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.
14
Business Overview
Through our scalable cloud-based platform architecture
and infrastructure coupled with our commerce experiences development and delivery model, we intend to simplify and streamline digital
financial services for corporations, small and midsized enterprises (“SMEs”) and consumers. We will accomplish this through
innovative omnichannel payment and digital banking technologies that complement our core merchant services capabilities. We believe there
is opportunity to generate significant revenue for the Company the near future by providing innovative commerce solutions and experiences
that resonate with clients, their customers, and the market as a whole. Further, our soon to be launched modular platform will equip forward-thinking
financial institutions, technology companies, and SMEs with operational efficiencies, such as automated financial controls and reconciliation
in addition to manual administration.
Our Company’s merchant services solutions provide
financial processing for businesses to accept cashless and/or contactless payments, such as credit cards, ACH, wireless payments, and
more. Our patented, exclusively licensed, and proprietary merchant services software will offer, new integrated solutions for frictionless
digital and mobile payment acceptance including acceptance of alternative payment methods (“APMs”). We are extending and enhancing
these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based issuer processing for card,
digital tokens, and payment transfer transactions. Our scalable business model allows for expansive white-labeling, SaaS, and embedded
solutions that will drive the digital transformation of financial services and generate diverse revenue streams for our company.
The financial services industry is going through a
period of intensive change driven by the advancement of technology, the adaptation to societal changes resulting from COVID-19, and the
rapid rise of contactless transactions. End-users expect ease of use and an enhanced user experience in all their daily financial interactions.
In this rapidly evolving digital marketplace, our prospective clients, such as merchants and independent software vendors (“ISVs”),
have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their competitive
edge.
Providing basic payment acceptance and “lowest
price” models is no longer the winning formula to support the market. These entities recognize that staying competitive in the digital
age requires a partner with a platform and services capable of delivering flexibility and growth while streamlining operations to continually
deliver increased revenue and profitability opportunities. Our pricing is extremely competitive, but we believe the value we create for
financial institutions, technology companies, and SMEs through our technology, deployment model, services and consultative approach will
create true differentiation from our competitors.
Our global financial services platform architecture
and infrastructure is designed to be flexible and configurable to meet current and future market needs. This will empower our clients
to take advantage of future platform development and new innovative digital financial solutions by leveraging off-the-shelf
experiences and consuming our APIs. Additionally, by taking a holistic view of all aspects of our clients’ business, including risk,
volume, user experience, integration capabilities and technical needs, we will create optimal and extensible financial technology solutions
at a rapid pace.
Through exclusive licensing and partnership agreements
to complement our patented technology capabilities, we believe we will become leaders in the embedded payment and digital banking sectors
by supporting digital, tokenized, multi-channel, embedded API-driven transactions. We intend to accelerate this position through the integration
of our merchant services and a secure text payment solution with extensive digital account-based and multi-channel issuer payment processing
capabilities. We believe that this will enable us to provide our clients an end-to-end payment acceptance and digital banking solution
powering straight-through processing and embedded payment opportunities in the B2B space. We expect to support clients through the development
of custom and off-the-shelf experiences by delivering these solutions through public APIs and Webhooks.
A key to the company’s success and market penetration
is the continued development of enterprise-grade, patent protected software for SMS text payments via a mobile device. Our patented technology
manages text messaging for processing payments, notification, response, authentication, marketing, advertising, information queries and
reports. Once an account is established through a multi-currency digital wallet, neither internet connectivity nor a specific application
is required to process payments between merchants and end-users. These features will be particularly beneficial for unbanked and under
banked individuals in developing or emerging markets where access to the internet on a mobile device and modern banking institutions
may not be readily available. In addition, our software platform will extend merchants’ marketplace capabilities by creating new
avenues and channels to request and receive frictionless, digital payments and engaging end-users by utilizing a familiar, convenient,
and widely adopted technology.
15
We believe our technologies will greatly increase
the adoption of mobile payments and alternate banking solutions in sectors that must quickly adapt and migrate towards new technologies
that facilitate convenient and safe contactless payments. To survive and succeed in this environment, businesses need to adopt new technologies
to engage, communicate and process payments with their customers from a supplier that widely supports innovation and adaptation as the
industry evolves. By embracing technological advancement in the payment and banking industries, we are well-positioned to meet the growing
needs of existing and prospective clients and intend for our current and future products to be at the forefront of solving these accelerated
market needs.
We werefounded in 1998 and changed our name to AppTech Corp. in 2009. In 2013, we
merged with Transcendent One, Inc., whereby
Transcendent One, Inc. and its managementtook controlling ownership of the Company.
From this point forward,we
have operated as a merchant services
provider, continuing the business conducted byTranscendent One, Inc. In 2017, we acquired
certain assets from GlobalTel Media, Inc., which included patented,
enterprise-grade software for advanced text messaging. In addition to the
software and associated databases, the acquisition included four patents and
additional intellectual property for mobile
payments. On December 23, 2021, we changed our name to AppTech Payment Corp and re-domiciled
to Delaware. We are headquartered in Carlsbad, CA. and uplisted to NASDAQ in January 2022. Our stock
trades under the symbol “APCX” and our warrants under the symbol “APCXW”.
Financial Operations Overview
The following discussion sets
forth certain components of our statements of operations aswellasfactors
that impact those items.
Revenues
Our Revenues.
We derive our revenue 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.
16
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, 2021 and 2020, respectively. We have
derived this data from our annual financial statements included elsewhere in this registration statement.
Year Ended December 31, 2021
Compared to Year Ended December 31, 2020
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 (25.6 ) 71.8 (97.4 ) (136 %)
Provision for income taxes — — — —
17
Revenue
Revenue increased to $353,824 from $329,500, or 7%,
for the year ended December 31, 2021 from the year ended December 31, 2020. The increase was principally driven by the Company boarding
more accounts in FY21 versus FY20, and an increase in merchant processing.
Cost of Revenue
Cost of revenue increased to $149,449 from $140,372,
or 6%, for the year ended December 31, 2021 from the year ended December 31, 2020. This increase was driven primarily by the increase
in revenue.
General and Administrative Expenses
General and administrative expenses increased to $8,399,382
from $3,749,456, or 124%, for the year ended December 31, 2021 from the year ended December 31, 2020. This increase was primarily driven
by the increase of some one-time stock compensation expense from employment contracts.
Excess fair
value of equity issuance over assets received
On October 1,
2020, the Company entered into a strategic partnership with Infinios Financial Services B.S.C (“Infinios”). The partnership
was not consummated until February 19, 2021. As part of the deal, Infinios received 15% or 1,895,948 post-split shares of the Company’s common
stock on a fully diluted basis. The Company valued the common stock issuance at $67,543,182 based upon the closing market price on the
effective date (February 19, 2021). In addition, Management capitalized cash payments and equity issuances granted to Infinios and Innovations
Realized, LLC (a third party hired to help with the platform integration) over the course of fiscal year 2021. Management carefully analyzed
the value of the licenses and services to be performed. Any value in excess of the capitalized asset was out right expensed.
Research and Development Expenses
Research and development expenses increased to $169,034
from $49,250, or 243%, for the year ended December 31, 2021 from the year ended December 31, 2020. This increase was primarily due
to additional development performed by in-house employees related to the platform.
Interest Expense, net
Interest expense, net increased to $3,110,717 from
$342,321, or 809%, for the year ended December 31, 2021 from the year ended December 31, 2020. This increase was primarily driven by interest
charges on debt conversions and debt forbearance agreements.
18
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability decreased
to ($25,581) from $71,764 or (136%) for the year ended December 31, 2021 from the year ended December 31, 2020. This decrease was primarily
driven by the market fluctuation of the derivative liability.
Other income (expenses)
Other income (expense) increased to $1,210,719 from
$82,530, or 1,368%, for the year ended December
31, 2021 from the year ended December 31, 2020. This increase was primarily driven by the Company writing off old payables totaling ($946,262),
debt forgiveness of ($174,945), and writing off the remaining balance of the merchant equity program ($88,603) for which the statute
of limitations had expired.
Liquidity and Capital Resources
The Company successfully completed its capital raise
and uplisting onto NASDAQ (herein referred to its “Offering”) on January 7, 2022. As part of the Offering, the Company executed
a 9.5 to 1 reverse split of its common stock. In addition, the Offering sold 3,614,458 units of our common stock (a unit consisted of
one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. In addition, 542,168 warrants were granted.
The Offering provided net proceeds of approximately $13.353 million. The Company’s current cash position is significant enough to
support the daily operations for a period in excess of one year from the date of filing this 10-K. All shares and share prices within
this 10-K have been adjusted to reflect the stock split.
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.
19
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, 2021 and 2020
Year Ended December 31,
Net cash provided by (used in) investing activities $ (1,184,797 ) $ 5,911
Cash Flow from Operating Activities
Net cash used in operating activities increased by
$1,233,163 for the year ended December 31, 2021 from the year ended December 31, 2020. This
increase was principally driven by the new employment and consulting agreements.
Cash Flow from Investing Activities
Net cash used by investing activities increased by
$1,190,708 for the year ended December 31, 2021 from the year ended December 31, 2020. This increase was principally driven by expenditures
for capitalized prepaid software development and license.
Cash Flow from Financing Activities
Net cash provided by financing activities increased
by $2,341,062 for the year ended December 31, 2021 from the year ended December 31, 2020. This increase was principally driven by increased
proceeds from assigning our rights to stock repurchase option agreements to 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, 2021, there have been no significant
changes to our critical accounting estimates nor to our recently issued accounting pronouncements, except as described in Note 2 to our
financial statements.
20
Software Development Costs
The Company capitalizes software development costs
in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements
are expensed as incurred. Equity and options granted are capitalized as part of the software development
costs.
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.
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.
Recent Accounting
Pronouncements
As of December 31, 2021,there have been no significant changes
to our recently issued accounting pronouncements,
except as described in Note 2 to our financial statements.
Off-Balance Sheet
Arrangements
We do not have
any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities, that would have been established to facilitate
off-balance sheet arrangements (as that term
is defined in Item 303(a)(4)(ii) of RegulationS-K) or other contractually narrow or limited
purposes. As such, we are not exposed to any
financing, liquidity, market or credit risk
that could arise if we had engaged in those
types of relationships. We enter into guarantees
in the ordinary course of business related to the
guarantee of our own performance.
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, 2021, 69,531 of
common stock were issued to several consultants and employees in connection with business development, and professional and employment
services rendered valued at $810,446.
During the year ended December 31, 2021, 21,491 shares
of common stock were issued to the board of directors.
The shares were earned over the term of the directors. The Company valued the stock issuance,
earned as of December 31, 2021, at $114,742.
During the year ended December 31, 2020, 422,315 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, 15,350 shares
of common stock were issued to the board of directors. The shares were earned over the term
of the directors. The Company valued the stock issuance at $81,958.
Related Parties
See Item 13 for a full discussion of related parties.
21
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 financial statements and related financial statement
schedules required to be filed are indexed on page 25 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, 2021.
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:
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, 2021, 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, 2021.
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 2021 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.
22
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, 2021 (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 was previously presented under the caption “Corporate Governance - Code of Business Conduct” in our 2021 Proxy
Statement and is incorporated herein by reference. There is no material change.
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.
23
Equity Compensation Plan
The following table provides information, as of March
24, 2022, with respect to shares of our common stock that may be issued, subject to certain vesting requirements, under existing or future
awards under our 2021 Equity Incentive Plan (“2021 Plan”). The 2021 Plan was approved by our Board of Directors and ratified
by our shareholders at our 2021 Annual Shareholder Meeting.
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.
24
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 10K:
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.
25
APPTECH PAYMENTS CORP.
FINANCIAL STATEMENTS
(FORMERLY APPTECH
CORP.)
AS
OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Registered Public Accounting Firm 27
Statements of Operations for the years ended December 31, 2021 and 2020 29
Statements of Cash Flows for the years ended December 31, 2021 and 2020 31
Notes to the Financial Statements 32
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors
and
Stockholders of AppTech Payments
Corp.
Opinion on the Financial
Statements
We have
audited the accompanying balance sheets
of AppTech Payments Corp. (formerly AppTech Corp.) (the “Company”) as of December
31, 2021 and 2020, the related statements of operations, stockholders’ equity (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, 2021 and
2020, 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.
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
The critical audit matter
communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
Capitalized Software Development
and Prepaid Licensing Fees
As discussed in Notes 2 and
8 to the financial statements, the Company capitalizes
certain internal-use software development costs, as well as prepaid licensing fees. During
the year ended December 31, 2021, the
Company issued a substantial amount of non-cash
consideration in connection with the prepayment of software
development and licensing fees. Management allocated a portion of the value of the
common stock to the software development and
to the prepaid licensing fees.
We identified this critical
audit matter because of the degree of subjectivity involved in assessing what amount of non-cash consideration should be capitalized.
Management was required to make significant assumptions, which included estimating the fair value of the services to be received and
the fair value of the license acquired as the equity consideration issued had a significantly higher fair market value than the consideration
received, and to be received.
Addressing
the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the financial
statements. These procedures included gaining
an understanding of the controls relating
to capitalizing software development costs and prepaid licensing
fees, testing management’s process for determining the related costs eligible
for capitalization in the current year, evaluating whether
the related costs were eligible for capitalization
and the allocation between software development and licensing fees, testing the completeness
and accuracy of underlying data used in management’s estimate of eligible costs,
evaluating the reasonableness of significant assumptions
used by management in estimating eligible costs and performing
inquiries of the third party providers to corroborate management’s conclusions regarding the fair market value of the services
and licenses received.
/s/ dbbmckennon
We have served as the Company’s auditor since 2014
San Diego, California
27
APPTECH PAYMENTS CORP.
(FORMERLY APPTECH CORP.)
BALANCE SHEETS
DECEMBER 31, 2021 and 2020
December 31, December 31,
ASSETS
Current assets
Prepaid License Fees - Current 479,375 —
Prepaid offering cost 92,317 —
Prepaid license fees – long term 3,180,000 —
Capitalized prepaid software development and license 3,440,321 —
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Loans payable related parties — 34,400
Convertible notes payable related parties — 372,000
Long-term liabilities
Notes payable, net of current portion 67,400 67,400
Commitments and contingencies (Note 8)
Stockholders’ equity (deficit)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 7,556,966 $ 379,689
See accompanying notes to the financial statements.
28
APPTECH PAYMENTS CORP.
(FORMERLY APPTECH CORP.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020
December 31, December 31,
Operating expenses:
Excess fair value of equity issuance over assets received 68,955,924 —
Other income (expenses)
Forgiveness of debt — 9,000
Day one derivative loss — (389,712 )
Change in fair value of derivative liability (25,581 ) 71,764
Provision for income taxes — —
Basic and diluted net loss per common share $ (6.97 ) $ (0.46 )
See accompanying notes to the financial statements.
29
APPTECH PAYMENTS CORP.
(FORMERLY APPTECH CORP.)
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020
Series A Additional Stockholders’
Preferred Common Stock Paid- Accumulated Equity
Shares Amount Shares Amount in Capital Deficit (Deficit)
Imputed interest on notes payable — — — — 13,800 — 13,800
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
Imputed interest on notes payable — — — — 10,350 — 10,350
Issuance of stock options for board of directors — — — — 37,460 — 37,460
See accompanying notes to the financial statements.
30
APPTECH PAYMENTS CORP.
(FORMERLY APPTECH CORP.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020
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 37,460 29,265
Stock issued for merchant equity 18,370 —
Stock issued for purchase of judgement 1,000,000 —
Stock issued for fair value of equity over assets received 68,955,924 —
Day one derivative loss — 389,712
Gain on extinguishment of accounts payable (1,105,919 ) —
Change in fair value of derivative liabilities 25,581 (71,764 )
Changes in operating assets and liabilities:
Prepaid license costs (909,375 ) —
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software development (1,176,797 ) —
Security deposit — (1,589 )
Net cash provided by (used in) investing activities (1,184,797 ) 5,911
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for prepaid offering costs (92,317 ) —
Proceeds on loans payable - related parties — 750
Payments on loans payable - related parties (34,400 ) (59,751 )
Proceeds on convertible note payable — 280,000
Proceeds on note payable — 68,200
Proceeds from exercise of warrants — 55,000
Changes in cash and cash equivalents (49,471 ) 33,338
Cash and cash equivalents, beginning of year 57,497 24,159
Cash and cash equivalents, end of year $ 8,026 $ 57,497
Supplemental disclosures of cash flow information:
Cash paid for interest $ — $ —
Cash paid for income taxes $ — $ —
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of accounts payable $ 206,250 $ 152,500
See accompanying notes to the financial statements.
31
APPTECH PAYMENTS CORP.
(FORMERLY APPTECH CORP.)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
As
previously disclosed, AppTech Payments Corp. (“AppTech” or the “Company”) is a Delaware Corporation incorporated
on December 23, 2021, which reflects the domestication of the company, previously incorporated in Wyoming as AppTech Corp.
The Company successfully
completed its capital raise and uplisting onto NASDAQ (herein referred to its “Offering”) on January 7, 2022. As part of
the Offering, the Company executed a 9.5 to 1 reverse split of its common stock. In addition, the Offering sold 3,614,458units of our
common stock (a unit consisted of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. In
addition, 542,168 warrants were granted. The Offering provided net proceeds of approximately $13.353 million. The Company’s current
cash position is significant enough to support the daily operations for a period in excess of one year from the date of filing this 10-K.
All shares and share prices within this 10-K have been adjusted to reflect the stock split.
AppTech
Payments Corp. is a FinTech company providing electronic payment processing technologies and merchant services. These technologies allow
businesses to accept cashless and/or contactless payments, such as credit cards, ACH, wireless payments, and more. Their patented, exclusively
licensed and/or proprietary merchant services software offers or will offer integrated solutions for frictionless digital and mobile payment
acceptance; AppTech is supplementing these capabilities with software that solves for multi-use case, multi-channel, API-driven, account-based
issuer processing for card, digital tokens, and payment transfer transactions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation