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 consolidated financial statements and related notes included
elsewhere in this report. Certain statements contained in this report, 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.
Business Overview
The financial services industry is going through a period of intensive growth driven by the advancement of
technology and the rapid rise of contactless transactions due to societal changes, in part, as a response to COVID-19. End-users expect
ease of use and an enhanced user experience in all their daily financial interactions. In this rapidly evolving digital marketplace,
businesses have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their
competitive edge.
To flourish in this environment, businesses need to adopt new technologies
to engage, communicate and process payments and manage payouts with their customers from a supplier that widely supports innovation and
adaptation as the industry evolves. We believe our technologies will greatly increase the adoption of omni-channel payments and digital
banking solutions in sectors that must quickly adapt and migrate to new, secure digital Fintech technologies. By embracing advancements
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.
AppTech’s all-in-one Fintech platform, FinZeoTM, delivers best-in-class financial technologies
and capabilities through an ever-evolving modular cloud/edge-based architecture. The FinZeo platform houses a large array of financial
products and services that can be implemented off-the-shelf or customized via modern APIs. Within its FinZeo platform, AppTech offers
Payments-as-a-Service (“PaaS”), Banking-as-a-Service (“BaaS”), and the CommerseTM Portal.
FinZeo provides PaaS via integrated solutions for frictionless digital and mobile payment acceptance. These
solutions provide advanced payment processing solutions by catering to the unique needs of each merchant. FinZeo’s PaaS solutions
include ACH (automatic clearing house), credit & debit cards, eCheck, mobile processing, electronic billing, and text-to-pay. PaaS
will also solve for multi-use case, multi-channel, API-driven, account-based issuer processing for card, digital tokens, and payment
transfer transactions.
AppTech is positioned to further accelerate digital transformation
through BaaS, layered with financial management tools that empower financial institutions to provide businesses, professionals, and individuals
with the ability to better manage their finances anywhere, anytime at a fraction of the cost of traditional banking and financial services.
BaaS fosters an ecosystem of immersive and scalable digital financial management services, including FinZeo's groundbreaking automated
underwriting portal. By digitizing the underwriting process, Automated Underwriting expedites business onboarding with its intuitive digital
application and e-signature capabilities. This portal offers customizable pricing, risk models, and access to multiple processors, ensuring
tailored solutions for diverse needs.
The Commerse Portal empowers Independent Sales Organizations (ISOs)
and Independent Software Vendors (ISVs) to seamlessly integrate their businesses, facilitating swift technology adoption. By leveraging
the Commerse portal, ISOs/ISVs can streamline operations and foster growth, meeting the economic demands of their merchants. Through personalized
portals, ISOs/ISVs have the flexibility to select and integrate FinZeo payments and banking services, thereby enhancing their offerings
to clients.
FinZeo has a flexible architecture and can be fully white labeled
to allow for rich, personalized payment and banking experiences. This cloud-based platform packages together elements of AppTech’s
intellectual property, BaaS, PaaS and CommerseTM Portal to create a one-hub connection point of multi-tenant portals giving
the merchant, ISO/ISV, and each customer a well-defined user experience.
AppTech was reincorporated in Delaware on December
23, 2021. During this time, the business name was changed to AppTech Payments Corp. AppTech’s executive offices are located at 5876
Owens Avenue, Suite 100, Carlsbad, California 92008. The Company’s phone number is (760) 707-5959. The Company’s website address
is www.apptechcorp.com. AppTech does not incorporate the information on or accessible through our website into this report. The Company
has included our website address in this report solely as an inactive textual reference.
Financial Operations Overview
The following discussion sets forth certain components
of our statements of operations as well as factors that impact those items (in thousands, except per share data).
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.
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, 2023 and 2022, respectively. We have derived this data from our annual consolidated
financial statements included elsewhere in this report.
Year Ended December 31, 2023
Compared to Year Ended December 31, 2022
(in thousands, except per share data)
The following table presents our historical results of operations for
the periods indicated:
Year ended December 31 Change
Operating expenses
Excess fair value of equity issuance over assets received – 904 (904 ) (100)%
Other income (expenses)
Change in fair value of Derivative Liability 27 166 (139 ) (84)%
Loss on debt extinguishment (17 ) – (17 ) (100)%
Provision for income taxes – – – –
Revenue
Revenue was approximately $504 thousand for the year ended December 31,
2023, compared to $450 thousand for the year ended December 31, 2022, representing an increase of 12%. The increase was principally
driven by the new licensing revenue and offset by lower merchant processing revenue.
Cost of Revenue
Cost of revenue was approximately $187 thousand
for the year ended December 31, 2023, compared to $220 thousand for the year ended December 31, 2022, representing a decrease
of 15%. The decrease was principally driven by lower transaction volume, and the licensing revenue has no corresponding costs of revenue.
General and Administrative Expenses
General and administrative expenses was
approximately $9.9 million for the year ended December 31, 2023, compared to $8.0 million or the year ended
December 31, 2022, representing an increase of 23%. The increase was primarily driven by
an increased stock-based compensation of $0.9 million for the year ended December 31, 2023.
Excess fair value of equity issuance over assets
received
Excess fair value of equity issuance over assets
received expenses was none for the year ended December 31, 2023.
Excess fair value of equity issuance over assets
received expenses were approximately $904 thousand for the year ended December 31, 2022. In
connection with the shares to be issued as part of the HotHand acquisition, and to be in compliance with its anti-dilution provision with
Infiinios, the Company accrued an additional 39,706 shares of its common stock at $1.81 per share for a total of $72 thousand.
The shares have not been issued to Infinios as of December 31, 2022.
Research and Development Expenses
Research and development expenses were approximately $3.5 million for
the year ended December 31, 2023, compared to $7.6 million for the year ended December 31, 2022, representing a decrease
of 54%. The decrease was primarily due to lower stock based compensation.
Interest Expense, net
Interest expense, net was approximately $0.1 million
for the year ended December 31, 2023, compared to $0.4 million for the year ended December 31, 2022, representing a decrease
of 88%. The decrease was primarily due to the Company's repayment of forbearance loan and interest in February 2023.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability was
approximately $27 thousand for the year ended December 31, 2023, compared to $166 thousand for the year ended December 31, 2022,
representing a decrease of 84%. The decrease was primarily due to the Company's settlement of the notes and warrants that contained the
embedded derivative liabilities in April 2023.
Other income (expenses)
Other income was approximately $0.7 million for
the year ended December 31, 2023, compared to approximately $0.2 million for the year ended December 31, 2022. The increase
was primarily driven by $430 thousand gain from cancellation of stock repurchase liabilities and gain of $250 thousand from extinguishment
of related convertible note, warrants, and derivative liabilities.
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) with a current exercise price of $4.15 per unit. In
addition, 542,168 warrants were granted. The Offering provided net proceeds of approximately $13.4 million. All shares and share
prices within this 10-K have been adjusted to reflect the stock split.
On February 2, 2023, the Company announced
the closing of its previously announced $5.0 million registered direct offering (the “February Registered Direct
Offering”) with a single institutional investor to sell 1,666,667 shares of its common stock (the “February
Shares”) and warrants to purchase up to 1,666,667 shares (the “February Warrants”) in a concurrent private
placement (the “Private Placement”). The combined purchase price for one February Share and one February Warrant was
$3.00. Each of the February Warrants will have an exercise price of $4.64 per share of common stock and are exercisable on and after
August 1, 2023. The February Warrants will expire five years from the date on which they become exercisable. The aggregate gross
proceeds from the February Registered Direct Offering and the concurrent Private Placement were approximately $5.0 million before
deducting placement agent fees and other estimated offering expenses. The Company used a portion of the proceeds to fulfill its
obligations and paid all of its Loan Forbearance Agreements related to the notes payable in full. See Note 6 to the accompanying
financial statements for the agreements that have been paid off. These warrants were reset from $4.64 to $2.74 as a result of the
October 2023 offering below.
On October 26, 2023, the Company announced the
closing of its previously announced $3.5 million registered direct offering (the “October Registered Direct Offering”) to
sell 1,666,667 shares of its common stock (the “October Shares”) and warrants to purchase up to 1,666,667 shares (the “October
Warrants”). The combined purchase price for one October Share and one October Warrant was $2.10. Each of the February Warrants will
have an exercise price of $2.74 per share of common stock and are exercisable on and after October 26, 2023. The October Warrants will
expire five years from the date on which they become exercisable.
The aggregate gross proceeds from the October
Registered Direct Offering were approximately $3.5 million before deducting placement agent fees and other estimated offering expenses.
The Company used the proceeds for the acquisition of Alliance Partners, LLC pursuant to the membership interest purchase agreement, dated
October 13, 2023, by and among the Company, Alliance Partners, LLC and Chris Leyva and the remainder of the proceeds for working capital
and general corporate purposes.
During the year ended December 31, 2023,
the Company recorded an expense totaling $763 thousand due to the reset in the exercise price of the warrants.
In August 2023, the Company entered into a sales
agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $18.0 million
through “at-the-market” offerings (ATM), pursuant to its shelf registration statement on Form S-3 on file with the SEC. During
the year ended December 31, 2023, the Company sold 475,600 shares of common stock under the ATM, for which the Company received net
proceeds of $1.3 million, after deducting commissions, fees and expenses.
As of December 31, 2023, we had cash and
cash equivalents of approximately $1.3 million, working capital of negative $2.6 million, and stockholders’ equity of approximately
$4.2 million.
During the year ended December 31, 2023,
we met our immediate cash requirements through existing cash balances, public offerings, and “at-the-market” offerings (ATM).
See Note 10 – Stockholders’ Equity (Deficit).
Additionally, we used equity and equity-linked
instruments to pay for services and compensation.
Management's Plan to Address Going Concern
Considerations
The Company has experienced recurring operating
losses, primarily due to limited revenues. The Company's current financial conditions and recurring losses raise substantial doubt about
its ability to continue as a going concern.
In addition to an open S-3 filed with the SEC,
management is actively pursuing additional funding options and is confident that two of its revenue streams will begin generating revenue
in the following twelve months from the issuance date of these financial statements.
Management intends to maintain adequate working capital and adhere
to prudent financial forecasting. Management is also dedicated to implementing comprehensive expense reduction strategies across the Company’s
operations to enhance financial stability.
Cash Flows
The following table presents a summary of cash
flows from operating, investing and financing activities for the following comparative periods (in thousands).
Year Ended December 31, 2023 and 2022
Year Ended December 31,
Net cash used in operating activities $ (8,859 ) $ (8,199 )
Net cash provided by (used in) investing activities $ (500 ) $ (1,791 )
Net cash provided by financing activities $ 7,178 $ 13,444
Cash Flow from Operating Activities
Net cash used in operating activities during the
year ended December 31, 2023, was approximately $8.9 million, which is comprised of (i) our net loss of $18.5
million, adjusted for non-cash expenses totaling $10.3 million (which includes adjustments
for equity-based compensation, depreciation and amortization), and (ii) is decreased by changes in operating assets and liabilities of
approximately $0.7 million.
Net cash used in operating activities during the
year ended December 31, 2022 was approximately $8.2 million, which is comprised of (i) our net loss of $16.3 million, adjusted for
non-cash expenses totaling $8.8 million (which includes adjustments for equity-based compensation, depreciation and amortization), and
(ii) changes in operating assets and liabilities using approximately $674 thousand.
Cash Flow from Investing Activities
Net cash used by investing activities during the
year ended December 31, 2023 was approximately $0.5 million. This expenditure was primarily attributable to an initial payment of
$0.5 million related to the acquisition of FinZeo.
Net cash used by investing activities during the year ended December 31,
2022 was approximately $1.8 million and was primarily due to the internal capitalized software costs.
Cash Flow from Financing Activities
Net cash provided by financing activities during
the year ended December 31, 2023 was approximately $7.2 million, which principally consists of net proceeds of $8.9 million through
the issuance of common shares and warrants in our public offering.
Net cash provided by financing activities during
the year ended December 31, 2022 was approximately $13.4 million, which principally consists of net proceeds of $13.5 million through
the issuance of common shares and warrants in our public offering.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The
preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. Significant estimates include those related to the valuation of goodwill impairment and intangible
assets, and equity-based compensation. These estimates are based on historical experience and assumptions believed to be reasonable under
current conditions. It's important to note that actual results could differ from these estimates.
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, 2023, 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 consolidated financial statements.
Equity-Based Compensation: We
estimate the fair value of stock options granted using the Black-Scholes option pricing model, which requires input of subjective
assumptions. The model inputs include expected stock price volatility, expected term, risk-free interest rate, and dividend yield.
The assumptions about future stock price volatility and the option’s expected term involve significant judgments based on
historical data and future expectations. The reported equity-based compensation expense is sensitive to changes in the volatility
assumption. An increase in expected volatility could materially impact the amount of compensation expense recognized.
Business Combination
Recognition and Measurement: Companies
must recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at their fair value on the acquisition
date.
Goodwill: Arises when the consideration
transferred in a business combination exceeds the fair value of the net identifiable assets acquired. It represents future economic benefits
arising from assets that are not individually identified and separately recognized.
Intangible Assets: Identifiable intangible
assets, distinguishable either by separability from the acquired entity or through contractual or other legal rights, are valued and reported
independently from goodwill. These assets include, but are not limited to, trademarks, customer relationships, proprietary technology,
and patents. The fair value of these intangible assets is determined at the time of acquisition and is subject to subsequent impairment
tests.
The fair value of identifiable intangible assets
is estimated using income, market, or cost approach methods. The income approach, often applied through the discounted cash flow (DCF)
method, involves projecting future cash flows attributable to the asset and discounting them to present value using a discount rate that
reflects the risk associated with those cash flows. The estimation of fair value is inherently uncertain due to the assumptions and judgments
involved in projecting future cash flows, determining appropriate discount rates, and estimating the useful life of each asset.
Over the reporting period, changes in market conditions,
technological advancements, or strategic shifts in the business may necessitate revisions to the assumptions used in the valuation of
identifiable intangible assets. Management closely monitors these factors and will adjust the valuation of intangible assets as appropriate,
reflecting the impact of any such changes in our financial statements.
Contingent Consideration: Any contingent
consideration, such as earn-outs, is measured at fair value at the acquisition date and can be adjusted in subsequent periods if the fair
value changes.
Goodwill Impairment
Goodwill Impairment Testing: The process
requires an annual test for impairment of goodwill, and more frequent testing if certain indicators suggest that the goodwill might be
impaired. This assessment involves comparing the carrying amount of a reporting unit, including goodwill, to its fair value. Key estimates
in determine fair value include: a) Cash Flow Projections: Utilizing the DCF method, management estimates future cash flows based on current
performance, business plans, and expected market growth, introducing judgment due to forecasting uncertainties. b) Discount Rate: The
discount rate, reflecting the WACC and adjusted for unit-specific risks, is crucial for present value calculations, with changes significantly
affecting fair value estimations; c) Long-term Growth Rates: Assumptions on sustainable growth rates impact the terminal value in the
DCF model, thus influencing the overall fair value of the reporting unit.
Impairment Loss Calculation: The impairment
loss, representing the excess of the carrying amount of goodwill over its implied fair value, is highly sensitive to the estimates and
assumptions used in the fair value calculation. Small changes in cash flow projections, discount rates, or long-term growth rates can
result in significant adjustments to the impairment loss recognized in the income statement. Given the dynamic nature of business conditions,
technological advancements, and market competition, estimates used in goodwill impairment testing may change from one period to another.
Management is tasked with regularly reviewing and updating these estimates to reflect the latest available information and market conditions.
Once an impairment loss is recognized, it is not
reversible in subsequent periods. This finality places additional importance on the accuracy and reasonableness of the underlying estimates
and assumptions.
Impairment of Long-Lived Assets
Our company evaluates long-lived assets, including
capitalized software, for impairment when there are indicators that the carrying amount may not be recoverable. This process involves
comparing the carrying amount to the expected future undiscounted cash flows from the asset. If the carrying amount exceeds the expected
cash flows, an impairment charge is recognized to reduce the asset's carrying amount to its fair value.
Indicators of impairment include significant underperformance
against projections, market or economic downturns, and technological obsolescence. The fair value is determined using market data or discounted
cash flow models. An impairment loss is recorded as an expense immediately.
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 consolidated financial statements for two fiscal years, in contrast
to other reporting companies, which must provide audited consolidated 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, 2023, there have been
no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our consolidated 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 Regulation S-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,
2023, 345,000 shares of common stock were issued to several consultants and employees in connection with business development,
professional, and employment services with a value of $738 thousand.
During the year ended December 31, 2023,
115,000 shares of common stock were issued to the board of directors. The shares were earned over the course of the year and had a value
of $168 thousand.
During the year ended December 31, 2022,
371,594 of common stock were issued to several consultants and employees in connection with business development, professional, and employment
services with a rendered value of $603 thousand.
During the year ended December 31, 2022, 162,914 shares of common
stock were issued to the board of directors. The shares were earned over the directors term and rendered a value of $236 thousand.
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
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 not effective as of December 31, 2023 due to the material weaknesses in our internal
control over financial reporting as described below.
A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
The management has identified a material weakness
in our internal control over financial reporting, primarily due to insufficient formal financial reporting policies and procedures resulting
in material post-close adjustments and a related party transaction was initially not disclosed.
Policies and procedures should be implemented to ensure that any significant
events requiring disclosure are identified, accounted for, disclosed and reviewed by the management.
Changes in Internal Control over Financial
Reporting
There have been no material changes in our internal
controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2023
that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Limitations on the Effectiveness of Controls
Due to 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
During the quarter ended December 31, 2023, no director or officer adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,”
as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections
Not applicable.
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 2023 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,
2023 (the 2023 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 2023 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
2023 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 2023
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 2023 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 2023 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 2023 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 2023 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan
The following table provides information, as of
December 31, 2023, with respect to shares of our common stock that may be issued, subject to certain vesting requirements, under
existing or future awards under our 2023 Equity Incentive Plan (“2023 Plan”). The 2023 Plan was approved by our Board of Directors
and ratified by our shareholders at our 2023 Annual Shareholder Meeting.
A B C
Equity compensation plans not approved by security holders – – –
_______________
(1)The weighted-average exercise price does not take into account restricted stock units, which do not have an exercise price.
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 2023 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 2023 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 2023 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 2023 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:
(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.
APPTECH PAYMENTS CORP. CONSOLIDATED FINANCIAL
STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
2023 and 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Registered Public Accounting Firm (PCAOB ID 3501) 27
Consolidated Balance Sheets as of December 31, 2023 and 2022 29
Notes to the Consolidated Financial Statements 33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of AppTech Payments Corp.
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of AppTech Payments Corp. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements
of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2023 and 2022, 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 consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company has limited revenues and has suffered recurring losses from operations. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note
1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 consolidated
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 consolidated 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
consolidated 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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing separate opinion on the critical audit matter, or on the accounts or disclosures to which they relate.
Going Concern
As discussed above and in Note 1 to the
consolidated financial statements, the Company has experienced recurring losses from operations and has limited revenues. The
ability of the Company to continue as going concern is dependent on executing business plans and ultimately to attain profitable
operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to
continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue
to fund its business by way of public or private offerings of the Company’s stock, through expense reductions, and through
anticipated new revenue streams, to satisfy the Company’s obligations as they come due for at least one year from the
financial statement issuance date. However, the Company has not concluded that these plans alleviate the substantial doubt related
to its ability to continue as a going concern.
How the Critical Audit Matter was Addressed
in the Audit
We determined the Company’s ability to
continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available
capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to
the Company’s assertion on its ability to continue as a going concern included the following, among others:
/s/ dbbmckennon
We have served as the Company’s auditor since 2014
San Diego, California
APPTECH PAYMENTS CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 and 2022
(in thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents $ 1,281 $ 3,462
Accounts receivable 30 51
Prepaid license fees - current – 729
Prepaid license fees – long term – 2,700
Note receivable 26 26
Security deposit 9 9
Intangible assets, net of accumulated amortization 4,428 311
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Stock repurchase liability – 430
Notes payable related parties – 88
Deferred revenue 244 –
Derivative liabilities – 433
Right of use liability 78 64
Long-term liabilities
Right of use liability, net of current portion 14 99
Notes payable, net of current portion 65 67
Total long-term liabilities 79 166
Commitments and contingencies (Note 9) – –
Stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 8,353 $ 12,519
See accompanying notes to the consolidated financial
statements.
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023
and 2022
(in thousands, except per share data)
Operating expenses:
Impairment of intangible assets 6,131 –
Excess fair value of equity issuance over assets received – 904
Other income (expenses)
Interest expense (52 ) (417 )
Change in fair value of derivative liability 27 166
Loss on debt extinguishment (17 ) –
Other income (expenses) 715 204
Total other expenses 673 (47 )
Loss before provision for income taxes (18,512 ) (16,281 )
Provision for income taxes – –
Deemed dividend related to warrant resets (763 ) –
Net loss attributable to common stockholders $ (19,275 ) $ (16,281 )
Basic and diluted net loss per common share $ (1.01 ) $ (1.00 )
See accompanying notes to the consolidated financial
statements.
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2023
and 2022
(in thousands, except per share data)
Series A Preferred Common Stock Additional Paid-in Accumulated Stockholders’
Shares Amount Shares Amount Capital Deficit Equity
Common stock issued for forbearance – – 10,967 – 10 – 10
Common stock cancelled – – (126,315 ) – – – –
Repricing of warrants – – – – 763 (763 ) –
See accompanying notes to the consolidated financial
statements.
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023
and 2022
(in thousands, except per share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Expense/loss from shares issued for settlement 400 –
Common stock issued for forbearance – 10
Gain on relief of accrued interest – (150 )
Loss on debt extinguishment 17 –
Stock issued for excess fair value of equity – 904
Cancellation of stock repurchase liabilities (430 ) –
Impairment of intangible assets 6,131 –
Amortization of debt discount 4 47
Amortization of intangible assets and software 985 405
Change in fair value of derivative liabilities (27 ) (166 )
Changes in operating assets and liabilities:
Accounts receivable 21 (11 )
Prepaid expenses 362 (38 )
Prepaid license costs – 180
Deferred revenue 244 –
Right of use asset and liability, net (11 ) –
Net cash used in operating activities (8,859 ) (8,199 )
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software development – (1,789 )
Other assets – (2 )
Acquisition (500 ) –
Net cash used in investing activities (500 ) (1,791 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on loans payable - related parties (88 ) –
Proceeds from sale of common stock 8,933 13,488
Repayment of note payable (1,021 ) (14 )
Repayment of convertible note payable (679 ) (50 )
Proceeds received from exercise of stock options 33 20
Net cash provided by financing activities 7,178 13,444