10-K
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apcx_10k20.htm
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2020
or
For the transition period from to
Commission file number: 000-27569
AppTech Corp.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(760) 707-5959
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value per share APCX OTC Pink Open Market
Securities registered pursuant to Section 12(g)
of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
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.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As
of June 30, 2020, the last business day of the registrant’s last completed second quarter, the aggregate
market value of the Common Stock held by non-affiliates of the registrant was approximately $17,922,032 based on the closing
price of the registrant’s Common Stock, on June 30,2020, as reported by the OTC Pink Open Market. As of December 31,
2020, the last business day of the registrant’s last completed quarter, the aggregate market value of the Common Stock
held by non-affiliates of the registrant was approximately $44,470,000 based on the closing price of the registrant’s
Common Stock, on December 31, 2020, as reported by the OTC Pink Open Market. For the purposes of this disclosure, shares of
Common Stock held by each executive officer, director and stockholder known by the registrant to be affiliated with such
individuals based on public filings and other information known to the registrant have been excluded since such persons may
be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.
As
of March 30, 2021, there were 376 holders of record of our common stock, and there were 106,915,500 shares of Common Stock
issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Specified
portions of the registrant’s proxy statement with respect to the registrant’s 2021 Annual Meeting of Stockholders, which
is to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year ended December 31, 2020,
are incorporated by reference into Part III of this Annual Report on Form 10-K.
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AppTech Corp.
Form 10-K
Table of Contents
Page
Part I
Special Note Regarding Forward-Looking Statements and Projections 4
Item 1. Business 5
Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosures 18
Part II
Item 6. Selected Consolidated Financial Data 20
Item 7A. Qualitative and Quantitative Disclosures about Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9A. Controls and Procedures 24
Item 9B. Other Information 25
Part III
Item 10. Directors, Executive Officers and Corporate Governance 25
Item 11. Executive Compensation 26
Item 14. Principal Accountant Fees and Services 26
Part IV
Item 15. Exhibits and Financial Statements Schedules 26
Index to Financial Statements 27
Exhibit Index 52
Signatures 55
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND PROJECTIONS
Various statements in this report of AppTech 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:
● current and future laws and regulations;
● general economic uncertainty associated with the COVID-19 pandemic;
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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 consolidated financial statements contained 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” “we,” “us,” the “registrant” or the
“Company” refer to AppTech Corp.
Item 1.
Business.
Business Overview
We intend to simplify and streamline
digital financial services for corporations, small and midsized enterprises (“SMEs”) and consumers through
innovative payment processing, reconciliation and digital banking technologies that complement our core merchant services
capabilities. Our company’s merchant services provide financial processing for businesses to accept cashless and/or
contact less payments, such as credit cards, ACH, wireless payments, and more. Our patented, exclusively licensed, and
proprietary merchant services software offers, or will offer, integrated solutions for friction less digital and mobile
payment acceptance including acceptance of alternative payment methods (“APMs”); we are 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. Our innovative and scalable business model allows for expansive
white-labeling, SaaS, and embedded payment solutions that will drive the digital transformation of financial services and
generate diverse revenue streams for our company.
We believe 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 otherwise, and the rapid rise of contactless transactions. End-users are beginning to expect ease of use and an
enhanced user experience in all of their daily financial transactions. In this rapidly evolving digital marketplace, merchants have
broad and frequently changing requirements for payment processing to meet consumer expectations and operational requirements. Our
flexible and configurable financial services platform will enable us to provide solutions that meet each merchant’s current
needs while providing scope to solve for their future development plans and opportunities allowing merchants to take advantage
of future platform development and new innovative digital financial solutions through clean APIs and our scalable global
infrastructure. By taking a holistic view of all aspects of our clients’ business, including risk, volume, user experience,
integration capabilities and technical needs, we are able to create optimal and extensible financial technology solutions. Merchants
and independent software vendors (“ISVs”) that require integrated financial technology solutions to best serve their
customers are looking beyond basic payment acceptance and “lowest price” models. These entities recognize that staying
competitive in the digital age requires a partner that provides a platform capable of delivering flexibility and growth while
streamline operations to continue increase revenue and profitability. While we offer extremely competitive pricing, we believe the
value we create for merchants, SMEs, ISVs and regional banking institutions through our technology, services and consultative
approach will create true differentiation from our competitors.
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Through exclusive licensing and partnership agreements,
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 augment this position through the integration of our merchant services and secure text payment
solution with extensive digital account-based and multi-channel issuer payment processing capabilities. This will enable us to provide
our merchant customers an end-to-end payment acceptance and digital banking solution and will power straight-through processing and embedded
payments opportunities in the B2B space.
A key to the company’s success and market penetration
relies on 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. Our software
platform will extend merchants’ marketplace capabilities creating
new avenues and channels to request and receive frictionless, digital payments and engage
end-users utilizing a familiar, convenient and widely adopted technology.
Once an
account is established through a multi-currency digital wallet, internet connectivity or a specific application are not required to
process payments between merchants and end-users. These features will be particularly beneficial for the unbanked and under banked
individuals in developing and emerging markets where access to the internet on a mobile device and modern banking institutions may
not be readily available.
We believe our
technologies will greatly increase the adoption of mobile payments and alternate
banking solutions in a sector that appears to have little alternative but to adapt and migrate towards new technologies that
facilitate convenient and safe contactless payments. To survive and succeed
in this environment, businesses may need to adopt new technologies to engage,
communicate and process payments with their customers. We
believe that, by embracing technological advancement in the payment and banking industries, we are aligned in the precise
direction that our current and prospective customer base is trending towards. We intend for our current and future products
to be at the forefront in providing solutions that enable and facilitate these anticipated changes.
We are
also expanding upon our financial technology foundation into the telehealth and remote patient monitoring sectors in response to
cultural shifts and new healthcare demands of society. We have identified a need for the integration of payment acceptance
technologies into the burgeoning telehealth sector. We believe this sector’s focus to date has been on providing
health-related telecommunications but the way in which fees and payments for these services are requested and accepted is being
overlooked. We intend to fill this identified shortfall by developing technologies and payment-related services to aid companies
providing telehealth solutions. Through a strategic partnership, we plan to help bring to market personal emergency response and
remote patient monitoring services and equipment to help ensure the safety of the elderly and injured or sick patients while
providing peace of mind to family members, care givers and retirement communities. These solutions increase patients’ access
to comprehensive care options and allow medical teams to intervene in a timely manner to avoid more serious health concerns. By
providing financial and administrative services we will have the opportunity to receive substantial revenue share from recurring
revenue billed through Medicare with the potential for substantial growth and substantial profit margins.
Industry and Market Data
We use market data and industry forecasts throughout
this registration statement and, in particular, in the sections entitled “Industry Overview.” Unless otherwise indicated,
statements in this registration statement concerning our industry and the markets in which we operate, including our general expectations,
competitive position, business opportunity and market size, growth and share, are based on information obtained from industry publications,
government publications and third party forecasts. The forecasts and projections are based upon industry surveys and the preparers’
experience in the industry. There can be no assurance that any of the projections will be achieved. We believe that the surveys and market
research performed by others are reliable, but we have not independently verified this information. Accordingly, the accuracy and completeness
of the information are not guaranteed.
Industry Overview
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%.
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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, and merchants increasingly need new methods of interacting with their
customers, deliver a frictionless experience and 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 Businesswire, 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).
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. Statista asserted
that just over 3.9 billion of these devices have access to mobile internet.
The pandemic environment of 2020 added fuel to the
fire and accelerated these trends in a way no one could have predicted. An Accenture study found that a total of 2.7 trillion transactions
worth $48 trillion shifted from cash to other forms of payments, representing a $300 billion opportunity for payment providers. The pandemic
also narrowed the generational gap between digital payment preferences, with nearly two thirds (64%) of consumers saying they used contactless
cards during the pandemic.
Telehealth uses information and communication technology
to overcome distance barriers and improve access to healthcare. According to Fortune Business Insights, the global telehealth market size
was valued at $61.40 billion in 2019 and is projected to reach $559.52 billion by 2027, exhibiting a CAGR of 25.2% during the forecast
period. Reports and Data reported the remote patient monitoring market is forecast to reach $2.14 billion by 2027 with a CAGR of 14.1%.
Our Competitive Strengths
We believe our adaptable technology and holistic
product offering differentiate us from our competitors. Our products, many of which could be launched in a matter of months, help to
eliminate much of our sector’s reliance on legacy payment rails and financial systems. Management believes by not being
restricted by antiquated foundational technology the applicability and frictionless nature of our products will offer an immediate
impact on the digital financial services industry. Further, while technologically advanced, the products will be comfortable to
end-users allowing for a seamless adoption.
The patent protection to some of our products is uncommon
within the fintech industry. This protection prevents competitors from trying to replicate our products in order 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.
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,
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.
The features and capabilities of products we intend
to bring to market allow for agile transaction processing which supports API-driven, multi-channel and secure products. The ability for
such products to be embedded into other technologies while supporting multi-currency transactions set our anticipated suite of products
apart from many large, established fintech companies.
Our Growth Strategy
We intend to grow through leveraging our
existing IP, developing with strategic partner relationships that uniquely complements our core businesses and through selective
acquisitions. 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 fees, synergistic product lines, processing fees, SaaS distribution and continual advancement of
our IP portfolio.
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Our target market is SMEs seeking to broaden
their distribution through the addition of digital payment channels and SMBs looking to create competitive advantage by reducing
integration complexity and streamlining their payment processing services. We also intend to target financial institutions looking
to maintain their ability to compete by digitizing their financial services offerings to meet market demand, enhance their
customer’s user experience through the development of innovative and user centric multi-channel, multi-currency, digital
financial products. We intend to utilize a white-label SaaS delivery model, which will allow for service fees, revenue sharing and
back-end processing fees. Further, by offering SMEs a full array of lead generation services, merchant services processing and
digital banking technologies, we will allow them to better interact with their customers and provide additional, dynamic means of
processing both inbound and outbound payments. SMEs generally lack the resources of large enterprises to invest heavily in
technology. As a result, they are more dependent on service providers, such as us, 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.
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 reach their
customers. We believe that delivering novel, 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 everyday life.
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 these needs. We will offer payment acceptance
technologies that do not rely on legacy payment rails while allowing the end-user to transact frictionless and secure payments with the
comfort of text messaging. 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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Vital to our future success is the market penetration
of our current and future products. Our market penetration strategy includes four elements: (1) royalty-free licenses; (2) engaging close
industry contacts; (3) utilizing potential market share shifting IP; and (4) illustrating the need for our fintech products amongst our
target industry segments.
To gain a market share, we plan to initially offer
royalty-free licenses for our text messaging and complimentary payment solutions in exchange for processing the related payments. By incentivizing
potential clients with free access to advanced, patented technology, we will give clients the ability to bolster and enhance their fintech
capabilities, while creating revenue streams for our full suite of products.
With years of fintech experience, management believes
we can leverage our industry contacts and past clients in order to gain valuable contracts with businesses. 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 to integrate our technology into their payment processing 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 transact. These two factors have the ability to
open our products to markets with immense growth potential.
Companies are regularly attempting to identify ways
to stay in contact with their customers and create new payment channels. Our products do precisely this. When customers sign up for our
secure text payment system, clients will have the ability to integrate a text messaging waiver into the registration process. This allows
for clients to have fresh, opted-in contact information which can be paired with our text messaging services for notification, response,
authentication, marketing, advertising, information queries and reports. It is our intent to market these identifiable benefits to companies
in order to illustrate the advantages of partnering with us. Specific industries that could utilize our secure text payment system are
pharmacies, collection agencies, charitable and religious organizations, utility companies, property management companies and any business
that relies upon recurring business or subscription management services.
Our partnership with NEC Payments’ internationally
experienced and proven team of subject matter experts will enable our management to focus resources on delivering growth using the strategies
described above. We will do this with full confidence that the business is being powered by innovative technology IP running on robust,
secure and scalable highly-available cloud infrastructure.
Management believes our partnership with
Silver Alert Services, LLC will be the initial foothold for our expansion in the telehealth sector. Our strategic partnership
providing financial services in support of their remote patient monitoring devices has the opportunity to create substantial
revenue. However, with the emergence of new telehealth platforms and the rapid shift towards e-visits, many of which require
a private payer model, we believe our payment acceptance technology, specifically our embedded capabilities will have
widespread application in the sector.
Our Products and Services
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, Novera/WorldPay and High Risk Holdings, LLC, 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, we will manage the risk and compliance
ourselves, which will increase our margins on each transaction processed.
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Using our proprietary software, together with
our partnerships, we are able to offer our merchants payment integration APIs including data encryption, payment tokenization and
issuing banking authorization, and the creation of white-label, merchant-specific mobile applications. As we move forward with our
secure text payment system and other products, we intend to enter new partnership agreements to align with our plans to integrate
advanced processing capabilities, permitting the global expansion of our financial services technologies.
Text Payment System
We are developing a comprehensive and broad mobile
payment platform which, once an account is established, relies solely on SMS text messaging. By integrating our payment processing with
text messaging and a digital wallet, we intend to offer the mobile payment industry’s first and only patent protected text payment
system. The integration of direct, reliable, instant, and familiar text messaging with secure payments is how we believe we bridge the
gap between fintech and mobile wireless systems.
Anticipated features of our secure mobile payments include:
● Utilization of standard SMS (Short Message Services) text messaging;
● Simple authentication of the end-user.
We intend for our secure text payment system to
offer a simple, three-step SMS text process utilizing a digital wallet, necessary to verify payee and payor identification, account
numbers and fund availability for pre-registered users. Payment may be engaged by the mobile user messaging a set of keywords to an
established short code managed by us, or a merchant can contact an opted-in mobile user inquiring whether they desire to make a
payment. The registered user will authorize the amount and company in which they intend to remit payment.
Within the text payment platform there are three
distinct services that are used. These include: (1) our patented text messaging platform, (2) a digital wallet and (3) payment
processing. Depending on the needs of the merchant, we may provide all three services or only license our text messaging platform to
a business that utilizes their own/third-party digital wallet and alternate payment processors. Through licensing agreements, we
possess modern application programming interfaces (APIs) to allow licensees to develop their own, white-labeled software
applications. This flexible approach allows for an opportunity for greater market penetration.
Our text payment system will be used by
businesses seeking to maintain contact with customers and find new ways to receive payments. A utility company could contact a
customer via text message informing them their bill is due, then ask if they would like to pay their bill via text message. A church
could contact their parishioners asking to contribute their weekly tithe and companies can create simplistic ways to update, inform
and process transactions with brand loyalists.
Our text payment system is still in development. Continued
development including integration, testing and certification are still needed in order to be marketable. Management currently believes
the text payment system will be launched in third quarter of 2021.
We believe this 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. Management
believes no other product exists that provides verification of accounts and funds, authentication of user identity, and the authorization
of payment processing in the same fashion as our anticipated product.
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The following is a visual depiction of the text payment system:
Digital Banking Platform, BaaS& Embedded Payments
AppTech’s 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) (“Platform”). Furthermore, our Platform
will enable multi-channel, multi-currency, pure digital financial services products unlike any other providers in the world. It incorporates
a “plug-and-play” capability to enact deep integration with payment gateways and POS merchant services to form an end-to-end
payment acceptance and digital banking solution. In detail, we intend the Platform to enable innovative and disruptive digital distribution
products including:
● Neo-Banking for Consumers and SMEs;
● B2B and Consumer Virtual Payments (VCNs);
● Multi-Currency Money Management and P2P Money Transfer;
● Payroll, Expenses Management and B2C and G2C disbursements;
● Treasury Management;
Other attributes to our Platform will include:
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Lead Generation
The lead generation industry has relied on
thousands of “cold calls” that are rarely answered. According to the Mobile Marketing Association, the only wireless
technology that is opened up 98% of the time is SMS text message. As a supplement to our merchant services business, we offer a
patent protected SMS text messaging lead generation service for advertising, marketing and alerting our merchants’ customers
directly.
Using the merchant’s own opted-in mobile
number database, our lead generation service can regularly offer the merchants’ customers with the merchant’s latest in
the products and services, promotions, discounts, appointment scheduling. Additionally, it can provide payment reminders, which can
then be purchased via our text payments solution should merchants choose to utilize this service. Soliciting consumers requires
added incentive and, as a solution, we plan on integrating a reward program. Management believes this will increase our merchant
customers’ revenues and increase our customer base.
Our lead generation platform utilizes our patented
text messaging capabilities to deliver text marketing services. Further, merchants and business will able to utilize data captured through
the transaction which may be offered back to the merchant to leverage marketing trends.
By offering merchants our lead generation services,
it provides an opportunity for cross-selling our text payment system. For example, a pharmacy using our services to inform their consumer
that their prescription is filled can then send a follow-up text asking if the consumer is interested in paying for the prescription via
our text payment. Management believes this cross-selling synergy has the ability to increase revenues for all the services we offer.
Our digital text messaging for marketing, advertising,
information queries and alert notifications has extensive applications across numerous industries. Our past, present, and future clients
will have direct access to their end user customers offering them targeted information and new services. Just as important, our technology
is scalable, easily allowing us to meet the needs of our growing customer base.
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The following is a visual representation of our lead
generation system:
Our Intellectual Property
Our intellectual property is an important component
to our business. Our strategy is to continue to build on our existing patent base and further develop additional patents and intellectual
property as we grow our business domestically and internationally. Our management believes developing patent-based software products,
integrating new technologies and creating intellectual property will significantly contribute to our performance. We also believe we will
be able to leverage our existing patents to cross-license with other, leading, innovative patented technology partners.
We have incorporated four USPTO patents into our operational,
enterprise-grade text messaging platform for SMS marketing, advertising and sales. By integrating our SMS technology with our MFA payment
system, we will offer secure text payments. In addition to secure text payments, our MFA allows users to authenticate and validate in
order to access private data and complete online transactions and inquiries. Our proprietary text messaging capabilities also allow users
to send and receive a text message from a short code and initiate two-way chat from a mobile to a computer using only text-messaging.
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Expiration Date: Expiration Date: Expiration Date: Expiration Date:
Patent Number 8,369,828 is at the core of our Secure
Text Payment System. The patent enables a mobile user to initiate a request for payment to a payee via SMS text message. Patent Number
8,315,184 utilizes short and/or long codes to send and receive text messages from an application to a mobile device. Patent Number 8,572,166
embeds a URL in a text message sent from an application to a mobile device. These patents comprise the components of our Secure Text Payment
System. Patent Number 8,073,895 provides us another capability of delivering web content to a mobile device.
We currently have one additional patent pending. We
anticipate seeking additional patents, including derivative patents, as we continue to innovate to better meet our customer’s needs.
In addition to incorporating our intellectual property into our offerings, we will license all or some of our technology to third parties
to increase our revenue and speed market acceptance of our products and services.
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Regulations
Various aspects of our business are subject to U.S.
and non-U.S. federal, state and local regulation. Many domestic laws and regulations that affect companies conducting business on the
Internet and companies transmitting user information and payments via text message or other electronic means are still evolving and the
interpretation of such laws and regulations are often uncertain. Failure to comply with applicable laws and regulations may result in
the suspension or revocation of licenses or registrations, the limitation, suspension or termination of services and/or the imposition
of civil and criminal penalties and/or fines. Our services to mobile phone carriers are also further subject to certain of the rules and
policies of such carriers and ongoing contractual covenants with such carriers, the violation of which may result in penalties and/or
fines and possible termination of our services. Certain services we offer are also subject to rules set by various payment networks, such
as Visa and MasterCard.
Association and Network Rules. While not legal
or governmental regulation, we are subject to the network rules of Visa, MasterCard and other payment networks. In order to provide processing
services, we are registered with Visa and/or MasterCard as a service provider for member institutions. As a processor level member of
numerous networks, we are also subject to various network rules in connection with processing services and other services we provide.
As such, we are subject to applicable card association, networks and national scheme rules that could subject us to fines or penalties.
The payment networks routinely update and modify their requirements. Under these rules, we may potentially receive notices of non-compliance
and fines, which might be related to excessive charge backs by a merchant or data security failures. Our failure to comply with the networks’
requirements or to pay the fines they impose could cause the termination of our registration and require us to stop providing payment
services.
Dodd-Frank Act. In July 2010, the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 was signed into law in the United States. The Dodd-Frank Act has resulted in significant
structural and other changes to the regulation of the financial services industry.
The Dodd-Frank Act provided two self-executing statutory
provisions limiting the ability of payment card networks to impose certain restrictions that became effective in July 2010. The first
provision allows merchants to set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card (and allows federal governmental
entities and institutions of higher education to set maximum amounts for the acceptance of credit cards). The second provision allows
merchants to provide discounts or incentives to entice consumers to pay with cash, checks, debit cards or credit cards, as the merchant
prefers.
Separately, the so-called Durbin Amendment to the
Dodd-Frank Act provided that interchange fees that a card issuer or payment network receives or charges for debit transactions will now
be regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing,
clearing and settling the transaction. Payment network fees, such as switch fees may not be used directly or indirectly to compensate
card issuers in circumvention of the interchange transaction fee restrictions. In July 2011, the Federal Reserve published the final rules
governing debit interchange fees. Effective in October 2011, debit interchange rates for card issuing financial institutions with more
than $10 billion of assets are capped at $0.21 per transaction with an additional component of five basis points of the transaction’s
value to reflect a portion of the issuer’s fraud losses plus, for qualifying issuing financial institutions, an additional $0.01
per transaction in debit interchange for fraud prevention costs. The debit interchange fee would be $0.24 per transaction on a $38 debit
card transaction, the average transaction size for debit card transactions. In July 2013, the U.S. District Court for the District of
Columbia determined that the Federal Reserve’s regulations implementing the Durbin Amendment were invalid. The U.S. Court of Appeals
for the District of Columbia, or D.C. Circuit, reversed this decision on March 21, 2014, generally upholding the Federal Reserve’s
interpretation of the Durbin Amendment and the Federal Reserve’s rules implementing it. On August 18, 2014, the plaintiffs in this
litigation filed a petition for a writ of certiorari asking the U.S. Supreme Court to review the D.C. Circuit’s decision with respect
to the interchange fee cap. We continue to monitor developments in the litigation surrounding these rules. Regardless of the outcome of
the litigation, the cap on interchange fees is not expected to have a material direct impact on our results of operations.
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In addition, the new rules contain prohibitions on
network exclusivity and merchant routing restrictions. Beginning in October 2011, (i) a card payment network may not prohibit a card issuer
from contracting with any other card payment network for the processing of electronic debit transactions involving the issuer’s
debit cards and (ii) card issuing financial institutions and card payment networks may not inhibit the ability of merchants to direct
the routing of debit card transactions over any card payment networks that can process the transactions. Since April 2012, most debit
card issuers have been required to enable at least two unaffiliated card payment networks on each debit card. We do not expect the prohibition
on network exclusivity to impact our ability to pass on network fees and other costs to our clients. These regulatory changes create both
opportunities and challenges for us. Increased regulation may add to the complexity of operating a payment processing business, creating
an opportunity for larger competitors to differentiate themselves both in product capabilities and service delivery.
Federal Trade Commission Act and Other Laws Impacting
our Customers’ Business. All persons engaged in commerce, including, but not limited to, us and our merchants are subject to
Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, or UDAP. In addition, there are other
laws, rules and or regulations, including the Telemarketing Sales Act, that may directly impact the activities of our merchant customers
and in some cases may subject us, as the merchant’s payment processor, to investigations, fees, fines and disgorgement of funds
in the event we are deemed to have aided and abetted or otherwise provided the means and instrumentalities to facilitate the illegal activities
of the merchant through our payment processing services. Various federal and state regulatory enforcement agencies including the Federal
Trade Commission, or FTC, and the states’ attorney general have authority to take action against nonbanks that engage in UDAP or
violate other laws, rules and regulations and to the extent we are processing payments for a merchant that may be in violation of laws,
rules and regulations, we may be subject to enforcement actions and as a result may incur losses and liabilities that may impact our business.
Anti-Money Laundering and Counter Terrorist Regulation.
We are also subject to U.S. federal anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended by the USA
PATRIOT Act of 2001 (collectively, the BSA). The BSA requires, among other things, that money services businesses to develop and implement
risk-based anti-money laundering programs, report large cash transactions and suspicious activity and maintain transaction records.
We are additionally subject to economic and trade
sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control, or OFAC. These programs prohibit
or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances, their nationals,
narcotics traffickers, and terrorists or terrorist organizations. We are also subject to other countries’ laws, where applicable,
regarding anti-money laundering, counter terrorist financing and proceeds of crime.
Anti-Corruption. We are subject to applicable
anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, in the jurisdictions in which we operate. Anti-corruption laws generally
prohibit offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a government
official or private party in order to influence official action or otherwise gain an unfair business advantage.
Telephone Consumer Protection Act. We are subject
to restrictions regarding telemarketing practices. Under the Telephone Consumer Protection Act (“TCPA”), telephone solicitations
and the use of automated phone equipment is subject to strict solicitation rules. This includes the use of pre-recorded voice messages,
automatic dialing, text messaging, and fax use. Absent informed consent by the consumer, commercial telemarketers are prohibited from
making unwanted, unsolicited sales calls to mobile devices. The TCPA affects our ability to contact consumers in association with our
secure text payment system and lead generation services. Violations of the TCPA may be enforced by the FCC or by individuals through litigation,
including class actions and statutory penalties for TCPA violations ranging from $500 to $1,500 per violation, which is often interpreted
to mean per phone call. While we intend to implement processes and procedures to comply with the TCPA, any failure by us or the third
parties in which we rely on for data, to adhere to, or successfully implement, appropriate processes and procedures in response to existing
or future regulations could result in legal and monetary liability, fines and penalties, or damage to our reputation in the marketplace,
any of which could have a material adverse effect on our business, financial condition and results of operations.
Controlling the Assault of Non-Solicited Pornography
and Marketing Act. We are subject to laws restricting the use of commercial messages, including text messaging. The Act generally
prohibits the use of deceptive subject lines, must accurately identify the sender, and denote the message as an advertisement. In addition,
recipients must include a clear and conspicuous explanation of how to opt-out of receiving the messages and the sender must remove the
recipient within 10 business days of the receiver opting-out.
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Payment Card Industry Data Security Standard.
We are subject to the information security standard for organizations processing, storing or transmitting credit card information. The
standard was created to increase controls around cardholder data to reduce credit card fraud. As we continue to process and store credit
card information, the failure to adhere to the standards has the ability to have a material adverse effect on our business, financial
condition and results of operations. However, through partnerships with Total Systems Services, Inc. and Oracle Corporation, we are able
to utilize preventative measures when we store, process or transmit cardholder data, helping us to meet PCI level 1 compliance.
Other Laws and Regulations
Since we collect certain information from members
and users on our platform, we will be subject to current and future government regulations regarding the collection, use and safeguarding
of consumer information over the Internet and mobile communication devices. These regulations and laws may involve taxation, tariffs,
user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications,
consumer protection and electronic payment services. In many cases, it may be unclear how existing laws governing issues such as property
ownership, sales and other taxes, libel and personal privacy apply to the Internet or mobile communication services as the vast majority
of these laws were adopted prior to the advent of these technologies and do not contemplate or address the unique issues raised by the
Internet and e-commerce.
There are a number of legislative proposals that are
anticipated or pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning data protection
which could affect us. Many states, for example, have already passed laws requiring notification to subscribers when there is a security
breach of personal data. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data
practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices,
which could have an adverse effect on our business. In addition, some states are interpreting their own statutes differently than federal
law. This may create additional compliance burdens.
Legislation could be passed that limits our ability
to use or store information about our users. The Federal Trade Commission FTC and various states have established regulatory guidelines
issued under the Federal Trade Commission Act and various state acts, respectively, that govern the collection, use and storage of consumer
information, establishing principles relating to notice, consent, access and data integrity and security. Our practices are designed to
comply with these guidelines.
The foregoing list of laws and regulations to which
we are subject is not exhaustive, and the regulatory framework governing our operations changes continuously. Enactment of new laws and
regulations may affect our operations, and could potentially result in increased regulatory compliance costs, litigation expense, adverse
publicity, and/or loss of revenue. We believe our policies and practices comply with the FTC privacy guidelines and other applicable laws
and regulations. However, if our belief proves incorrect, or if these guidelines, laws or regulations or their interpretations change
or new legislation or regulations are enacted, we may be compelled to provide additional disclosures to our users, obtain additional consents
from our users before collecting or using their information or implement new safeguards to help our users manage our (or others’)
use of their information, among other changes.
Employees
As of the date of this annual report, we have three
full-time employees and seven consultants. 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 3000 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.
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Item 3. Legal Proceedings
In November 2017, two shareholders of AppTech, filed
another lawsuit against us in the State of California. The lawsuit has been transferred to the United States District Court for the Southern
District of California. We filed an answer, affirmative defenses and counter claims. Management believes that the Plaintiff misrepresented
and mislead us during our merger with Transcendent One, Inc. The court has encouraged the parties to settle. Even though the Company believes