UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ________________________
Commission
file number:
(Exact name of registrant as specified in its charter)
| 7389 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number)
|
(I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices & Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Capital Market | ||
| Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “ accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes☐
As of November 10, 2022, the registrant had shares of common stock (par value $0.001 per share) issued and outstanding.
AppTech Payments Corp.
Form 10-Q
Table of Contents
| Page | ||
| Part I | ||
| Special Note Regarding Forward-Looking Statements and Projections | 4 | |
| Item 1. | Consolidated Financial Statements (unaudited) | 5 |
| Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | 6 | |
| Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 | 7 | |
| Consolidated Statements of Stockholder’s Equity (Deficit) for the three, six, and nine months ended September 30, 2022 and 2021 | 8 | |
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 | 9 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 26 |
| Item 4. | Controls and Procedures | 26 |
| Part II | ||
| Item 1. | Legal Proceedings | 27 |
| Item1A. | Risk Factors | 27 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
| Item 3. | Defaults Upon Senior Securities | 27 |
| Item 4. | Mine Safety Disclosures | 27 |
| Item 5. | Other Information | 27 |
| Item 6. | Exhibits | 28 |
| Signatures | 29 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this Quarterly on Form 10-Q of AppTech Payments Corp. (we, our, AppTech or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include:
| • | uncertainty associated with anticipated launch of our text payment platform and other potential advanced payment solutions we intend to launch in the future; |
| • | substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; |
| • | dependence on third-party channel and referral partners, who comprise a portion of our sales force, for gaining new clients; |
| • | a slowdown or reduction in our sales due to a reduction in end-user demand, unanticipated competition, regulatory issues, or other unexpected circumstances |
| • | uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer in the future; |
| • | our current dependence on third-party payment processors to facilitate our merchant services capabilities; |
| • | delay in or failure to obtain regulatory approval of our text payment system or any future products in additional countries; |
| • | uncertainty associated with our ability to achieve profitability through the HotHand patents; |
| • | the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of customers to visit our merchants’ businesses; |
All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).
We encourage you to read the discussion and analysis of our financial condition and our financial statements contained in this Quarterly Report on Form 10-Q. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates.
Unless the context otherwise requires, throughout this Quarterly Report on Form 10-Q, the words “AppTech” “we,” “us,” the “registrant” or the “Company” refer to AppTech Payments Corp.
4
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
APPTECH PAYMENTS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
(The financial statements have been condensed for presentation purposes)
| Pages | |
| Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited) | 6 |
| Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited) | 7 |
| Consolidated Statements of Stockholders’ Equity (Deficit) for the three, six, and nine months ended September 30, 2022 and 2021 (unaudited) | 8 |
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited) | 9 |
| Notes to the Unaudited Financial Statements | 10 |
5
APPTECH PAYMENTS CORP.
CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
(UNAUDITED)
(in thousands, except per share data)
| September
30, 2022 | December
31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Prepaid license fees - current | ||||||||
| Total current assets | ||||||||
| Prepaid offering cost | ||||||||
| Prepaid license fees - long term | ||||||||
| Intangible assets | ||||||||
| Note receivable | ||||||||
| Right of use asset | ||||||||
| Security deposit | ||||||||
| Capitalized software development and license | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Right of use liability | ||||||||
| Stock repurchase liability | ||||||||
| Convertible notes payable,
net of $ | ||||||||
| Notes payable | ||||||||
| Notes payable related parties | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Right of use liability | ||||||||
| Notes Payable, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ Equity | ||||||||
| Series A preferred stock; $ par value; shares authorized; shares issued and outstanding on September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value; shares authorized; and and outstanding at September 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the financial statements.
6
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
(in thousands, except per share data)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, 2022 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative, including stock based compensation of $ thousand and $ thousand, and $ thousand and $ thousand for the three and nine months ended September 30, 2022 and 2021, respectively | ||||||||||||||||
| Research and development, including stock based compensation of $ thousand and $, and $ thousand and $ for the three and nine months ended September 30, 2022 and 2021, respectively | ||||||||||||||||
| Excess fair value of equity issuance over assets received | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per common share | $ | ( | ) | ( | ) | $ | ( | ) | ( | ) | ||||||
| Weighted-average number of shares used basic and diluted per share amounts | ||||||||||||||||
See accompanying notes to the financial statements.
7
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE, SIX, AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
(in thousands, except per share data)
| Series A Preferred | Common Stock | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Stockholders’ Equity (Deficit) | ||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Stock based compensation | — | |||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | ||||||||||||||||||||||||||
| Common stock issued for purchase of judgment | — | |||||||||||||||||||||||||||
| Common stock issued for capitalized prepaid software development and license | — | |||||||||||||||||||||||||||
| Common stock cancelled | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net Proceeds from sale of repurchase option | — | — | ||||||||||||||||||||||||||
| Balance Balance March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Stock based compensation | — | |||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | — | — | ||||||||||||||||||||||||||
| Common stock issued for convertible notes payable, accrued interest, derivative liabilities, and accounts payable | — | |||||||||||||||||||||||||||
| Net Proceeds from sale of repurchase option | — | — | ||||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||
| Stock based compensation | — | |||||||||||||||||||||||||||
| Issuance of options for capitalized prepaid software development and license | ||||||||||||||||||||||||||||
| Common stock issued for forbearance | — | |||||||||||||||||||||||||||
| Common stock issued for services with warrant issuance | — | |||||||||||||||||||||||||||
| Common stock issued for convertible notes payable, accrued interest, derivative liabilities, and accounts payable | — | |||||||||||||||||||||||||||
| Balance September 30, 2021 | ( | ) | ||||||||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Common Stock Issued for Forbearance | — | |||||||||||||||||||||||||||
| Stock based compensation | — | |||||||||||||||||||||||||||
| Common stock cancelled | — | ( | ) | |||||||||||||||||||||||||
| Net Proceeds from sale of Offering Shares | — | |||||||||||||||||||||||||||
| Balance March 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Common stock issued for Stock Based Compensation | — | |||||||||||||||||||||||||||
| Anti-Dilution Provision (Infinios) | — | |||||||||||||||||||||||||||
| Common stock issued for HotHand Patents | — | |||||||||||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Common stock issued for Stock Based Compensation | — | $ | ||||||||||||||||||||||||||
| Exercise of Options | — | $ | ||||||||||||||||||||||||||
| Balance September 30, 2022 | ( | ) | ||||||||||||||||||||||||||
See accompanying notes to the financial statements.
8
APPTECH PAYMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
(in thousands, except per share data)
| September
30, 2022 | September
30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Common Stock Issued for Forbearance | ||||||||
| Stock issued for purchase of judgment | ||||||||
| Stock issued for excess fair value of equity over assets received | ||||||||
| Stock issued for excess fair value of equity issuance | ||||||||
| Imputed interest on notes payable | ||||||||
| Amortization of debt discount | ||||||||
| Gain on extinguishment of accounts payable | ( | ) | ||||||
| Change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Right of use asset and liability | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capitalized prepaid software development and license | ( | ) | ( | ) | ||||
| Payments on notes receivable | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments for prepaid offering costs | ( | ) | ||||||
| Payments on loans payable - related parties | ( | ) | ||||||
| Payments on notes payable | ( | ) | ||||||
| Net Proceeds from offering | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Proceeds received from exercise of stock options | ||||||||
| Proceeds from sale of repurchase options | ||||||||
| Net cash provided by financing activities | ||||||||
| Changes in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Non-cash investing and financing transactions | $ | $ | ||||||
| Common stock issued for conversion of accounts payable | ||||||||
| Forgiveness of debt through conversion of accounts payable | ||||||||
| Common stock issued convertible notes, accrued interest and derivative liabilities | ||||||||
| Issuance of stock for prepaid services | ||||||||
| Issuance of stock for intangible assets | ||||||||
| Issuance of stock for forbearance agreements recorded as a discount | $ | $ | ||||||
See accompanying notes to the financial statements.
9
APPTECH PAYMENTS CORP.
NOTES TO THE UNAUDITED 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 2013, AppTech merged with Transcendent One, Inc., whereby Transcendent One, Inc. and its management took controlling ownership of the Company. During this time, AppTech operated as a merchant services provider, continuing the business conducted by Transcendent One, Inc.
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 acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legacy payment types to contactless card and real time payment transactions.
In 2021, the Company announced its intent to launch an innovative and patented mobile text payment solution in addition to a suite of digital banking and payment acceptance products designed in the Business-to-Business (“B2B”) and Business-to-Consumer (“B2C”) payment and software space.
On December 23, 2021, AppTech re-domiciled to Delaware and changed its name from “AppTech Corp.” to “AppTech Payments Corp.” AppTech stock trades under the symbol “APCX” and its warrants trade under the symbol “APCXW,” on the Nasdaq Capital Market ("NASDAQ").
The
Company successfully completed its capital raise and uplisting onto NASDAQ (herein referred to as its “Offering”) on
January 7, 2022. As part of the Offering, the Company executed a
In April 2022, the Company acquired HotHand Inc. (“HotHand”), a patent-holding company. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended September 30, 2022 and September 30, 2021. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
10
The accompanying consolidated unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any future interim periods.
Basis of Consolidation
The consolidated financial statements include the accounts of AppTech Payments Corp., its wholly owned subsidiary of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, and realization of tax deferred tax assets. Actual results could differ from those estimates.
Concentration of Credit Risk
Cash
and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $
The
accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses seven
financial institutions to service their merchants for which represented
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.
Fair Value Measurements
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally unobservable inputs and not corroborated by market data |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
11
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term maturity of these financial instruments.
Transactions involving related parties cannot be presumed to be carried out on an arms-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
The following table presents liabilities that are measured and recognized at fair value as of September 30, 2022 and December 31, 2021 on recurring basis (in thousands):
| September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total
Carrying Value | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total
Carrying Value | |||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
See Note 6 for discussion of valuation and roll forward related to derivative liabilities.
Intangible Assets and Patents
Our
intangible assets only consist of patents. We amortize the patents on a straight-line basis over
Research and Development
In
accordance with ASC 730, Research and Development (“R&D”) costs are expensed when incurred. R&D costs include costs
of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short
code texting platform, contract and other outside services. Total R&D costs for the nine months ended September 30, 2022 and
2021 approximately $
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include stock options, warrants granted, convertible debt and convertible preferred stock.
12
The number of common stock equivalents not included in diluted income per share was 5,999,940 and 1,315,598 for the nine months ended September 30, 2022 and 2021, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive.
| September 30, 2022 | September 30, 2021 | |||||||
| Series A preferred stock | ||||||||
| Convertible debt | ||||||||
| Warrants | ||||||||
| Options | ||||||||
| Restricted stock units | ||||||||
| Total | ||||||||
Derivative Liability
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and at each reporting period.
New Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – INTANGIBLE ASSETS
Software Development Cost
The Company capitalizes certain costs related to the development of its elite digital banking platform. Costs incurred during the development phase are capitalized only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the development phase include employee compensation and consulting fees for third party developers working on these projects. Costs related to the preliminary project planning phase and post implementation phase are expensed as incurred. The elite digital banking platform is amortized on a straight line basis over the estimated useful life of the asset. The Company has capitalized approximately $5.2 million of software development costs as of September 30, 2022 and will amortize over five years beginning October 1, 2022. The Company capitalized $1.8 million during the nine months ended September 30, 2022 which included costs that were initially recorded as research and development expenses of $0.4 million and $0.5 million during the three month periods ended March 31, 2022 and June 30, 2022, respectively. The error was not material enough to require restatement and those periods will be revised prospectively.
Management evaluated the materiality of capitalizing and revising the research and development expenses in the first and second quarter 10-Qs from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99) and determined the impact to the financial statements to be immaterial.
Patents
In April 2022, the Company fully executed a Definitive Agreement to acquire HotHand Inc. (“HotHand”), a patent-holding company. HotHand did not have any operations, so the transaction was an asset acquisition of its portfolio of thirteen patents including USPTO 7,693,752; USPTO 8,554,632; USPTO 8,799,102; USPTO 9,436,956; USPTO 10,102,556; USPTO 10,127,592; USPTO 10,600,094; USPTO 10,621,639; USPTO 10,846,726; USPTO 10,846,727; USPTO 10,909,593; USPTO 11,107,140; USPTO 11,345,715. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States. Additionally, HotHand’s family of patents includes a patent that protects advertising on a store’s mobile application when the cell phone is in the store and the ads shown are being triggered by geolocation tagging.
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AppTech is currently integrating the HotHand Intellectual Property (“IP”) into an elite digital platform. In addition to offering an embedded, highly secure, and patent-backed product, AppTech will offer licensing agreements for its IP.
HotHand was acquired for 225,000 shares of common stock and was allocated to the patents as an intangible asset based on the fair market value of the common stock on the date of acquisition (April 18, 2022). The Company expects to amortize the asset over fifteen years. Further, the purchase agreement outlines revenue milestones that may trigger four payments of $500 thousand payables to HotHand's former owners.
See Note 8 for more information on capitalized prepaid software development and license.
NOTE 4 – ACCRUED LIABILITIES
Accrued liabilities as of September 30, 2022 and December 31, 2021 consist of the following (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||
| Accrued interest – third parties | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued residuals | ||||||||
| Anti-dilution provision | ||||||||
| Other | ||||||||
| Total accrued liabilities | $ | $ | ||||||
Accrued Interest
Notes payable and convertible notes payable incur interest at rates between 10% and 24%, per annum.
Accrued Residuals
The Company pays commissions to independent agents which refer merchant accounts. The amounts payable to these independent agents is based upon a percentage of the amounts processed on a monthly basis by these merchant accounts.
Anti-dilution provision
The agreement between the Company and Infinios, formerly NEC Payments B.S.C., has an anti-dilution provision. To remain in compliance, the Company accrued shares of its common stock at $ per share for a total value of $ million as of December 31, 2021. Further, in connection with the capital raise discussed in Note 1, the Company issued an additional shares of its common stock at $ per share for a value of $ thousand or a total value of $2.1 million. The 451,957 total shares were issued in May 2022.
Further, 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 shares of its common stock at $ per share for a total of $ thousand. The shares have not been issued to Infinios as of November 10, 2022.
NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
The Company funded operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of September 30, 2022.
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Convertible Notes Payable
In 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300 thousand convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the date of issuance. Upon maturity of the convertible note, interest rate will be increased to 24%. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at nine dollars and fifty cents $9.50 for the one hundred and eighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty-five (25) trading day, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares.
In the event of a default of the Note, the Holder, in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.
The
embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the
Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common
stock exercisable at $14.25 and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance
was in excess of the Note (see Note 6 for valuation) resulting in full discount of the Note. The conversion feature and warrants have
various reset provisions for which lower the exercise price and share and warrants issuable. As of September 30, 2022 and December 31,
2021, the convertible note payable balance was $
As
of September 30, 2022, the convertible note payable discount is $
See Note 6– Derivative Liabilities.
In 2015, the Company issued $50 thousand in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $9.50 per share. The Company amended the convertible note on March 2, 2022 and an agreed offer of a $10 thousand discount on the principal and interest, resulting in a $72 thousand payment in full.
In
2014, the Company issued $400 thousand in convertible notes payable. On March 30, 2022, the Company entered into forbearance agreements
in exchange for not enforcing the terms of the original agreements. In November 2022, the parties agreed to extend the terms of the forbearance
agreements for an additional six months. As of September 30, 2022 and December 31, 2021, the balance of the convertible notes
was $ thousand and $ thousand, respectively. As of September 30, 2022 and December 31, 2021, the accrued interest related
to the convertible notes was $
Notes Payable
In
2020, the Company entered into a 30-year unsecured note
payable with U.S. Small Business Administration for $68 thousand in proceeds. The notes payable incurred a $100 fee upon issuance and
incurs interest at 3.75% per annum. All payments of principal and interest are deferred for thirty months from the date of the note.
As of September 30, 2022 and December 31, 2021 the balance of the note payable was $
A
significant shareholder funded the Company’s operations through notes payable primarily in 2009 and 2010. On May 2, 2021, the Company
entered into a debt reduction and confirmation agreement with the significant shareholder that is no longer a related party. The Company
entered into a forbearance agreement in exchange for not enforcing the terms of the agreement. In November 2022, the parties agreed to
extend the terms of the forbearance agreement for an additional six months. As of September 30, 2022, and December 31, 2021,
the balance of the notes payable was $
The
Company entered into several notes payable with third parties. The Company entered into forbearance agreements in exchange for not enforcing
the terms of the agreement. In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six
months. As of September 30, 2022 and December 31, 2021, the balance of the notes payable was $
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NOTE 6–DERIVATIVE LIABILITIES
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15, the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and revalued for the nine months ended September 30, 2022 and December 31, 2021.
Based
on the convertible notes described in Note 5, the derivative liability day one loss is $
| Derivative
Liability Convertible Notes | Derivative
Liability Warrants | Total | ||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | |||||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of September 30, 2022 | $ | $ | $ | |||||||||
As of September 30, 2022, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
| Market value of common stock | $ | |||
| Expected volatility | % | |||
| Expected term (in years) | ||||
| Risk-free interest rate | % |
As of September 30, 2022, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
| Market value of common stock | $ | |||
| Expected volatility | % | |||
| Expected term (in years) | ||||
| Risk-free interest rate | % |
NOTE 7–RIGHT OF USE ASSET
Lease Agreement
In January 2020, the Company entered into a lease agreement commencing February 8, 2020 for its current facility which expires in 2025. The term of the lease is for five years. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 12% within the calculation. The following are the expected lease payments as of September 30, 2022, including the total amount of related imputed interest (in thousands):
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Years ending December 31:
| 2022 | $ | |||||
| 2023 | ||||||
| 2024 | ||||||
| 2025 | ||||||
| Operating Lease Total | ||||||
| Less: Imputed interest | ( | ) | ||||
| Total | $ |
The
rent expense was $
In September 2022, the Company opened a new office in Austin’s emerging tech hub to expand operations and foster growth. The one year lease is $11 thousand.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
Former Shareholders Lawsuit
In November 2017, two shareholders of AppTech, Laura Farris and Eric Ottens, filed a lawsuit against the Company in the State of California, claiming conversion, aiding and abetting conversion, breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and declaratory relief. The lawsuit was removed to the United States District Court for the Southern District of California. On December 19, 2019, the Company entered into a settlement and release agreement with the plaintiffs. On January 24, 2021, the parties entered a stipulation modifying the repayment schedule of the settlement which altered the timing of payments over the three-year repayment period. The final payment was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company.
Other Resolved Lawsuit
In July 2020, Flowpay Corporation, a Delaware corporation ("Flowpay"), and R. Wayne Steiger, the President of Flowpay, having a non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the County of San Diego, State of California. The claims included breach of contract, intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Management believes the non-binding MOU terminated after no definite agreement was executed between the parties, and negotiations ceased December 20, 2016. On May 19, 2022, AppTech entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Flowpay and Mr. Steiger. Under the terms of the Settlement Agreement, Flowpay and Mr. Steiger dismissed with prejudice all claims against the Company, its Chief Executive Officer, a Director and a third party individual.
Convertible Note and Warrant Lawsuit
On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the United States District Court for the Southern District of New York against the Company. In its complaint, EMAF alleged that AppTech breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties.
On September 3, 2021, EMAF filed a motion for summary judgement arguing that it should be granted a total of $1.95 million in damages. AppTech filed a motion to dismiss EMAF’s complaint in its entirety. On September 13, 2022, the court denied AppTech’s motion to dismiss, and granted EMAF’s motion for summary judgement in part and denied in part. In particular, the court granted EMA’s motion for summary judgment for its claim of breach of contract but denied its request for damages of $1.95 million. On October 27, 2022, EMAF filed a briefing arguing that it should be granted either a total of $1.26 million or a total of $1.95 million in damages, plus its attorney fees and additional interest after October 27, 2022. AppTech and EMAF are scheduled to file supplemental briefings regarding the damages in November 2022. No final ruling has been made by the court. AppTech and its Counsel still believe EMAF’s claims are meritless. The Company intends to defend against this lawsuit vigorously and counter if necessary.
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Significant Contracts
Capital Raise
In February 2021, the Company entered into an engagement letter with Maxim Group LLC (“Maxim”) as the lead management underwriter for a follow-on offering which is non-binding. On October 27, 2021, Maxim and the Company terminated all relevant agreements and the Company issued Maxim shares of the Company’s common stock in association with the termination.
On October 18, 2021, the Company entered into an engagement letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as lead underwriter, deal manager and investment banker for the Company’s proposed firm commitment follow-on public offering and uplisting. This engaged EF Hutton through the earlier of (i) October 2022 or (ii) the closing of a follow-on offering. The Company completed its offering on January 7, 2022. The Company sold 3,614,458 units of our common stock (a unit consisting of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. The offering provided net proceeds of approximately $13.4 million. See Note 1 for information on the capital raise completed in January 2022.
Silver Alert Services, LLC
In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC doing business as Lifelight Systems (“Lifelight”). The partnership would expand AppTech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets.
The strategic partnership was cancelled on February 17, 2022.
Infinios Financial Services (formerly NEC Payments B.S.C.)
On October 1, 2020, the Company entered into a strategic partnership with Infinios Financial Services BSC (formally NEC Payments B.S.C) (“Infinios”) through a series of agreements, which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”).
On February 11, 2021, the Company entered into an amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License Order Form with Infinios (collectively the “Restated Agreements”). The gross total fees due under the Restated Agreements are $2.2 million excluding pass-through costs associated with infrastructure hosting fees.
On
February 19, 2021, the Company completed and validated its contractual obligations and paid to Infinios the $100 thousand engagement
fee. On February 28, 2021, the Company paid the initial fee of $708 thousand to Infinios prior to the Funding Date. On March 25, 2021,
the Company issued 1,895,948 shares of common stock to an Infinios affiliate on a fully diluted basis with piggyback rights. The Company
valued the common stock issuance at $67.5 million based upon the closing market price on the effective date of the transaction based
on the closing market price of the Company’s common stock. The issuance was recorded as a $3.8 million asset and $63.8 million
expense in excess fair value of equity issuance over assets received. The capitalized asset was classified as capitalized prepaid software
development of $
As of September 30, 2022, the following fees were paid (in thousands):
| Engagement Fee (prepaid licensing cost) | $ | |||
| License subscription fee (prepaid licensing cost) | ||||
| Annual maintenance subscription fee (prepaid licensing cost) | ||||
| Implementation fee (capitalized software cost) | ||||
| Infrastructure implementation fee (capitalized software cost) | ||||
| Training fee (50% due at Funding Date) | ||||
| Total | $ |
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The
annual maintenance subscription fee of $
Innovations Realized LLC
On October 2, 2020, the Company entered into an independent contractor services agreement with Innovations Realized, LLC (“IR”) to develop a strategic operating plan focused on the design, execution and go-to-market implementation of the Infinios platform to enter the United States market.
Under the agreement, the Company granted options to purchase 42,105 shares at a price of $0.095 and 263,157 shares at $2.375 and exercisable for two years after vesting. These options vest in equal monthly installments over 24 months. These options had a grant date fair value of $1.4 million and $8.7 million using a Black Scholes pricing model. The estimated amortization is a 5-year life based on the term of the licensing agreement.
On February 18, 2021, the Company entered into an amended independent contractor services agreement for $760 thousand with IR. The final payment owed to IR of $171 thousand was paid in January 2022.
Investor Relations
On January 2, 2022, the Company entered into an agreement with an investor relations firm (“IR Firm”) that compensated IR Firm $50 thousand and 100,000 shares upon the successful uplisting onto NASDAQ. In addition, on January 31, 2022, the Company entered into a consulting agreement with IR Firm. The Company agreed to a six-month commitment with IR Firm that pays $5 thousand per month, grants IR Firm a stock purchase agreement to buy 45,000 shares of the Company stock at $0.001 per share and grants a monthly budget of approximately $100 thousand (with monthly automatic renewals unless the agreement were canceled in writing). In return, IR Firm agrees to provide investor relations outreach, public relations, advisory and consulting services to AppTech. Payment for the two agreements was made in February 2022.
On May 31st, 2022, the Company entered into a six months agreement with another investor relations firm. The firm received 100,000 shares of AppTech's common stock valued at the closing price on May 31st, 2022, in return for providing marketing and investor relation services.
NOTE 9 – STOCKHOLDERS’ DEFICIT
Common Stock
During
the nine months ended September 30, 2022 and 2021, the Company issued and 3, respectively, shares of common stock
to several consultants in connection with business development and professional services. The Company valued the common stock issuances
at $
During
the nine months ended September 30, 2022 and 2021, the Company granted
and shares of common stock to the board of directors
valued at $
During the nine months ended September 30, 2022, the Company has reserved the 225,000 shares of common stock to HotHand.
See Note 8 – Significant Contracts for additional common stock issuance.
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Stock Options
During the nine months ended September 30, 2022:
| a) | options
to purchase shares of common stock at a weighted average price of $ were granted
as compensation to employees. The options vest in equal monthly installments ranging from
instantly to 24 months. The options were valued at $ |
| b) | options
to purchase shares of common stock at a weighted average price of $ were granted
as compensation for various services including engineering, accounting, and sales. The options
were valued at $ |
The fair value of the options for the nine months ended September 30, 2022 is estimated using a Black-Scholes option pricing model with the following range of assumptions:
| Market value of common stock on issuance date | $ |
| Exercise price | $ |
| Expected volatility | % - % |
| Expected term (in years) | 0.0 - |
| Risk-free interest rate | % |
| Expected dividend yields |
The following table summarizes option activity:
Number of shares |
Weighted Average exercise price |
Weighted Average remaining years | |||
| Outstanding December 31, 2021 | |
$ | |||
| Issued | |
$ | |||
| Exercised | ( |
$ | |||
| Cancelled | ( |
$ | |||
| Outstanding as of September 30, 2022 | |
$ | |||
| Outstanding as of September 30, 2022, vested | |
$ |
The remaining expense outstanding through September 30, 2022 is $ million which is expected to be expensed over the next 2 years in general and administrative expense.
On December 7, 2021, the board authorized the Company’s Equity Incentive Plan in order to facilitate the grant of equity incentives to employees (including our named executive officers), directors, independent contractors, merchants, referral partners, channel partners and employees of our company to enable our company to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term success. A total of shares of common stock were authorized under the Equity Incentive Plan, for which as of September 30, 2022 a total of are available for issuance.
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The Company extended its stock repurchase agreement with the Chief Financial Officer. Terms of the updated agreement state that the Company has until January 31, 2023 to buyback 263,158 shares of its common stock for $500 thousand.
In July 2022, the Company amended its option agreements with all employees, consultants and board of directors. The shareholders will vote to ratify the amendment as part of the annual shareholder meeting tentatively scheduled to take place in April 2023.
Warrants
In 2020, the Company entered into a security purchase agreement with an investor pursuant to which the Company agreed to sell the investor a $300 thousand convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock, with an exercise term of five (5) years, at a per share price of $14.25 which may be exercised by cashless exercise. The number of warrants adjusted in the period ending March 31, 2022 due to a reset event on January 7, 2022 changed the exercise price from $9.50 to $2.52 and increased the number of warrants from 31,578 to 119,095. The warrants were deemed a derivative liability and recorded as a debt discount at their date of issuance.
In total, the Company has 4,275,464 warrants outstanding. 3,614,458 were related to the Offering, 542,168 were granted on January 7 and the reset event added an additional 119,095. See Note 1 for information on warrants issued during the Offering and note 6 for additional information on the derivative liability.
NOTE 10 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below.
For forbearance agreements disclosure, see Note 5.
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Item 2. 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 in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements, such as 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. 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.
AppTech’s all-new, innovative Fintech platform, “Commerse™” officially launched on October 24, 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 geofence 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.
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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, 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 the three and nine months ended September 30, 2022 and 2021, respectively.
Revenue
Revenue was approximately $115 thousand for the three months ended September 30, 2022, compared to $92 thousand for the three months ended September 30, 2021, representing an increase of 25%. The increase was principally driven by higher transaction volume and the boarding of additional merchant accounts.
Revenue was approximately $342 thousand for the nine months ended September 30, 2022, compared to $259 thousand for the nine months ended September 30, 2021, representing an increase of 32%. The increase was principally driven by higher transaction volume and the boarding of additional merchant accounts.
Cost of Revenue
Cost of revenue was approximately $54 thousand for the three months ended September 30, 2022, compared to $42 thousand for the three months ended September 30, 2021, representing an increase of 29%, driven primarily by an increase in residual payouts from additional processing revenue.
Cost of revenue was approximately $167 thousand for the nine months ended September 30, 2022, compared to $112 thousand for the nine months ended September 30, 2021, representing an increase of 49%, driven primarily by an increase in residual payouts from additional processing revenue.
General and Administrative Expenses
General and administrative expenses held consistent at approximately $1.4 million for the three months ended September 30, 2022, compared to $1.4 million for the three months ended September 30, 2021, representing no significant changes.
General and administrative expenses were approximately $5.5 million for the nine months ended September 30, 2022, compared to $6.7 million for the nine months ended September 30, 2021, representing a decrease of 18%. The decrease was primarily driven by a one time judgement purchase in fiscal year 2021 related to a settled lawsuit.
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Research and Development Expenses
Research and development expenses were approximately $1.5 million for the three months ended September 30, 2022, compared to $0 million for the three months ended September 30, 2021. The increase was due to the amortization of stock based compensation.
Research and development expenses were approximately $5.5 million for the nine months ended September 30, 2022, compared to $0 million for the nine months ended September 30, 2021. The increase was primarily due to the amortization of stock based compensation.
Excess Fair Value of Equity Issuance Over Assets Received
Excess fair value of equity issuance over assets received expenses was $0 for the three months ended September 30, 2022, compared to $1.1 million for the three months ended September 30, 2021. 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 September 30, 2022.
Excess fair value of equity issuance over assets received expenses was $904 thousand for the nine months ended September 30, 2022, compared to $66.1 million for the nine months ended September 30, 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.
Interest Expense, net
Interest expenses, net was approximately $41 thousand for the three months ended September 30, 2022, compared to $478 thousand for the three months ended September 30, 2021, representing a decrease of 95%. The decrease was primarily due to the Company's forbearance agreements with outstanding debt holders in 2021.
Interest expenses, net was approximately $137 thousand for the nine months ended September 30, 2022, compared to $3,038 thousand for the Nine months ended September 30, 2021, representing a decrease of 95%. 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 $8 thousand for the three months ended September 30, 2022, compared to $135 thousand for the three months ended September 30, 2021. The decrease was primarily due to standard market volatility coupled with the resetting terms of the derivative.
Change in fair value of derivative liability was approximately $181 thousand for the nine months ended September 30, 2022, compared to a derivative asset of $80 thousand for the nine months ended September 30, 2021. The increase was primarily due to standard market volatility coupled with the resetting terms of the derivative.
Liquidity and Capital Resources
The Company successfully completed its capital raise and uplisting onto NASDAQ (herein referred to as 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 consisting 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 by EF Hutton and the Offering warrants of 3,614,458, all having a five-year expiration and an exercise price of $5.19. The Offering provided net proceeds of approximately $13.4 million. As noted earlier, the Company successfully completed its Offering on January 7, 2022. For further discussion, see Note 1.
As of September 30, 2022, we had cash and cash equivalents of approximately $5.9 million, working capital of approximately $2.2 million, and stockholders’ equity of approximately $10.8 million.
During the nine months ended September 30, 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.
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Net cash used in or provided by, operating, investing and financing activities were as follows (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (5,747 | ) | $ | (820 | ) | ||
| Net cash used in investing activities | (1,748 | ) | (1,576 | ) | ||||
| Net cash provided by financing activities | 13,365 | 2,362 | ||||||
Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2022 was approximately $5.7 million, which is comprised of (i) our net loss of $11.5 million, adjusted for non-cash expenses totaling $6.8 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) increased by changes in operating assets and liabilities of approximately $1.1 million.
Net cash used in operating activities during the nine months ended September 30, 2021 was approximately $0.8 million, which is comprised of (i) our net loss of $75.5 million, adjusted for non-cash expenses totaling $74.2 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) changes in operating assets and liabilities using approximately $475 thousand.
Investing Activities
Net cash used by investing activities during the nine months ended September 30, 2022 was approximately $1.7 million and was primarily due to the internal capitalized software costs.
Net cash used by investing activities during the nine months ended September 30, 2021 was approximately $1.6 million and was primarily due to the internal capitalized software costs.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2022 was approximately $13.4 million, which principally consists of net proceeds of $13.4 million through the issuance of common shares and warrants in our public offering.
Net cash provided by financing activities during the nine months ended September 30, 2021 was approximately $2.4 million, which principally consists of net proceeds of $2.4 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 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 September 30, 2022, there have been no significant changes to our critical accounting estimates, except as described in Note 2 to our financial statements.
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.
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Recent Accounting Pronouncements
As of September 30, 2022, 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 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.
Item 3. 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 4. Control 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 September 30, 2022.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the nine months ended September 30, 2022 that have materially affected, or are 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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
On December 19, 2019, the Company entered into a settlement and release agreement with two shareholders. The total obligation was for $240 thousand and the final payment was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company.
In July 2020, Flowpay Corporation, a Delaware corporation ("Flowpay"), and R. Wayne Steiger, the President of Flowpay, having a non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the County of San Diego, State of California. The claims included breach of contract, intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Management believes the non-binding MOU terminated after no definite agreement was executed between the parties, and negotiations ceased December 20, 2016. On May 19, 2022, AppTech entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Flowpay and Mr. Steiger. Under the terms of the Settlement Agreement, Flowpay and Mr. Steiger dismissed with prejudice all claims against the Company, its Chief Executive Officer, a Director and a third party individual.
On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the United States District Court for the Southern District of New York against the Company. In its complaint, EMAF alleged that AppTech breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess of $2.75 million, reimbursement of costs and expenses, including reasonable legal fees, and non-interference.
On September 3, 2021, EMAF filed a motion for summary judgement arguing that it should be granted a total of $1.95 million in damages. AppTech filed a motion to dismiss EMAF’s complaint in its entirety. On September 13, 2022, the court denied AppTech’s motion to dismiss, and granted EMAF’s motion for summary judgement in part and denied in part. In particular, the court granted EMA’s motion for summary judgment for its claim of breach of contract but denied its request for damages of $1.95 million. AppTech and EMAF are scheduled to file supplemental briefings regarding the damages in November 2022. No final ruling has been made by the court. AppTech believes EMAF’s claims are meritless, intends to defend against this lawsuit vigorously and counter if necessary.
Item 1A. Risk Factors.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
EXHIBIT INDEX
| Exhibit | Description | |
| 31.1 | Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 dated November 3, 2022 | |
| 31.2 | Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 dated November 3, 2022 | |
| 32.1 | Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 dated November 3, 2022 | |
| 32.2 | Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 dated November 3, 2022 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Schema Document | |
| 101.CAL | Inline XBRL Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Definition Linkbase Document | |
| 101.LAB | Inline XBRL Label Linkbase Document | |
| 101.PRE | Inline XBRL Presentation Linkbase Document | |
| 104.0 | Cover Page Interactive Data File (Embedded within the Inline XBRL document) | |
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AppTech Payments Corp. | ||
| Date: November 10, 2022 | By: | /s/ Luke D’Angelo |
| Luke D’Angelo | ||
| Chief Executive Officer, Chairman and Director | ||
| Date: November 10, 2022 | By: | /s/ Gary Wachs |
| Gary Wachs | ||
| Chief Financial Officer, Treasurer and Director | ||
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Luke D’Angelo, certify that:
| 1. | I have reviewed this report on Form 10-Q of AppTech Payments Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 10, 2022 | /s/ Luke D’Angelo |
| Luke D’Angelo | |
| Chairman of the Board of Directors and Chief Executive Officer of AppTech Payments Corp. |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary Wachs, certify that:
| 1. | I have reviewed this report on Form 10-Q of AppTech Payments Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 10, 2022 | /s/ Gary Wachs |
| Gary Wachs | |
| Chief Financial Officer, Treasurer and Director of AppTech Payments Corp. |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AppTech Payments Corp. on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Luke D’Angelo, Chairman of the Board and Interim Chief Executive Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
| Date: November 10, 2022 | /s/ Luke D’Angelo |
| Luke D’Angelo | |
| Chairman of the Board of Directors and Chief Executive Officer of AppTech Payments Corp. |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AppTech Payments Corp. on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary Wachs, Chief Financial Officer of AppTech Corp., certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
| Date: November 10, 2022 | /s/ Gary Wachs |
| Gary Wachs | |
| Chief Financial Officer, Treasurer and Director of AppTech Payments Corp. |
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Debt discount | $ 1 | $ 51 |
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred Stock, Shares Authorized | 10,526 | 10,526 |
| Preferred Stock, Shares Issued | 14 | 14 |
| Preferred Stock, Shares Outstanding | 14 | 14 |
| Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
| Common Stock, Shares Authorized | 105,263,157 | 105,263,157 |
| Common Stock, Shares Issued | 16,633,563 | 11,944,600 |
| Common Stock, Shares, Outstanding | 16,633,563 | 11,944,600 |
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| General and Administrative Expense [Member] | ||||
| Share-Based Payment Arrangement, Expense | $ 188 | $ 31 | $ 1,130 | $ 2,357 |
| Research and Development Expense [Member] | ||||
| Share-Based Payment Arrangement, Expense | $ 1,262 | $ 0 | $ 4,922 | $ 0 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Accounting Policies [Abstract] | |
| ORGANIZATION AND DESCRIPTION OF BUSINESS | 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 2013, AppTech merged with Transcendent One, Inc., whereby Transcendent One, Inc. and its management took controlling ownership of the Company. During this time, AppTech operated as a merchant services provider, continuing the business conducted by Transcendent One, Inc.
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 acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legacy payment types to contactless card and real time payment transactions.
In 2021, the Company announced its intent to launch an innovative and patented mobile text payment solution in addition to a suite of digital banking and payment acceptance products designed in the Business-to-Business (“B2B”) and Business-to-Consumer (“B2C”) payment and software space.
On December 23, 2021, AppTech re-domiciled to Delaware and changed its name from “AppTech Corp.” to “AppTech Payments Corp.” AppTech stock trades under the symbol “APCX” and its warrants trade under the symbol “APCXW,” on the Nasdaq Capital Market ("NASDAQ"). The Company successfully completed its capital raise and uplisting onto NASDAQ (herein referred to as 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 units of our common stock (a unit consisting 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 by EF Hutton and the Offering warrants of 3,614,458, all having a five-year expiration and an exercise price of $5.19. The Offering provided net proceeds of approximately $13.4 million. All shares and share prices within this 10-Q have been adjusted to reflect the stock split. In April 2022, the Company acquired HotHand Inc. (“HotHand”), a patent-holding company. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation
The accompanying consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended September 30, 2022 and September 30, 2021. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying consolidated unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any future interim periods. Basis of Consolidation
The consolidated financial statements include the accounts of AppTech Payments Corp., its wholly owned subsidiary of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, and realization of tax deferred tax assets. Actual results could differ from those estimates. Concentration of Credit Risk Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250 thousand per institution that pays Federal Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to these balances. The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses seven financial institutions to service their merchants for which represented 100% of accounts receivable as of September 30, 2022. The loss of one of these financial institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company. For the nine months ended September 30, 2021, one merchant (customer) represented approximately 40% of the total revenues. The loss of this customer would not have significant impact on the Company’s operations. 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. Fair Value Measurements The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term maturity of these financial instruments. Transactions involving related parties cannot be presumed to be carried out on an arms-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. The following table presents liabilities that are measured and recognized at fair value as of September 30, 2022 and December 31, 2021 on recurring basis (in thousands):
See Note 6 for discussion of valuation and roll forward related to derivative liabilities. Intangible Assets and Patents
Our intangible assets only consist of patents. We amortize the patents on a straight-line basis over 15 years, which approximates the way the economic benefits of the intangible asset will be consumed. Research and Development In accordance with ASC 730, Research and Development (“R&D”) costs are expensed when incurred. R&D costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and other outside services. Total R&D costs for the nine months ended September 30, 2022 and 2021 approximately $5.5 million and $0, respectively. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include stock options, warrants granted, convertible debt and convertible preferred stock. The number of common stock equivalents not included in diluted income per share was 5,999,940 and 1,315,598 for the nine months ended September 30, 2022 and 2021, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive.
Derivative Liability The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and at each reporting period. New Accounting Pronouncements The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company. |
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INTANGIBLE ASSETS |
9 Months Ended |
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Sep. 30, 2022 | |
| Goodwill and Intangible Assets Disclosure [Abstract] | |
| INTANGIBLE ASSETS | NOTE 3 – INTANGIBLE ASSETS Software Development Cost The Company capitalizes certain costs related to the development of its elite digital banking platform. Costs incurred during the development phase are capitalized only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the development phase include employee compensation and consulting fees for third party developers working on these projects. Costs related to the preliminary project planning phase and post implementation phase are expensed as incurred. The elite digital banking platform is amortized on a straight line basis over the estimated useful life of the asset. The Company has capitalized approximately $5.2 million of software development costs as of September 30, 2022 and will amortize over five years beginning October 1, 2022. The Company capitalized $1.8 million during the nine months ended September 30, 2022 which included costs that were initially recorded as research and development expenses of $0.4 million and $0.5 million during the three month periods ended March 31, 2022 and June 30, 2022, respectively. The error was not material enough to require restatement and those periods will be revised prospectively. Management evaluated the materiality of capitalizing and revising the research and development expenses in the first and second quarter 10-Qs from a qualitative and quantitative perspective in accordance with the requirements of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality (SAB 99) and determined the impact to the financial statements to be immaterial. Patents In April 2022, the Company fully executed a Definitive Agreement to acquire HotHand Inc. (“HotHand”), a patent-holding company. HotHand did not have any operations, so the transaction was an asset acquisition of its portfolio of thirteen patents including USPTO 7,693,752; USPTO 8,554,632; USPTO 8,799,102; USPTO 9,436,956; USPTO 10,102,556; USPTO 10,127,592; USPTO 10,600,094; USPTO 10,621,639; USPTO 10,846,726; USPTO 10,846,727; USPTO 10,909,593; USPTO 11,107,140; USPTO 11,345,715. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States. Additionally, HotHand’s family of patents includes a patent that protects advertising on a store’s mobile application when the cell phone is in the store and the ads shown are being triggered by geolocation tagging. AppTech is currently integrating the HotHand Intellectual Property (“IP”) into an elite digital platform. In addition to offering an embedded, highly secure, and patent-backed product, AppTech will offer licensing agreements for its IP. HotHand was acquired for 225,000 shares of common stock and was allocated to the patents as an intangible asset based on the fair market value of the common stock on the date of acquisition (April 18, 2022). The Company expects to amortize the asset over fifteen years. Further, the purchase agreement outlines revenue milestones that may trigger four payments of $500 thousand payables to HotHand's former owners. See Note 8 for more information on capitalized prepaid software development and license. |
ACCRUED LIABILITIES |
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| Other Liabilities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCRUED LIABILITIES | NOTE 4 – ACCRUED LIABILITIES Accrued liabilities as of September 30, 2022 and December 31, 2021 consist of the following (in thousands):
Accrued Interest Notes payable and convertible notes payable incur interest at rates between 10% and 24%, per annum. Accrued Residuals The Company pays commissions to independent agents which refer merchant accounts. The amounts payable to these independent agents is based upon a percentage of the amounts processed on a monthly basis by these merchant accounts. Anti-dilution provision The agreement between the Company and Infinios, formerly NEC Payments B.S.C., has an anti-dilution provision. To remain in compliance, the Company accrued shares of its common stock at $ per share for a total value of $ million as of December 31, 2021. Further, in connection with the capital raise discussed in Note 1, the Company issued an additional shares of its common stock at $ per share for a value of $ thousand or a total value of $2.1 million. The 451,957 total shares were issued in May 2022. Further, 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 shares of its common stock at $ per share for a total of $ thousand. The shares have not been issued to Infinios as of November 10, 2022. |
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NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE |
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Sep. 30, 2022 | |
| Debt Disclosure [Abstract] | |
| NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE | NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE The Company funded operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of September 30, 2022. Convertible Notes Payable In 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300 thousand convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the date of issuance. Upon maturity of the convertible note, interest rate will be increased to 24%. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at nine dollars and fifty cents $9.50 for the one hundred and eighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty-five (25) trading day, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares. In the event of a default of the Note, the Holder, in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured. The embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock exercisable at $14.25 and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 6 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable. As of September 30, 2022 and December 31, 2021, the convertible note payable balance was $280 thousand and $280 thousand, and has accrued interest of $102 thousand and $39 thousand, respectively. As of September 30, 2022, the convertible note payable discount is $1 thousand. See Note 6– Derivative Liabilities. In 2015, the Company issued $50 thousand in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $9.50 per share. The Company amended the convertible note on March 2, 2022 and an agreed offer of a $10 thousand discount on the principal and interest, resulting in a $72 thousand payment in full. In 2014, the Company issued $400 thousand in convertible notes payable. On March 30, 2022, the Company entered into forbearance agreements in exchange for not enforcing the terms of the original agreements. In November 2022, the parties agreed to extend the terms of the forbearance agreements for an additional six months. As of September 30, 2022 and December 31, 2021, the balance of the convertible notes was $ thousand and $ thousand, respectively. As of September 30, 2022 and December 31, 2021, the accrued interest related to the convertible notes was $278 thousand and $268 thousand, respectively. Notes Payable In 2020, the Company entered into a 30-year unsecured note payable with U.S. Small Business Administration for $68 thousand in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principal and interest are deferred for thirty months from the date of the note. As of September 30, 2022 and December 31, 2021 the balance of the note payable was $67 thousand and $68 thousand, and accrued interest was $6 thousand and $4 thousand, respectively. A significant shareholder funded the Company’s operations through notes payable primarily in 2009 and 2010. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with the significant shareholder that is no longer a related party. The Company entered into a forbearance agreement in exchange for not enforcing the terms of the agreement. In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six months. As of September 30, 2022, and December 31, 2021, the balance of the notes payable was $597 thousand and $597 thousand respectively, and the the accrued interest related to the notes was $133 thousand and $383 thousand, respectively. The Company entered into several notes payable with third parties. The Company entered into forbearance agreements in exchange for not enforcing the terms of the agreement. In November 2022, the parties agreed to extend the terms of the forbearance agreement for an additional six months. As of September 30, 2022 and December 31, 2021, the balance of the notes payable was $525 thousand and $525 thousand, respectively, and the accrued interest related to the notes payable was $606 thousand and $606 thousand, respectively. |
DERIVATIVE LIABILITIES |
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| Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DERIVATIVE LIABILITIES | NOTE 6–DERIVATIVE LIABILITIES The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15, the fair values of the variable conversion option and warrants were recorded as derivative liabilities on the issuance date and revalued for the nine months ended September 30, 2022 and December 31, 2021. Based on the convertible notes described in Note 5, the derivative liability day one loss is $390 thousand and the change in fair value for the nine months ended September 30, 2022 and December 31, 2021 is $181 thousand and $26 thousand, respectively. The fair value of applicable derivative liabilities on notes, warrants and change in fair value of derivative liability are as follows for the nine months ended September 30, 2022 (in thousands).
As of September 30, 2022, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions:
As of September 30, 2022, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
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RIGHT OF USE ASSET |
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| RIGHT OF USE ASSET | NOTE 7–RIGHT OF USE ASSET Lease Agreement In January 2020, the Company entered into a lease agreement commencing February 8, 2020 for its current facility which expires in 2025. The term of the lease is for five years. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 12% within the calculation. The following are the expected lease payments as of September 30, 2022, including the total amount of related imputed interest (in thousands): Years ending December 31:
The rent expense was $64 thousand and $46 thousand for the nine months ended September 30, 2022 and 2021, respectively. In September 2022, the Company opened a new office in Austin’s emerging tech hub to expand operations and foster growth. The one year lease is $11 thousand. |
COMMITMENTS AND CONTINGENCIES |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | NOTE 8 - COMMITMENTS AND CONTINGENCIES Litigation Former Shareholders Lawsuit In November 2017, two shareholders of AppTech, Laura Farris and Eric Ottens, filed a lawsuit against the Company in the State of California, claiming conversion, aiding and abetting conversion, breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and declaratory relief. The lawsuit was removed to the United States District Court for the Southern District of California. On December 19, 2019, the Company entered into a settlement and release agreement with the plaintiffs. On January 24, 2021, the parties entered a stipulation modifying the repayment schedule of the settlement which altered the timing of payments over the three-year repayment period. The final payment was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company. Other Resolved Lawsuit In July 2020, Flowpay Corporation, a Delaware corporation ("Flowpay"), and R. Wayne Steiger, the President of Flowpay, having a non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the County of San Diego, State of California. The claims included breach of contract, intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Management believes the non-binding MOU terminated after no definite agreement was executed between the parties, and negotiations ceased December 20, 2016. On May 19, 2022, AppTech entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Flowpay and Mr. Steiger. Under the terms of the Settlement Agreement, Flowpay and Mr. Steiger dismissed with prejudice all claims against the Company, its Chief Executive Officer, a Director and a third party individual. Convertible Note and Warrant Lawsuit On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the United States District Court for the Southern District of New York against the Company. In its complaint, EMAF alleged that AppTech breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties. On September 3, 2021, EMAF filed a motion for summary judgement arguing that it should be granted a total of $1.95 million in damages. AppTech filed a motion to dismiss EMAF’s complaint in its entirety. On September 13, 2022, the court denied AppTech’s motion to dismiss, and granted EMAF’s motion for summary judgement in part and denied in part. In particular, the court granted EMA’s motion for summary judgment for its claim of breach of contract but denied its request for damages of $1.95 million. On October 27, 2022, EMAF filed a briefing arguing that it should be granted either a total of $1.26 million or a total of $1.95 million in damages, plus its attorney fees and additional interest after October 27, 2022. AppTech and EMAF are scheduled to file supplemental briefings regarding the damages in November 2022. No final ruling has been made by the court. AppTech and its Counsel still believe EMAF’s claims are meritless. The Company intends to defend against this lawsuit vigorously and counter if necessary. Significant Contracts Capital Raise In February 2021, the Company entered into an engagement letter with Maxim Group LLC (“Maxim”) as the lead management underwriter for a follow-on offering which is non-binding. On October 27, 2021, Maxim and the Company terminated all relevant agreements and the Company issued Maxim shares of the Company’s common stock in association with the termination. On October 18, 2021, the Company entered into an engagement letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as lead underwriter, deal manager and investment banker for the Company’s proposed firm commitment follow-on public offering and uplisting. This engaged EF Hutton through the earlier of (i) October 2022 or (ii) the closing of a follow-on offering. The Company completed its offering on January 7, 2022. The Company sold 3,614,458 units of our common stock (a unit consisting of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. The offering provided net proceeds of approximately $13.4 million. See Note 1 for information on the capital raise completed in January 2022. Silver Alert Services, LLC In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC doing business as Lifelight Systems (“Lifelight”). The partnership would expand AppTech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets. The strategic partnership was cancelled on February 17, 2022. Infinios Financial Services (formerly NEC Payments B.S.C.) On October 1, 2020, the Company entered into a strategic partnership with Infinios Financial Services BSC (formally NEC Payments B.S.C) (“Infinios”) through a series of agreements, which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”). On February 11, 2021, the Company entered into an amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License Order Form with Infinios (collectively the “Restated Agreements”). The gross total fees due under the Restated Agreements are $2.2 million excluding pass-through costs associated with infrastructure hosting fees. On February 19, 2021, the Company completed and validated its contractual obligations and paid to Infinios the $100 thousand engagement fee. On February 28, 2021, the Company paid the initial fee of $708 thousand to Infinios prior to the Funding Date. On March 25, 2021, the Company issued 1,895,948 shares of common stock to an Infinios affiliate on a fully diluted basis with piggyback rights. The Company valued the common stock issuance at $67.5 million based upon the closing market price on the effective date of the transaction based on the closing market price of the Company’s common stock. The issuance was recorded as a $3.8 million asset and $63.8 million expense in excess fair value of equity issuance over assets received. The capitalized asset was classified as capitalized prepaid software development of $2.8 million and capitalized licensing of $1.0 million. The estimated amortization is a 5-year life based on the term of the licensing agreement. The amortization is set to begin once the platform begins processing transactions (in thousand). As of September 30, 2022, the following fees were paid (in thousands):
The annual maintenance subscription fee of $113 thousand will be due annually beginning in the month of the platform launch. In addition, the infrastructure support fee of $72 thousand will be due annually with monthly payments beginning in February 2022 and ending in 2026. Innovations Realized LLC On October 2, 2020, the Company entered into an independent contractor services agreement with Innovations Realized, LLC (“IR”) to develop a strategic operating plan focused on the design, execution and go-to-market implementation of the Infinios platform to enter the United States market. Under the agreement, the Company granted options to purchase 42,105 shares at a price of $0.095 and 263,157 shares at $2.375 and exercisable for two years after vesting. These options vest in equal monthly installments over 24 months. These options had a grant date fair value of $1.4 million and $8.7 million using a Black Scholes pricing model. The estimated amortization is a 5-year life based on the term of the licensing agreement. On February 18, 2021, the Company entered into an amended independent contractor services agreement for $760 thousand with IR. The final payment owed to IR of $171 thousand was paid in January 2022. Investor Relations On January 2, 2022, the Company entered into an agreement with an investor relations firm (“IR Firm”) that compensated IR Firm $50 thousand and 100,000 shares upon the successful uplisting onto NASDAQ. In addition, on January 31, 2022, the Company entered into a consulting agreement with IR Firm. The Company agreed to a six-month commitment with IR Firm that pays $5 thousand per month, grants IR Firm a stock purchase agreement to buy 45,000 shares of the Company stock at $0.001 per share and grants a monthly budget of approximately $100 thousand (with monthly automatic renewals unless the agreement were canceled in writing). In return, IR Firm agrees to provide investor relations outreach, public relations, advisory and consulting services to AppTech. Payment for the two agreements was made in February 2022. On May 31st, 2022, the Company entered into a six months agreement with another investor relations firm. The firm received 100,000 shares of AppTech's common stock valued at the closing price on May 31st, 2022, in return for providing marketing and investor relation services. |
STOCKHOLDERS’ DEFICIT |
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS’ DEFICIT | NOTE 9 – STOCKHOLDERS’ DEFICIT Common Stock During the nine months ended September 30, 2022 and 2021, the Company issued and 3, respectively, shares of common stock to several consultants in connection with business development and professional services. The Company valued the common stock issuances at $566 thousand and $2.5 million, respectively, based upon the closing market price of the Company’s common stock on the date in which the performance was complete or issued based upon the vesting schedule and the closing market price of the Company’s common stock on the date of the agreement. The amounts were expensed to general and administrative expenses on the accompanying statements of operations. During the nine months ended September 30, 2022 and 2021, the Company granted and shares of common stock to the board of directors valued at $194 thousand and $197 thousand, respectively. The shares vest quarterly over the period of approximately one year. During the nine months ended September 30, 2022, the Company has reserved the 225,000 shares of common stock to HotHand. See Note 8 – Significant Contracts for additional common stock issuance. Stock Options During the nine months ended September 30, 2022:
The fair value of the options for the nine months ended September 30, 2022 is estimated using a Black-Scholes option pricing model with the following range of assumptions:
The following table summarizes option activity:
The remaining expense outstanding through September 30, 2022 is $ million which is expected to be expensed over the next 2 years in general and administrative expense. On December 7, 2021, the board authorized the Company’s Equity Incentive Plan in order to facilitate the grant of equity incentives to employees (including our named executive officers), directors, independent contractors, merchants, referral partners, channel partners and employees of our company to enable our company to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term success. A total of shares of common stock were authorized under the Equity Incentive Plan, for which as of September 30, 2022 a total of are available for issuance. The Company extended its stock repurchase agreement with the Chief Financial Officer. Terms of the updated agreement state that the Company has until January 31, 2023 to buyback 263,158 shares of its common stock for $500 thousand. In July 2022, the Company amended its option agreements with all employees, consultants and board of directors. The shareholders will vote to ratify the amendment as part of the annual shareholder meeting tentatively scheduled to take place in April 2023. Warrants In 2020, the Company entered into a security purchase agreement with an investor pursuant to which the Company agreed to sell the investor a $300 thousand convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock, with an exercise term of five (5) years, at a per share price of $14.25 which may be exercised by cashless exercise. The number of warrants adjusted in the period ending March 31, 2022 due to a reset event on January 7, 2022 changed the exercise price from $9.50 to $2.52 and increased the number of warrants from 31,578 to 119,095. The warrants were deemed a derivative liability and recorded as a debt discount at their date of issuance. In total, the Company has 4,275,464 warrants outstanding. 3,614,458 were related to the Offering, 542,168 were granted on January 7 and the reset event added an additional 119,095. See Note 1 for information on warrants issued during the Offering and note 6 for additional information on the derivative liability. |
SUBSEQUENT EVENTS |
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Sep. 30, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 10 – SUBSEQUENT EVENTS Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below. For forbearance agreements disclosure, see Note 5. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended September 30, 2022 and September 30, 2021. Although management believes that the disclosures in these unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.
The accompanying consolidated unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any future interim periods. |
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| Basis of Consolidation | Basis of Consolidation
The consolidated financial statements include the accounts of AppTech Payments Corp., its wholly owned subsidiary of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation. |
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| Use of Estimates | Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, and realization of tax deferred tax assets. Actual results could differ from those estimates. |
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| Concentration of Credit Risk | Concentration of Credit Risk Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250 thousand per institution that pays Federal Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to these balances. The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses seven financial institutions to service their merchants for which represented 100% of accounts receivable as of September 30, 2022. The loss of one of these financial institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company. For the nine months ended September 30, 2021, one merchant (customer) represented approximately 40% of the total revenues. The loss of this customer would not have significant impact on the Company’s operations. |
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| Software Development Costs | 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. |
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| Fair Value Measurements | Fair Value Measurements The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclose the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying amounts reported in the Company’s financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term maturity of these financial instruments. Transactions involving related parties cannot be presumed to be carried out on an arms-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. The following table presents liabilities that are measured and recognized at fair value as of September 30, 2022 and December 31, 2021 on recurring basis (in thousands):
See Note 6 for discussion of valuation and roll forward related to derivative liabilities. |
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| Intangible Assets and Patents | Intangible Assets and Patents
Our intangible assets only consist of patents. We amortize the patents on a straight-line basis over 15 years, which approximates the way the economic benefits of the intangible asset will be consumed. |
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| Research and Development | Research and Development In accordance with ASC 730, Research and Development (“R&D”) costs are expensed when incurred. R&D costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and other outside services. Total R&D costs for the nine months ended September 30, 2022 and 2021 approximately $5.5 million and $0, respectively. |
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| Per Share Information |
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include stock options, warrants granted, convertible debt and convertible preferred stock. The number of common stock equivalents not included in diluted income per share was 5,999,940 and 1,315,598 for the nine months ended September 30, 2022 and 2021, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive.
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| Derivative Liability | Derivative Liability The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and at each reporting period. |
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| New Accounting Pronouncements | New Accounting Pronouncements The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of derivative liabilities |
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| Schedule of anti dilutive stock |
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ACCRUED LIABILITIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Liabilities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Liabilities |
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DERIVATIVE LIABILITIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value of derivative liabilities |
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| Schedule of pricing mode with assumptions |
As of September 30, 2022, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions:
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RIGHT OF USE ASSET (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right Of Use Asset | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Future Minimum Rental Payments for Operating Leases |
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COMMITMENTS AND CONTINGENCIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of fees paid to NECP platform |
|
STOCKHOLDERS’ DEFICIT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of option activity |
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ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) $ / shares in Units, $ in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
$ / shares
shares
| |
| Reverse split | 9.5 to 1 |
| Sale of stock | shares | 3,614,458 |
| Sale of stock units | $ 4.15 |
| Net proceeds | $ | $ 13,400 |
| Warrant [Member] | |
| Warrant expiration | 5 years |
| Warrant exercise price | $ 5.19 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Offsetting Assets [Line Items] | ||
| Derivative liabilities | $ 418 | $ 599 |
| Fair Value, Inputs, Level 1 [Member] | ||
| Offsetting Assets [Line Items] | ||
| Derivative liabilities | ||
| Fair Value, Inputs, Level 2 [Member] | ||
| Offsetting Assets [Line Items] | ||
| Derivative liabilities | ||
| Fair Value, Inputs, Level 3 [Member] | ||
| Offsetting Assets [Line Items] | ||
| Derivative liabilities | $ 418 | $ 599 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares | 5,999,940 | 1,315,598 |
| Series A Preferred Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares | 1,149 | 1,149 |
| Convertible Debt [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares | 174,060 | 172,549 |
| Warrant [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares | 4,275,464 | 21,053 |
| Options Held [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares | 1,039,868 | 765,526 |
| Restricted Stock Units (RSUs) [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Anti-dilutive shares | 509,399 | 355,321 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Product Information [Line Items] | ||
| Federal Deposit Insurance Corporation | $ 250 | |
| Intangible assets useful life | 15 years | |
| Research and Development Expense | $ 5,500 | $ 0 |
| Accounts Receivable [Member] | ||
| Product Information [Line Items] | ||
| Concentration of Credit Risk | 100.00% | |
| Revenue Benchmark [Member] | ||
| Product Information [Line Items] | ||
| Concentration of Credit Risk | 40.00% | |
ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Other Liabilities Disclosure [Abstract] | ||
| Accrued interest – third parties | $ 1,215 | $ 1,420 |
| Accrued payroll | 386 | 294 |
| Accrued residuals | 33 | 98 |
| Anti-dilution provision | 72 | 1,290 |
| Other | 21 | 34 |
| Total accrued liabilities | $ 1,727 | $ 3,136 |
ACCRUED LIABILITIES (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
Sep. 30, 2022 |
Aug. 04, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Other Liabilities Disclosure [Abstract] | |||
| Shares issued for anti dilution provision, shares | 378,109 | 39,706 | 73,848 |
| Share price | $ 2.20 | $ 1.81 | $ 17.46 |
| Shares issued for anti dilution provision, value | $ 832 | $ 72 | $ 1,300 |
NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Convertible note payable discount | $ 1 | |
| Convertible Notes Payable [Member] | ||
| Debt Instrument [Line Items] | ||
| Convertible note payable | 280 | $ 280 |
| Accrued interest | 102 | 39 |
| Convertible Debt [Member] | ||
| Debt Instrument [Line Items] | ||
| Accrued interest | 278 | 268 |
| Obligation to repurchase shares | 400 | 400 |
| Notes Payable [Member] | ||
| Debt Instrument [Line Items] | ||
| Accrued interest | 6 | 4 |
| Notes Payable | 67 | 68 |
| Notes Payable 1 [Member] | ||
| Debt Instrument [Line Items] | ||
| Accrued interest | 133 | 383 |
| Notes Payable | 597 | 597 |
| Notes Payable 2 [Member] | ||
| Debt Instrument [Line Items] | ||
| Accrued interest | 606 | 606 |
| Notes Payable | $ 525 | $ 525 |
DERIVATIVE LIABILITIES (Details) $ in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Offsetting Assets [Line Items] | |
| Balance as of begining | $ 599 |
| Change in fair value | (181) |
| Balance as of ending | 418 |
| Derivative Liability Convertible Notes [Member] | |
| Offsetting Assets [Line Items] | |
| Balance as of begining | 274 |
| Change in fair value | (45) |
| Balance as of ending | 229 |
| Derivative Liability Warrants [Member] | |
| Offsetting Assets [Line Items] | |
| Balance as of begining | 325 |
| Change in fair value | (136) |
| Balance as of ending | $ 189 |
DERIVATIVE LIABILITIES (Details 1) |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
$ / shares
| |
| Offsetting Assets [Line Items] | |
| Risk-free interest rate | 0.11% |
| Convertible Notes [Member] | |
| Offsetting Assets [Line Items] | |
| Market value of common stock | $ 0.69 |
| Expected volatility | 79.30% |
| Expected term (in years) | 3 months |
| Risk-free interest rate | 3.65% |
| Warrants | |
| Offsetting Assets [Line Items] | |
| Market value of common stock | $ 0.69 |
| Expected volatility | 93.90% |
| Expected term (in years) | 3 years 1 month 17 days |
| Risk-free interest rate | 3.72% |
DERIVATIVE LIABILITIES (Details Narrative) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Derivative Liabilities | ||
| Derivative liability day one loss | $ 390 | |
| Change in fair value derivative liabilities | $ 181 | $ 26 |
RIGHT OF USE ASSET (Details) $ in Thousands |
Sep. 30, 2022
USD ($)
|
|---|---|
| Right Of Use Asset | |
| 2022 | $ 21 |
| 2023 | 88 |
| 2024 | 90 |
| 2025 | 7 |
| Operating Lease Total | 206 |
| Less: Imputed interest | (27) |
| Total | $ 179 |
RIGHT OF USE ASSET (Details Narrative) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Right Of Use Asset | ||
| Rent expense | $ 64 | $ 46 |
COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Commitments and Contingencies Disclosure [Abstract] | |
| Engagement Fee (prepaid licensing cost) | $ 100 |
| License subscription fee (prepaid licensing cost) | 750 |
| Annual maintenance subscription fee (prepaid licensing cost) | 113 |
| Implementation fee (capitalized software cost) | 325 |
| Infrastructure implementation fee (capitalized software cost) | 65 |
| Training fee (50% due at Funding Date) | 50 |
| Total | $ 1,403 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 9 Months Ended | |
|---|---|---|---|
Oct. 27, 2021 |
Sep. 30, 2022 |
Feb. 19, 2021 |
|
| Commitments and Contingencies Disclosure [Abstract] | |||
| Number of shares issue | 21,052 | ||
| Capitalized Computer Software, Net | $ 2,800 | ||
| Capitalized Licensing | $ 1,000 | ||
| Annual maintenance subscription fee | $ 113 | ||
| Infrastructure support fee | $ 72 |
STOCKHOLDERS' DEFICIT (Details 1) - Option Activity [Member] - $ / shares |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Option Indexed to Issuer's Equity [Line Items] | |
| Option outstanding Begining Balance | 1,055,184 |
| Weighted Average Exercise Price, Option outstanding Begining Balance | $ 6.62 |
| Option Issued | 426,842 |
| Weighted Average Exercise Price, Option Issued | $ 3.76 |
| Option Exercised | (42,105) |
| Weighted Average Exercise Price, Option Exercised | $ 0.10 |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Forfeitures and Expirations in Period | (400,053) |
| Weighted Average Exercise Price, Option Cancelled | $ 2.52 |
| Option outstanding Ending Balance | 1,039,868 |
| Weighted Average Exercise Price, Option outstanding Ending Balance | $ 7.29 |
| Options outstanding weighted average remaining years | 2 years 3 days |
| Option outstanding vested | 858,682 |
| Weighted Average exercise price, Options, Vested | $ 7.67 |
| Weighted Average remaining years Options, Vested | 1 year 11 months 26 days |