ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and
related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Report.
The information in this
discussion and elsewhere in this Report contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). Such statements are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example,
the words “may,” “will,” “believe,” “anticipate,” “plan,” “expect,”
“intend,” “could,” “estimate,” “continue” and similar expressions or variations
identify forward-looking statements.
Although we believe
that we have a reasonable basis for each forward-looking statement contained in this Report, we caution you that these statements
are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot
be certain. We caution you that forward-looking statements are not guarantees of future performance and that our actual results
of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially
from the forward-looking statements contained in this Report. Factors that might cause such a discrepancy include, but are not
limited to:
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Our ability to obtain financing as and when needed on acceptable terms.
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Our failure to develop or acquire and publish new Apps that achieve market acceptance or we do not continue to enhance our existing Apps.
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Our inability to maintain a good relationship with the markets where our Apps are distributed.
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Our inability to keep pace with technological changes and market conditions in the Apps industry.
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Our inability to compete against a wide range of companies that market Apps, many of which have significantly greater resources than we do.
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We caution readers not
to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim
any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, to publicly update
or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any
such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking
statements.
Overview
AppSoft Technologies, Inc.,
a Nevada corporation organized on March 24, 2015 (“we,” “us,” or the “Company”), develops,
publishes and markets mobile software applications for smartphones and tablet devices (“Apps”). Our Apps titles include
games designed to appeal to a broad cross section of consumers and legal-related Apps that provide compilations of federal and
state laws and regulations across a variety of legal disciplines and digests of court decisions rendered by federal courts that
are directed to legal professionals. We offer many of our game titles in both a free advertisement-supported version and a paid
version that does not display ads. We believe that the ad supported versions allow for wider dissemination of our titles to consumers
who might not otherwise spend money for an App without first playing the game.
We
market, sell and distribute our games through direct-to-consumer digital storefronts, which currently comprises Apple’s App
Store and the Google Play Store. We currently or expect to advertise our Apps through the digital storefronts, our own website,
social media, such as Facebook and LinkedIn, through mobile ad networks and search engine optimization, or SEO, tools.
We rely on third party
designers, developers and programs to develop new Apps. We also solicit ideas for new titles from unrelated parties. We evaluate
prospects based on a variety of factors. If we conclude that a particular prospect has economic value, we may fund the development
of the App through launch and beyond, if we have the resources to do so.
We
currently derive our revenue primarily from sales, or downloads, of our Apps and from advertisements published on our ad
supported game titles. Over the course of 2019, we may generate revenue from the sale of
software titles that we develop for own account, that are developed by third-parties which we acquired, or that have been developed
for our benefit. Operating margins are dependent in part upon our ability to release new, commercially successful products and
to manage effectively their development costs.
Over the last several years,
mobile devices, including smartphone and tablets, have proliferated extensively around the world across a wide range of demographic
groups. The Apps industry has experienced corresponding growth in the number of downloads, the number and types of Apps published.
We believe that there will continue to be an increase in the number of smartphones and tablets sold. In addition, technological
advances to these devices, including more powerful smartphones and tablets with larger screens provide a platform for more diverse
Apps and make games more fun and visually appealing. We believe that technological developments will continue to drive growth in
our industry for the foreseeable future.
Growth Strategies and Outlook
Our principal growth strategy
entails developing and acquiring new Apps to supplement our existing Apps portfolio. Our primary focus will be to release new game
titles. We are developing a pipeline of independent game designers, developers and programmers who provide us with new ideas and
titles to publish. We also are soliciting new games and concepts that we may acquire from third parties. We will seek to develop
and publish free-to-play games. Free-to-play games are games that a player can download and play for free, but which allow players
to access a variety of additional content and features for a fee, through “in-app purchases” utilizing virtual currency
they may be purchased through digital storefronts, and to engage with various advertisements and offers that generate revenues
for us. We may seek to acquire franchises around which we develop games, including movies,
television programs, toys and other cultural phenomena that lend themselves to gamification.
During 2016, we purchased
an eSports tournament platform and the related software, trademarks and trade names; and other intellectual property. When we took
control of these assets, they were fully developed and ready for live launch. Since the acquisition date, we have improved them
by tailoring them towards our unique competitive strategy.
eSports (also known as
electronic sports, competitive (video) gaming, professional (video) gaming, or pro gaming) are a form of competition that is facilitated
by electronic systems, particularly video games; the input of players and teams as well as the output of the eSports system are
mediated by human-computer interfaces. Most commonly, eSports take the form of organized, multiplayer video game competitions,
particularly between professional players. The most common video game genres associated with eSports are real-time strategy, fighting,
first-person shooter (FPS), and multiplayer online battle arena. Tournaments such as The International, the League of Legends World
Championship, the Battle.net World Championship Series, the Evolution Championship Series, and the Intel Extreme Masters provide
live broadcasts of the competition, and prize money and salaries to competitors.
eSports have become popular
worldwide, not only with participants but also with fans who watch them online and in public spaces, including arenas. According
to Newzoo, an online statistics gathering and dissemination portal, during 2017, eSports revenue, which comprises media rights,
merchandise, tickets, advertising, sponsorship and game publisher fees, was $655 million, which Newzoo estimates could grow to
and over $1.1 billion in 2019, comprising more than 453 million viewers.
Our App will provide eSports
players with an easy-to-use platform that provides fair, transparent, and prompt payouts for prize tournaments. We will differentiate
our product from competing platforms by focusing on casual games and mobile games. We also expect to focus on direct integrations
with existing game publishers enabling them to offer prize tournaments to their existing player base.
During 2016, we acquired
a suite of concepts, artwork, story lines and related computer software in connection with a computer game titled “CryptoGene,”
for mobile application. CryptoGene represents a potential franchise that we can develop and roll out over multiple platforms, including
as an App and video game version, graphic novels and other print and audio-visual media. This is a long-term project that will
require significant capital and personnel resources.
Also during 2016, we acquired
a product, which we call “GoDex”, is a Pokémon Go companion app for iOS and Android. The App uses sophisticated
image recognition that will enable users to take screenshots of their Pokémon and have GoDex calculate its statistic, IV
percentage, combat power calculations, and other statistics that players deem relevant to the Pokémon experience. The App
also will provide users to send and receive in-App messages to and from team mates within a 10-kilometer radius. As GoDex develops,
we expect that it will become a “one-stop-shop” for all Pokémon Go related tools.
Our
ability to pursue and achieve our objectives is predicated on our receipt of meaningful revenue from sales of our existing Apps
and those we may release in the future and from our ability to raise capital from outside sources.
Our revenues will depend
significantly on growth in the mobile games market and our ability to develop or acquire and publish Apps that are well received
by consumers. In addition, because our products are purchased with disposable income, our success is dependent on the overall strength
of the economy in the United States. We expect to invest resources in research and development, analytics and marketing to introduce
new Apps and continue to update our existing Apps, and to the extent that Apps into which we have invested significant capital
are not successful, our business and financial condition could be harmed. We operate in an environment that is extremely competitive
for users against a continually increasing number of developers, many of which are significantly larger than us and have other
competitive advantages. We expect to allocate a material portion of our operating revenue and capital that we receive to sales
and marketing initiatives in connection with the launch and promotion of our games in an effort to drive sales.
Our revenues further depend
on maintaining our continued good relationship with the digital storefront operators, primarily Apple and Google, each of which
could unilaterally alter their terms of service in ways that could harm our business.
Our ability to achieve
and sustain profitability will depend not only on our ability to grow our revenues, but also on our ability to manage our operating
expenses. Currently, we have one full-time employee, who receives compensation when and as determined by the board of directors.
For the foreseeable further, we expect to utilize the services of independent contractors and consultants, who we believe are readily
available for our purposes, in order to manage our personnel costs. We also will continue to maintain a virtual office as long
as our operations permit to contain our office space overhead.
Over the last six months,
our growth has been constrained by our lack of capital. We require additional capital to fund the development of Apps in process
that we have developed internally or acquired from third parties. We also require capital to fund marketing initiatives for our
existing products and to launch and market Apps in development. We cannot be sure that the additional capital we require will be
available on acceptable terms or at all. If adequate funds are not available on acceptable terms or at all, we may be unable to
develop or enhance our services and products, take advantage of future opportunities, repay debt obligations as they become due,
or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition,
and results of operations.
During the year ended December
31, 2018, we recognized an impairment of our phone apps and esports gaming platform and wrote off all of their carrying, or book,
value from our financial statements resulting in a loss in the aggregate amount of $45,500. We wrote off these assets because,
as of December 31, 2018, we determined that their carrying value exceeded their fair value (the amount at which the assets could
be sold in a negotiated transaction between two willing parties) and was not recoverable, meaning that we were uncertain that the
future cash flow we might generate from these assets would be equal to the book value that we ascribed to these assets in our financial
statements. Despite writing off these assets, upon the receipt of sufficient capital, of which there is no assurance, we intend
to continue their development with the expectation that we will make them available for purchase by way of the consumer digital
storefronts through which we offer our products.
Results of Operations for the Three Months
Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018 (unaudited)
The following table presents
our results of operations for the three months ended March 31, 2019 and 2018:
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Three Months Ended March 31,
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2019
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2018
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Revenue
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$
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-
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$
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-
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Expenses
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Selling, General and Administrative
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6,511
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607
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Depreciation/ Amortization Expense
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104
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5,604
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Interest Expense
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850
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532
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Outside Services
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2,000
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-
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Professional Fees
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7,340
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6,540
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Total Expenses
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16,805
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13,283
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Net Loss
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$
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(16,805
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$
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(13,283
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)
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Revenues
During the quarters ended
March 31, 2019 and 2018, we did not record any revenues from operations. We continue to seek funding to support advertising and
the development and release of new Apps.
Expenses
Selling, General and
Administrative, or SGA, expenses consist of expenses relating to, among other things, web hosting and email hosting costs,
rent for our virtual office, and other general and administrative expenses. During the quarter ended March 31, 2019, our SGA expenses
were $6,511, as compared to SGA expenses of $607 during the 2018 period.
Depreciation/Amortization
Expenses for the three months ended March 31, 2019 were $104, relating certain computer equipment purchased in July 2016, compared
with depreciation/amortization expenses of $5,604 recorded during the 2018 period. Amortization expense comprises the quarterly
portion of the amortization of our Apps, which we amortize over a five-year period. As noted above, for the year ended December
31, 2018, we recognized an impairment of our phone apps and esports gaming platform and wrote off all of their carrying, or book,
value from our financial statements resulting in a loss in the aggregate amount of $45,500. Accordingly, we did not record any
amortization of our Apps for the period ended March 31, 2019.
Interest Expense
is attributable to interest accrued on promissory notes in the aggregate principal amount of $174,954. During the three months
ended March 31, 2019, interest expenses were $850, as compared to $532 for the 2018 period.
Outside Services
represents the amount we paid to third party developers and software designers in connection with the Company’s Apps. During
the quarter ended March 31, 2019, we paid $2,000 for services rendered by third-party developers. During the comparable 2018 period,
we did not make any payments to our third-party developers and software designers.
Professional Fees
consist of amounts paid to our third-party professionals for services rendered during the quarter. During the quarter ended March
31, 2019, we recorded expenses for professional fees of $7,340 as compared to $6,540 during the 2018 period.
Net Loss
During the quarter ended
March 31, 2019, we had a net loss of $16,805, as compared to a net loss of $13,283 for the comparable 2018 period.
Liquidity and Capital Resources
Liquidity is the ability
of a company to generate adequate amounts of cash to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, the availability
of credit facilities, levels of accounts receivable and accounts payable and capital expenditures.
As of March 31, 2019, we
had a working capital deficit of $39,042 compared to a working capital deficit of $36,981 at December 31, 2018.
Since our inception, we
have financed our operations through the sale of equity securities and from internally generated revenue from operations. On March
31, 2016, we closed our initial public offering of securities from which we received net proceeds of $126,250. In July 2016, we
completed a private offering from which we received proceeds of $53,000.
Our primary requirements
for liquidity and capital are to fund the development of existing Apps in our catalogue, to acquire new Apps and to launch sales
and marketing initiatives in connection with the release and promotion of our games, to compensate designers and developers, as
well as for working capital to fund our general corporate needs. We work with independent game designers, developers and programmers
who provide us with new ideas and titles to publish. We also are soliciting new games and concepts that we may acquire from third
parties.
Since our customers pay
for their purchases by credit or debit card at the time of sale, neither inventories nor receivables are relevant to our business.
Our cash on hand and current
cash flow from operations is not sufficient to allow us to undertake any of our planned activities. Therefore, our future operations
are dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt
securities, obtaining credit facilities or through other financing mechanisms. However, a downturn in the U.S. equity and debt
markets could make it more difficult to obtain financing through the issuance of equity or debt securities and we might not be
able to obtain additional financing on terms favorable to us, if at all. Even if we are able to raise the funds required, it is
possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected
cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities,
stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior
to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and
may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have
to curtail our marketing and development plans and possibly cease our operations.
Cash Flows:
The following table presents
summary cash flow information.
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For the three months ended March 31,
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2018
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2017
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Net cash used in operating activities
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$
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(14,651
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$
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(8,180
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Net cash provided by investing activities
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-
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-
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Net cash provided by financing activities
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14,640
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$
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8,180
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Net decrease in cash
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$
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(11
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$
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-
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Operating Activities
We used net cash used in
operating activities for the three months ended March 31, 2019 of ($14.651) compared to ($8,180) for the 2018 period, in each case
consisting principally of payments to outside consultants, developers and programmers and payments to web hosting and email hosting
providers.
Investing Activities
We did not engage in any
investing activities during the quarters ended March 31, 2019 or 2018.
Financing Activities
During the three months
ended March 31, 2019, net cash provided by financing activities was $14,640, comprised of loan,
compared to $8,180, comprised of loan proceeds during the 2018 period.
Contractual Commitments as of March 31,
2019
As
of March 31, 2019, the Company had no contractual obligations, as such term is defined in Item 303 of Regulation S-K promulgated
under the Securities Act of 1933, as amended.
Going Concern
The notes to our financial
statements for the quarter ended March 31, 2019 and the report of our independent registered public accounting firm on our financial
statements for the year ended December 31, 2018 include an explanatory paragraph with respect to our ability to continue as a going
concern. As reflected in the accompanying financial statements, the Company has deficit accumulated of $747,561 and cash used in
operations of $14,651 at March 31, 2019. The Company’s ability to continue as a going concern is dependent upon its ability
to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and pay its liabilities
arising from normal business operations when they come due. The accompanying financial statements do not include any adjustments
that might arise because of this uncertainty
The presence of the going
concern explanatory paragraph suggests that we may not have sufficient liquidity, or minimum cash levels, to operate our business.
Since our inception, we have incurred losses and anticipate that we will continue to incur losses until such time as our Apps generate
sufficient revenue to offset our research and development, general and administrative and sales and marketing expenses. We will
need to raise additional capital to fund our near-term operational plans described elsewhere in this report. We cannot assure you
that we will be successful in our operational plans. We cannot be sure that the additional capital we require will be available
on acceptable terms or at all. If adequate funds are not available on acceptable terms or at all, we may be unable to develop or
enhance our services and products, take advantage of future opportunities, repay debt obligations as they become due, or respond
to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition, and
results of operations.
Off-Balance Sheet and Other Arrangements
We do not engage in any
activities involving variable interest entities or off-balance sheet arrangements.
Inflation
We do not believe that
inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become
subject to significant inflationary pressures, we might not be able to fully offset these higher costs through price increases.
Our inability or failure to do so could harm our business, operating results and financial condition.
Critical Accounting Policies and Use of
Estimates
The discussion and analysis
of financial condition and results of operations are based upon the Company’s financial statements, which have been prepared
in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated
financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses,
and related disclosure of contingent assets and liabilities. On an ongoing basis, our management evaluates its estimates based
upon historical experience and various other assumptions that it believes to be reasonable in the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The Company believes that
its significant accounting policies affect its more significant estimates and judgments used in the preparation of its consolidated
financial statements. Our significant accounting policies are described in Note 1 to our audited financial statements included
in our annual report on Form 10-K for the period ended December 31, 2018. We do not believe that there has been any significant
change in the Company’s critical accounting policies since December 31, 2018.
Recent Accounting Pronouncements
Emerging Growth Company
Critical Accounting Policy Disclosure: We qualify as an “emerging growth company” under the 2012 JOBS Act. Section
107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, we can
delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected
to take advantage of the benefits of this extended transition period.
There are no recent accounting
pronouncements published after December 31, 2018 that had a material effect on the financial statements presented herein.