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(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND PROJECTIONS
Various statements in this report of AppTech Payments
Corp. are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included
in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans
and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on
information currently available to our management. Words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “may,” “plan,” “contemplates,” “predict,”
“project,” “target,” “likely,” “potential,” “continue,” “ongoing,”
“will,” “would,” “should,” “could,” or the negative of these terms and similar expressions
or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur
and actual results could differ materially from those projected in our forward-looking statements.
You should not place undue
reliance on forward looking statements. The cautionary statements set forth in this prospectus identify important factors which you should
consider in evaluating our forward-looking statements. These risks include, but are not limited to, the following:
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uncertainty associated with anticipated launch of our text payment platform and other potential advanced payment solutions we intend to launch in the future; |
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substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; |
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dependence on third-party channel and referral partners, who comprise a significant portion of our sales force, for gaining new clients; |
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a slowdown or reduction in our sales in due to a reduction in end user demand, unanticipated competition, regulatory issues, or other unexpected circumstances; |
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uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer in the future; |
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dependence on third-party payment processors to facilitate our merchant services capabilities; |
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delay in or failure to obtain regulatory approval of our text payment system or any future products in additional countries; |
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current and future laws and regulations; |
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general economic uncertainty associated with the COVID-19 pandemic; |
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the adverse effects of COVID-19, and its unpredictable duration, in regions where we have customers, employees and distributors; |
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the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of customers to visit our merchants’ businesses; and |
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the possibility that the economic impact of COVID-19 will lead to changes in how consumers make purchases that we are unable to monetize. |
All written and oral forward-looking statements attributable
to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred
to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf.
We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual,
quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).
We encourage you to read the discussion and analysis
of our financial condition and our financial statements contained both in our Form S-1 that was filed with the Securities and Exchange
Commission on January 3, 2021 and in this Annual Report on Form 10-K. There can be no assurance that we will in fact achieve the actual
results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to,
or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and
estimates.
Unless the context otherwise requires, throughout
this Annual Report on Form 10-K, the words “AppTech Payments,” “we,”
“us,” the “registrant” or the “Company” refer to AppTech Payments Corp.
Item 1.
Business.
Business Overview
Through our scalable cloud-based
platform architecture and infrastructure coupled with our commerce experiences development and delivery model, we intend to simplify and
streamline digital financial services for corporations, small and midsized enterprises (“SMEs”) and consumers. We will accomplish
this through innovative omnichannel payment and digital banking technologies that complement our core merchant services capabilities.
We believe there is opportunity to generate significant revenue for the Company the near future by providing innovative commerce solutions
and experiences that resonate with clients, their customers, and the market as a whole. Further, our soon to be launched modular platform
will equip forward-thinking financial institutions, technology companies, and SMEs with operational efficiencies, such as automated financial
controls and reconciliation in addition to manual administration.
Today, our Company’s merchant
services solutions provide financial processing for businesses to accept cashless and/or contactless payments, such as credit cards, ACH,
wireless payments, and more. Our patented, exclusively licensed, and proprietary merchant services software will offer, new integrated
solutions for frictionless digital and mobile payment acceptance including acceptance of alternative payment methods (“APMs”).
We are extending and enhancing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based
issuer processing for card, digital tokens, and payment transfer transactions. Our scalable business model allows for expansive white-labeling,
SaaS, and embedded solutions that will drive the digital transformation of financial services and generate diverse revenue streams for
our company.
The financial services industry
is going through a period of intensive change driven by the advancement of technology, the adaptation to societal changes resulting from
COVID-19, and the rapid rise of contactless transactions. End-users expect ease of use and an enhanced user experience in all their daily
financial interactions. In this rapidly evolving digital marketplace, our prospective clients, such as merchants and independent software
vendors (“ISVs”), have broad and frequently changing requirements to meet consumer expectations and operational efficiencies
to maintain their competitive edge.
Providing basic payment acceptance
and “lowest price” models is no longer the winning formula to support the market. These entities recognize that staying competitive
in the digital age requires a partner with a platform and services capable of delivering flexibility and growth while streamlining operations
to continually deliver increased revenue and profitability opportunities. Our pricing is extremely competitive, but we believe the value
we create for financial institutions, technology companies, and SMEs through our technology, deployment model, services and consultative
approach will create true differentiation from our competitors.
Our global financial services platform
architecture and infrastructure is designed to be flexible and configurable to meet current and future market needs. This will empower
our clients to take advantage of future platform development and new innovative digital financial solutions by leveraging off-the-shelf
experiences and consuming our APIs. Additionally, by taking a holistic view of all aspects of our clients’ business, including risk,
volume, user experience, integration capabilities and technical needs, we will create optimal and extensible financial technology solutions
at a rapid pace.
Through exclusive licensing and
partnership agreements to complement our patented technology capabilities, we believe we will become leaders in the embedded payment and
digital banking sectors by supporting digital, tokenized, multi-channel, embedded API-driven transactions. We will accelerate this position
through the integration of our merchant services and a secure text payment solution with extensive digital account-based and multi-channel
issuer payment processing capabilities. This will enable us to provide our clients an end-to-end payment acceptance and digital banking
solution powering straight-through processing and embedded payment opportunities in the B2B space. We expect to support clients through
the development of custom and off-the-shelf experiences by delivering these solutions through public APIs and Webhooks.
A key to the Company’s success
and market penetration is the continued development of enterprise-grade, patent protected software
for SMS text payments via a mobile device. Our patented technology manages
text messaging for processing payments, notification, response, authentication,
marketing, advertising, information queries and reports. Once
an account is established through a multi-currency digital wallet, neither internet connectivity nor a specific application is required
to process payments between merchants and end-users. These features will be particularly beneficial for unbanked and under banked individuals
in developing or emerging markets where access to the internet on a mobile device and modern banking institutions may not be readily available.
In addition, our software platform will extend merchants’ marketplace capabilities
by creating new avenues and channels to request and receive
frictionless, digital payments and engaging end-users by utilizing a familiar, convenient, and widely adopted technology.
We believe our
technologies will greatly increase the adoption of mobile payments and alternate banking
solutions in sectors that must quickly adapt and migrate towards new technologies that facilitate convenient and safe contactless payments.
To survive and succeed in this environment, businesses
need to adopt new technologies to engage, communicate and process payments with
their customers from a supplier that widely supports innovation and adaptation as the industry
evolves. By embracing technological advancement in the payment and banking industries, we are well-positioned to meet the growing
needs of existing and prospective clients and intend for our current and future products
to be at the forefront of solving these accelerated market needs.
Industry Background
The financial technology
and payment processing industries are an integral part of today’s worldwide financial structure. The electronic payments industry
is massive, with growth fueled by powerful long-term trends that continue to increase the acceptance and use of electronic payments compared
to paper-based payments. According to The Nilson Report, purchase volume on credit, debit and prepaid cards in the United States was approximately
$6.1 trillion in 2018 and is estimated to reach nearly $10.4 trillion by 2027, a compound annual growth rate, or CAGR, of 6.1%.[1]
According to American Banker,
banking and financial services incumbents are failing to compete on customer experience, which is a weakness fintechs are very successfully
exploiting.[2] In fact, based on a 2019 PwC Global Fintech Report, industry executives
believe that 25% or more of their business could be at risk of being lost to standalone fintechs within five years.[3]
Furthermore, according to Allied Market Research, The global digital banking platform market size was valued at $3.95 billion in 2019
and is projected to reach $10.87 billion by 2027, growing at a CAGR of 13.6% from 2020 to 2027.[4]
All of this research and expert opinion provides a clear picture of the opportunities ahead for fintechs that can provide innovative commerce
solutions and experiences that resonate with clients, their customers and the market as a whole.
According to a Walker report, customer
experience will overtake price and product features as the key brand differentiator this year. Moreover, according to research from PwC,
an immersive and engaging customer experience drives more customer spending.[5] In fact, 86%
of buyers are willing to pay more when immersed in a great customer experience – Experience outweighs cost.
The payment processing industry
continues to evolve rapidly based on the application of new technology and changing customer needs. Changes in technology have allowed
for new payment methods, such as mobile and contactless payments which is driving demand for new innovative solutions to meet consumer
expectations. This results in businesses increasingly being required to deliver new, convenient methods of interacting with their customers
to ensure loyalty and repeat business. As consumers continue to integrate mobile devices into their lives, there will be increased demand
to conduct business on these devices. According to Global Industry Analysts, the global mobile payment market was valued at $1,449.56
billion in 2020 and is expected to reach over $5,399.6 billion in 2026 with growth at a CAGR of 24.5% over the forecast period (2021 –
2026).[6]
GSMA Intelligence reported in 2019
that globally, there are more than 9.2 billion mobile connections and 5.1 billion mobile subscribers with text messaging capabilities.[7]
Statista asserted that just over 3.9 billion of these devices have access to mobile internet.[8]
Our Competitive Strengths
We believe our adaptable technology
stack and product offerings differentiate us from our competitors. Our products and solutions help to eliminate much of our sector’s
reliance on legacy payment rails and financial systems. The design and delivery are not being restricted by antiquated foundational technology.
Management believes the applicability and frictionless nature of our products will offer an immediate impact on the digital financial
services industry. Further, the solutions we intend to deliver to our clients will be driven off user-centered design principles to providing
seamless, best-in-class experiences to the end-user.
Digital transformation is complex
for most companies sighting such concerns around shifting company culture, legacy systems, rigidity of platforms and processes, inefficiencies
in skillsets and knowledge. Additionally, even when these companies see the value in digital transformation, often these companies face
an inability to properly shift resources to new technology while maintaining customers on existing platforms. Non-discretionary spend
required to “keep the lights on” outweighs leadership’s ability to invest in future technology which results in vulnerabilities
and competitive threats.
_________________________________
[1]
Nilson Report – Payment Cards in the U.S. Projected, October 2020.
[2]
American Banker and Monigle, Humanizing the Bank Customer Experience, 2021.
[3]
PricewaterhouseCoopers, LLP– Global Fintech Report, 2019.
[4]
Allied Market Research – Digital Banking Platform Market Size to Hit $10.87
Billion by 2027, at 13.6% CAGR, October 2020.
[5]
Walker Resources – Customers 2020: A Progress Report.
[6]
Global Industry Analysts – Consumer Mobile Payments – Global Market
Trajectory and Analytics, October 2021.
[7]
GSM Association – The State of Mobile Internet Connectivity 2019.
[8]
Statista Research Department – Mobile Internet Usage Worldwide –
Statistics and Facts, July 2021.
Our financial services platform
will empower our clients with an extensible, adaptable framework capable of dynamically solving challenges found across the financial
services industry. Further, this ability will allow us to drive deeply and expediently into specific market segments to solve problems
that we find to be a continued burden on our client’s and their customer base. Based on market, client and end-user research and
discovery, it is expected that these unique solutions produced for client’s will be highly leverageable across these segments to
deliver experiences at scale while producing rapid revenue and profitability.
As we increase our client base
and deployment of solutions to meet our client’s specifications, we’ll continue to grow these “off-the-shelf”
experiences that will ultimately lower our development costs while increasing speed to market. In addition, we are positioned to utilize
this model to grow industry partnerships and app marketplace plugins thus further leveraging our capabilities and market reach.
Founded on a modern core platform
backed by an intelligent financial technology framework, our ability to rapidly deploy solutions and experiences that are otherwise cumbersome,
expensive and often fall short of expectations will prove successful. Once launched, our position is to penetrate deep into certain segments
to build a model that will directly drive growth. Gaining robust insights in these segments while delivering best-in-class experiences
will also produce future opportunities to expand our off-the-shelf solutions to other verticals or sub-verticals that are challenged with
solving similar problems.
While our core foundational platform
will continue to adapt and grow based on new innovations, we will soon launch into the market with an extremely robust and innovative
set of secure digital banking and payments features and functionality. This will allow us to quickly deliver the future of digital finance
to meet the demands of the markets we intend to serve without the deployment burdens encumbering the market today.
Additionally, the patent protection
to some of our products is uncommon within the fintech industry. This protection prevents competitors from replicating our products to
carve away at our anticipated market share. Therefore, backing our text payment and lead generation products with patents strengthens
the viability of such products by limiting direct competition and strengthening strategic partnerships. It is expected that we will also
expand our patent portfolio through new innovations and acquisitions.
Our patent protected text payment
system’s anticipated capabilities also set us apart. By creating a product that permits mobile payments without the need for a data
plan, internet or an application -after an initial account is established-, we will have the unique ability to extend our customer base
to target unbanked and underbanked individuals primarily in developing or emerging markets. Integrating consumers that are not traditionally
included in the payment space will allow us to have a larger potential market than many of our competitors.
Our Growth Strategy
We intend to grow by leveraging
our existing IP, continually developing products and solutions, establishing strategic partnerships and seeking selective acquisitions
that uniquely complement our core business to meet growing market demand. From traditional merchant accounts to customizable inbound and
outbound payment solutions, we intend to modernize and enhance the payment processing and digital banking capabilities for businesses
throughout the world. Our business objective is to generate revenue based on licensing and subscription fees, transactional processing
fees, product line growth, and continual advancement of our IP portfolio.
Our target market is forward-thinking
financial institutions, technology companies, and SMEs seeking to broaden their distribution through the addition of digital omnichannel
payments and digital banking technologies. We will serve these markets by reducing integration complexity and streamlining their integrated
financial services capabilities.
SMEs generally lack the resources
of large enterprises to invest heavily in technology. As a result, they are more dependent on service providers, like AppTech, to handle
critical functions including payment acceptance and other support services and are likely to be early adopters of new services that will
further increase their efficiency and drive growth. Additionally, we are targeting financial institutions looking to maintain their ability
to compete by digitizing their financial services offerings to meet market demand. By enhancing their customer’s user experience
through the development of innovative and user centric multi-channel, multi-currency, digital financial products, they will be able to
maintain customer loyalty.
We intend to support a multi-method
distribution model to achieve our vision. By providing delivery flexibility, we can rapidly engage and develop the right go-to-market
strategies. As previously mentioned, not only are off-the-shelf solutions available, but we also offer embedded experiences that can be
deployed using a growing portfolio of Open and Private APIs for developers to build unique experiences based on business cases and requirements.
Further, by offering clients a
full array of marketing technology services, omnichannel payments and digital banking technologies, we will enable them to better interact
with their customers and provide additional, dynamic means of processing both inbound and outbound financial transactions.
Businesses’ financial technology
needs are increasingly complex. As electronic and mobile commerce continues to grow, businesses have no alternative but to use technology
to better meet customer’s expectations. We believe that delivering innovative, adaptive, scalable, and operationally efficient products
that meet their financial services needs will result in rapid market penetration for our anticipated products launches.
While leveraging new technology
is vital to our growth plan, it is equally important that the technology is relevant and seamlessly fits into and benefits our end-user’s
daily lives. Consumers are sometimes reluctant to alter their typical routines, especially when it relates to financial services. The
anticipated launch of our text payment system and broader digital banking and payments solutions will meet both needs. We will offer financial
technologies that do not rely on legacy rails thus increasing the opportunity to improve the end-user’s digital experiences. Once
properly developed and rolled out, we anticipate rapid adoption.
We seek to grow our business by pursuing the following
strategies:
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Increasing our customer base by offering unique and compelling, patent protected technology solutions; |
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Driving growth in our merchant services business through new and flexible technologies, including our secure text payment system, that will enable our customers to adapt to a rapidly changing marketplace; |
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Rolling-out our API-driven, account-based, issuer processing solution for card, digital token, and payment transfer transactions that will enable us to target multi-currency and multi-channel digital banking and embedded B2B payment opportunities; |
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Providing advanced technology to our clients to engage end-users via lead generation and text marketing services to enable businesses to better communicate with their customers and integrate our full suite of products; |
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Maintaining technological leadership by continuing to innovate and improve our scalable, extensible, cloud-based technology; |
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Pursuing strategic acquisitions, investments, or partnerships to complement and bolster our suite of fintech products; |
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Creating cross-selling synergies through white-labeling or SaaS distribution enabling us to provide a holistic suite of products and services to financial institutions, technology companies, and SMEs; |
Our market growth strategies will
focus on the following elements: (1) new product development and delivery (2) market penetration (3) market expansion (4) IP, strategic
acquisitions, and partnerships.
It is imperative that upon entrance
into the market with the new platform, we focus on delivering an enhanced experience to our existing digital client base. As we roll this
out, we will also continue discussions with our current and continually evolving pipeline of prospects to understand these opportunities
and the value that we can bring to solve their needs. This strategy also provides growth opportunities with these clients, increases customer
satisfaction and potential referrals, and produces valuable feedback into our product prioritization and roadmap.
Maintaining focus to deliver our
technology to selective target market segments also allows us to deliver a deeper, more targeted set of solutions and experiences. In
turn this will grow our knowledge within these select segments that will translate into further innovation and market penetration.
This continual development process
will contribute to our overall strategy of delivering new, innovative technologies and solutions. It is expected that bringing these to
market will expand opportunities in complimentary and new market segments. Given the Platform’s flexibility and a la carte capabilities,
adapting these solutions and delivering new experiences is a core tenant to growth.
In addition, core to our values
and strategy is the opportunity for growth through intellectual property. This is inclusive of the existing patent portfolio while also
coupled with future innovation. It is also important to continually evaluate new technologies, market entrants and complimentary solutions
to ensure continued growth. We expect that this will include strategic acquisitions of complimentary offerings and portfolio customers,
while also focusing on strategic partnerships where we find synergy in our vision.
With years of fintech experience
and a deep understanding of the industry, management believes we can leverage this expertise, industry contacts and past clients to accelerate
market penetration. Engaging individuals with the ability to integrate our products may prove invaluable. Further, through our channel
partnerships, we have an expansive network of potential clients that continue to show interest in our strategy and opportunity to embed
our financial technologies into their solutions.
Management believes there are
substantial opportunities in emerging and developing markets for our anticipated products. Our mobile payment and digital banking
solutions offer innovative avenues to unbanked and underbanked communities to transact and provide remittances. Further, since
internet connectivity is not required for our text payment solution, individuals with limited internet access will still be able to
transact. These two factors could open our products to markets with immense growth potential.
With our in-house expertise and
our internationally experienced and proven team of subject matter experts via our partnership with Infinios Financial Services BSC’s
(formally NEC Payments B.S.C.), we are focused on resources on delivering growth using
the strategies described above. Both teams operate together in full confidence that the business is being powered by innovative technology
IP running on robust, secure and scalable cloud infrastructure. We expect to continue the innovative development of the core platform
while also developing alongside targeted market segments and clients to deliver productized, secure and scalable solutions and experiences.
Our Products and Services
We are developing and preparing
to deploy a digital-first fintech platform that empowers financial institutions and enterprise brands to deliver “best-of-breed”
B2B and B2C experiences through our revolutionary platform and deployment model. Our modular platform will seamlessly integrate with legacy
and cloud platforms to power a multitude of commerce experiences, including digital payments, financial wellness and more.
Merchant Services
Our core historical business is
merchant transaction services. We create revenue by processing payments for credit and debit cards via POS (point of sale) equipment,
e-commerce gateways, periodic ACH (automatic clearing house) payments and gift & loyalty programs. We currently support over 100 merchants
representing dozens of market verticals in managing their financial transactions.
Each merchant has unique needs
for payment processing. As a result, we have a variety of processing partners to meet each merchant’s requirements. In addition
to these needs, we take into consideration certain aspects of each business in choosing the optimal processing partner including risk,
volume, customer service, integration capabilities, product features and profitability.
Our processing partners include
Total Systems Services (“TSYS”)/Global Payments., JetPay an NCR Payment Solutions Company, Harbortouch Payments a Shift4
Company, Cynergy Data/Priority Payments Systems Group, FIS and Cardconnect/Fiserv Inc., with
each providing products and services that meet each of our merchants’ needs. Currently, our partners manage our backend payment
processing needs in addition to managing risk and compliance on our behalf. Through the implementation of our proprietary payment processing
protocols as we grow our customer base and technology, we expect to manage the risk and compliance ourselves, which will increase our
margins on each transaction processed.
Digital Financial Technology Platform consisting
of Omnichannel Payments and Digital Banking
To power commerce experiences,
our digital financial technology platform (the “Platform”) is being, in part, licensed
from Infinios and incorporates two distinct product pillars: (1) omnichannel payments featuring patented SMS text payment technology
and (2) digital banking capabilities including multi-currency solutions, hyper-segmented savings accounts, buy now, pay later (“BNPL”)
and next generation card issuance. The omnichannel payments pillar will consist of several stand-alone solutions, including hosted ecommerce
checkout, a flexible payment gateway, patented text payment technology, digital wallets, alternative payment methods (APMs), as well
as mobile and contactless payments. The Platform’s digital banking pillar will supply financial institutions with technology to
give their customers – businesses, professionals, and individuals the ability to better manage their finances anywhere, anytime
and at a fraction of the cost of traditional banking and financial services.
Developing and deploying embedded
commerce experiences runs atop the Platform stack. This will include 1) open and private payment and digital banking APIs, 2) select third-party
APIs centered on personalization and automation, 3) UI/UX blueprints and design assets 4) online collaboration and development tools,
and 5) optional professional services engagement and support.
Similar to experience-focused offerings,
our Platform powers immersive content, conversion, marketing automation, payment, and value transfer capabilities for nearly every online
and offline shopping, banking, and financial services scenario. Additionally, our Platform experiences can be taken off-the-shelf or tapped
into via modern APIs to build and embed fully branded and customizable experiences.
In many cases, our products and
services are both available off-the-shelf or through embedded commerce experiences. For example, our patented text payment capabilities
can be licensed off-the-shelf so our client can take advantage of quick market entry while doing this without any lifting or technical
requirements. Alternatively, text payment capabilities and feature sets are available via our open APIs so businesses can embed and customize
the experience, i.e. alter the onboarding experience and subscription triggers.
We believe text payment’s
simple payment process has widespread application and potential for widespread adoption by mobile users because it utilizes a technology
many end users are comfortable with and use daily. The process is quick and user-friendly allowing businesses to simply expand their payment
receiving capabilities. The integration of direct, reliable, instant, and familiar text messaging with secure payments is a vital step
in how we believe we bridge the gap between fintech and mobile wireless systems.
Our white-label, digital
banking technology platform with payment capabilities will equip financial institutions (Fis), technology providers and brands with a
digital “bank-in-a-box” – also referred to as our Banking-as-a-Service (BaaS) product.
Furthermore, our Platform will enable multi-channel, multi-currency, pure digital financial services products unlike many other providers
in the world. It incorporates a “plug-and-play” capability to facilitate deep integration with payment gateways, POS merchant
services, alternative payment mechanisms, open-banking, ERP (“Enterprise Resource Planning”), CRM and web and mobile user
interfaces to form an end-to-end, embedded, payment acceptance and digital banking solution that drives innovative and disruptive digital
distribution products. Anticipated products include:
|
● |
Neo-Banking for consumers and SMEs; |
|
● |
Embedded B2B and consumer virtual payments (VCNs); |
|
● |
Multi-currency money management and P2P money transfer; |
|
● |
Payroll, expenses, management and B2C and G2C disbursements; |
|
● |
Treasury management; |
|
● |
Gift, incentive and reward programs for retail, wholesale and employee benefits; |
|
● |
Any other product that requires a prepaid or credit balance to be held and transacted upon. |
Other attributes to our Platform will include:
|
● |
Patented Technology including a Text-to-Pay patent that enables B2B, B2C and P2P payments via SMS, mobile push, email and other forms of embedded links. Combined with four mobile-to-computer messaging and lead generation patents, we can enable financial institutions, technology companies and businesses to unlock innovative customer experiences. |
|
|
|
|
● |
Personalization and User Experience is also at the core of our Platform. Through marketing automation capabilities, our Platform will provide an industry first online-to-offline customer attribution capability. Licensees of our Platform will be able to link their customer’s online behavior to their buying preferences in real-time in order to personalize the selling and buying experience, streamline checkout and improve conversion rates. |
|
|
|
|
● |
Automation is delivered through our APIs to unlock automated financial transactions and customer experiences. For example, our Platform can be simply configured to create many types of automated customer benefits and incentives including instant cashback or added-value promotions. Further, our Platform will be easily leverageable to create similar money saving experiences like round ups, i.e., rounding to the nearest dollar and depositing the difference between the purchase price and round-up into a digital bank account. |
|
|
|
|
● |
Integration and Embedded Payments are central functions of our Platform. As such, we offer developers and enterprises an open platform with flexible rest APIs to build new payment and financial transaction features in SaaS and cloud apps, or create compelling new digital financial services user experiences from scratch. |
Our Platform continues to be developed including integration,
testing and proper technical certifications before market readiness and client delivery. Management believes the Platform will be rolled
out in stages beginning in the first quarter of 2022. We expect that our Platform will continue to evolve as discussed to continually
provide ongoing improvements, new features and functions and improved opportunities to deliver best in class experiences to the markets
we serve.
Employees
As of the date of this annual report, we have eighteen
full-time employees. In addition to our employees, we utilize various consultants and contractors for other services on an as-needed basis.
Item 1A.
Risk Factors.
As a smaller reporting company, as defined in Rule
12b-2 of the Exchange Act, we are not required to provide the information required by this Item.
Item 1B.
Unresolved Staff Comments
Not applicable.
Item 2.
Properties
Our headquarters is located at 5876 Owens Avenue,
Suite 100, Carlsbad, Ca 92008, consisting of approximately 3,000 square feet of office space. Our lease on this facility expires in February
2025. We anticipate that following the expiration of the lease, during the term of the current lease, depending on various factors, we
will be able to lease or purchase additional or alternative space at commercially reasonable terms.
Item 3. Legal Proceedings
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 Payments was
not a party. AppTech Payments substantially performed under the agreement but the second agreement to extend the final payment was executed
under alleged duress. The settlement amount of $150,000 was paid in monthly installments of $15,000. On December 30, 2020, full payment
was made in accordance with a modified settlement payment schedule.
On December 19, 2019, the Company entered into a settlement
and release agreement with two shareholders. The total obligation was for $240,000 and is to be paid out over three years beginning February
15, 2020. We are current on the modified repayment schedule with the final payment scheduled to be made on November 15, 2022.
In July of 2020, an owner and corporation having a
non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”).
in the County of San Diego, State of California. Plaintiffs amended the Complaint on March 11, 2021. The claims include breach of contract,
intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Service of process occurred on January 8, 2021. Management
believes the non-binding MOU terminated after no Definite Agreement was executed between the parties, and negotiations ceased December
20, 2016. We filed an answer to the Amended Complaint on April 27, 2021 and began discovery. Management does not believe Plaintiffs’
claims for damages have merit or are supported by Plaintiffs’ evidence. We are filing a Summary Judgment to request an Order from
the Court to narrow the issues in the Amended Complaint. This matter is scheduled for trial on July 8, 2022. We currently own a judgment
dated February 17, 2017, against the owner and corporation in the amount of $516,932 plus interest. We are in the process of having the
judgment assigned to AppTech Payments Corp. and renewed. Management plans to use the judgment to assist in the possible settlement and
dismissal of this case prior to trial.
On July 14, 2021, EMA Financial LLC, a Delaware limited
liability company (“EMAF”), filed a complaint in the Southern District of New York against the Company. In its complaint,
EMAF alleged that the Company breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a
securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess
of $2,750,000, reimbursement of costs and expenses, including reasonable legal fees, and non-interference. On September 2, 2021, EMAF
filed a motion for summary judgment. On September 9, 2021, AppTech filed a motion to dismiss on the grounds the agreements were void as
a result of the illegal activity by the plaintiff. On October 15, 2021, the parties filed memorandums in opposition to the respective
motion. On October 25, 2021, the parties filed memorandums of law in further support of their respective motions. We believe the EMAF’s
claims are meritless and intend to vigorously defend against this lawsuit. The parties have engaged in settlement discussions with
an expected range of potential liability between $400,000 and $550,000, which includes principal and accrued interest of the convertible
notes payable.
ITEM 4.
Mine Safety Disclosures
Not applicable.
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
As
previously disclosed, AppTech Payments Corp. (“AppTech” or the “Company”) is a Delaware Corporation incorporated
on December 23, 2021, which reflects the domestication of the company, previously incorporated in Wyoming as AppTech Corp.
The Company successfully
completed its capital raise and uplisting onto NASDAQ (herein referred to its “Offering”) on January 7, 2022. As part of
the Offering, the Company executed a 9.5 to 1 reverse split of its common stock. In addition, the Offering sold 3,614,458 units of our
common stock (a unit consisted of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. In
addition, 542,168 warrants were granted. The Offering provided net proceeds of approximately $13.353 million. The Company’s current
cash position is significant enough to support the daily operations for a period in excess of one year from the date of filing this 10-K.
All shares and share prices within this 10-K have been adjusted to reflect the stock split.
AppTech
Payments Corp. is a FinTech company providing electronic payment processing technologies and merchant services. These technologies allow
businesses to accept cashless and/or contactless payments, such as credit cards, ACH, wireless payments, and more. Their patented, exclusively
licensed and/or proprietary merchant services software offers or will offer integrated solutions for frictionless digital and mobile payment
acceptance; AppTech is supplementing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based
issuer processing for card, digital tokens, and payment transfer transactions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors
in which communications have ceased, contingent liabilities, 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 five financial institutions to service their merchants
for which represented 100% of accounts receivable as of December 31, 2021 and 2020. The loss of one of these financial institutions would
not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company.
For the years ended December 31, 2021 and 2020, the one merchant (customer) represented approximately 11% and 36% of the total revenues,
respectively. The loss of this customer would not have significant impact on the Company’s operations.
Software Development Costs
The Company capitalizes software development costs
in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements
are expensed as incurred.
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 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 financial statements.
The Company provides merchant processing solutions
for credit cards and electronic payments. In all cases, the Company acts as an agent between the merchant which generates the credit card
and electronic payments, and the bank which processes such payments. The Company’s revenue is generated on services priced as a
percentage of transaction value or a specified fee transaction, depending on the card or transaction type. Revenue is recorded as services
are performed which is typically when the bank processes the merchant’s credit card and electronic payments.
Consideration paid to customers, such as amounts earned
under our customer equity incentive program, are recorded as a reduction to revenues.
Consideration paid to customers such as amounts earned under our customer
equity incentive program, are recorded as a reduction to revenue. As of December 31, 2021, there were 526 shares of our common stock with
a market value of $16,250 issued to our customer American Residential Warranty to preserve the relationship. The stock issuance was recorded
as a reduction of income.
Fair Value Measurements
The Company follows FASB ASC 820, Fair Value Measurements
and Disclosures (“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes
a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value
hierarchy defined by ASC 820 are described below:
Level 1 |
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
Level 2 |
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
Level 3 |
Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their
fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable.
The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If
the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is
based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s
financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term
maturity of these financial instruments.
Transactions involving related parties cannot be presumed
to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations
about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent
to those that prevail in arm’s-length transactions unless such representations can be substantiated.
The following table presents liabilities that are
measured and recognized at fair value as of December 31, 2021 and 2020 on recurring basis:
Schedule of derivative liabilities | |
| | | |
| | | |
| | | |
| | |
| |
December 31, 2021 | |
|
| |
| |
| |
| |
Total Carrying |
| |
Level 1 | |
Level 2 | |
Level 3 | |
Value |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 598,781 | | |
$ | 598,781 | |
| |
December 31, 2020 | |
|
| |
| |
| |
| |
Total Carrying |
| |
Level 1 | |
Level 2 | |
Level 3 | |
Value |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 597,948 | | |
$ | 597,948 | |
See Note 6
for discussion of valuation and roll forward related to derivative liabilities.
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 years ended December 31, 2021 and 2020 were $169,034
and $49,250, 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 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 December 31, 2021 and 2020, 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 December 31, 2021, 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 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 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 December 31, 2021 and 2020, 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 year. Diluted net income
(loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding
during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include
stock options, warrants granted, convertible debt and convertible preferred stock.
The number of common stock equivalents not included
in diluted income per share was 1,263,544 and 1,467,863
for the years ended December 31, 2021 and 2020, respectively. The weighted average number of common stock equivalents is not included
in diluted income (loss) per share, because the effects are anti-dilutive.
Schedule of anti dilutive stock |
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
December 31, 2020 |
|
|
|
|
|
Series A preferred stock |
|
|
1,149 |
|
|
|
1,149 |
|
Convertible debt |
|
|
175,632 |
|
|
|
634,345 |
|
Warrants |
|
|
31,579 |
|
|
|
21,053 |
|
Options |
|
|
1,055,184 |
|
|
|
811,316 |
|
Total |
|
|
1,263,544 |
|
|
|
1,467,863 |
|
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.
The Company will be adopting the new beneficial conversion
feature (“BCF”) standard as of January 1, 2022, which no longer requires BCF’s.
Derivative Liability
The Company issued debts that consist of the issuance
of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution provisions.
The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s
common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The
number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives,
the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the
issuance date and at each reporting period.
Stock Based Compensation
The Company recognizes as compensation expense
all share-based payment awards made to employees, directors, and consultants including grants of stock, 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.
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. Since the Company derives its revenues from processing of purchases from our merchant services clients, a downturn in
economic activity, such as associated with the current coronavirus pandemic, could reduce the volume of purchases it processes, and thus
its revenues. In addition, such a downturn could cause its merchant customers to cease operations permanently decreasing our payment processing
unless new customers are found. The continuing effects of the potential impact cannot be estimated at this time.
NOTE
3 – PATENTS
Patents
On
June 22, 2017, AppTech executed an Amendment to Asset Purchase Agreement with GlobalTel Media, Inc., the details of which were previously
disclosed by AppTech. The referenced agreement acquired intellectual property assets including 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”. AppTech intends to use these
assets as an integral part of future business expansion and product development. As of December 31, 2021 and 2020, amounts included
in accounts payable related to the assumption of liabilities in connection with the patents were $0 and $280,000, respectively.
See Note 8
for more information on capitalized prepaid software development and license.
NOTE
4 – ACCRUED
LIABILITIES
Accrued liabilities as of December 31, 2021 and 2020
consist of the following:
Schedule
of Accrued Liabilities | |
| | | |
| | |
| |
December
31, 2021 | |
December
31, 2020 |
| |
| |
|
Accrued
interest – related parties | |
$ | — | | |
$ | 1,056,450 | |
Accrued
interest – third parties | |
| 1,420,284 | | |
| 1,378,660 | |
Accrued
payroll | |
| 294,447 | | |
| — | |
Accrued
residuals | |
| 98,009 | | |
| 62,174 | |
Anti-dilution
provision* | |
| 1,289,502 | | |
| — | |
Accrued
merchant equity | |
| — | | |
| 91,023 | |
Other | |
| 33,839 | | |
| 44,027 | |
Total
accrued liabilities | |
$ | 3,136,081 | | |
$ | 2,632,334 | |
|
*The agreement between the Company and Infinios has an anti-dilution provision.
To remain in compliance, the Company accrued 73,848 shares of its common stock at $17.46 per share for a total value of $1,289,502 as
of December 31, 2021. The issuance of these shares is treated additional consideration to Infinios and is expected to be issued in the
second quarter of FY2022. Subsequent to year end, and in connection with the capital raise discussed in Note 1, the Company will be required
to issue additional shares to Infinios in connection with the anti-dilution provision. |
Accrued Interest
Notes payable and convertible notes payable incur
interest at rates between 10% and 24%, 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 ended the program on December 31, 2015. The remaining liability
of $88,903 was written off on December 31, 2021 as the statute of limitations had expired.
NOTE
5 – 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 December
31, 2021 and 2020. Related parties noted below are either members of management, board of directors, significant shareholders or individuals
in which have significant influence over the Company.
Loans Payable – Related Parties
During the years ended December 31, 2021 and 2020,
the Company paid $34,400 and $59,001 loans payable from related parties, respectively. As of December 31, 2021 and 2020, the balance of
the loans payable was $0 and $34,400, 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
December 31, 2021 and 2020, accrued interest related to the subordinated notes was $0 and $153,545, respectively. On September 30, 2021,
the Company converted notes issued for $529,795 of principal and interest into 55,767 shares of the Company’s common stock.
Convertible Notes Payable
In 2020, the Company entered into a Securities
Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300,000 convertible note bearing
interest at 12% per annum and 24%
per annum on August
21, 2021 maturity date (the “Note”). The Note matures in 365 days from the date of issuance. The Note is
convertible at the option of the holder at any time into shares of the Company’s common stock at one dollar ($1.00) for the
one hundred and eighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest
closing price of the common stock during the preceding twenty five (25) trading day, ending on the last complete trading day prior
to the issue date of the Note. 2) seventy five (75) percent of the lowest trading price for the common stock during the twenty five
(25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares.
In the event of a default of the Note, the Holder
in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the
trading day immediately preceding the issue date or 2) seventy five (75) percent of either the lowest trading price or the closing bid
price, whichever is lower during any trading day in which the event of default has not been cured.
The embedded conversion feature of this Note was
deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company
also sold warrants to the investors to purchase up to an aggregate of 21,053 shares of common stock exercisable at fourteen dollars and
twenty-five cents ($14.25) and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance
was in excess of the Note (see Note 6 for valuation) resulting in full discount of the Note.
The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable.
As of December 31, 2021, the convertible note payable balance was $279,500
and has accrued interest of $38,868.
Total interest expense on convertible notes payable,
inclusive of amortization of debt discount of $280,174, amounted to $314,801 for the year ended December 31, 2021. As of December 31,
2021, the convertible note payable discount is $0.
See Note 6
– Derivative Liabilities.
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 $0.95 per share. As of December 31, 2021 and 2020, accrued interest related to the convertible notes was $0 and
$76,187, 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. On February 24, 2021, the chief executive officer assigned
$200,000 in convertible notes to direct relative. On April 29, 2021, the Company issued 321,671 shares of the Company’s common stock
to the convertible notes payable holders in connection with debt conversion. The closing market price of the Company’s common stock
on the date of the agreement was used to value the excess fair value of equity issuance. The amounts were reflected as a reduction of
convertible notes payable, accrued interest, and excess fair value of equity issuance as follows:
Schedule of Convertible note and warrant lawsuit | |
| | |
Convertibles note payable | |
$ | 222,000 | |
Accrued interest | |
| 83,587 | |
Excess fair value of equity issuance | |
| 1,379,194 | |
Total | |
$ | 1,684,781 | |
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 $9.50 per share. As of December 31, 2021 and 2020, the accrued interest related to the convertible notes was $30,839 and $25,833, respectively.
The Company amended the convertible note on March 2, 2022 and an agreed offer of a $10,167 discount on the principal and interest resulting
in a $71,500 payment in full.
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 $3.14 to $9.50 per share. In addition, the Company issued 42,105
shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 42,105
shares of common stock at $9.50 per share within one year of the note issuance date. As of December 31, 2021 and 2020, the Company
held the obligation to repurchase the shares for $400,000. As of December 31, 2021 and 2020, the accrued interest related to the convertible
notes was $268,083 and $227,083, respectively. On March 30, 2022, the Company entered into three
forbearance agreements which granted the holders 2,105 shares of our common stock in exchange for not enforcing the terms of the agreement
for a period of twelve months.
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 $5.70 per share. As of December 31, 2021 and 2020, accrued interest related to the convertible notes
was $0 and $564,013 of which $0 and $265,875, respectively, was due to related parties. On April 29, 2021, the Company issued 157,897
shares of the Company’s common stock, of which 74,276 shares of common stock were issued to related parties to the convertible note
holders in connection with debt conversion. The closing market price of the Company’s common stock on the date of the agreement
was used to value the excess fair value of equity issuance. The amounts were reflected as a reduction of convertible notes payable, accrued
interest, and excess fair value of equity issuance as follows:
Schedule of convertible notes payables | |
| | |
Convertible notes payable | |
$ | 170,000 | |
Convertible notes payable – related parties | |
| 150,000 | |
Accrued interest | |
| 306,637 | |
Accrued interest – related parties | |
| 273,375 | |
Excess fair value of equity issuance | |
| 587,723 | |
Excess fair value of equity issuance – related parties | |
| 523,968 | |
Total | |
$ | 2,011,703 | |
Notes Payable
In 2020, the Company entered into a 30-year unsecured
note payable with U.S. Small Business Administration for $68,200 in proceeds. The notes payable incurred a $100 fee upon issuance and
incurs interest at 3.75% per annum. All payments of principal and interest are deferred for thirty months from the date of the note. As
of December 31, 2021 and 2020 the balance of the note payable was $68,300 and accrued interest was $3,842 and $1,281, respectively.
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. On
September 27, 2021 and September 30, 2021, the Company converted two of the notes issued for $74,000 into 7,789 shares of the Company’s
common stock. On September 30, 2021, the Company entered into a forbearance agreement which granted the holders 173 shares of the Company’s
common stock with a current fair market value of $89,030 in exchange for not enforcing the terms of the agreement for a period of twelve
months.
Two significant shareholders funded the Company’s
operations through notes payable in primarily 2009 and 2010. The notes payable incur interest at 10% per annum and were due on December
31, 2016. As of December 31, 2021, and 2020, the aggregate balance of the notes payable was $596,726 and $620,355,
respectively and accrued interest was $382,917 and $638,016, respectively. On May 2, 2021, the Company entered into a debt reduction
and confirmation agreement with a significant shareholder. The parties agreed to reduce the outstanding accrued interest in the amount
of $275,000. On September 29, 2021, the Company converted notes issued for $50,631 of principal and accrued interest into 5,329 shares
of the Company’s common stock. On September 29, 2021, the Company entered into a forbearance agreement which granted the holder
3,140 shares with a current fair market value of $34,908 in exchange for not enforcing the terms of the agreement for a period of twelve
months. On February 4, 2022, the Company entered into an amended forbearance agreement. The parties agreed to reduce the outstanding
accrued interest in the amount of $75,000
along with a $50,000
payment of accrued interest.
In 2008, the Company entered into a note payable with
a third party for $10,000 in total proceeds. The note payable had a flat interest amount due of $21,000. The Company accrued an additional
$4,000 of interest on October 20, 2021. Also on October 20, 2021, the Company converted notes issued for $35,000 of principal and accrued
interest into 3,684 shares of the Company’s common stock
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 84,211 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. On September 27, 2021, the Company converted notes issued for $225,000 of principal and accrued interest into 23,684 shares
of the Company’s common stock.
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 December 31, 2021 and 2020, the balance on the note payable was $0 and $88,136 and
accrued interest related to the note payable was $67,892 and $59,900, respectively. On September 30, 2021, the Company entered into a
forbearance agreement which granted the holder 463 shares with a current fair market value of $5,156 in exchange for not enforcing the
terms of the agreement for a period of twelve months.
In 2007, the Company entered into a 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 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 $12,800, respectively, which represented an interest rate of 10% per
annum during the years ended December 31, 2021 and 2020. On September 27, 2021, the Company entered into a forbearance agreement which
granted the holder 673 shares with a current fair market value of $8,608 in exchange for not enforcing the terms of the agreement for
a period of twelve months.
In 2007, the Company entered into note payable with
a third party for $221,800 in proceeds. The note payable incurs interest at 10% per annum. On December 31, 2013, the holder received an
arbitration settlement for the principal and accrued interest. As of December 31, 2021 and 2020, accrued interest related to the note
payable was $500,384 and $470,143, respectively. On September 30, 2021, the Company entered into a forbearance agreement which granted
the holder 1,167 shares with a current fair market value of $12,975 in exchange for not enforcing the terms of the agreement for a period
of twelve months.
In 2007, the Company entered into note payable with
a significant shareholder for $58,600 in proceeds. As of December 31, 2021 and 2020, accrued interest related to the note payable was
$0 and $76,372, respectively. On September 30, 2021, the Company converted notes issued for $139,368 of principal and accrued interest
into 14,670 shares of the Company’s common stock.
In 2016, the Company entered into three notes payable
for $83,582 in proceeds. On October 3, 2021, the Company converted one note issued for $29,597 of principal into 3,115 shares of the
Company’s common stock. On October 4, 2021, the Company entered into a forbearance agreement on the notes which granted the Holder
284 shares with a current fair market value of $4,245 in exchange for not enforcing the terms of the agreement for a period of
twelve months.
NOTE
6–DERIVATIVE
LIABILITIES
The Company issued debts that consist of the issuance
of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions.
The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s
common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The
number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives,
the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and revalued
as of December 31, 2021 and 2020.
Based on the convertible notes described in Note
5, the derivative liability day one loss is $389,712 and the change in fair value as of December
31, 2021 and 2020 is ($25,581) and $71,464, respectively. The fair value of applicable derivative liabilities on note, warrants and change
in fair value of derivative liability are as follows for the year ended December 31, 2021.
Schedule of fair value of derivative liabilities | |
| | | |
| | | |
| | |
| |
Derivative Liability Convertible Notes | |
Derivative Liability Warrants | |
Total |
Balance as of December 31, 2020 | |
$ | 378,134 | | |
$ | 219,814 | | |
$ | 597,948 | |
Change in fair value | |
| (79,847 | ) | |
| 105,428 | | |
| 25,581 | |
Change in fair value due to conversion | |
| (24,748 | ) | |
| — | | |
| (24,748 | ) |
Balance as of December 31, 2021 | |
$ | 273,539 | | |
$ | 325,242 | | |
$ | 598,781 | |
As of December 31, 2021, the fair value of the derivative
liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
Schedule of pricing mode with assumptions | |
| | |
Market value of common stock | |
$ | 12.45 | |
Expected volatility | |
| 56.9 | % |
Expected term (in years) | |
| 0.25 | |
Risk-free interest rate | |
| 0.41 | % |
As of December 31, 2020, the fair value of the derivative
liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
Market
value of common stock |
|
|
$8.55-
$9.50 |
|
Expected
volatility |
|
|
98.9%
- 99.5 |
% |
Expected
term (in years) |
|
|
0.73 |
|
Risk-free
interest rate |
|
|
0.09%
- 0.11 |
% |
As of December 31, 2021, the fair value of the derivative
liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
Market value of common stock | |
$ | 12.45 | |
Expected volatility | |
| 104.6 | % |
Expected term (in years) | |
| 3.88 | |
Risk-free interest rate | |
| 0.76 | % |
As of December 31, 2020, the fair value of the derivative
liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
Market value of common stock |
|
|
$8.55
- $9.50 |
|
Expected volatility |
|
|
96.4% - 100.3 |
% |
Expected term (in years) |
|
|
5.00 |
|
Risk-free interest rate |
|
|
0.41% - 0.42 |
% |
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. 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 December 31, 2021, including the total amount of imputed interest related:
Years ended December 31:
Schedule of Future Minimum Rental Payments for Operating Leases | | |
| | |
2022 | | |
$ | 85,039 | |
2023 | | |
| 87,590 | |
2024 | | |
| 90,217 | |
2025 | | |
| 7,536 | |
Operating Lease Total | | |
$ | 270,382 | |
Less: Imputed interest | | |
| (45,890 | ) |
Total | | |
$ | 224,492 | |
The rent expense was $61,180 and $61,691 for the years
ended December 31, 2021 and 2020, respectively.
NOTE
8 - COMMITMENTS
AND CONTINGENCIES
Litigation
Former Shareholders Lawsuits
In November 2017, two shareholders of AppTech, Laura
Farris and Eric Ottens, filed a lawsuit against the Company in the State of California, claiming conversion, aiding and abetting conversion,
breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and declaratory relief. The lawsuit
was removed to the United States District Court for the Southern District of California. On December 19, 2019, the Company entered into
a settlement and release agreement with the plaintiffs pursuant to which the Company will pay the plaintiffs an aggregate of $240,000
in installments over three years, commencing on February 15, 2020. On January 24, 2021, the parties entered a stipulation modifying
the repayment schedule of the settlement which altered the timing of payments over the three-year repayment period.
The final payment
was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company.
Other Lawsuit
In July of 2020, an owner and corporation having a
non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”).
in the County of San Diego, State of California. Plaintiffs amended the Complaint on March 11, 2021. The claims include breach of contract,
intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Service of process occurred on January 8, 2021. Management
believes the non-binding MOU terminated after no Definite Agreement was executed between the parties, and negotiations ceased December
20, 2016. We filed an answer to the Amended Complaint on April 27, 2021 and began discovery. Management does not believe Plaintiffs’
claims for damages have merit or are supported by Plaintiffs’ evidence. We are filing a Summary Judgment to request an Order from
the Court to narrow the issues in the Amended Complaint. This matter is scheduled for trial on July 8, 2022. We currently own a judgment
dated February 17, 2017, against the owner and corporation in the amount of $516,932 plus interest. We are in the process of having the
judgment assigned to AppTech Payments Corp. and renewed. Management plans to use the judgment to assist in the possible settlement and
dismissal of this case prior to trial.
Convertible Note and Warrant Lawsuit
On July 14, 2021, EMA Financial LLC, a Delaware limited
liability company (“EMAF”), filed a complaint in the Southern District of New York against the Company. In its complaint,
EMAF alleged that the Company breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a
securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess
of $2,750,000, reimbursement of costs and expenses, including reasonable legal fees, and non-interference. On September 2, 2021, EMAF
filed a motion for summary judgment. On September 9, 2021, AppTech filed a motion to dismiss on the grounds the agreements were void as
a result of the illegal activity by the plaintiff. On October 15, 2021, the parties filed memorandums in opposition to the respective
motion. On October 25, 2021, the parties filed memorandums of law in further support of their respective motions. We believe the EMAF’s
claims are meritless and intend to vigorously defend against this lawsuit. The parties have engaged in settlement discussions with
an expected range of potential liability between $400,000 and $550,000, which includes principal and accrued interest of the convertible
notes payable.
Significant Contracts
Capital Raise
In February 2021, the Company entered into an engagement
letter with Maxim Group LLC (“Maxim”) as the lead management underwriter for a follow-on offering which is non-binding. This
engaged Maxim through September 30, 2021 as exclusive financial advisor, lead managing underwriter and sole book running manager and investment
banker in connection with the offering. On October 27, 2021, Maxim and the Company terminated all relevant agreements. In satisfaction
of all amounts due and owning, and all amounts that shall become due and owing, the Company issued Maxim 21,052 shares of the Company’s
common stock in association with the termination.
On October 18, 2021, the Company entered in an engagement
letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as lead underwriter, deal manager and
investment banker for the Company’s proposed firm commitment follow-on public offering and uplisting. This engaged EF Hutton through
the earlier of (i) October 2022 or (ii) the closing of a follow-on offering. The offering shall consist of approximately fifteen million
worth of securities subject to the due diligence examination of the Company. The actual size of the offering, the precise number of securities
to be offered by the Company and EF Hutton will depend upon the capitalization of the Company among other various factors. EF Hutton
shall be granted an option to acquire an additional 15% of the total number of securities as an over-allotment, an underwriting discount
of 8%, accountable expense allowance of $185,000
and an expense allowance equal to 1%. See note 1 for information on the capital raise completed
subsequent to December 31, 2021.
Silver Alert Services, LLC
In August 2020, the Company entered into a
strategic partnership with Silver Alert Services, LLC doing business as Lifelight Systems (“Lifelight”). The partnership
would expand AppTech’s reach into new markets and provide advanced technological solutions for the telehealth and personal
emergency response systems markets. The strategic partnership provided a promissory note to Lifelight for up to $1.0 million dollars
with an interest rate of three percent per annum upon successful completion of Lifelight’s Personal Emergency Response System
(“PERS”) pilot program. Also, Lifelight was granted an option for the right to purchase 473,684 shares of AppTech for
which 105,263 shares were exercisable at $0.0095 and 368,421 were exercisable at $2.375 upon the successful completion of the PERS
pilot program. These options had a grant date fair value of at $1,549,999 and $5,424,987, respectively using a Black-Scholes options
pricing model. No stock-based compensation had been recorded as vesting was determined to be highly improbable.
The strategic partnership was cancelled on February
17, 2022.
Infinios
Financial Services (formerly NEC Payments B.S.C.)
On October 1, 2020, the Company entered into a strategic
partnership with Infinios Financial Services BSC (formally NEC Payments B.S.C) (“Infinios”) through a series of agreements,
which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription
License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”).
The intent of the Agreements was for the Company to
deploy Infinios’s technologies, allowing the Company to extend its product offering to include flexible, scalable and secure payment
acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration
of cash and other legally payment types to distanced and contactless card and real time payment transactions. Infinios will assist the
Company to complete the development of its text payment solution and provide “best in class” software that complements the
Company’s intellectual property. The Agreements, among other things:
|
(a) |
provide the Company a license to access and use Infinios’ digital banking and payment technology solutions, as identified in the Subscription License Order Form; |
|
|
|
|
(b) |
grant the Company conditional exclusivity in the United States for all of Infinios’ payment acceptance processing technologies contingent upon the Company reaching transaction volume target goals; |
|
|
|
|
(c) |
grant Infinios a license to develop software without the possibility of infringing upon the Company’s intellectual property; |
|
|
|
|
(d) |
creates the parameters in which Infinios shall assist the Company in completing the development of its text payment system related to the Company’s patents; |
|
|
|
|
(e) |
grant
Infinios a fifteen percent (15%) equity stake in
the Company, on a fully diluted basis; |
|
|
|
|
(f) |
set revenue sharing splits between AppTech and Infinios for all revenues generated from digital banking technologies licensed to AppTech. |
Under the Agreements, either party had the right to
terminate the agreement should the Company fail to secure a funding in the amount of $3,000,000 within 45 days from the effective date
of the Agreements.
On November 19, 2020, the Company entered into Amendment
No. 1 to the Subscription License and Services Agreement whereby the funding date was amended to no later than December 18,
2020. All other terms of the original Agreements remained in full force and effect.
On February 11, 2021, the Company entered into an
amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License
Order Form with Infinios (collectively the “Restated Agreements”). The Restated Agreement created an engagement fee of $100,000
due within three business days from the effective date, reduced the funding amount triggering the enforceability of the Restated Agreements
to $707,500 (“Funding”), altered the date in which initial fees are payable to no later than March 5, 2021 (the “Funding
Date”) and provided terms to prevent dilution for Infinios’ equity compensation for future funding secured by the Company.
The fees in the Restated Agreements are payable within three business days from the effective date, at or before the Funding Date, at
the Subscription Service Ready Date annually and monthly. The gross total fees due under the Restated Agreements are $2,212,500, excluding
pass-through costs associated with infrastructure hosting fees.
On February 19, 2021, the Company completed and validated
its contractual obligations and paid to Infinios the $100,000 engagement fee. On February 29, 2021, the Company paid the initial fee
of $707,500 to Infinios prior to the Funding Date. On March 25, 2021, the Company issued 1,895,948 shares of common stock to an
Infinios affiliate on a fully diluted basis with piggyback rights. The Company valued the common stock issuance at $67,543,182
based upon the closing market price on the effective date of the transaction based on the closing market price of the Company’s
common stock. The issuance was initially recorded as a $5,000,000 asset, but further year-end analysis by
Management yielded a $3,754,462 asset and $63,788,720 expense in excess fair value of equity issuance
over assets received. The capitalized asset was classified as capitalized prepaid software development of $2,750,000
and capitalized licensing of $1,004,462.
The estimated amortization is a 5-years life based on the term of the licensing agreement. The Company may revise the value of the asset
and estimated life as more information is made available.
As of December 31, 2021, the following fees were paid:
Schedule of fees paid to NECP platform | |
| | |
Engagement Fee (prepaid licensing cost) | |
$ | 100,000 | |
License subscription fee (prepaid licensing cost) | |
| 750,000 | |
Annual maintenance subscription fee (prepaid licensing
cost) | |
| 112,500 | |
Implementation fee (capitalized software costs) | |
| 325,000 | |
Infrastructure implementation fee (capitalized software costs) | |
| 65,000 | |
Training fee (50% due at Funding Date) | |
| 50,000 | |
Total | |
$ | 1,402,500 | |
The annual maintenance subscription fee of $112,500
will be due annually every March through March 2025. In addition, the infrastructure support fee of $72,000 will be due annually beginning
in 2022 and ending in 2026.
Innovations Realized LLC
On October 2, 2020, the Company entered into an independent
contractor services agreement with Innovations Realized, LLC (“IR”) to develop a strategic operating plan focused on the design,
execution and go to market implementation of the Infinios platform to enter the United States market.
On February 18, 2021, the Company entered into an
amended independent contractor services agreement with IR. On February 19, 2021, the initial payment of $76,000 was made and on February
24, 2021 the second payment of $76,000 was made, on April 5, 2021 the third payment of $152,000 and on May 5, 2021, the fourth and fifth
payment of $114,000 was made. The outstanding balance of $171,000 was paid in January 2022.
Under the October 2020 agreement, the Company granted
options to purchase 42,105 shares at a price of $0.095 and 263,157 shares at $2.375 and exercisable for two years after vesting. These
options vest in equal monthly installments over 24 months. In addition, the options early vesting based on the completion date of the
statement of work or the IR principle becoming an employee of AppTech. These options had a grant date fair value of $1,399,992 and $8,749,701
using a Black Scholes pricing model. The options to purchase 107,713 shares valued at $3,581,424 were recorded as an expense, as excess
fair value of equity issuance, and to purchase 32,804 shares valued at $1,259,063 were recorded
as an asset, as capitalized prepaid software development and licensing, as of December 31, 2021 based on the estimated fair market value
of services had the Company developed the platform. The estimated amortization is a 5-year life based on the term of the licensing agreement.
The Company may revise the estimated life upon completion of the platform.
Domain Sales
On December 21, 2020, the Company sold the domain
“bubblepay.com” for $72,500 to a third party.
Employee versus Contractor Classification
The Company compensated various individuals as consultants.
Annually, the Company issues Form 1099s for amounts paid to them. In addition, a portion of these consultants did not have arrangements
which specified compensation payable to them. The Company risks potential tax and legal actions should these consultants be deemed to
be employees by governmental agencies. The Company added all relevant independent contractors as paid full-time employees during 2021.
Executive Compensation
On April 28, 2021, the Company entered into new employment
and stock options agreements with its named executive officers. The agreements, among other things, each employment agreement, apart from
the Chief Executive Officer which implements a guaranteed bonus structure, shall provide for a starting base salary and potential business
development revenue sharing at rates ranging from 20-50% of net processing revenue. Each Employment Agreement also provides a potential
annual bonus, which is subject to adjustment by the Board from time to time. Further, stock option awards for certain named executives
were provided, subject to the applicable vesting schedule. Each Employment Agreement provides that the applicable named executive officer’s
employment with us is “at will”. The named executive officers are entitled to receive all other benefits generally available
to our executive officers.
NOTE
9 – STOCKHOLDERS’
EQUITY (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 December 31, 2021 and 2020. The holders of Series A preferred stock are entitled to one vote per share on an “as converted”
basis on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors. The
holders of Series A preferred stock are entitled to any dividends that may be declared by the Board of Directors out of funds legally
available, therefore on a pro rata basis according to their holdings of shares of Series A preferred stock, on an as converted basis.
In the event of liquidation or dissolution of the Company, holders of Series A preferred stock are entitled to share ratably in all assets
remaining after payment of liabilities and have no liquidation preferences. Holders of Series A preferred stock have a right to convert
each share of Series A into 82 shares common stock.
Common Stock
The Company is authorized to issue 105,263,157 shares
of $0.001 par value common stock (1,000,000,000 shares were authorized as of December 31, 2020). There were 11,944,600 and 9,317,017,
respectively, shares of common stock outstanding as of December 31, 2021 and 2020. The holders of common stock are entitled to one vote
per share on all matters submitted to a vote of stockholders and are not entitled to cumulate their votes in the election of directors.
The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available,
therefore subject to the prior rights of holders of any outstanding shares of preferred stock and any contractual restrictions against
the payment of dividends on common stock. In the event of liquidation or dissolution of the Company, holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred
stock. Holders of common stock have no preemptive or other subscription rights and no right to convert their common stock into any other
securities.
During the years ended December 31, 2021 and 2020,
the Company issued 69,532 and 422,315, 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 $810,446
and $2,631,899, 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 statements of operations.
During the year ended December 31, 2020, the Company
granted 36,842 shares of common stock to the board of directors valued at $196,700 or $5.34 per share. The shares vest quarterly
over the period of approximately one year. The Company valued the stock issuances, earned as of December 31, 2021, at $114,741 based
on the closing market price of the Company’s common stock on the date of the agreement. The amount was expensed to general and
administrative expenses on the accompanying statement of operations. The Company issued 21,491 shares of common stock during 2021
valued at $65,567 based on the closing market price of the Company’s common stock on the date of the agreement, over the remaining
term of the directors.
During the year ended December 31, 2021, the Company
issued 526 shares of common stock to a merchant in connection with a new contract extension. The Company valued the common stock
issuance at $16,250 based upon the closing market price of the Company’s common stock on the date of the agreement. The
amount was reflected as a reduction of revenue on the accompanying statement of operations.
During the year, the Company issued 21,052 shares
of common stock in connection with a judgment purchase agreement from a third party. The judgment is for damages in the amount of $516,932
plus statutory interest against FlowPay Corporation and R. Wayne Steiger. The Company valued the common stock issuance at $1,000,000 based
on the closing market price of the Company’s common stock on the date of the judgment purchase.
During the year ended December 31, 2021, the Company
issued 2,763 shares of common stock to two merchants in connection with the merchant equity program. The Company recorded the
common stock issuance at the historical price of $2,121 based upon the closing market price of the Company’s common stock on the
date of the qualification. The amount was reflected as a reduction of the merchant equity liability. No additional shares will be issued
under the program since it ended on December 31, 2015. The remaining liability of $88,902
was written off on December 31, 2021.
During the year,
the Company issued 17,367 shares of common stock to settle an accounts payable balance.
During the year, the Company issued 597,399 shares
of common stock to several convertible note payable holders of which 401,276 shares of common stock were issued to related parties in
connection with debt conversions. The closing market price of the Company’s common stock on the date of the agreement was used to
value the excess fair value of equity issuance. The amounts were reflected as a reduction of convertible notes payable, accrued interest,
and excess fair value of equity issuance as follows:
Schedule of convertible related party | |
| | |
Convertible notes payable | |
$ | 857,698 | |
Convertible notes payable – related parties | |
| 395,630 | |
Accrued interest | |
| 674,199 | |
Accrued interest – related parties | |
| 383,964 | |
Excess fair value of equity issuance | |
| 816,476 | |
Excess fair value of equity issuance – related parties | |
| 1,911,769 | |
Total | |
$ | 5,039,736 | |
See Note 8
– Significant Contracts for additional common stock issuance.
Stock Options
During the year ended December 31, 2020:
| a) | options to purchase 13,159 shares of common stock at $5.34 were granted as compensation for board of director
services. The options vest in equal monthly installments over 12 months. The options were valued at $70,235 using a Black-Scholes options
pricing model. |
| b) | options
to purchase 40,210 shares of common stock at a weighted average price of $2.38
were granted as compensation for various services including accounting, sales, marketing
and IT. The options vest in equal monthly installments over 24 months. The options were valued
at $551,436 using a Black-Scholes options pricing model. 21,053
shares were exercised. |
The fair value of the options for the year ended December
31, 2020 is estimated using a Black-Scholes option pricing model with the following range of assumptions:
Schedule of Black Scholes option pricing | |
| | |
|
Market value of common stock on issuance date | |
$ | 5.34 - $14.92 | |
|
Exercise price | |
$ | 0.095 - $5.34 | |
|
Expected volatility | |
| 427% - 608 | % |
|
Expected term (in years) | |
| 0.5 - 3.0 | |
|
Risk-free interest rate | |
| 0.11 | % |
|
Expected dividend yields | |
| — | |
|
During the year ended December 31, 2021:
| a) | options to purchase 353,368 shares of common stock at a weighted average price of $16.25 were granted
as compensation to employees. The options vest in equal monthly installments over 6 and 12 months. The options were valued at $6,300,284
using a Black-Scholes options pricing model. |
| b) | options
to purchase 38,421 shares of common stock at a weighted average price of $8.55 were granted
as compensation for various services including accounting, sales, and marketing. The options
were valued at $825,201 using a Black-Scholes options pricing model. 13,158
shares were exercised. |
The fair value of the options is estimated using a
Black-Scholes option pricing model with the following range of assumptions as of December 31, 2021:
Market value of common stock on issuance date | |
$ | 5.34 - $33.25 | |
|
Exercise price | |
$ | 0.095 - $19.34 | |
|
Expected volatility | |
| 450% - 608 | % |
|
Expected term (in years) | |
| 0.3 – 3.0 | |
|
Risk-free interest rate | |
| 0.11 | % |
|
Expected dividend yields | |
| — | |
|
The following table summarizes option activity:
Schedule of option activity | | |
| | | |
| | | |
| | |
| |
| |
Weighted | |
Weighted |
| |
Number of | |
Average | |
Average |
| |
shares | |
exercise price | |
remaining years |
| |
| |
| |
|
Outstanding December 31, 2020 | | |
| 811,263 | | |
$ | 2.01 | | |
| | |
Issued | | |
| 391,789 | | |
$ | 15.58 | | |
| | |
Exercised | | |
| (12,105 | ) | |
$ | 5.26 | | |
| | |
Cancelled | | |
| (135,763 | ) | |
$ | 2.38 | | |
| | |
Outstanding as of December 31, 2021 | | |
| 1,055,184 | | |
$ | 6.62 | | |
| 1.86 | |
Outstanding as of December 31, 2021, vested | | |
| 384,851 | | |
$ | 10.17 | | |
| 1.73 | |
The remaining expense outstanding through December
31, 2021 is $6,587,221 which is expected to be expensed over the next 27 months in general
and administrative expense.
On December 7, 2021, the board authorized the Company’s
AppTech Equity Incentive Plan in order to facilitate the grant of equity incentives to employees (including our named executive officers),
directors, independent contractors, merchants, referral partners, channel partners and employees of our company to enable our company
to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term
success. A total of 1,052,632 shares of common stock were authorized under the AppTech Equity
Incentive Plan, for which as of December 31, 2021 a total of 873,211 are available for issuance.
Warrants
In 2020, the Company entered into a security purchase
agreement with an investor pursuant to which the Company agreed to sell the investor a $300,000 convertible note bearing interest at
12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock, with
an exercise term of five (5) years, at a per share price of $14.25 which may be exercised by cashless exercise. The number of warrants
adjusted in the period ending December 31, 2021 due to a reset event on September 27, 2021 changed the exercise price from $14.25 to
$9.50 and increased the number of warrants from 21,052 to 31,579. The warrants were deemed
a derivative liability and were recorded as a debt discount at date of issuance. See Note 6.
Common Stock Repurchase Option
During the year ended December 31, 2021, the Company
assigned its rights to stock repurchase option agreements to third parties resulting in net proceeds of $3,086,592.
During the year ended December 31, 2020, the Company
assigned its rights to stock repurchase option agreements to third parties resulting in net proceeds of $274,614.
NOTE
10 – INCOME TAXES
The Company’s net
deferred tax assets at December 31, 2021 and 2020 is approximately $2,386,000 and $2,193,000, respectively, which primarily consists
of net operating loss carry forwards and various accruals. As of December 31, 2021 and 2020, the Company provided a 100% valuation allowance
against the net deferred tax assets. During the years ended December 31, 2021 and 2020, the valuation allowance increased by approximately
$193,000 and $156,000, respectively.
At
December 31, 2021 and 2020, the applicable federal rate used in calculating the deferred tax provision was 21%.
The Tax Cuts and Jobs Act reduced the federal corporate tax rate used in calculating the deferred income tax liability from 34%
to 21%,
as a result the Company has adjusted its deferred income tax liabilities for this reduction.
The
Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California
state jurisdiction. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for all periods
starting in 2018. The Company currently is not under examination by any tax authorities.
NOTE
11 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant
to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below.
On January 2, 2022, the Company entered into an agreement
with an investor relations firm (“IR Firm”) that compensated IR Firm $50,000 and 100,000 shares upon the successful uplisting
onto NASDAQ. In addition, on January 31, 2022, the Company entered into a consulting agreement with IR Firm. The Company agreed to a six-month
commitment with IR Firm that pays $5,000 per month, grants IR Firm a stock purchase agreement to buy 45,000 shares of the Company stock
at $0.001 per share and grants a monthly budget of approximately $100,000 (with monthly automatic renewals unless the agreement were canceled
in writing). In return, IR Firm agrees to provide investor relations outreach, public relations, advisory and consulting services, to
AppTech. Payment for the two agreements was made in February 2022.
The Company successfully completed its Offering on
January 7, 2022. For further discussion, see the liquidity and capital resources section within the results of operation.