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 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.
Business Overview
The financial services industry is going through a
period of intensive change 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 of their daily financial interactions.
In this rapidly evolving digital marketplace, businesses face broad and ever-changing requirements to meet consumer expectations and achieve
the operational efficiencies necessary to maintain a competitive edge.
To survive and succeed in this environment, businesses
must adopt new technologies in order to engage, communicate, process payments, and manage payouts with their customers. They need a supplier
who will widely support innovation and adaptation as the industry evolves. AppTech believes that its technologies will greatly increase
the adoption of omni-channel payments and digital banking solutions in sectors that must adapt and migrate to new, secure digital Fintech
technologies. By embracing advancements in the payment and banking industries, AppTech is well-positioned to meet the growing needs of
existing and prospective clients and it intends for its current and future products to be at the forefront of solving these accelerated
market needs.
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AppTech’s all-new, innovative Fintech platform,
“CommerseTM” officially launched in October 2022. The platform will deliver best-in-class financial technologies and
capabilities through an ever-evolving modular cloud/edge-based architecture. The Commerse platform houses a large array of financial products
and services that can be implemented off-the-shelf or customized via modern APIs. Within its Commerse platform, AppTech offers three primary
products: Payments-as-a-Service (“PaaS”), Banking-as-a-Service(“BaaS”), and Commerce-as-a-Service (“CXS”).
Commerse provides PaaS via integrated solutions for
frictionless digital and mobile payment acceptance. These solutions provide advanced payment processing solutions for credit cards, ACH,
and gift/loyalty cards by catering to the unique needs of each merchant. 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 creates an ecosystem of immersive and scalable digital financial management services backed by Mastercard &
Visa processing certifications.
Commerse has a flexible architecture to allow for
rich, personalized payment and banking experiences. This first-to-market, cloud-based CXS platform packages together elements of AppTech’s
intellectual property, BaaS, PaaS, and other related technologies to create seamless interactions throughout the customer journey.
The platform also incorporates AppTech’s core,
patented text payment and geolocation-triggered ecommerce and/or advertising via cell phone capabilities delivering experiences that focus
on frictionless use cases and end-users desire for payment transaction simplicity, control, and comfort. AppTech believes that these features
will be particularly beneficial to the unbanked and under-banked in developing or emerging markets—where access to the internet
on a mobile device and modern banking institutions may not be readily available—specifically by extending merchants’ marketplace
capabilities via new channels to request and receive frictionless, digital payments and engaging end-users by utilizing a familiar, convenient,
and widely adopted technology.
AppTech’s innovative Commerse platform delivers
scalable solutions for automated and embedded, customizable business and consumer commerce experiences. These experiences propel business
growth, create value and drive operational efficiencies for businesses while providing economic convenience for end users.
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 prospectus. The Company
has included our website address in this prospectus 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.
Revenues
Revenues. Revenue
is derived 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.
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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, 2022 and 2021, respectively.
We have derived this data from our annual consolidated financial statements included elsewhere in this registration statement.
Year Ended December 31, 2022
Compared to Year Ended
December 31, 2021
(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
Other income (expenses)
Change in fair value of Derivative Liability 166 (26 ) 192 (738 %)
Provision for income taxes — — — —
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Revenue
Revenue was approximately $450 thousand for the year
ended December 31, 2022, compared to $354 thousand for the year ended December 31, 2021, representing an increase of 27%. The
increase was principally driven by higher transaction volume and the boarding of additional merchant accounts.
Cost of Revenue
Cost of revenue was approximately $220 thousand for
the year ended December 31, 2022, compared to $150 thousand for the year ended December 31,
2021, representing an increase of 47%. The increase was principally driven by higher transaction
volume and the boarding of additional merchant accounts.
General and Administrative Expenses
General and administrative expenses was approximately
$8.0 million for the year ended December 31, 2022, compared to $8.4 million or the year ended December 31, 2021, representing
a decrease of 5%. The decrease was primarily driven by a one time judgment purchase in fiscal year
2021 related to a settled lawsuit.
Excess fair value of equity issuance over assets
received
Excess fair value of equity issuance over assets received
expenses was 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.
Excess fair value of equity issuance over assets received
expenses was approximately $69.0 million for the year ended December 31, 2021. The excess fair
value over assets occurring in 2021 was a one-time event that was due to the timing of the share issuance to Infinios. The shares were
issued on a day that the fair value of our common stock closed at $3.75 per share. Approximately 18 million shares were issued, so
the difference between the value of the newly issued shares and the value of the services performed was expensed as excess fair value
of equity issuance over assets received. See Note 4 for additional information related to the Anti-dilution provision.
Research and Development Expenses
Research and development expenses was approximately
$7.6 million for the year ended December 31, 2022, compared to $169 thousand for the year ended December 31, 2021, representing
an increase of 4372%. The increase was primarily due to the amortization of stock based compensation and additional development performed
related to the platform.
Interest Expense, net
Interest expense, net was approximately $0.4 million
for the year ended December 31, 2022, compared to $3.1 million for the year ended December 31, 2021, representing a decrease
of 87%. The decrease was primarily due to the Company’s forbearance agreements with outstanding debt holders in 2021.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability was
approximately $166 thousand for the year ended December 31, 2022, compared to ($26 thousand)
for the year ended December 31, 2021, representing an increase of 738%. The increase was primarily due to standard market
volatility coupled with the resetting terms of the derivative.
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Other income (expenses)
Other income was approximately $0.2 million for the
year ended December 31, 2022, compared to approximately $1.2 million for the year ended December 31, 2021. The decrease was
primarily driven by the Company previously writing off payables totaling $946 thousand and debt forgiveness of $175 thousand.
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 $13.4 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.
As of December 31, 2022, we had cash and cash
equivalents of approximately $3.5 million, working capital of negative $504 thousand, and stockholders’ equity of approximately
$7.4 million.
During the year ended December 31, 2022, we met
our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for
services and compensation.
Subsequent to year end, the Company announced the
closing of its previously announced $5.0 million registered direct offering (the “Registered Direct Offering”) with a single
institutional investor to sell 1,666,667 shares of its common stock (the “Shares”) and warrants to purchase up to 1,666,667
shares (the “Warrants”) in a concurrent private placement (the “Private Placement”). The combined purchase price
for one Share and one Warrant was $3.00. Each of the Warrants will have an exercise price of $4.64 per share of common stock and are exercisable
on and after August 1, 2023. The Warrants will expire five years from the date on which they become exercisable. The aggregate gross proceeds
from the Registered Direct Offering and the concurrent Private Placement were approximately $5.0 million before deducting placement agent
fees and other estimated offering expenses. The 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 5 for the agreements that have been paid off.
Management’s Plan
The
Company continues to have yearly losses from its limited revenues from operations. Management
believes the present cash flows will not enable it to meet its commitments for twelve months
from the date of filing. The Company maintains an effective
registration statement on Form S-3 with the Securities and Exchange Commission that would
allow the Company to raise additional capital in an amount up to $75 million.
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, 2022 and 2021
Year Ended December 31,
Net cash used in operating activities $ (8,199 ) $ (1,825 )
Net cash provided by (used in) investing activities $ (1,791 ) $ (1,185 )
Net cash provided by financing activities $ 13,444 $ 2,961
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Cash Flow from Operating Activities
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) 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, 2021 was approximately $1.8 million, which is comprised of (i) our net loss of $79.2 million, adjusted for non-cash
expenses totaling $77.2 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) changes
in operating assets and liabilities using approximately $603 thousand.
Cash Flow from Investing Activities
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.
Net cash used by investing activities during the year
ended December 31, 2021 was approximately $1.2 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, 2022 was approximately $13.4 million, which principally consists of net proceeds of $15.0 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, 2021 was approximately $3.0 million, which principally consists of net proceeds of $3.1 million through the
sale of repurchase options.
Critical Accounting Policies
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. 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, 2022, 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.
Software Development Costs
The Company capitalizes software development costs
in developing 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.
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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, 2022, 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, 2022, 162,914
shares of common stock were issued to the board of directors. The shares were earned over
the term of the directors with rendered valued at $236
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 term of the directors with rendered
valued at $236 thousand.
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 with rendered valued at $810 thousand.
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 with rendered valued
at $115 thousand.
Related Parties
See Item 13 for a full discussion of related parties.
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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 effective as of December 31, 2022
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, 2022, 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, 2022.
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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 2022 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.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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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 2022 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022
(the 2022 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 2022 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 2022
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 2022 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 2022 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 2022 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 2022 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 2022 Proxy Statement and is incorporated herein by reference.
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Equity Compensation Plan
The following table provides information, as of December 31,
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 — — —
(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 2022 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 2022 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 2022 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 2022 Proxy Statement and is incorporated herein
by reference.
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PART IV
Item 15. Exhibits and Financial Statements Schedules
(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.
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APPTECH PAYMENTS CORP. CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2022
and 2021
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Registered Public Accounting Firm 26
Consolidated Balance Sheets as of December 31, 2022 and 2021 28
Notes to the Consolidated Financial Statements 32
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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 consolidated balance sheets of AppTech Payments Corp. (the “Company”) as of December 31, 2022 and 2021,
the related consolidated statements of operations, stockholders’ equity (deficit), 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, 2022 and 2021,
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 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.
Recoverability
of Capitalized Prepaid Licensing Fee and Internally Developed Software Costs
As discussed
in Notes 2, 3 and 8 to the consolidated financial statements, the Company capitalized prepaid license fees for its text payment platform
and capitalized qualifying internal-use software development costs. During the year ended December 31, 2022, the Company indicated that
due to the delay in the launch of their intended operations there was a potential impairment of the costs capitalized.
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We identified
this as a critical audit matter because of the degree of subjectivity involved in managements’ estimates regarding the future undiscounted
cash flows related to future operations. Management was required to make significant assumptions, which included estimating future undiscounted
cash flows and the related probability.
Addressing the
matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included gaining an understanding of the controls relating to estimating cash flows, testing management’s
process for determining the probability of attaining the cash flows, evaluating the reasonableness of significant assumptions used by
management in estimating estimated cash flows and performing inquiries of the third parties to corroborate management’s conclusions
regarding the estimates.
/s/ dbbmckennon
We have served as the Company’s auditor since 2014
San Diego, California
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APPTECH PAYMENTS CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2022 and 2021
(in thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents $ 3,462 $ 8
Accounts receivable 51 40
Prepaid license fees - current 729 479
Prepaid offering cost — 92
Prepaid license fees – long term 2,700 3,180
Intangible assets 311 —
Note receivable 26 26
Security deposit 9 8
Capitalized prepaid software development and license 4,921 3,440
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Stock repurchase liability 430 430
Notes payable related parties 88 685
Right of use liability 64 61
Long-term liabilities
Right of use liability 99 163
Notes payable, net of current portion 67 67
Total long-term liabilities 166 230
Commitments and contingencies (Note 8)
Stockholders’ equity
Total stockholders’ equity 7,424 44
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 12,519 $ 7,557
See accompanying notes to the consolidated financial
statements.
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APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2022
and 2021
(in thousands, except per share data)
Operating expenses:
Excess fair value of equity issuance over assets received 904 68,956
Other income (expenses)
Change in fair value of derivative liability 166 (26 )
Total other expenses (47 ) (1,926 )
Loss before provision for income taxes (16,281 ) (79,246 )
Provision for income taxes — —
Basic and diluted net loss per common share $ (1.00 ) $ (66.20 )
See accompanying notes to the consolidated financial
statements.
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APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2022
and 2021
(in thousands, except per share data)
Shares Amount Shares Amount in Capital Deficit (Deficit)
Imputed interest — — — — 10 — 10
Common stock issued for forbearance — — 5,904 — 68 — 68
Common stock issued for services with warrant issuance — — 12,105 — 29 — 29
Proceeds from sale of repurchase option — — 3,087 — 3,087
Common stock cancelled — — (126,315 ) — — — —
Common stock issued for forbearance — — 10,967 — 10 — 10
See
accompanying notes to the consolidated financial statements.
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APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022
and 2021
(in thousands, except per share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for forbearance 10 —
Gain on relief of accrued interest (150 )
Issuance of warrants for services — 29
Stock issued for purchase of judgment — 1,000
Stock issued for excess fair value of equity 904 68,956
Excess fair market value of shares issued recorded as interest expense — 2,706
Imputed interest on notes payable — 10
Amortization of debt discount 47 297
Amortization of Intangible assets and software 405 —
Gain on extinguishment of accounts payable — (1,106 )
Change in fair value of derivative liabilities (166 ) 26
Changes in operating assets and liabilities:
Accounts receivable (11 ) —
Prepaid expenses (38 ) (88 )
Prepaid license costs 180 (909 )
Right of use asset and liability — 9
Net cash used in operating activities (8,199 ) (1,825 )
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software development (1,789 ) (1,177 )
Other assets (2 ) —
Note receivable — (8 )
Net cash used in investing activities (1,791 ) (1,185 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for prepaid offering costs — (92 )
Proceeds on convertible note payable - related parties — (34 )
Proceeds from financing 15,005 —
Offering costs paid (1,517 ) —
Repayment of note payable (14 ) —
Repayment of convertible note payable (50 ) —
Proceeds received from exercise of stock options 20 —
Proceeds from sale of repurchase option — 3,087
Net cash provided by financing activities 13,444 2,961
Changes in cash and cash equivalents 3,454 (49 )
Cash and cash equivalents, beginning of year 8 57
Cash and cash equivalents, end of year $ 3,462 $ 8
Supplemental disclosures of cash flow information:
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for forbearance $ 10 $ —
Common stock issued for conversion of accounts payable $ — $ 206
Relief of anti-dilution liability through issuance of common stock $ 2,124 $ —
Issuance of stock for prepaid services $ 269 $ —
Issuance of stock for intangible assets $ 407 $ —
Common stock issued with forbearance agreements recorded as a discount $ — $ 68
See accompanying notes to the consolidated financial
statements.
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APPTECH PAYMENTS CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
AppTech Payments Corp. (“AppTech” or the
“Company), a Delaware corporation, is a Fintech Company headquartered in Carlsbad, California. AppTech utilizes innovative payment
processing and digital banking technologies to complement its core merchant services capabilities. The Company’s patented and proprietary
software will provide progressive and adaptable products that are available through a suite of synergistic offerings directly to merchants,
banking institutions, and business enterprises.
AppTech is developing an embedded, highly secure digital
payments and banking platform that powers commerce experiences for clients and their customers. Based upon industry standards for payment
and banking protocols, we will offer standalone products and fully integrated solutions that deliver innovative, unparalleled payments,
banking, and financial services experiences. Our processing technologies can be taken off-the-shelf or tapped into via our RESTful APIs
to build fully branded and customizable experiences while supporting tokenized, multi-channel, and multi-method transactions.
In 2017, the Company acquired assets from GlobalTel
Media, Inc. The assets included patented, enterprise-grade software for advanced text messaging. In addition to the software, four patents
in text technology, and additional intellectual property for mobile payments.
In 2020, AppTech entered into a strategic partnership
with Infinios (formerly “NEC Payments”), to extend its product offering to include flexible, scalable, and secure payment