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 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”). 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
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.
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 March 31, 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 three months ended March 31, 2020 and
2019, the one merchant (customer) represented
approximately 43% 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.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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:
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
three months ended March 31, 2020 and
2019 were $12,000 and $6,820,
respectively.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 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.
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 March 31, 2020, management determined that
there were no variable lease costs.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED 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 March 31, 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 March 31, 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.
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. 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
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 three months ended March 31, 2020 and
2019, the Company incurred a net
loss of $1,464,050 and $238,241
and used cash of $190,888 and $190,661
in operating activities. In addition, the Company had
a working capital deficit of $7,409,180
and an accumulated deficit of $42,224,463
at March 31, 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 $205,781from
a sale of a repurchase option 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.
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
potential impact cannot be estimated at this
time.
Additionally,
it is reasonably possible that the
estimates made in the financial statements have
been, or will be materially and adversely impacted in the near
term as a result of these conditions.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2020 and
December 31, 2019, amounts
included in accounts payable related to the
assumption of liabilities in connection with the patents were $380,000 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 March 31, 2020 and December
31, 2019 consist of the following:
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Accrued interest – related parties
|
|
$
|
951,559
|
|
|
$
|
943,356
|
|
Accrued interest – third parties
|
|
|
1,275,129
|
|
|
|
1,215,699
|
|
Accrued residuals
|
|
|
36,251
|
|
|
|
39,064
|
|
Accrued merchant equity
|
|
|
91,023
|
|
|
|
91,023
|
|
Other
|
|
|
45,251
|
|
|
|
45,338
|
|
Total accrued liabilities
|
|
$
|
2,399,213
|
|
|
$
|
2,334,480
|
|
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 March 31, 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.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2020 and 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 three months ended March 31, 2020 and
2019, the Company obtained (paid) $(28,050) and $69,500 loans
payable from related parties, net. As
of March 31, 2020 and December 31, 2019, the balance
of the loans payable was $65,351 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 March 31, 2020 and December
31, 2019, accrued interest related to the subordinated
notes was $127,295 and $118,545, respectively.
The Company is currently 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 March 31, 2020
and December 31, 2019, accrued interest
related to the convertible notes was $59,538
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
March 31, 2020 and December 31, 2019,
the accrued interest related to the convertible
notes was $22,084 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 March 31, 2020 and December 31, 2019,
the Company held the obligation to repurchase
the shares for $400,000. As of March 31, 2020 and
December 31, 2019, the accrued interest related to the
convertible notes was $196,333 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 March 31, 2020
and December 31, 2019, accrued interest
related to the convertible notes was
$528,013 and $516,013 of which $249,000
and $243,375, respectively, was due to related parties. The Company is currently
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
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 March 31, 2020 and December 31, 2019, the
balance on the note payable was $88,136 and
accrued interest related to the note payable was $51,907 and
$49,243, respectively. The Company is
currently in default of
the note payable agreement.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 $3,200 and $3,200, respectively, which represented an interest rate of 10% per annum during the
three months ended March 31, 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 March 31, 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 $250 and $250, respectively,
which represented an interest rate of 10% per annum during the three months
ended March 31, 2020 and 2019.
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 March 31, 2020 and December 31, 2019, the
Company was in default of the arbitration
settlement. As of March 31, 2020 and December 31, 2019, accrued
interest related to the note payable was
$439,931 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 March 31, 2020 and December 31, 2019, accrued
interest related to the note payable was
$71,978 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 March 31, 2020 and December 31, 2019, the
aggregate balance of the notes payable was
$620,355 and accrued interest was $591,114 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 March 31, 2020, including the total
amount of imputed interest related:
Years ended December
31, :
2020
|
|
|
$
|
53,122
|
|
2021
|
|
|
|
82,561
|
|
2022
|
|
|
|
85,039
|
|
2023
|
|
|
|
87,590
|
|
2024
|
|
|
|
90,217
|
|
2025
|
|
|
|
7,536
|
|
|
|
|
$
|
406,065
|
|
Less: Imputed interest
|
|
|
|
(102,721
|
)
|
Total
|
|
|
$
|
303,344
|
|
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 other
expenses. A stipulation for dismissal of action has
been filed with the courts. As of May
14, 2020, we are current on the
payment schedule.
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 three months ended March 31, 2020 was $35,000. $5,000 was paid towards
the March 31, 2020 installment and the
April 30, 2020 installment was not paid. We are currently
in default of the agreement and are in discussions with
the plaintiffs to cure the default prior to May 22, 2020.
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 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.
APPTECH CORP. AND
SUBSIDIARIES
NOTES TO THE UNAUDITED 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 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 March 31, 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.
Common Stock
The Company is authorized to
issue 1,000,000,000 shares of $0.001
par value common stock. There were
86,503,325 and 84,153,825, respectively,
shares of common stock outstanding as
of March 31, 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 three months ended March 31, 2020 and
2019, the Company issued 2,349,500 and
12,000, respectively, shares of common
stock to several consultants in connection with business development and professional
services. The Company valued the common stock issuances at $1,209,185 and
$7,208, 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.
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.
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 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.
See note
8 for additional subsequent events.