. receiving funding in excess of three million dollars within forty-five days of execution. NECP will be awarded
a fifteen percent equity stake in Apptech Corp. on a fully diluted basis.
On October 2, 2020, the Company entered
into an independent contractor services agreement with Innovations Realized, LLC to develop a strategic operating plan focused
on the design, execution and go to market aspects of the NECP platform to enter the United States market.
On October 21, 2020, the Company entered
into an engagement agreement with Emerging Markets Consulting, LLC. to be the investor relations firm for the Company.
On October 14, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20
per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option for 13,333 shares was exercised on October 14, 2020 for which the Company received $7,333 in proceeds
which was recorded as additional paid-in capital.
On October 14, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20
per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option for 10,000 shares was exercised on October 15, 2020 for which the Company received $5,500 in proceeds
which was recorded as additional paid-in capital.
On October 14, 2020, the Company entered
into a common stock repurchase option agreement to purchase or assign 2,000,000 shares of common stock from a third party at $0.20
per share. The Company assigned a portion of the repurchase option agreement to a third party in exchange for compensation. The
common stock repurchase option for 20,000 shares was exercised on October 29, 2020 for which the Company received $11,000 in proceeds
which was recorded as additional paid-in capital.
See note 8 for additional subsequent
events.