Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial
condition and results of operations should be read together with the audited financial statements and related notes included elsewhere
in this registration statement. Certain statements contained in this registration statement, including statements regarding the anticipated
development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating
performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that
are not historical facts, are “forward-looking” statements. Our Management’s Discussion and Analysis contains not only
statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because
forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results
discussed in the forward-looking statements.
Executive Overview
We intend to simplify and streamline digital financial
services for corporations, small and midsized enterprises (“SMEs”) and consumers through innovative payment processing 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 contactless payments, such as credit cards, ACH, wireless payments, and more. Our
patented, exclusively licensed and/or proprietary merchant services software offers or will offer integrated solutions for frictionless
digital and mobile payment acceptance; 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 Revenue and Expenses
Revenues
We derive our revenues by providing financial processing
services to businesses.
Expenses
Cost of Revenue. Cost of revenue includes costs
directly attributable to processing and other services the company provides. These also include related costs such as residual payments
to our business development partners, which are based on a percentage of the net revenue generated from client referrals.
General and administrative. General and administrative
expenses include professional services, rent and utilities, and other operating costs.
Research and development. Research and development
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 outside services.
Interest expense, net. Our interest expense
consists of interest on our outstanding indebtedness and amortization of debt issuance costs.
How We Assess Our Business
We provide electronic payment processing and merchant
services. Our electronic payment processing and merchant services provide comprehensive payment solutions to businesses.
20
Key Operating Metrics
We evaluate our performance through key operating
metrics, including:
● Period to period merchant payment volume attrition
Our payment volume for the years ended December
31, 2020 and 2019 was $99,673,038 and $103,389,512, respectively. This represents a period-to-period growth rate of minus 4%.
Payment volume reflects the addition of new clients and the same client payment volume from existing clients, offset by client
attrition during the period.
Our merchant payment volume attrition for the years
ended December 31, 2020 and 2019 was $1,141,661 and $1,409,757 (1.37%), respectively. This represents a period-to-period attrition decrease
of 19%.
We measure period to period merchant payment volume
attrition for all clients that were processing with us for the same period in the prior period. We exclude from our calculations the merchant
payment volume from new clients added during the period. We experience attrition in payment volume as a result of several factors, including
business closures and transfers of client’s accounts to our competitors.
We have one merchant customer, American Residential
Warranty Services, that represented approximately 36% of our total revenues in the year ended December 31, 2020 and approximately
39% of our total revenues in the year ended December 31, 2019. The terms of our agreement with this entity are industry standard for
ACH processing for similar merchants. We have a 5-year contract, beginning April 24, 2020, with this customer, and the loss of their
business would have a material adverse effect on our business.
Results of Operations
This section includes a summary of our historical
results of operations, followed by detailed comparisons of our results for years ended December 31, 2020 and 2019, respectively. We have
derived this data from our annual consolidated financial statements included elsewhere in this registration statement.
Year Ended December 31, 2020
Compared to Year Ended December 31, 2019
The following table presents our historical results of operations for the
periods indicated:
Year ended December 31 Change
Operating expenses
Other (income) expenses
Change in fair value of Derivative Liability (71.8 ) — (71.8 ) 100 %
Provision for income taxes — — — —
21
Revenue
Revenue increased to $329,500 from $256,138, or 29%,
for the year ended December 31, 2020 from the year ended December 31, 2019. This increase was principally driven by significant reduction
in processing fees from the processors.
Cost of Revenue
Cost of revenue increased to $140,372 from $101,638,
or 38%, for the year ended December 31, 2020 from the year ended December 31, 2019. This increase was driven primarily by a significant
increase in revenue.
General and Administrative Expenses
General and administrative expenses increased to
$3,749,456 from $1,020,869, or 267%, for the year ended December 31, 2020 from the year ended December 31, 2019. This increase
was primarily driven by the increase of some one-time stock compensation expense from significant consulting agreements.
Research and Development Expenses
Research and development expenses decreased to $49,250
from $82,057, or 40%, for the year ended December 31, 2020 from the year ended December 31, 2019. This decrease was primarily
due to the decrease in development costs resulting from service agreements related to the development of our software platforms.
Interest Expense, net
Interest expense, net increased to $342,321
from $288,784, or 19%, for the year ended December 31, 2020 from the year ended December 31, 2019. This increase was primarily
driven by the addition of one-time interest charges for the amortization of the debt discount, day one derivative loss on a security
purchase agreement.
Day One Derivative Loss
Day one derivative loss increased to $389,712 from
$0 or 100% for the year ended December 31, 2020 from the year ended December 31, 2019. This increase was primarily driven by the addition
of a new convertible note agreement.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability increased
to $71,764 from $0 or 100% for the year ended December 31, 2020 from the year ended December 31, 2019. This increase was primarily driven
by the addition of a new convertible note agreement.
Liquidity and Capital Resources
While the company is continuing operations and generating
revenues, the company’s cash position is not significant enough to support the company’s daily operations. To the extent that
additional funds are necessary to finance operations and meet our long-term liquidity needs as we continue to execute our strategy, we
anticipate that they can be obtained through additional indebtedness, equity or debt issuances or both. Using currently available capital
resources, management believes we can conduct planned operations for six months. Further, management believes we need to raise $1.5 million
to remain in business for the next 12 months.
Since we derive our revenues principally from processing
of purchases from our merchant services clients, a downturn in economic activity, such as that associated with the current corona virus
pandemic could reduce the volume of purchases we process, and thus our revenues. In addition, such a downturn could cause our merchant
customers to cease operations permanently decreasing our payment processing unless new customers were found. We may also face additional
difficulty in raising capital during an economic downturn.
22
Cash Flows
The following table presents a summary of cash flows
from operating, investing and financing activities for the following comparative periods.
Year Ended December 31, 2020 and 2019
Year Ended December 31,
Net cash used in operating activities $ (591,386 ) $ (760,544 )
Net cash provided by (used) in investing activities $ 5,911 $ (25,000 )
Net cash provided by financing activities $ 618,813 $ 808,319
Cash Flow from Operating Activities
Net cash used in operating activities decreased by
$169,158 for the year ended December 31, 2020 from the year ended December 31, 2019. This decrease was principally driven by the reduction
of a one-time settlement fee.
Cash Flow from Investing Activities
Net cash provided by investing activities increased
by $30,911 for the year ended December 31, 2020 from the year ended December 31, 2019. This increase was principally driven by the refund
of a deposit placed in escrow.
Cash Flow from Financing Activities
Net cash provided by financing activities decreased
by $189,506 for the year ended December 31, 2020 from the year ended December 31, 2019. This decrease was principally driven by decreased
proceeds from assigning our rights to stock repurchase option agreements to a third parties.
Critical Accounting Policies
Our discussion and analysis of our financial condition
and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets,
derivative financial instruments, and equity-based compensation. We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions
or conditions.
Critical accounting policies are those that we consider
the most critical to understanding our financial condition and results of operations. The accounting policies we believe to be most critical
to understanding our financial condition and results of operations are discussed below. As of December 31, 2020, there have been no significant
changes to our critical accounting estimates, except as described in Note 2 to our consolidated financial statements. Further, as of December
31, 2020, there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our
consolidated financial statements.
Smaller Reporting Company
As a smaller reporting company, as defined in Item(f)(1)
of Regulation S-K, we may choose to prepare our disclosures relying on scaled disclosure requirements for smaller reporting companies
in Regulation S-K and in Article 8 of Regulation S-X.
The scaled disclosure requirements for smaller reporting
companies permit us (i) to include less extensive narrative disclosure than required of other reporting companies, particularly in the
description of executive compensation and (ii) to provide audited financial statements for two fiscal years, in contrast to other reporting
companies, which must provide audited financial statements for three years.
23
We may lose our status as a smaller reporting company
on the last day of the fiscal year in which (i) our public float exceeds $250 million or (ii) if we have more than $100 million in annual
revenues and (a) have no public float or (b) have a public float or more than $700 million.
Equity-based Compensation
The Company records stock-based compensation in accordance
with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for
stock-based employee compensation at the fair market value on the grant date and recognize the expense over the employee’s requisite
service period. The Company recognizes in the statement of operations the grant-date fair market value of stock options and other equity-based
compensation issued to employees and non-employees.
During the year ended December 31, 2020, 4,012,000
shares of common stock were issued to several consultants in connection with business development and professional services rendered valued
at $2,631,899.
During the year ended December 31, 2020, 145,832
shares of common stock were issued to the board of director. The shares were earned over the term of the director. The Company valued
the stock issuance, earned as of December 31, 2020, at $81,958.
During the year ended December 31, 2019, 454,500 shares
of common stock were issued to several consultants in connection with business development and professional services rendered valued at
$91,414.
Related Parties
See Item 13 for a full discussion of related parties.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Because we are allowed to comply with the disclosure
obligations applicable to a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this
Annual Report on Form 10-K, we are not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary
Data
The consolidated financial statements and related
consolidated financial statement schedules required to be filed are indexed on page 26 and are incorporated herein.
Item 9. Changes in and Disagreements with Accounts
on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of
our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end
of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31, 2020.
Management’s Report on Internal Control over
Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial
officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
24
Under the supervision and with the participation of
management, including our principal executive and financial officers, we assessed our internal control over financial reporting as of
December 31, 2020, based on criteria for effective internal control over financial reporting established in the 2013 Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of the Tread way Commission (COSO).
Based on this assessment, our management concluded
that we maintained effective internal control over financial reporting as of December 31, 2020.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2020 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and
operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in
any control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. Other Information
None.
PART III
Item 10.Directors,
Executive Officers and Corporate Governance
The information required by this item regarding our
executive officers will be presented under the caption “Executive Officers” in our Proxy Statement for the 2021 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2020 (the
2021 Proxy Statement) and is incorporated herein by reference.
The information required by this item regarding our
compliance with Section 16 of the Exchange Act of 1934, as amended, will be presented under the caption “Security Ownership of Certain
Beneficial Owners and Management - Delinquent Section 16(a) Reports” in our 2021 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding our
audit committee will be presented under the caption “Corporate Governance - Board Committee - Audit Committee” in our 2021
Proxy Statement and is incorporated herein by reference.
The information required by this item regarding our
code of ethics will be presented under the caption “Corporate Governance - Code of Business Conduct” in our 2021 Proxy Statement
and is incorporated herein by reference.
25
Item 11. Executive Compensation
The information required by this item regarding executive
compensation will be presented under the caption “Executive Compensation” in our 2021 Proxy Statement and is incorporated
herein by reference.
The information required by this item regarding director
compensation will be presented under the caption “Corporate Governance - Director Compensation” in our 2021 Proxy Statement
and is incorporated herein by reference.
The information required by this item regarding our
compensation committee will be presented under the caption “Corporate Governance - Compensation Committee Interlocks and Insider
Participation” in our 2021 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The information required by this item regarding security
ownership and certain beneficial owners and management will be presented under the caption “Security Ownership of Certain Beneficial
Owners and Management” in our 2021 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan
The following table provides information,
as of March 30, 2021, with respect to shares of our common stock that may be issued, subject to certain vesting requirements, under existing
or future awards under our 2020 Equity Incentive Plan (“2020 Plan”). The 2020 Plan was approved by our Board of Directors
and ratified by our shareholders at our 2020 Annual Shareholder Meeting on July 28, 2020.
A B C
Equity compensation plans not approved by security holders — — —
Item 13. Certain Relationships and Related Transactions,
and Director Independence
The information required by this item regarding certain
relationships and related persons transactions will be presented under the caption “Certain Relationships and Related Persons Transactions”
in our 2021 Proxy Statement and is incorporated herein by reference.
The information required by this item regarding director
independence will be presented under the caption “Corporate Governance - Independent Directors” in our 2021 Proxy Statement
and is incorporated herein by reference.
Item 14. Principal
Accountant Fees and Services
The information required by this item regarding aggregate
fees billed to us by our independent registered public accounting firm’s fees will be presented in our 2021 Proxy Statement and
is incorporated herein by reference.
The information required by this item regarding our
audit committee’s pre-approval policies and procedures will be presented in our 2021 Proxy Statement and is incorporated
herein by reference.
PART IV
Item 15.Exhibits
and Financial Statements Schedules
(a) The following documents are filed as part of,
or incorporated by reference into, this Annual Report on Form 10-K:
1. Financial Statements. See Index to Financial Statements
under Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules. All schedules have
been omitted because the information required to be presented in them is not applicable or is shown in the financial statements or related
notes.
3. Exhibits. We have filed, or incorporated into this
Annual Report on Form 10-K by reference, the exhibits listed on the accompanying Exhibit Index immediately following the financial statements
contained in this Annual Report on Form 10-K.
(b) Exhibits. See Item 15(a)(3) above.
(c) Financial Statement Schedules. See Item 15(a)(2)
above.
Item 16.Form
10-K Summary
Not applicable.
26
APPTECH
CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL
STATEMENTS
AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 2020 and 2019
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Pages
Report of Independent Registered Public Accounting Firm 28
Consolidated Balance Sheets as of December 31, 2020 and 2019 29
Notes to the Consolidated Financial Statements 33
27
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of AppTech Corp.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of AppTech Corp. and subsidiaries (collectively the “Company”) as of December 31, 2020 and
2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows, for the years then ended, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of
their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements,
the Company has suffered recurring losses from operations and has a negative working capital, which raises substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising
from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ dbbmckennon
We have served as the Company’s auditor since 2014.
San Diego, California
28
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 and 2019
December 31, December 31,
ASSETS
Current assets
Security deposit — 5,948
Security deposit 7,536 —
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Right of use liability 52,161 —
Derivative liabilities 597,948 —
Long-term liabilities
Right of use liability 224,492 —
Commitments and contingencies (Note 9)
Stockholders’ deficit
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 379,689 $ 84,943
See accompanying notes to the consolidated financial statements.
29
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2020 and 2019
December 31, December 31,
Operating expenses:
Other income (expenses)
Forgiveness of debt 9,000 —
Day one derivative loss (389,712 ) —
Change in fair value of derivative liability 71,764 —
Provision for income taxes — —
Basic and diluted net loss per common share $ (0.05 ) $ (0.02 )
See accompanying notes to the consolidated financial statements.
30
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2020
and 2019
Series A Additional
Preferred Common Stock Paid- Accumulated Stockholders’
Shares Amount Shares Amount in Capital Deficit Deficit
Proceeds from sale of repurchase option — — — — 736,250 — 736,250
Issuance of stock options for board of directors — — — — 29,265 — 29,265
Issuance of stock options for services — — — — 351,441 — 351,441
Proceeds from sale of repurchase option — — — — 274,614 — 274,614
See accompanying notes to the consolidated financial statements.
31
APPTECH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2020 and 2019
December 31, December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of stock options for board of directors 29,265 —
Issuance of stock options for services 53,497 —
Stock issued for board of directors 81,958 —
Stock issued for rent — 18,400
Issuance of warrants for services 297,944 —
Day one derivative loss 389,712 —
Amortization of debt discount 19,826 —
Change in fair value of derivative liabilities (71,764 ) —
Depreciation and amortization — 65
Changes in operating assets and liabilities:
Prepaid rent (6,696 ) —
Right of use asset and liability 26,828 —
CASH FLOWS FROM INVESTING ACTIVITIES
Note receivable (17,500 ) —
Security deposit (1,589 ) —
Net cash provided by (used in) investing activities 5,911 (25,000 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on loans payable - related parties 750 39,319
Payments on loans payable - related parties (59,751 ) —
Proceeds on convertible note payable 280,000 —
Proceeds on note payable 68,200 —
Payments on notes payable — (36,000 )
Proceeds from exercise of options 55,000 —
Proceeds from sale of common stock — 68,750
Cash and cash equivalents, beginning of year 24,159 1,384
Cash and cash equivalents, end of year $ 57,497 $ 24,159
Supplemental disclosures of cash flow information:
Cash paid for interest $ — $ 5,805
Cash paid for income taxes $ — $ 7,057
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of accounts payable $ 152,500 $ —
Common stock issued for merchant equity liability $ — $ 14,877
See accompanying notes to the consolidated financial statements.
32
APPTECH
CORP. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION
OF BUSINESS
AppTech Corp. (“AppTech”
or the “Company”) is a Wyoming Corporation incorporated on July 2, 1998.
AppTech Corp. is a FinTech company providing
electronic payment processing technologies and merchant services..These technologies allow businesses to accept cashless and/or
contactless payments, such as credit cards, ACH, wireless payments, and more. Their patented, exclusively licensed and/or proprietary
merchant services software offers or will offer integrated solutions for frictionless digital and mobile payment acceptance; AppTech
is supplementing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based issuer
processing for card, digital tokens, and payment transfer transactions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”). Also see Note 3.
Principles of Consolidation
The Company’s accounts include
financials of the Company and its wholly owned subsidiaries, Transcendent One, Inc. and TransTech One, LLC. All significant inter-company
transactions have been eliminated in consolidation. The operations of Transcendent One, Inc. and TransTech One, LLC are insignificant,
and the Company dissolved the subsidiaries on October 8, 2019.
Use of Estimates
The preparation of the consolidated
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
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, and realization
of tax deferred tax assets. Actual results could differ from those estimates.
Concentration of Credit Risk
Cash and cash equivalents are maintained
at financial institutions and, at times, balances may exceed federally insured limits of $250,000 per institution that pays Federal
Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to
these balances.
The accounts receivable from merchant services
are paid by the financial institutions on a monthly basis. The Company currently uses five financial institutions to service their merchants
for which represented 100% of accounts receivable as of December 31, 2020 and 2019. The loss of one of these financial institutions would
not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company.
For the years ended December 31, 2020 and 2019, the one merchant (customer) represented approximately 36% and 39% of the total
revenues, respectively. The loss of this customer would have significant impact on the Company’s operations.
Cash and Cash Equivalents
The Company classifies its highly
liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Management determines
the appropriate classification of its investments at the time of purchase and reevaluates the designations of each investment
as of the balance sheet date for each reporting period. The Company classifies its investments as either short-term or
long-term based on each instrument’s underlying contractual maturity date. Investments with maturities of less than 12
months are classified as short-term and those with maturities greater than 12 months are classified as long-term. The cost of
investments sold is based upon the specific identification method.
33
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable is recorded net
of an allowance for doubtful accounts, if needed. The Company considers any changes to the financial condition of its financial
institutions used and any other external market factors that could impact the collectability of its receivables in the determination
of its allowance for doubtful accounts. The Company does not expect to have write-offs or adjustments to accounts receivable which
could have a material adverse effect on its consolidated financial position, results of operations or cash flows as the portion
which is deemed uncollectible is already taken into account when the revenue is recognized.
Revenue Recognition
The Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, codified as Accounting Standards Codification
(“ASC”) 606 Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use
in accounting for revenue arising from contracts with customers. The Company adopted ASC 606 effective January 1, 2019 using modified
retrospective basis and the cumulative effect was immaterial to the consolidated financial statements.
The Company provides merchant processing
solutions for credit cards and electronic payments. In all cases, the Company acts as an agent between the merchant which generates
the credit card and electronic payments, and the bank which processes such payments. The Company’s revenue is generated on
services priced as a percentage of transaction value or a specified fee transaction, depending on the card or transaction type.
Revenue is recorded as services are performed which is typically when the bank processes the merchant’s credit card and electronic
payments.
Consideration paid to customers, such
as amounts earned under our customer equity incentive program, are recorded as a reduction to revenues.
Consideration paid to customers such
as amounts earned under our customer equity incentive program, are recorded as a reduction to revenue. There were no amounts paid
or incurred during the years ended December 31, 2020 and 2019.
Fair Value Measurements
The Company follows FASB ASC 820,
Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclosure 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:
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.
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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 consolidated financial statements for cash, accounts payable and accrued expenses approximate their fair value
because of the immediate or short-term mature of these financial instruments.
Transactions involving related parties
cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-marketing
dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party
transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations
can be substantiated.
The following table presents liabilities
that are measured and recognized at fair value as of December 31, 2020 on recurring basis:
Total Carrying
Level 1 Level 2 Level 3 Value
See Note 7 for discussion of valuation
and roll forward related to derivative liabilities.
Research and Development
In accordance with ASC 730, Research
and Development (“R&D”) costs are expensed when incurred. R&D costs include costs of acquiring patents and
other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform,
contract and other outside services. Total R&D costs for the years ended December 31, 2020 and 2019 were $49,250 and $82,057,
respectively.
Property and Equipment
Property and equipment is recorded at
cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated
residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of equipment, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of
operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment
when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset or asset group may
not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset
group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount
of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Long-lived assets
to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell
and are not depreciated. As of December 31, 2020 and 2019, there were no asset impairments.
Lease Commitment
The Company determines if an arrangement
is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control
the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an
underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially
all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease
components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease
expense for variable lease components are recognized when the obligation is probable.
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Operating lease right of use (“ROU”)
assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases
buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments
using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As
an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based
on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s
leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend
(or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate)
the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for
the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease payments included in the measurement
of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to
be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable lease payments not dependent
on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease
agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the