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 UNAUDITED FINANCIAL STATEMENTS
(In thousands, except per share data)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
On December 23, 2021, AppTech Payments Corp. (“AppTech”
or the “Company”) changed our name to AppTech Payments Corp from AppTech Corp. and re-domiciled to Delaware. We are headquartered
in Carlsbad, CA and our stock trades under the symbol “APCX” and our warrants under the symbol “APCXW”.
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 3,614,201
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 by EF Hutton with a 5 five-year expiration and an exercise price of $5.19.
The Offering provided net proceeds of approximately $13.4 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-Q. All shares and share prices within this 10-Q 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 accompanying unaudited financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for
interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion
of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments,
considered necessary for a fair presentation of the results for the interim periods ended March 31, 2022 and March 31, 2021.
Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance
U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying unaudited financial statements should
be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three
months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022
or for any future interim periods.
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 thousand 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 six financial institutions
to service their merchants for which represented 100% of accounts receivable as of March 31, 2022. The loss of one of these financial
institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available
to the Company. For the three months ended March 31, 2022 and 2021, the one merchant (customer) represented approximately 8.2% and
36% of the total revenues, respectively. The loss of this customer would 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.
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 arms-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 March 31, 2022 and December 31, 2021 on recurring basis (in thousands):
Schedule of derivative liabilities | |
| |
| |
| |
|
| |
March 31, 2022 | |
|
| |
Level 1 | |
Level 2 | |
Level 3 | |
Total Carrying Value |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 463 | | |
$ | 463 | |
| |
December 31, 2021 | |
|
| |
Level 1 | |
Level 2 | |
Level 3 | |
Total Carrying Value |
Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | 599 | | |
$ | 599 | |
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 three months ended March 31, 2022 and 2021 were $2.1 million and $0, respectively.
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 6,006,350 and 1,733,159 for the three months ended March 31, 2022 and 2021, 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 | |
March 31, 2022 | |
March 31, 2021 |
| |
| |
|
Series A preferred stock | |
| 1,149 | | |
| 1,149 | |
Convertible debt | |
| 175,632 | | |
| 645,432 | |
Warrants | |
| 4,275,464 | | |
| 21,052 | |
Options | |
| 999,132 | | |
| 706,000 | |
Restricted stock units | |
| 554,973 | | |
| 359,526 | |
Total | |
| 6,006,350 | | |
| 1,733,159 | |
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.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature
in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either
(i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to
have a significant impact on the Company.
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 March 31, 2022 and December 31,
2021, there were zero dollars in accounts payable related to the assumption of liabilities in connection with the patents.
See Note 8 for more information on capitalized prepaid
software development and license.
NOTE 4 – ACCRUED LIABILITIES
Accrued liabilities as of March 31, 2022 and
December 31, 2021 consist of the following (in thousands):
Schedule of Accrued Liabilities
| |
| |
|
| |
March 31, 2022 | |
December 31, 2021 |
| |
| |
|
Accrued interest – third parties | |
$ | 1,305 | | |
$ | 1,420 | |
Accrued payroll | |
| 251 | | |
| 294 | |
Accrued residuals | |
| 28 | | |
| 98 | |
Anti-dilution provision | |
| — | | |
| 1,290 | |
Other | |
| 237 | | |
| 34 | |
Total accrued liabilities | |
$ | 1,821 | | |
$ | 3,136 | |
Accrued Interest
Notes payable and convertible notes payable incur
interest at rates between 10% and 15%, per annum.
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.
Anti-dilution provision
The agreement between the Company and Infinios, formerly
NEC Payments B.S.C., 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 $1.3 million as of December 31, 2021. Further, in connection with the capital raise discussed
in Note 1, the Company accrued an additional 378,109 shares of its common stock at $2.20 per share for a value of $832 thousand or
a total value of $2.1 million as of March 31, 2022. The 451,957 total shares were issued in May 2022, were classified as a long-term
liability and treated as additional consideration to Infinios.
NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES
PAYABLE
The Company funded operations through cash flows generated
from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of March 31,
2022 and 2021. Related parties noted below are either members of management, board of directors, significant shareholders or individuals
in which have significant influence over the Company.
Subordinated Notes Payable
In 2016, the Company issued $350 thousand in subordinated
notes payable to third parties that incurred interest at 10% per annum. On September 30, 2021, the Company converted the notes issued
for $530 thousand of principal and interest into 55,767 shares of the Company’s common stock. Since the notes were converted to
equity, there will no longer be any accrued interest related to the subordinated notes.
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 thousand convertible note bearing interest
at 12% per annum (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 nine dollars and fifty cents $9.50 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 21,052 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 March 31, 2022 and December 31, 2021,
the convertible note payable balance was $280 thousand and $280 thousand, and has accrued interest of $68 thousand and $39 thousand, respectively.
Total interest expense on convertible notes payable,
inclusive of amortization of debt discount of $280 thousand, amounted to $315 thousand for the year ended December 31, 2021. As of March 31,
2022, the convertible note payable discount is $0.
See Note 6– Derivative Liabilities.
In 2015, the Company issued $50 thousand 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. The Company amended the convertible note on March 2, 2022 and an agreed offer of a $10 thousand discount on the principal
and interest resulting in a $72 thousand payment in full.
In 2014, the Company issued $400 thousand 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. 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. As of March 31, 2022 and December 31, 2021, the Company held the obligation to repurchase the shares for $400 thousand.
As of March 31, 2022 and December 31, 2021, the accrued interest related to the convertible notes was $278 thousand and $268
thousand, respectively.
Notes Payable
In 2020, the Company entered into a 30-year unsecured
note payable with U.S. Small Business Administration for $68 thousand 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 March 31, 2022 and December 31, 2021 the balance of the note payable was $68 thousand and $68 thousand, and accrued interest
was $4 thousand and $4 thousand, respectively.
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. 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 thousand. On September 29, 2021, the Company converted notes issued
for $51 thousand 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 $35 thousand 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 thousand along with a $50 thousand payment
of accrued interest. As of March 31, 2022, and December 31, 2021, the aggregate balance of the notes payable was $597 thousand
and accrued interest was $258 thousand and $383 thousand, respectively.
In Q3 of 2021, the Company converted notes issued
for $503 thousand into 52,942 shares of the Company’s common stock. Also, the Company entered into a forbearance agreement which
granted the holders 2,760 shares of the Company’s common stock with a current fair market value of $120 thousand 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
at March 31, 2022 and December 31, 2021.
Based on the convertible notes described in Note 6,
the derivative liability day one loss is $390 thousand and the change in fair value at March 31, 2022 and December 31, 2021
is $136 thousand and ($26 thousand), respectively. The fair value of applicable derivative liabilities on note, warrants and change in
fair value of derivative liability are as follows for the three months ended March 31, 2022 (in thousands).
Schedule of fair value of derivative liabilities
| |
| | | |
| | | |
| | |
| |
Derivative Liability Convertible Notes | |
Derivative Liability Warrants | |
Total |
Balance as of December 31, 2021 | |
$ | 274 | | |
$ | 325 | | |
$ | 599 | |
Change in fair value | |
| (76 | ) | |
| (60 | ) | |
| (136 | ) |
Balance as of March 31, 2022 | |
$ | 198 | | |
$ | 265 | | |
$ | 463 | |
As of March 31, 2022, 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 | |
$ | 1.35 | |
Expected volatility | |
| 104.8 | % |
Expected term (in years) | |
| 0.25 | |
Risk-free interest rate | |
| 1.37 | % |
As of March 31, 2022, 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 | |
$ | 1.35 | |
Expected volatility | |
| 108.9 | % |
Expected term (in years) | |
| 3.64 | |
Risk-free interest rate | |
| 1.67 | % |
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 March 31, 2022, including the total amount of related imputed interest
(in thousands):
Years ended December 31:
Schedule of Future Minimum Rental Payments for Operating Leases | |
| | |
2022 | |
$ | 64 | |
2023 | |
| 88 | |
2024 | |
| 90 | |
2025 | |
| 7 | |
Operating Lease Total | |
| 249 | |
Less: Imputed interest | |
| (39 | ) |
Total | |
$ | 210 | |
The rent expense was $15 thousand and $15 thousand
for the three months ended March 31, 2022 and 2021, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
Former Shareholders Lawsuit
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 thousand
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 filed a Summary Judgment requesting 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 $517 thousand plus interest. The judgment was assigned to AppTech
Payments Corp. and 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 $2.75 million, 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 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 thousand and $550 thousand, 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. On
October 27, 2021, Maxim and the Company terminated all relevant agreements and 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 into 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 Company completed its offering on January 7, 2022. The
Company sold 3,614,201 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. The offering provided net proceeds of approximately $13.4 million. See note 1 for information on
the capital raise completed in January 2022.
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 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”).
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 gross total fees due under the Restated Agreements
are $2.2 million 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 thousand engagement fee. On February 28, 2021, the Company paid the initial
fee of $708 thousand 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 $67.5 million 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 recorded as a $3.8 million asset and $63.8 million expense in excess fair value of equity issuance over assets
received. The capitalized asset was classified as capitalized prepaid software development of $2.8 million and capitalized licensing of
$1.0 million. The estimated amortization is a 5-years life based on the term of the licensing agreement. The amortization is set to begin
once the platform begins processing transactions (in thousand).
As of March 31, 2022, the following fees were
paid (in thousands):
Schedule of fees paid to NECP platform | |
| | |
Engagement Fee (prepaid licensing cost) | |
$ | 100 | |
License subscription fee (prepaid licensing cost) | |
| 750 | |
Annual maintenance subscription fee (prepaid licensing cost) | |
| 113 | |
Implementation fee (capitalized software cost) | |
| 325 | |
Infrastructure implementation fee (capitalized software cost) | |
| 65 | |
Training fee (50% due at Funding Date) | |
| 50 | |
Total | |
$ | 1,403 | |
The annual maintenance subscription fee of $113 thousand
will be due annually beginning in the month of the platform launch. In addition, the infrastructure support fee of $72 thousand 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.
Under the 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. These options had a grant date fair value of $1.4 million and $8.7 million using a Black
Scholes pricing model. The estimated amortization is a 5-year life based on the term of the licensing agreement.
On February 18, 2021, the Company entered into an
amended independent contractor services agreement for $760 thousand with IR. The final payment owed to IR of $171 thousand was paid in
January 2022.
Investor Relations
On January 2, 2022, the Company entered into an agreement
with an investor relations firm (“IR Firm”) that compensated IR Firm $50 thousand 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 thousand 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 thousand (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.
NOTE 9 – STOCKHOLDERS’ DEFICIT
Common Stock
During the three months ended March 31, 2022
and 2021, the Company issued 233,816 and 247,000, respectively, shares of common stock to several consultants in connection with business
development and professional services. The Company valued the common stock issuances at $466 thousand and $316 thousand, 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 three months ended March 31, 2022
and 2021, the Company granted 76,664 and 9,211 shares of common stock to the board of directors valued at $103 thousand and $49 thousand,
respectively. The shares vest quarterly over the period of approximately one year.
See Note 8 – Significant Contracts for additional
common stock issuance.
Stock Options
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 $6.3 million
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 thousand using a Black-Scholes
options pricing model. 13,158 shares were exercised. |
The fair value of the options for the year ended December 31,
2021 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 - $33.25 | |
Expected 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 | |
| — | |
During the three months ended March 31, 2022:
| a) | options to purchase 298,685 shares of common stock at a weighted average price of $3.00 were granted as
compensation to employees. The options vest in equal monthly installments ranging from instantly to 24 months months. The options were
valued at $897 thousand using a Black-Scholes options pricing model. |
| b) | options to purchase 36,842 shares of common stock at a weighted average price of $12.04 were granted as
compensation for various services including engineering, accounting, and sales. The options were valued at $444 thousand using a Black-Scholes
options pricing model. |
The fair value of the options for the three months
ended March 31, 2022 is estimated using a Black-Scholes option pricing model with the following range of assumptions:
Market value of common stock on issuance date | |
| $1.24 - $12.45 | |
Expected price | |
| $1.24 - $12.04 | |
Expected volatility | |
| 415% - 442% | |
Expected term (in years) | |
| 0.0 - 5.0 | |
Risk-free interest rate | |
| 0.11% | |
Expected dividend yields | |
| — | |
The following table summarizes option activity:
Schedule of option activity | |
| | | |
| | | |
| | |
|
|
Number of shares | |
Weighted Average exercise price | |
Weighted Average remaining years |
|
|
| |
| |
|
Outstanding December 31, 2021 | |
| 1,055,184 | | |
$ | 6.62 | | |
| | |
Issued | |
| 335,527 | | |
$ | 4.00 | | |
| | |
Exercised | |
| — | | |
$ | — | | |
| | |
Cancelled | |
| (391,579 | ) | |
$ | 2.44 | | |
| | |
Outstanding as of March 31, 2022 | |
| 999,132 | | |
$ | 7.38 | | |
| 2.37 | |
Outstanding as of March 31, 2022, vested | |
| 667,235 | | |
$ | 7.75 | | |
| 2.37 | |
The remaining expense outstanding through March 31,
2022 is $2.5 million which is expected to be expensed over the next 23 months in general and administrative expense.
See Note 8 – Significant Contracts for additional
stock options granted.
On December 7, 2021, the board authorized the Company’s
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 Equity Incentive Plan, for which as of March 31, 2022 a total
of 796,547 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 thousand 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 March 31, 2022 due to a reset event on January 7, 2022 changed the exercise price from $9.50 to $2.52
and increased the number of warrants from 31,578 to 119,095. The warrants were deemed a derivative liability and recorded as a debt discount
at its date of issuance.
In total, the
Company has 4,275,464 warrants outstanding. 3,614,201 were related to the Offering, 542,168 were granted on January 7 and the reset event
added an additional 119,095. See Note 1 for information on warrants issued during the Offering and note 6 for additional information on
the derivative liability.
NOTE 10 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant
to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below.
The Company fully executed a Definitive Agreement
to acquire Hothand Inc. (“Hothand”), a patent-holding company which owns the intellectual property rights to a wide array
mobile credit/debit transaction and mobile search, location, offer and payment fields in April 2022. The purchase price was a combination
of cash and stock, but should be finalized in the second quarter of 2022. The Company is still determining the impact of this transaction
on the financial statements.
The Company extended its stock repurchase agreement
with the Chief Financial Officer. Terms of the updated agreement state that the Company has until October 21, 2022 to buyback 263,158
shares of its common stock for $500 thousand.