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AppTech Payments (APCX) - 2024 Q4 - Annual Report

Part I Business AppTech provides digital payment and banking solutions through its FinZeo™ platform, targeting financial institutions, technology companies, and SMEs - AppTech's core offering is the FinZeo™ platform, which provides Payments-as-a-Service (PaaS) and Banking-as-a-Service (BaaS) through a modular, cloud-based architecture21 - The company's growth strategy involves four key elements: (1) new product development, (2) market penetration, (3) market expansion, and (4) leveraging IP, strategic acquisitions, and partnerships50 - The target market includes forward-thinking financial institutions, technology companies, and Small to Medium Enterprises (SMEs) that need to modernize their financial service offerings43 - The company's historical business is merchant transaction services, supporting over 150 merchants by processing payments for credit/debit cards, ACH, and other programs58 Fintech Industry Growth Projections | Metric | Value/Rate | Period | Source | | :--- | :--- | :--- | :--- | | ACH Payments (2022) | 30 billion payments, $76.7 trillion value | 2022 | Federal Reserve Payments Study | | Fintech Industry Growth | 16.5% CAGR | 2024-2032 | Statista | | Digital Banking (Neobanking) | Projected $2.6 trillion value | by 2027 | Statista | Risk Factors As a smaller reporting company, AppTech is exempt from providing specific risk factor disclosures - The company is not required to provide risk factor disclosures as it qualifies as a smaller reporting company under Exchange Act Rule 12b-267 Unresolved Staff Comments This section is not applicable to the company - Not applicable68 Cybersecurity AppTech manages cybersecurity risks through third-party experts, advanced technologies, and incident response plans, overseen by IT and Software Engineering directors, with no material impact to date - The company engages external cybersecurity consultants and auditors to evaluate and test its risk management systems, ensuring strategies align with best practices70 - Primary responsibility for cybersecurity rests with the company's Director of Information Technology and Director of Software Engineering, who work with a third-party provider76 - To date, cybersecurity risks have not materially affected the company, although it has experienced threats such as denial of service and phishing attacks75 - The company maintains cyber insurance to mitigate the financial impact of potential cybersecurity incidents79 Properties AppTech leases its corporate headquarters in Carlsbad, California, and additional office space in Austin, Texas, owning no real property - The company's corporate headquarters is a leased office space of approximately 3,000 square feet in Carlsbad, CA. It also leases office space in Austin, TX and does not own any real property83 Legal Proceedings AppTech resolved three legal matters: NCR litigation dismissed, Infinios arbitration settled with liabilities extinguished, and a former employee lawsuit settled for $172 thousand - NCR Litigation: A lawsuit filed against NCR Payment Solutions was dismissed by both parties on March 11, 2024, with no impact on the company's financial statements84 - Infinios Financial Services Litigation: An arbitration was settled, resulting in the extinguishment of an anti-dilution liability ($72 thousand) and a payable ($249 thousand) with no payments exchanged between the parties86 - Litigation with Former Employees: A lawsuit with three former employees was settled in March 2025 for $172 thousand. This amount was accrued for at December 31, 202487 Mine Safety Disclosures This section is not applicable to the company - Not applicable88 Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities AppTech's common stock and warrants trade on NASDAQ, with 33.3 million shares outstanding as of March 31, 2025, and no cash dividends ever declared - The company's common stock and warrants are listed on the NASDAQ under the symbols "APCX" and "APCXW" respectively, following an uplisting on January 7, 202290 - The company has not declared or paid any cash dividends on its common stock since its inception92 Stockholder Data as of March 31, 2025 | Security | Shares Outstanding | Number of Holders | | :--- | :--- | :--- | | Common Stock | 33,283,329 | 5,611 stockholders of record | | Preferred Stock | 14 | 11 shareholders | Reserved This item is reserved and contains no information - Item 6 is reserved95 Management's Discussion and Analysis of Financial Condition and Results of Operations AppTech's 2024 revenue decreased by 45% to $276 thousand, while net loss significantly narrowed to $8.9 million due to reduced operating expenses, though recurring losses raise going concern doubts Results of Operations In 2024, revenue decreased 45% to $276 thousand, gross profit fell 29%, but total operating expenses halved, leading to a 50% improvement in loss from operations and a 52% reduction in net loss Consolidated Results of Operations (Years ended December 31) | ($ in thousands) | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $276 | $504 | (45%) | | Gross profit | $224 | $317 | (29%) | | General and administrative | $7,794 | $9,873 | (21%) | | Research and development | $1,977 | $3,498 | (43%) | | Impairment of Intangible assets | $– | $6,131 | (100%) | | Loss from operations | ($9,547) | ($19,185) | (50%) | | Net loss | ($8,933) | ($18,512) | (52%) | - The 45% decrease in revenue was principally driven by the cancellation of a licensing arrangement and a reduction in legacy processing revenue112 - General and administrative expenses decreased by 21% due to lower salaries from a restructuring plan and a $1.24 million decrease in stock-based compensation115 - Other income increased by 81% to $1.26 million, primarily driven by a $1.245 million gain from the extinguishment of debt in 2024119 Liquidity and Capital Resources AppTech's cash decreased to $868 thousand in 2024, despite improved operating cash flow and $8.2 million raised from financing, with recurring losses raising substantial doubt about its going concern ability - The company has experienced recurring operating losses and its current financial condition raises substantial doubt about its ability to continue as a going concern123 - Management is actively pursuing additional funding and implementing comprehensive expense reduction strategies to enhance financial stability123124 Cash and Cash Equivalents | ($ in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $868 | $1,281 | Summary of Cash Flows (Years ended December 31) | ($ in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,457) | ($8,859) | | Net cash used in investing activities | ($1,159) | ($500) | | Net cash provided by financing activities | $8,203 | $7,178 | Critical Accounting Policies and Estimates AppTech's critical accounting policies involve significant estimates for goodwill and intangible asset valuation and impairment testing, with management concluding no significant goodwill impairment risk - Significant estimates are related to the valuation of goodwill and identifiable intangible assets from business combinations131 - Goodwill is tested for impairment annually, or more frequently if indicators suggest impairment. The test compares the carrying amount of a reporting unit to its fair value, which is estimated using methods like Discounted Cash Flow (DCF)138 - Management concluded that the fair value of the goodwill from the FinZeo acquisition significantly exceeds its carrying amount, and there is no significant risk of impairment140 - Long-lived assets, such as capitalized software, are reviewed for impairment when events indicate the carrying amount may not be recoverable141 Qualitative and Quantitative Disclosures About Market Risk As a smaller reporting company, AppTech is exempt from providing market risk disclosures - The company is not required to provide this information because it qualifies as a "smaller reporting company"151 Financial Statements and Supplementary Data The company's consolidated financial statements and related schedules are indexed on page 24 of the report - The consolidated financial statements and related schedules are indexed on page 24 and are incorporated by reference152 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None153 Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2024, due to a material weakness in financial reporting policies leading to post-close adjustments - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024154 - A material weakness was identified in internal control over financial reporting, attributed to "insufficient formal financial reporting policies and procedures resulting in material post-close adjustments"157 - There were no material changes in internal controls over financial reporting during the fourth quarter of 2024158 Other Information No undisclosed Form 8-K information or Rule 10b5-1 trading arrangement changes occurred during the quarter ended December 31, 2024 - No information was required to be disclosed on Form 8-K that was not already reported for the quarter ended December 31, 2024160 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable161 Part III This part incorporates information by reference from the company's 2025 Proxy Statement, covering directors, executive officers, corporate governance, executive compensation, and security ownership Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2025 Proxy Statement - All information required by this item is incorporated by reference from the registrant's 2025 Proxy Statement163164165 Executive Compensation Information on executive and director compensation is incorporated by reference from the company's 2025 Proxy Statement - All information required by this item is incorporated by reference from the registrant's 2025 Proxy Statement167168 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated from the 2025 Proxy Statement, with a table detailing equity compensation plans showing 1.84 million securities to be issued and 508 thousand available - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2025 Proxy Statement169 Equity Compensation Plan Information as of December 31, 2024 | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,841,157 | $1.13 | 508,167 | | Total | 1,841,157 | $1.13 | 508,167 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2025 Proxy Statement - All information required by this item is incorporated by reference from the registrant's 2025 Proxy Statement172173 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's 2025 Proxy Statement - All information required by this item is incorporated by reference from the registrant's 2025 Proxy Statement174 Part IV Exhibits and Financial Statements Schedules This section lists documents filed with the Form 10-K, including financial statements and exhibits, noting the omission of inapplicable financial statement schedules - This item lists the financial statements, financial statement schedules (omitted as not applicable), and exhibits filed with the report177179 Form 10-K Summary This section is not applicable to the company - Not applicable178 Financial Statements The consolidated financial statements present AppTech's financial position, operations, and cash flows, with the auditor's report highlighting recurring losses and going concern doubts Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion on the financial statements but included a "Going Concern" paragraph due to AppTech's limited revenues and recurring losses - The auditor issued an opinion that the consolidated financial statements are presented fairly in conformity with U.S. GAAP182 - The audit report contains a "Going Concern" paragraph, noting that the company's limited revenues and recurring operating losses raise substantial doubt about its ability to continue as a going concern183 - The auditor determined there were no critical audit matters arising from the current period audit187 Consolidated Balance Sheets As of December 31, 2024, total assets increased to $9.0 million, total liabilities decreased to $3.5 million, and total stockholders' equity rose to $5.5 million Consolidated Balance Sheet Highlights (as of December 31) | ($ in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $868 | $1,281 | | Total current assets | $2,420 | $1,516 | | Total Assets | $8,986 | $8,353 | | Total current liabilities | $3,440 | $4,080 | | Total Liabilities | $3,519 | $4,159 | | Total stockholders' equity | $5,467 | $4,194 | Consolidated Statements of Operations In 2024, revenues decreased to $276 thousand, but a significant reduction in operating expenses led to a net loss of $8.9 million, a substantial improvement from the prior year Consolidated Statement of Operations Highlights (Years ended December 31) | ($ in thousands, except per share data) | 2024 | 2023 | | :--- | :--- | :--- | | Revenues | $276 | $504 | | Gross profit | $224 | $317 | | Total operating expenses | $9,771 | $19,502 | | Loss from operations | ($9,547) | ($19,185) | | Net loss | ($8,933) | ($18,512) | | Basic and diluted net loss per common share | ($0.35) | ($1.01) | Notes to the Consolidated Financial Statements The notes detail AppTech's business, going concern issues, accounting policies for revenue, business combinations, intangible assets, goodwill, debt instruments, and stockholders' equity activity - The company acquired Alliance Partners, LLC ("FinZeo") on October 13, 2023, to acquire its intellectual property, personnel, and software platform206 - The financial statements were prepared on a going concern basis, but recurring losses and limited revenues raise substantial doubt about the company's ability to continue209 - In 2024, the company issued a $1.1 million convertible debenture and warrants, which were subsequently converted into common stock and exercised, leaving no further obligations to the purchaser258262 - As of December 31, 2024, the company had 15,906,627 warrants and 5,446,785 stock options outstanding293300 - The company has a net deferred tax asset of $8.6 million as of Dec 31, 2024, which is fully offset by a 100% valuation allowance304