AppTech Payments (APCX) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q3 2021 financial statements show significant asset growth and improved equity, despite a $75.5 million net loss driven by non-cash equity expenses Balance Sheets Total assets grew to $7.47 million by September 30, 2021, driven by capitalized software, shifting equity from a deficit to $0.94 million | Financial Metric (in USD) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $7,471,736 | $379,689 | | Cash | $22,495 | $57,497 | | Capitalized prepaid software | $7,058,922 | $0 | | Total Liabilities | $6,531,123 | $8,574,419 | | Total current liabilities | $6,176,888 | $8,207,527 | | Total Stockholders' Equity (Deficit) | $940,613 | ($8,194,730) | Statements of Operations Revenues slightly increased, but net loss expanded to $75.5 million for the nine months ended September 30, 2021, driven by a $66.1 million non-cash equity issuance expense | Metric (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Revenues | $258.7 | $241.4 | | Gross Profit | $146.7 | $137.6 | | Total Operating Expenses | $72,858.2 | $2,831.2 | | Excess fair value of equity issuance | $66,124.6 | $0 | | Loss from Operations | ($72,711.5) | ($2,693.5) | | Net Loss | ($75,494.4) | ($2,898.4) | | Net Loss Per Share | ($0.74) | ($0.03) | Statements of Stockholders' Equity (Deficit) Stockholders' equity improved from an $8.19 million deficit to $0.94 million positive equity by September 30, 2021, driven by increased additional paid-in capital | Equity Component (in USD) | Balance Dec 31, 2020 | Balance Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Common Stock | $88,512 | $113,126 | +$24,614 | | Additional Paid-in Capital | $36,664,488 | $121,269,598 | +$84,605,110 | | Accumulated Deficit | ($44,947,730) | ($120,442,111) | -$75,494,381 | | Total Equity (Deficit) | ($8,194,730) | $940,613 | +$9,135,343 | Statements of Cash Flows Operating cash outflow increased to $820.9 thousand, investing used $1.58 million, financing generated $2.36 million, resulting in a $35.0 thousand cash decrease | Cash Flow Activity (Nine Months Ended) | September 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($820,852) | ($303,235) | | Net cash (used in) provided by investing activities | ($1,575,500) | $23,411 | | Net cash provided by financing activities | $2,361,350 | $301,981 | | Change in cash | ($35,002) | $22,157 | Notes to the Unaudited Financial Statements The notes detail accounting policies, business activities, and financial condition, highlighting a 'going concern' warning, equity transactions, and litigation risks - The company's financial statements reflect a going concern risk due to a net loss of $75.5 million and a working capital deficit of $6.0 million as of September 30, 2021. Management's plans to continue operations are dependent on raising additional capital[48] - AppTech entered into a strategic partnership with Infinios Financial Services, issuing 18,011,515 shares of common stock valued at $67.5 million. This was recorded as a $5 million asset for capitalized software and a $62.5 million expense for 'excess fair value of equity issuance over assets received'[108][114] - Subsequent to the quarter's end, the company engaged EF Hutton as the lead underwriter for a proposed public offering of up to $15 million and terminated its agreement with the previous underwriter, Maxim Group[154][155] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's FinTech transition, significant net loss from non-cash expenses, and critical liquidity issues requiring $5 million in new capital Business Overview AppTech positions as a FinTech provider, simplifying digital financial services with a cloud-based platform, patented SMS payments, and telehealth expansion - The company's strategy is to simplify digital financial services through a scalable cloud-based platform, offering omnichannel payment and digital banking technologies[158] - A key asset is the company's patented technology for SMS text-based payments, which does not require internet connectivity and targets unbanked or underbanked populations[164] - AppTech is expanding into the telehealth and remote patient monitoring sectors through a strategic partnership, aiming to integrate payment acceptance technologies into this growing market[167] Results of Operations Revenue slightly increased, but net loss surged to $75.5 million for the nine months ended September 30, 2021, driven by a $66.1 million non-cash equity issuance expense | (in thousands) | Nine Months Ended 2021 | Nine Months Ended 2020 | | :--- | :--- | :--- | | Revenue | $258.7 | $241.5 | | Gross profit | $146.7 | $137.7 | | General and administrative | $6,733.6 | $2,781.9 | | Excess fair value of equity issuance | $66,124.6 | $0 | | Net Loss | ($75,494.4) | ($2,898.3) | - The increase in General and Administrative expenses was primarily driven by stock-based compensation for significant consulting agreements and new executive/employee contracts[180] - The 'Excess fair value of equity issuance over assets received' expense of $66.1 million was due to two major equity issuances for services[181] Liquidity and Capital Resources Liquidity is severely constrained, with current cash insufficient for 12 months; $5 million is needed, relying on a planned public offering - The company's current cash position is not sufficient to support operations for the next twelve months, raising a going concern issue[185] - Management believes the company needs to raise $5 million to remain in business for the next 12 months and is relying on a public offering to secure these funds[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, AppTech is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, AppTech is not required to provide quantitative and qualitative disclosures about market risk[198] Item 4. Controls and Procedures Management, including CEO and CFO, concluded disclosure controls were effective as of September 30, 2021, with no material changes in internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[198] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[199] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in several legal proceedings, defending against lawsuits from Flowpay Corporation and EMA Financial LLC, while current on a settlement - The company is involved in a lawsuit with Flowpay Corporation regarding an alleged breach of a 2016 Memorandum of Understanding[203] - EMA Financial LLC filed a complaint against the company for an alleged breach of a convertible note and warrant agreement, with potential liability estimated between $400,000 and $550,000 during settlement discussions[204] Item 1A. Risk Factors As a smaller reporting company, AppTech is exempt from providing disclosures regarding risk factors - The company is not required to provide risk factors as it is a smaller reporting company[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued substantial unregistered equity securities, including 18 million shares for a strategic partnership valued at $67.5 million, exempt under Section 4(a)(2) - Issued 18,011,515 shares of common stock in connection with a strategic partnership, valued at $67.5 million[207] - Issued 2.9 million options to purchase common stock at exercise prices of $0.01 and $0.25[208] - All issuances were exempt from registration as they did not involve a public offering under Section 4(a)(2) of the Securities Act[208] Item 3. Defaults Upon Senior Securities The company is in default on five convertible notes payable, totaling $737,416 - The company is in default on five convertible notes payable totaling $737,416[209] Item 5. Other Information No information is required to be reported for this item - None[209] Item 6. Exhibits This section provides an index of all exhibits filed, including corporate governance documents, material contracts, and SOX certifications