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
AppTech Payments Corp. (“AppTech”
or the “Company”), a Delaware corporation, is a Fintech Company headquartered in Carlsbad, California. AppTech utilizes innovative
payment processing and digital banking technologies to complement its core merchant services capabilities. The Company’s patented
and proprietary software will provide progressive and adaptable products that are available through a suite of synergistic offerings
directly to merchants, banking institutions, and business enterprises.
AppTech is developing an embedded, highly secure
digital payments and banking platform that powers commerce experiences for clients and their customers. Based upon industry standards
for payment and banking protocols, we will offer standalone products and fully integrated solutions that deliver innovative, unparalleled
payments, banking, and financial services experiences. Our processing technologies can be taken off-the-shelf or tapped into via our
RESTful APIs to build fully branded and customizable experiences while supporting tokenized, multi-channel, and multi-method transactions.
In 2017, the Company acquired assets from GlobalTel
Media, Inc. The assets included patented, enterprise-grade software for advanced text messaging, four patents in text technology, and
additional intellectual property for mobile payments.
In 2020, AppTech entered into a strategic partnership
with Infinios (formerly “NEC Payments”), 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 legacy payment types to contactless card and real time payment transactions.
In 2021, the Company announced its intent to
launch an innovative and patented mobile text payment solution in addition to a suite of digital banking and payment acceptance products
designed in the Business-to-Business (“B2B”) and Business-to-Consumer (“B2C”) payment and software space.
On December 23, 2021, AppTech re-domiciled to
Delaware and changed its name from “AppTech Corp.” to “AppTech Payments Corp.” AppTech stock trades under the
symbol “APCX” and its warrants trade under the symbol “APCXW,” on the Nasdaq Capital Market (“NASDAQ”).
The Company successfully completed its capital
raise and uplisting onto NASDAQ (herein referred to as 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. All information has been adjusted to reflect the reverse split. In addition, the
Offering sold 3,614,458 units of our common stock (a unit consisting 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 and the Offering warrants of 3,614,458, all
having a five-year expiration and an exercise price of $5.19. The Offering provided net proceeds of approximately $13.4 million.
In April 2022, the Company acquired HotHand Inc.
(“HotHand”), a patent-holding company. These patents are focused on the delivery, purchase, or request of any products or
services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States.
In September 2022, the Company expanded its operations
to Austin, Texas by establishing AppTech Holdings LLC. The goal of this expansion is primarily to pursue licensing revenue.
In February 2023, the Company completed an underwritten
public offering of its common stock and warrants, raising gross proceeds of approximately $5.0 million. As of May 8, 2023, approximately
$70.0 million remains available under the shelf registration statement Form S-3 (File No. 333-265526) previously filed and declared
effective by the Securities and Exchange Commission (SEC) on July 15, 2022. The Company anticipates raising additional capital in the
second quarter of 2023 to further fund operations. Based on the Company’s current operating plan, working capital levels, financial
projections, and planned capital raise in the second quarter, Management anticipates that the Company will be able to meet its financial
obligations for the next twelve months. SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to
our effective shelf registration statement on Form S-3. We are currently limited by the Baby Shelf Rule as of the filing of this Quarterly
Report, until such time as our public float exceeds $75 million. However, factors such as stock price, volatility, trading volume, market
conditions, demand and regulatory requirements may adversely affect the Company’s ability to raise capital in an efficient manner.
Management's Plan
The Company continues to have yearly losses from
its limited revenues from operations. Management believes the present cash flows will not enable it to meet its commitments for twelve
months from the date of filing. However, Management has an open S-3 filed with the SEC and it intends to obtain the necessary funding
for the Company to meet its obligations for the twelve-month period from the date the financial statements are issued.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying consolidated 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, 2023 and March
31, 2022. 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 with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying consolidated 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, 2022, filed with the SEC on March 20, 2023. The interim results for the
three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ended December 31,
2023 or for any future interim periods.
Basis of Consolidation
The consolidated financial statements include
the accounts of AppTech Payments Corp., and wholly owned subsidiary of which the Company is the primary beneficiary. All significant
inter-company accounts and transactions are eliminated in consolidation.
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, valuation of the derivative liabilities, and realization
of tax deferred tax assets. Actual results could differ from those estimates.
Restricted Cash
Included in current assets is a $1,327 thousand
certificate of deposit. This certificate is used as collateral pursuant to a legal settlement. See Note 8.
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. There is no merchant (customer) representing a significant amount of total
revenue, for the three months ended March 31, 2023 and for the year ended December 31, 2022.
Software Development Costs
The Company capitalizes certain costs related
to the development of its digital banking platform. Costs incurred during the development phase are capitalized only when we believe
it is probable the development will result in new or additional functionality. The types of costs capitalized during the development
phase include employee compensation and consulting fees for third party developers working on these projects. Costs related to the preliminary
project planning phase and post implementation phase are expensed as incurred. The digital banking platform is amortized on a straight
line basis over the estimated useful life of the asset.
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 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.
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, 2023 and December 31, 2022 on recurring basis (in thousands):
Schedule of derivative liabilities | |
| | |
| | |
| | |
| |
| |
March 31, 2023 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total Carrying
Value | |
Derivative liabilities | |
$ | – | | |
$ | – | | |
$ | 406 | | |
$ | 406 | |
| |
December 31, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total Carrying
Value | |
Derivative liabilities | |
$ | – | | |
$ | – | | |
$ | 433 | | |
$ | 433 | |
See Note 6 for discussion of valuation and roll
forward related to derivative liabilities.
Intangible Assets and Patents
Our intangible assets only consist of patents.
We amortize the patents on a straight-line basis from 3 years to 15 years, which approximates the way the economic benefits of the intangible
asset will be consumed.
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, 2023 and 2022 was approximately $1.5 million and $2.1 million, 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 7,892,314
and 6,006,350 for the three months ended
March 31, 2023 and 2022, 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
shares | |
| | | |
| | |
| |
March 31, 2023 | | |
March 31, 2022 | |
| |
| | |
| |
Series A preferred stock | |
| 1,149 | | |
| 1,149 | |
Convertible debt | |
| 177,620 | | |
| 175,632 | |
Warrants | |
| 5,942,131 | | |
| 4,275,464 | |
Options | |
| 1,089,868 | | |
| 999,132 | |
Restricted stock units | |
| 681,546 | | |
| 554,973 | |
Total | |
| 7,892,314 | | |
| 6,006,350 | |
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.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative
literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to
date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not
expected to have a significant impact on the Company.
NOTE 3 – INTANGIBLE ASSETS
Capitalized Development Cost and Prepaid
Licenses
The Company capitalizes certain costs related
to the development of its digital payment and banking platform, and also the third-party prepaid license fees. Costs incurred during
the development phase are capitalized only when we believe it is probable the development will result in new or additional functionality.
The types of costs capitalized during the development phase include employee compensation and consulting fees for third party developers
working on these projects. Costs related to the preliminary project planning phase and post implementation phase are expensed as incurred.
The digital banking platform is amortized on a straight line basis over the estimated useful life of the asset. The Company has capitalized
approximately $5.2 million of software development costs as of December 31, 2022 and will amortize over five years beginning
October 1, 2022. The Company recorded the amortization expenses of $0.3 million and $– during the three month periods ended March 31,
2023 and March 31, 2022, respectively.
Patents
In April 2022, the Company fully executed a Definitive
Agreement to acquire HotHand Inc. (“HotHand”), a patent-holding company. HotHand did not have any operations, so the transaction
was an asset acquisition of its portfolio of thirteen patents including USPTO 7,693,752; USPTO 8,554,632; USPTO 8,799,102; USPTO 9,436,956;
USPTO 10,102,556; USPTO 10,127,592; USPTO 10,600,094; USPTO 10,621,639; USPTO 10,846,726; USPTO 10,846,727; USPTO 10,909,593; USPTO 11,107,140;
USPTO 11,345,715. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation
and time parameters, provided by a consumer’s cell phone anywhere in the United States. Additionally, HotHand’s family of
patents includes a patent that protects advertising on a store’s mobile application when the cell phone is in the store and the
ads shown are being triggered by geolocation tagging.
AppTech is currently integrating the HotHand
Intellectual Property (“IP”) into an elite digital platform. In addition to offering an embedded, highly secure, and patent-backed
product, AppTech will offer licensing agreements for its IP.
HotHand was acquired for 225,000
shares of common stock and was allocated to the patents as an intangible asset based on the fair market value of the common stock on
the date of acquisition (April 18, 2022). The Company amortizes the asset over three years. Further, the purchase agreement outlines
revenue milestones that may trigger four payments of $500 thousand payable to HotHand's former owners. The Company did not
meet these revenue milestones as of March 31, 2023.
Schedule of patent activity | |
| | |
| |
March 31,
2023 | |
Balance as of December 31, 2021 | |
$ |
– | |
Acquisition of patents | |
| 407 | |
Amortization of patents | |
| (96 | ) |
Balance as of December 31, 2022 | |
| 311 | |
Acquisition of patents | |
| – | |
Amortization of patents | |
| (34 | ) |
Balance as of March 31, 2023 | |
$ | 277 | |
NOTE 4 – ACCRUED LIABILITIES
Accrued liabilities as of March 31, 2023
and December 31, 2022 consist of the following (in thousands):
Schedule of accrued liabilities | |
| | | |
| | |
| |
March 31,
2023 | | |
December 31,
2022 | |
| |
| | |
| |
Accrued interest – third parties | |
$ | 499 | | |
$ | 1,436 | |
Accrued payroll | |
| 531 | | |
| 311 | |
Accrued residuals | |
| 30 | | |
| 31 | |
Anti-dilution provision | |
| 72 | | |
| 72 | |
Other | |
| 31 | | |
| 20 | |
Total accrued liabilities | |
$ | 1,163 | | |
$ | 1,870 | |
Accrued Interest
Convertible notes payable incur interest at rate
between 10% to 24%, 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 issued 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. The 451,957 total shares were issued in May 2022. The anti-dilution provision expired in January
2023.
Further, in connection with the shares to be
issued as part of the HotHand acquisition, and to be in compliance with its anti-dilution provision with Infiinios, the Company accrued
an additional 39,706 shares of its common stock at $1.81 per share for a total of $72 thousand. The shares have not been issued to Infinios
as of March 31, 2023.
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, 2023 and December 31, 2022. Related parties noted below are either members of management, board of directors,
significant shareholders or individuals in which have significant influence over the Company.
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. Upon maturity of the convertible
note, interest rate will be increased to 24%. The Note is convertible at the option of the holder at any time into shares of the Company’s
common stock at $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 $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, 2023 and December 31, 2022, the convertible note
payable balance was $280 thousand and $280 thousand, and has accrued interest of $136 thousand and $119 thousand, respectively.
See Note 8 - Commitments and Contingencies.
See Note 6– Derivative Liabilities.
In 2014, the Company issued $400 thousand
in convertible notes payable. On March 30, 2022, the Company entered into forbearance agreements in exchange for not enforcing the terms
of the original agreements. In November 2022, the parties agreed to extend the terms of the forbearance agreements for an additional
six months. As of December 31, 2022, the balance of the convertible notes was $400 thousand, the accrued interest related to the
convertible notes was $278 thousand. In February 2023, the Company paid off the note and accrued interest in its entirety.
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, 2023 and December 31, 2022 the balance of the note payable was $68 thousand and $68 thousand, and accrued interest
was $6 thousand and $6 thousand, respectively.
A significant shareholder funded the Company’s
operations through notes payable primarily in 2009 and 2010. On May 2, 2021, the Company entered into a debt reduction and confirmation
agreement with the significant shareholder that is no longer a related party. The Company entered into a forbearance agreement in exchange
for not enforcing the terms of the agreement. In November 2022, the parties agreed to extend the terms of the forbearance agreement for
an additional six months. As of December 31, 2022, the balance of the notes payable was $597
thousand, and the accrued interest related to the notes was $83
thousand. In February 2023, the Company paid off the note and accrued interest in its entirety.
The Company entered into several notes payable
with third parties. The Company entered into forbearance agreements in exchange for not enforcing the terms of the agreement. The interest
rate on the note payable is 0% to 18% per annum. The expiration date of the agreement ranged from September 27, 2022 to October 4, 2022.
In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six months. As of December 31,
2022, the balance of the notes payable was $423 thousand, and the accrued interest related to the notes payable was $538 thousand.
In February 2023, the Company paid off the note and accrued interest in its entirety.
Note Payable - Related Party
As of December 31, 2022, the balance of
the related party notes payable was $88 thousand, with an interest rate of 12% per annum and the accrued interest to the related
party notes payable was $68 thousand. In February 2023, the Company paid off the note and accrued interest in its entirety.
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, the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and
revalued for the three months ended March 31, 2023 and December 31, 2022.
Based on the convertible notes described in Note
5, the derivative liability day one loss is $390
thousand and the change in fair value for the three months ended March 31, 2023 and December 31, 2022 is $27
thousand and $166
thousand, respectively. The fair value of applicable derivative liabilities on notes, warrants and change in fair value of derivative
liability are as follows for the three months ended March 31, 2023 (in thousands).
Schedule of derivative liabilities | |
| | | |
| | | |
| | |
| |
Derivative Liability Convertible Notes | | |
Derivative Liability Warrants | | |
Total | |
Balance as of December 31, 2022 | |
$ | 266 | | |
$ | 167 | | |
$ | 433 | |
Change in fair value | |
| 2 | | |
| (29 | ) | |
| (27 | ) |
Balance as of March 31, 2023 | |
$ | 268 | | |
$ | 138 | | |
$ | 406 | |
As of March 31, 2023, the fair value of
the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
Assumptions used | |
| | |
Market value of common stock | |
$ | 1.49 | |
Expected volatility | |
| 52.6% | |
Expected term (in years) | |
| 0.25 | |
Risk-free interest rate | |
| 4.42% | |
As of March 31, 2023, 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 | |
$ | 1.49 | |
Expected volatility | |
| 71.1% | |
Expected term (in years) | |
| 2.64 | |
Risk-free interest rate | |
| 4.28% | |
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, 2023, including the total amount of related imputed interest
(in thousands):
Years ending December 31:
Schedule of future minimum lease payments | |
| | |
2023 | |
$ | 66 | |
2024 | |
| 90 | |
2025 | |
| 8 | |
Operating Lease Total | |
| 164 | |
Less: Imputed interest | |
| (18 | ) |
Total | |
$ | 146 | |
The rent expense was $18 thousand and $15 thousand
for the three months ended March 31, 2023 and 2022, respectively.
In September 2022, the Company opened a new office
in Austin’s emerging tech hub to expand operations and foster growth. The total amount payable for one year lease under the lease
agreement is $11 thousand.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
Convertible Note and Warrant Lawsuit
On July 14, 2021, EMA Financial LLC, a Delaware
limited liability company (“EMAF”), filed a complaint in the United States District Court for the Southern District of New
York against the Company. In its complaint, EMAF alleged that AppTech breached the terms of a convertible note and a related warrant
agreement purchased by EMAF pursuant to a securities purchase agreement between the parties.
On September 2, 2021, EMAF filed a motion for
summary judgment. AppTech filed a motion to dismiss EMAF’s complaint in its entirety. On September 13, 2022, the court denied AppTech’s
motion to dismiss, and granted EMAF’s motion for summary judgment in part and denied in part. In particular, the court granted
EMAF’s motion for summary judgment for its claim of breach of contract but denied its request for damages.
On December 8, 2022, the United States District
Court for the Southern District of New York entered an order denying AppTech’s motion to dismiss and granted EMAF’s motion
for summary judgment and awarded damages to EMAF for $1.2 million. On December 15, 2022, AppTech appealed the judgment to the United
States Court of Appeals for the Second Circuit. In January 2023, the Company secured a cash backed bond for $1.3 million for the appeal
which is recorded as Restricted cash in the accompanying consolidated balance sheet..
NCR Lawsuit
On November 30, 2022, AppTech filed a complaint
against NCR Payment Solutions, LLC in the United States District Court for the Southern District of California alleging Breach of Contract,
Breach of Implied Covenant of Good Faith and Fair Dealing, Specific Performance and Accounting. The case is currently stayed in the Southern
District of California as the parties take jurisdictional discovery. NCR has filed a motion to dismiss, motion to transfer venue and
motion to compel arbitration. The court set a briefing schedule and our opposition to those motions were due in March 2023. There was
a hearing in early April and the Company is awaiting a decision from the court.
Significant Contracts
Capital Raise
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 3,614,458 units of our common stock (a unit consisting 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.
In February 2023, the Company completed an underwritten
public offering of its common stock and warrants, raising gross proceeds of approximately $5.0 million. As of February 27, 2023,
approximately $70.0 million remains available under the shelf registration statement Form 3 (File No. 333-265526) previously filed
and declared effective by the Securities and Exchange Commission (SEC) on July 15, 2022.
See Note 1 for information on the capital raises
completed in January 2022 and February 2023.
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-year life based on the term of the licensing agreement.
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 with monthly payments beginning in February 2022 and ending in 2026.
Investor Relations
On February 17, 2023, the Company entered into
an investor relations consulting agreement with MZHCI, LLC. The Company agreed to a monthly fee of $14,000. Additionally, the Company
agreed to issue 65,000 shares of its common stock.
NOTE 9 – STOCKHOLDERS’ DEFICIT
Common Stock
During the three months ended March 31,
2023 and 2022, the Company issued 150,000 and 233,816, respectively, shares of common stock to several consultants in connection with
business development and professional services. The Company valued the common stock issuances at $362 thousand and $466 thousand, respectively,
based upon the closing market price of the Company’s common stock on the date of the agreement.
During the three months ended March 31,
2023 and 2022, the Company granted 28,750 and 76,664 shares of common stock to the board of directors valued at $42 thousand and $103
thousand, respectively. The shares vest quarterly over the period of approximately one year.
As of March 31, 2023, the Company has reserved
the 10,800 shares of common stock to HotHand.
See Note 8 – Significant Contracts for
additional common stock issuance.
Stock Options
During the three months ended March 31,
2023, no options were granted during the three months ended March 31, 2023.
The following table summarizes option activity:
Schedule of option activity | |
| | | |
| | | |
| | |
| |
Number of shares | | |
Weighted Average exercise price | | |
Weighted Average remaining years | |
| |
| | |
| | |
| |
Outstanding December 31, 2022 | |
| 1,089,868 | | |
$ | 7.00 | | |
| 1.91 | |
Issued | |
| – | | |
$ | – | | |
| | |
Exercised | |
| – | | |
$ | – | | |
| | |
Cancelled | |
| (16,447 | ) | |
$ | 2.38 | | |
| | |
Outstanding as of March 31, 2023 | |
| 1,073,421 | | |
$ | 7.07 | | |
| 1.80 | |
Outstanding as of March 31, 2023, vested | |
| 779,892 | | |
$ | 7.14 | | |
| 1.80 | |
The Company recorded $690 thousand expenses for
the three months ended March 31, 2023. The remaining expense outstanding through March 31, 2023 is $115 thousand which is expected
to be expensed over the next two years in general and administrative expense.
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, 2023 a total of 236,732 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 their date of issuance.
On February 2, 2023, the Company announced the
closing of its previously announced $5.0 million registered direct offering (the “Registered Direct Offering”) with
a single institutional investor to sell 1,666,667 shares of its common stock (the “Shares”) and warrants to purchase up to
1,666,667 shares (the “Warrants”) in a concurrent private placement (the “Private Placement”). The combined purchase
price for one Share and one Warrant was $3.00. Each of the Warrants will have an exercise price of $4.64 per share of common stock and
are exercisable on and after August 1, 2023. The Warrants will expire five years from the date on which they become exercisable. The
aggregate gross proceeds from the Registered Direct Offering and the concurrent Private Placement were approximately $5.0 million
before deducting placement agent fees and other estimated offering expenses.
The offering that was completed in February 2023,
caused a reset to the exercise price of existing warrants from $5.19 to $4.15. In total, 4,156,626 warrants were reset and $763 thousand
was recorded as a result of the reset.
In total, the Company has 5,942,388 warrants
outstanding. 5,281,125 were related to the Offering, 542,168 were granted on January 7, 2022 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.
On, or about, April 23, 2023, EMAF and AppTech
entered into a settlement and release agreement providing for, among other things, a settlement amount of $880,000 and mutually releasing
all claims arising from the Agreements. On, or about, April 24, 2024, AppTech and EMAF each filed a Stipulation withdrawing the Appeal,
which was then closed on April 25, 2023. On April 25, 2023, EMAF filed Satisfaction of Judgements with the Court and all outstanding
judgments entered against AppTech are deemed satisfied as of that date. On, or about, April 26, 2023 AppTech and EMAF each filed a Stipulation
withdrawing the Cross-Appeal, which was then closed on April 27, 2023.
On May 2, 2023, the Company's shareholders approved
the repricing of previously issued options to both employees and non-employees. The Company will evaluate the impact as part of its second
quarter filings.