SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended July 31, 2018
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-54865
APT SYSTEMS, INC.
(Exact name of issuer as specified in its charter)
|
Delaware |
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99-0370904 |
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(State or other jurisdiction |
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(IRS Employer File Number) |
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505 Montgomery Street 11th Floor |
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|
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San Francisco, CA |
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94111 |
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(Address of principal executive offices) |
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(zip code) |
(415)-200-1105
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
[ ] |
Accelerated filer |
[ ] |
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Non-accelerated filer |
[ ] (Do not check if a smaller reporting company) |
Smaller reporting company |
[X] |
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Emerging growth company |
[X] |
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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 Exchange Act) Yes [ ] No [X]
As of September 14, 2018, registrant had 349,641,714 outstanding shares of common stock.
1
APT SYSTEMS, INC.
TABLE OF CONTENTS
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PAGE
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Item 1. Unaudited Financial Statements As of July 31, 2018 and for the Three and Six Months Ended July 31, 2018 and 2017 |
4 |
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Balance Sheets |
5 |
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Statements of Operations |
6 |
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Statements of Cash Flows |
7 |
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Notes to Unaudited Financial Statements |
8 |
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Item 2. Management’s Discussion and Analysis and Plan of Operation |
17 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
23 |
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Item 4. Controls and Procedures |
23 |
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PART II OTHER INFORMATION
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Item 1. Legal Proceedings |
24 |
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Item 1A. Risk Factors |
24 |
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Item 2. Properties Item 3. Unregistered Sales of Equity Securities and Use of Proceeds |
- 24 |
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Item 4. Defaults Upon Senior Securities |
24 |
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Item 5. Mine Safety Disclosures |
24 |
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Item 6. Other Information |
24 |
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Item 7. Exhibits |
25 |
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Signatures |
26 |
2
FINANCIAL INFORMATION
Certain Terms Used in this Report
For purposes of this report, unless otherwise indicated or the context otherwise requires, all references herein to “APT Systems,” “APT,” “the Company,” “we,” “us,” and “our,” refer to APT Systems, Inc., a Delaware corporation.
FORWARD LOOKING STATEMENTS
The following notes contains forward-looking statements regarding us, our business, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation: our ability to successfully develop new products and services for new markets; the impact of competition on our revenues, changes in law or regulatory requirements that adversely affect or preclude clients from using us for certain applications; delays our introduction of new products or services; and our failure to keep pace with our competitors.
When used in this discussion, words such as "believes", "anticipates", "expects", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. APTY may also opt to disseminate information about itself, including the results of its operations and financial information, via social media platforms such as Facebook, LinkedIn and Twitter. Readers are urged to carefully review and consider the various disclosures made by us in this report and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.
3
APT Systems, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months ended July 31, 2018 and 2017
(unaudited)
TABLE OF CONTENTS
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Page |
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Consolidated Balance Sheets |
5 |
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Consolidated Statements of Operations |
6 |
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Consolidated Statements of Cash Flows |
7 |
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Notes to Consolidated Financial Statements |
8 |
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4
The accompanying notes are an integral part of these unaudited consolidated financial statements
5
6
7
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 1 - NATURE OF OPERATIONS
APT Systems, Inc. (“APT Systems”, “the Company”, “We” or “Us”) was incorporated in the State of Delaware on October 29, 2010 (“Inception”) to operate as a Fintech Company to engage in the creation of innovative and intuitive trading platforms, financial apps and visualization solutions for charting the financial markets. Utilizing real time and delayed data networks along with graphic techniques pioneered in the gaming industry, APT’s solutions can speak to the mobile needs to be demanded by the next generation of traders. While management works to deliver its mobile trading platforms, it also is strategically acquiring other compatible software or financial businesses which demonstrate strong growth potential. After we identify prospective acquisition opportunities we then continue with due diligence efforts that will and do include testing software performance and within funded external trading accounts as necessary. In this third quarter, the Company continued its development of separate native charting apps branded as KenCharts.
In the third quarter of fiscal 2017, the company launched a wholly owned Delaware subsidiary Snapt Games, Inc. on August 4, 2017. Management admires graphic techniques used in the gaming industry and wants to selectively introduce these to its charting tools and platforms. The company acquired its first game app for $3,500 and rebranded it Chick Chick Boom and in September released the app worldwide. In November, the company formally launched its second game called Hogg Wild.
On September 1, 2017, the Company formed and incorporated a second wholly owned subsidiary named RCPS Management, Inc. in Colorado. This company will concentrate on the development of payment and escrow systems under the brand Verifundr.
During the quarter ended April 30, 2018, the Company acquired a novelty app for $36,000. Apple deducts a 30% handling fee and there are modest marketing costs to maintain this income stream for Snapt Games. The Company analyzed the acquisition in accordance with ASC 805 and determined it to be a group of similar identifiable asset and as such is being accounted for as an asset acquisition. The Company has completed initial work on its third game app and its Candy Chefs game was released on June 28, 2018.
NOTE 2 - GOING CONCERN AND LIQUIDITY
As of July 31, 2018, the Company had cash of $9,388, insufficient revenue to meet its ongoing operating expenses, liabilities of $1,685,979, accumulated losses of $3,808,089 and a shareholders’ deficit of $1,605,859. The Company has not, as yet generated significant revenues as its key products are still under development.
The financial statements for the period ended July 31, 2018 have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company anticipates future losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans, loans from directors and, or, the sale of common stock. There is no assurance that this series of events will be satisfactorily completed.
These financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements of APT Systems have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the condensed financial statements not misleading. Operating results for the three and six months ended July 31, 2018 are not necessarily indicative of the final results that may be expected for the year ended January 31, 2019. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended January 31, 2018 included in our Form 10-K filed with the SEC. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
8
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently issued accounting pronouncements
Compensation—Stock Compensation: On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The Company elected to early adopt this standard in the second quarter of fiscal 2019. The adoption had no impact on the Company’s historic financial statements.
Reclassifications
Certain reclassifications have been made to the prior periods to conform to the current period presentation.
NOTE 4 - RELATED PARTY TRANSACTIONS
Effective November 1, 2013, the Company began to accrue a monthly salary of $5,000 per month for the CEO and President on an ongoing basis. Accrued officer compensation as of July 31, 2018 and January 31, 2018 was $260,300 and $230,300, respectively. As resolved, the accrued compensation will only be paid after January 1, 2018 as and when the directors decide the Company has sufficient liquidity to pay some, or all, of the amounts accrued in cash or by issuing shares. The President of the Company can also consider submitting a request to the Board of Directors for permission to convert some, or all, of her accrued compensation into shares of the Company’s common stock on payments due above of $170,300, but only after January 1, 2019. The share price considerations will be either the publicly quoted share price, when such a publicly quoted price is available; or equal to or above the last cash price the Company recorded for the sale of its common shares to third parties.
NOTE 5 – SOFTWARE AND WEBSITE
The Company has software that it uses for the development of certain mobile applications. The Company recorded amortization expense of $17,261 and $9,617 for the six months ended July 31, 2018 and 2017, respectively. No impairment was recorded for the periods ended July 31, 2018 and January 31, 2018.
|
|
|
July 31, 2018 |
|
January 31, 2018 |
|
Charting software |
$ |
102,705 |
$ |
102,705 |
|
Ken Chart Native Apps |
|
57,507 |
|
45,007 |
|
Website |
|
2,080 |
|
2,080 |
|
ThemeZone |
|
36,000 |
|
- |
|
|
|
198,292 |
|
149,792 |
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Accumulated amortization |
|
(58,276) |
|
(41,015) |
|
Net book value |
$ |
140,016 |
$ |
108,777 |
NOTE 6 - CONVERTIBLE NOTE PAYABLE
Noteholder 1
On January 8, 2014, the Company issued an unsecured convertible note to one investor (as that term is defined under the Securities Act of 1933, as amended) in the aggregate amount of $50,000. This convertible note accrues interest at the rate of 19% per annum and is convertible at $0.0001. The Company secured an initial extension of the convertible note to January 29, 2015 and subsequently obtained a further extension to December 31, 2016. The note has been reduced to $28,500 through the sales of part of the debt to unrelated third parties in prior periods as of January 31, 2018 and July 31, 2018.
The Company is currently in discussions with the lender to further extend the maturity date. The note has been verbally extended, we are working to document the extension in writing. Until such time as that is completed the note is considered past due.
9
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 6 - CONVERTIBLE NOTE PAYABLE (CONTINUED)
During the quarter ended January 31, 2018, the noteholder sold $5,000 of this note to an unrelated party. During the quarter ended April 30, 2018, this note was converted to 10,000,000 shares of common stock.
On April 17, 2015, the Company received $5,000 by way of an unsecured short-term loan from a non-related party for a term of 60 days that was later extended until April 23, 2017. Principal and interest at 8% per annum accrued thereon are due and payable on April 23, 2017 and is further renewable. Also, the lender has the right to convert the principal and accrued interest into shares of the Company’s common stock at $0.01 cents. The Company is currently in discussions with the lender to further extend the maturity date. The note has been verbally extended, we are working to document the extension in writing. Until such time, as that is completed, the note is considered past due.
Noteholder 2
On October 2, 2015, the Company received $12,500 by way of an unsecured short-term loan from a non-related party for a term of one year. Principal and interest at 8% per annum accrued thereon are due and payable on October 1, 2016. Also, the lender has the right to convert the principal and accrued interest into shares of the Company’s common stock. The conversion rate was equal to the fair market value of the Company’s common stock on the date of issuance or $0.20 per share. This loan has been extended until October 1, 2017. This note is currently in default and Management is working with the lender to resolve the best path to retire this debt.
During the six months ended July 31, 2018, a payment of $750 was made on the note bringing the balance down to $11,750.
Noteholder 3
On August 28, 2017, the Company received proceeds of $44,500 related to a convertible note payable of $50,000. The note is due and payable twelve months from the issuance date and bears interest at 8% per annum with an original issuance discount of $5,500. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a scaled penalty ranging from 10% to 35% depending on the repayment date. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to 55% of the market price during the previous 10 trading days.
On February 25, 2018, due to the variable conversion feature the note conversion feature was bifurcated from the note and recorded as a derivative liability. The day one derivative liability was $73,612 resulting in a discount of $25,000 on the note payable and a day one loss of $48,612. In conjunction with this derivative liability other convertible instruments were evaluated for derivative liability treatment.
During the quarter ended April 30, 2018, a payment of $35,000 was made to the debt holder with $25,000 being applied to the principal balance and the remaining to fees related to a temporary agreement to remove the conversion feature from the instrument. The fees were included in interest expense on the Statement of Operations. As of July 31, 2018 the remaining balance is convertible in accordance with the terms of the original agreement.
Noteholder 4
The Company entered into an agreement on November 14, 2017 for a new convertible note for $155,000. The note is due and payable six months from the issuance date and bears interest at 0% per annum with an original issuance discount of $25,000 plus $5,000 of legal fees due at closing. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a penalty of 25%. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to 55% of the market price during the previous 15 trading days.
On May 14, 2018, the Company amended this agreement to extend the maturity date to July 14, 2018 and was charged $11,000. On July 14, 2018, the Company amended this agreement to extend the maturity date to August 14, 2018 and was charged $5,500. Each of these extension fees were charged to loss on modification of convertible notes payable.
On May 14, 2018, the note holder converted $15,000 of the note into 5,928,854 shares of stock in accordance with the conversion terms. As a result of the conversion $17,490 of the derivative liability was reclassified to additional paid in capital.
10
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 6 - CONVERTIBLE NOTE PAYABLE (CONTINUED)
On May 14, 2018, due to the variable conversion feature the note conversion feature was bifurcated from the note and recorded as a derivative liability. The day one derivative liability was $384,016 and recorded as a day one loss due to the note being fully matured. The conversion features related to the increase in the principal balances of $11,000 and $5,500 were also bifurcated from the note and recorded as a derivative liability. Related to the May 14, 2018 amendment, the day one derivative liability was $17,808 resulting in a discount of $11,000 on the note payable and a day one loss of $6,808. Related to the July 14, 2018 amendment, the day one derivative liability was $5,970 resulting in a discount of $5,500 on the note payable and a day one loss of $470.
Noteholder 5
The Company had executed three lending arrangements with a related party, affiliated to the CEO of the company. The effective dates of the loans are November 24, 2015, December 8, 2015 and January 14, 2016. The loan amounts are $3,000, $16,121 and $1,500, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before December 31, 2018, December 31, 2018 and January 31, 2019, respectively.
The Company has executed two additional notes with the same related party. The effective dates of the additional loans are March 10, 2016 and March 15, 2016. The loan amounts are $2,770 and $2,885, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before January 31, 2019. All notes are convertible, at the holder’s request, into shares of the Company’s common stock at the rate of $9.50 per share.
As of July 31, 2018 and January 31, 2018 and 2017, $26,276 was outstanding.
Noteholder 6
The Company entered into an agreement with an accredited investor on April 4, 2018 for a new convertible note for $150,000. The note is due and payable twelve months from the issuance date and bears interest at 8% per annum with an original issuance discount of $15,000 plus $2,500 of legal fees due at closing. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a penalty up to 50% depending on the timing. Also noted, after 181 days from the issuance date, the Note becomes convertible into the shares of the Company’s common stock. The conversion rate is equal to the lower of $0.006 or 55% of the market price during the previous 12 trading days.
Noteholder 7
The Company entered into an agreement on May 18, 2018 for a new convertible note for $43,000 and received cash proceeds of $40,000. The note is due and payable on February 28, 2019 and bears interest at 8% per annum. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a penalty up to 42% depending on when it is prepaid. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to the greater of 58% of the average of the two lowest trading prices during the previous 15 trading days or $0.00008.
The Company entered into an additional agreement with this party on June 15, 2018 for a new convertible note for $63,000 and received cash proceeds of $60,000. The note is due and payable on March 30, 2019 from the issuance date and bears interest at 8% per annum. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a penalty up to 42% depending on when it is prepaid. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to 58% of the average of the two lowest trading prices during the previous 15 trading days.
11
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 6 - CONVERTIBLE NOTE PAYABLE (CONTINUED)
Summary
The following table summarizes all convertible notes outstanding as of July 31, 2018 and January 31, 2018:
|
Holder |
|
|
|
|
|
Carrying Value |
||
|
Third Parties |
|
Issue Date |
|
Due Date |
|
July 31, 2018 |
|
January 31, 2018 |
|
Noteholder 1a |
|
1/8/2014 |
|
Past Due |
$ |
28,500 |
$ |
28,500 |
|
Noteholder 1b |
|
4/23/2015 |
|
Past Due |
|
5,000 |
|
5,000 |
|
Noteholder 1c |
|
11/27/2017 |
|
Past Due |
|
- |
|
5,000 |
|
Noteholder 2 |
|
10/2/2015 |
|
Past Due |
|
11,750 |
|
12,500 |
|
Noteholder 3 |
|
8/28/2017 |
|
8/28/2018 |
|
25,000 |
|
50,000 |
|
Noteholder 4 |
|
11/14/2017 |
|
8/14/2018 |
|
156,500 |
|
155,000 |
|
Noteholder 6 |
|
4/4/2018 |
|
4/4/2019 |
|
150,000 |
|
- |
|
Noteholder 7a |
|
5/18/2018 |
|
2/28/2019 |
|
43,000 |
|
- |
|
Noteholder 7b |
|
6/15/2018 |
|
3/30/2019 |
|
63,000 |
|
- |
|
Related Parties |
|
|
|
|
|
|
|
|
|
Noteholder 5a |
|
11/23/2015 |
|
12/31/2018 |
|
3,000 |
|
3,000 |
|
Noteholder 5b |
|
12/8/2015 |
|
12/31/2018 |
|
16,121 |
|
16,121 |
|
Noteholder 5c |
|
1/12/2016 |
|
1/31/2019 |
|
1,500 |
|
1,500 |
|
Noteholder 5d |
|
3/10/2016 |
|
1/31/2019 |
|
2,770 |
|
2,770 |
|
Noteholder 5e |
|
3/15/2016 |
|
1/31/2019 |
|
2,885 |
|
2,885 |
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes Payable |
|
|
|
|
|
509,026 |
|
282,276 |
|
Less: net discount on convertible notes payable |
|
|
|
|
|
(26,291) |
|
(26,481) |
|
Less, current portion |
|
|
|
|
|
(482,735) |
|
(255,795) |
|
Long term portion of convertible notes payable |
|
|
|
|
$ |
- |
$ |
- |
NOTE 7 - NOTES PAYABLE
Noteholder 1
On August 12, 2016, we borrowed $26,000 from an investor, being a non-convertible note at 5% interest, as a short-term loan to facilitate cash flow. The loan became due December 31, 2017 and is currently in default.
On September 21, 2016, we borrowed $25,909 from an investor, being a non-convertible note at 5% interest, as a short-term loan to facilitate cash flow. The loan became due December 31, 2017 and is currently in default.
Noteholder 2
On November 20, 2014, the Company received $5,000 by way of an unsecured short-term loan from a non-related party for a term of nine months at 10% interest due upon repayment. The note payable and accrued interest was scheduled to be repaid on May 21, 2015. The Company was successful in obtaining an extension until December 31, 2015 upon making an interim renewal payment of $400. As of January 31, 2018, we are default under the loan agreement. The principle of the note was paid back during the quarter ending April 30, 2018 and accrued interest was repaid during the quarter ended July 31, 2018. Interest adjustments of $ 246.64 were paid in September. The lender continues to demand additional payments, in an amount not to exceed $2,000, which remains in dispute.
Noteholder 3
The Company had executed short-term lending arrangements with a non-related party. The effective dates of the loans are June 22, 2015, June 27, 2015 and September 22, 2015. The loan amounts are $3,000, $2,700 and $1,950, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before December 4, 2015 through January 31, 2016. The outstanding notes were extended to September and December 2016. The Company is currently in discussions with the lender to further extend the maturity date. Until such time that is completed, the note is considered past due.
12
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 7 - NOTES PAYABLE (CONTINUED)
Noteholder 4
One of the trader agreements included monthly compensation and to this end, part of the fees were paid in cash and then part of the fees were offset with a non-convertible note for $7,000 that was payable on or before June of 2017. The note was not paid and is now considered past due.
Noteholder 5
The Company entered into a stock transfer agency agreement dated November 19, 2014 with Pacific Stock Transfer. As part of the agreement, amounts owed to the Company’s previous stock transfer agent of $7,430 were paid by Pacific Stock Transfer, of which $2,189 is to be repaid to Pacific Stock Transfer by the Company in installments of $250 per month beginning on January 3, 2015. Interest at 5% per annum accrues on the unpaid balance of the loan for each month. As of January 31, 2018, we are not in default under this loan agreement as in August 2016 we renegotiated the terms for this loan and interest payment commenced in November 2016. As of July 31, 2018 and January 31, 2018 the balance due was $3,140. The note was not paid and is now considered past due.
The following table summarizes all notes outstanding as of July 31, 2018 and January 31, 2018:
|
Holder |
|
|
|
|
|
Carrying Value |
||
|
Third Parties |
|
Issue Date |
|
Due Date |
|
July 31, 2018 |
|
January 31, 2018 |
|
Noteholder 1a |
|
8/12/2016 |
|
Past Due |
$ |
26,000 |
$ |
26,000 |
|
Noteholder 1b |
|
9/21/2016 |
|
Past Due |
|
25,909 |
|
25,909 |
|
Noteholder 2 |
|
11/7/2014 |
|
Past Due |
|
- |
|
5,000 |
|
Noteholder 3a |
|
6/17/2015 |
|
Past Due |
|
3,000 |
|
3,000 |
|
Noteholder 3b |
|
6/28/2015 |
|
Past Due |
|
2,700 |
|
2,700 |
|
Noteholder 3c |
|
9/22/2015 |
|
Past Due |
|
1,950 |
|
1,950 |
|
Noteholder 4 |
|
6/15/2016 |
|
Past Due |
|
7,000 |
|
7,000 |
|
Noteholder 5 |
|
8/11/2016 |
|
Past Due |
|
3,140 |
|
3,140 |
|
|
|
|
|
|
|
|
|
|
|
Total Notes Payable |
|
|
|
|
$ |
69,699 |
$ |
74,699 |
NOTE 8 - DERIVATIVE LIABILITIES
As discussed in Note 6 – Convertible Notes Payable , the Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. As a result of the variable conversion feature on this note, the related party notes 5a through 5e disclosed in Note 6 – Convertible Notes Payable were considered tainted. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked- to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model.
The fair value of the embedded derivatives for the note was determined using the Black-Scholes option pricing model based on the following assumptions during the six months ended July 31, 2018: (1) dividend yield of 0%, (2) expected volatility ranging from 147% - 273%, (3) risk- free interest rate ranging from 1.67 – 1.94%, (4) expected life ranging from 0.04 – .50 of a year, and (5) estimated fair value of the Company’s common stock ranging from $0.0049 - $.0095 per share. The instrument was fair valued on the date it became convertible, each conversion date and the period end date of July 31, 2018.
13
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 8 - DERIVATIVE LIABILITIES (CONTINUED)
The table below presents the change in the fair value of the derivative liability during the six months ending July 31, 2018:
|
Fair value as of January 31, 2018 |
$ |
- |
|
Fair value on the date of issuance recorded as a debt discount |
|
41,500 |
|
Fair value on the date of issuance recorded as a loss on derivatives |
|
439,906 |
|
Settlement of derivative liability |
|
(17,490) |
|
Gain on change in fair value of derivatives |
|
(14,225) |
|
Fair value as of July 31, 2018 |
$ |
449,691 |
|
|
|
|
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is required to file its annual and quarterly financial reports with SEDAR in Canada. Due to delays in filing its financial statements and other possible forms, the Company believes it may be subject to certain potentially significant penalties to be levied by the Alberta Securities Commission (ASC). These fines have now been stated to be CDN$10,120 or approximately US$7,500 as advised and invoiced by the ASC and have been accrued into the financial statements as of October 31, 2017. The Company is considering engaging its legal counsel to assist in reducing or eliminating these penalties and requests to file. Further correspondence has been delivered to the ASC after filing the 10-K for January 31, 2016.
The Company had retained TESO Communications as its Investor Relations and Public Relations manager and under the agreement the Company may pay the invoice with cash or by issuing shares against the invoices submitted. The Directors opted to issue shares before the end of the initial agreement period of January 16, 2015 but the same were not yet issued. The agreement represented a cash payment of $25,000 or the issuance of 50,000 restricted common shares at the completion of the agreement which has been extended to May 15, 2016. No invoice has been presented to the Company and no shares have been issued to date. Management has not received any correspondence recently.
APT Systems, Inc. agrees to pay Apollo Games, Inc. the amount of $3,500 payable in the combination of $500 cash or check, $1,500 in preferred shares and $1,500 in common restricted shares of APT Systems, Inc within 30 days of completion of this purchase agreement. Apollo Games, Inc. further agrees to provide marketing and administrative support for a period not less than three months from the date of the agreement first written above at the monthly rate of $1,820 beginning on October 1, 2017. Monthly rate to be paid in the combination of 50% common shares and 50% preferred shares of APT Systems or as otherwise mutually agreed by both parties in writing. As of July 31, 2018 all amounts to be settled in shares are recorded in accounts payable as the shares have not been issued. As of July 31, 2018, $21,200 is due and will be settled with 10,600 Series B Preferred Shares and 1,562,651 Common Shares.
In June 2018 the Company entered into an agreement with a consultant who is to provide strategic advice. The agreement is for an initial term of six months with a total fee of 15,000,000 shares of common stock. As of July 31, 2018 the shares have not been issued. As of July 31, 2018 the Company recorded $26,000 to accounts payable related to this agreement.
NOTE 10 - STOCKHOLDERS’ DEFICIT
Common Shares
The Company entered into an agreement with Triton Funds LLC to provide equity funding to the Company under a registered offering. The Company has asked counsel to prepare the necessary S-1 for the $600,000 funding commitment at $0.01 per share.
The Company issued 5,000,000 to Triton Fund LLC as a donation; the donation supports the initiative founded by undergraduates from the University of California, San Diego (UC San Diego) and provided a press release accordingly on April 30, 2018. The share issuance was recorded as deferred offering cost and valued at $21,000.
During the three months ending April 30, 2018 the Company issued 10,000,000 shares to settle $5,000 in convertible notes payable.
During the three months ending July 31, 2018 the Company issued 5,928,854 shares to settle $15,000 in convertible notes payable.
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APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 10 - STOCKHOLDERS’ DEFICIT (CONTINUED)
Preferred Shares
The directors signed a resolution to restructure the preferred shares and created Series B preferred shares with a par value of $0.001 and 1,000,000 shares authorized. The Series B Preferred Stock bears dividends (interest) at an annual rate of six percent (6%) payable annually and is convertible into shares of the Company’s common stock at a conversion price of 90% of the average closing sale price for the Company’s common stock for the two trading days prior to conversion. If insufficient shares are available the Company is required to redeem the shares for cash. The cash redemption price for Series B preferred shares will be face value plus 6% plus accrued dividends. The Series B Preferred Stock may be redeemed by the Company at any time prior to conversion at its face amount plus accrued but unpaid dividends. The Series B Preferred Stock has a liquidation preference equal to the greater of (a) the value of the common shares into which it could be converted or (b) its face amount plus accrued but unpaid dividends. The Series B Preferred Stock is without voting rights except as required by the Delaware General Corporation Law.
The directors signed a resolution to restructure the preferred shares and created Series C preferred shares with a par value of $0.001 and 750,000 shares authorized. The Series C Preferred Stock bears dividends (interest) at an annual rate of twelve percent (12%) payable annually and is convertible into shares of the Company’s common stock at a conversion price of 70% of the average closing sale price for the Company’s common stock for the two trading days prior to conversion. If insufficient shares are available the Company is required to redeem the shares for cash. The cash redemption price for Series C preferred shares will be face value plus 12% plus accrued dividends. The Series C Preferred Stock may be redeemed by the Company at any time prior to conversion at its face amount plus accrued but unpaid dividends. The Series C Preferred Stock has a liquidation preference equal to the greater of (a) the value of the common shares into which it could be converted or (b) its face amount plus accrued but unpaid dividends. The Series C Preferred Stock is without voting rights except as required by the Delaware General Corporation Law.
As of January 31, 2018 the Company sold 65,000 shares of Series B preferred shares and 32,500 shares of Series C preferred shares all at $1 per share. No shares were sold during the six months ended July 31, 2018.
For the six months ended July 31, 2018 and 2017, total dividends applicable to Series B and C Preferred Stock was $4,724 and 2,279, respectively. The Company did not declare or pay any dividends in fiscal 2019. Although no dividends have been declared, the cumulative total of preferred stock dividends due to these stockholders upon declaration was $7,004 as of July 31, 2018.
For the six months ended July 31, 2018, the carrying value of the Series B and Series C was increased $8,594 and $4,558, respectively to reflect the possible cash redemption value to reflect accrued dividends (even if undeclared) and the cash redemption premium. The carrying value of the Series B preferred shares was $73,594 and $65,000 as of July 31, 2018 and January 31, 2018. The carrying value of the Series C preferred shares was $37,058 and $32,500 as of July 31, 2018 and January 31, 2018.
The Company evaluated the Series B and C Preferred Stock and concluded that the redemption features qualify for temporary equity presentation in accordance with ASC 480-10-S99.
Stock Options
The Company adopted the 2013 Equity Incentive Plan (the “Plan”) on January 31, 2012, reserving 5,500,000 shares for future issuances, of which a maximum of 2,500,000 may be issued as incentive stock options. The Plan provides for the issuance of non- statutory stock options or restricted stock to officers and employees, with an exercise price that is at least equal to the fair market value of the Company’s common stock on the date of grant. Vesting terms and the lives of the options are to be determined by the Board of Directors upon grant. As of July 31, 2018 no options have been issued under this Plan.
15
APT SYSTEMS, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2018 AND 2017
NOTE 11 - SUBSEQUENT EVENTS
Conversion notices were filed on August 2, 2018, August 17, 2018 and September 4, 2018 in the amount to $15,000 each where the company issued 6,993,007, 4,702,194 and 4,470,939 common shares respectively reducing the total amount of loan to $114,000. This investor extended the note until October 14, 2018.
A conversion dated August 8, 2018 that was filed to convert part of $17,875 due under a note that was dated August 23, 2017 into 6,500,000 common shares. Additional conversion was submitted on same loan on August 24 and 3,322,634 shares were issued.
On August 22, 2018 the Company sent an Amendment to the APT SYSTEMS 10B-18 STOCK REPURCHASE PLAN. The company (Apt Systems Inc) and the broker dealer (Wilson Davis and Co. Inc) agreed to suspend the stock repurchase plan until 12/1/2018. This amendment was voluntarily entered into by both parties. The company intends to return shares currently in the account to Treasury.
On August 28, 2018 the company accepted two additional loans for combined total of $50,000 from two individual investors. The notes are due and payable twelve months from the issuance date and bears interest at 8% per annum with no original issuance discount but includes $1,000 of legal fees due at closing. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a penalty up to 30%. The Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to the 70% of the lowest trading price the five trading days prior to conversion.
On August 28, 2018 the company entered into an advertising agreement with Cicero Consulting Group for a combination of payments including $75,000 note and issuance of $75,000 worth of preferred shares. The note is due six months following issuance and carries an interest rate of 8%. The note is convertible at any time at a 30% discount to the market based on the lowest trading price in the five days prior to conversion.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the condensed financial statements and notes thereto included in, Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements regarding us, our business, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that may affect such forward-looking statements include, without limitation: our ability to successfully develop new products and services for new markets; the impact of competition on our revenues, changes in law or regulatory requirements that adversely affect or preclude clients from using us for certain applications; delays our introduction of new products or services; and our failure to keep pace with our competitors.
When used in this discussion, words such as "believes", "anticipates", "expects", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, particularly the Report on Form 10-K, Form 10-Q and any Current Reports on Form 8-K.
APT Systems, Inc. was incorporated in the State of Delaware on October 29, 2010. APT is a Fintech company that specializes in the creation of innovative financial platforms. We are focusing on the mobile device market where we intend to develop trading systems and publish custom technical analysis indicators for in-house use and licensing to third parties. In order to advance itself, APT Systems recently published KenCharts for the handheld market to test its mobile development choices and business plan. We are focusing our early attention on the charting software we own and rewriting the code to provide a native chart app for both iOS and Android platforms. This charting tool and the charts that it produces can be configured to the user’s preferred view such as a line chart or candlestick, and the user is able to adjust the chart indicators and intervals as desired. We plan to utilize delayed time feed initially and later, real time data networks for our subscription revenue model. Along with great graphic techniques, we will provide solutions that can speak to the mobile needs demanded by the next generation of equity and commodity traders. However, these tools can be invigorated with leading edge gaming graphics and networking technology to become fully interactive trading-assistance software within a vetted ecosystem.
We work to identify prospective acquisition opportunities with existing cash flow and then continue with due diligence efforts that will and do include testing software performance. We expect negotiations to result in purchases and recently included the lifestyle app Themezone providing dynamic live wallpapers for a downloading fee.
The Company has not as yet generated substantial sales revenues as many of its key products are still under development but our first charting app was released in January for iOS and the Android version launched in June. Snapt Games Inc, wholly owned subsidiary, acquired the ThemeZone app in April and launched its Candy Chefs games in June (both have a download fee). Start-up operations to date have consisted of the formation of the Company, development of its business plan, identification of its target market, naming its trading software Intuitrader, incorporating subsidiaries and expanded research towards the development of its platform software. However, the company was able to engage in selling advertising in apps, obtaining download revenues, eBook sales, and testing its trading strategies in a limited fashion that all contributed modest revenues for this quarter.
We have not been subject to any bankruptcy, receivership or similar proceeding to date.
In our third quarter, the company launched a wholly owned Delaware subsidiary named Snapt Games, Inc. on August 4, 2017. Management admires graphic techniques used in the gaming industry and wants to selectively introduce these to its charting tools and trading platforms. The company acquired its first game app for $3,500, rebranded it Chick Chick Boom and then in September released the app worldwide in both Apple and Android app stores. In November, the company formally launched its second ‘swipe three’ game called Hogg Wild. The next game recently launched is Candy Chef and was out before the summer.
17
On September 9, 2017, the Company formed and incorporated a second wholly owned subsidiary named RCPS Management, Inc. in Colorado. This company will concentrate on the development of payment and escrow systems under the brand Verifundr. The technical documentation is completed and the company is ready to begin building this platform that will employ Blockchain to build its escrow contracts. The company became a member of the Enterprise Ethereum Alliance last November. The Company continues to explore blockchain technology and cryptocoins, Spera SM , our stable coin pegged to the US dollar. The Company intends to have Spera coin built by MLG Blackchain but requires further testing and payments, which are not yet completed, before it can be released as a beta product.
As a Fintech company developing its platforms, APT services and products can later extend to include:
Financial Software and Analytical Software Development
Algorithmic Applied Technology
Trading Platforms and Exchanges, Linked to User Brokerage Accounts
Explore Smart Contracts using our Enterprise Ethereum Alliance membership
Use Blockchain to develop platforms for cryptoassets based on ERC-20 protocols
The steps remaining for us to begin selling our products listed above are to finalize the programming and rewriting of the existing software used in our products, specifically our dimensional charting tools and trading platform, begin sales and marketing campaigns, contact prospective licensees, and deliver our products, which we expect to complete in less than 90 days after our initial contact with prospective licensees. Our app would be available to users on a subscription fee plan and we plan to grant licenses for our app to financial companies and brokerage firms for use by their employees and clients. The goal is to have our product used by both handheld (tablet and Smartphone application users) and web based clients.
Our mailing address is in an executive suite facility at 505 Montgomery Street, 11th Floor, San Francisco, CA 94111 which also provides office services, computer access and meeting space on demand. We consider this current executive office space with on-demand offices is an arrangement adequate for our current operations and will reassess our needs quarterly based upon the future growth of the Company. Our fiscal year end is January 31st.
Needs Assessment
Management believes the principal growth area in the personal computer market today is that of Smartphones and portable tablet devices. These mobile devices usually allow full time internet connectivity which makes them an ideal stage for a mobile equity-trading platform and charting tool. Instead of merely importing existing software to allow on-the-go research and trading, we envision for our future products an information-dense and interactive display of the financial markets. At this time, we believe that the future interactive display will include three-dimensional imaging that we intend to use to provide information in new ways that can better assist novice users learning about publicly traded companies and those users who are trading equities in the public markets.
Distribution methods of the products or services
To facilitate marketing plans, our products and platforms will be available initially in the “App Store” managed by Apple Inc. Later, these same products will be available to audiences that prefer using other Smartphones such as Google’s Android and other platforms. Especially in the case of Apple, these companies will provide marketing infrastructure to help developers reach their users and justify costs charged related to selling products from their app stores. All new marketing options within North America will be fully explored and implemented as it makes sense to do so. We plan to launch beta testing campaigns as well to attract prospective subscribers and garner suggestions for improvements.
Organization
We are comprised of three corporations to date and do not rule out the future possibility of acquiring or creating additional subsidiaries.
Competition
The market for financial services software and services is competitive, rapidly evolving and highly sensitive to new product introductions and marketing efforts by industry participants, although high conversion costs can create barriers to adoption of new products or technologies. The market is fragmented by the different offers and served by both large-scale firms as well as firms that target only local markets or specific types of clients such as the millennial crowd. We also face competition from information systems developed and serviced internally by the IT departments of large financial services firms. We believe that we can compete effectively by providing software contained in a mobile application, which provides proprietary buy/sell suggestions, and a platform to enhance trading ability of users, although some of our existing competitors and potential competitors have substantially greater financial, technical, distribution and marketing resources than we have currently and may offer products with different functions or features that are more attractive to potential customers than our offerings.
18
Moreover, it is not our intent to compete with larger financial services firms, but rather to facilitate more trades by better informing our joint clients and providing them with better trading tools. The trading tools such as charts may be licensed to these same banks and brokers or subscribed to by users, directly in apps. We are broker agnostic and believe that we can work with the banks and brokerage firms who offer online and Smartphone trading access by providing them with the opportunity to generate additional commissions from their existing client base.
Contracted Consultants
Our directors currently provide their time and undertake duties as directors without compensation for these services. At the time the Company derives sufficient cash flow from operations or financing, the Company will evaluate the ability to compensate our directors and future directors.
Effective November 1, 2013, the Company began to accrue a monthly salary of $5,000 per month for the CEO and President on an ongoing basis. Accrued officer compensation as of July 31, 2018 and January 31, 2018 was $260,300 and $230,300, respectively. As resolved, the accrued compensation will only be paid after January 1, 2018 as and when the directors decide the Company has sufficient liquidity to pay some, or all, of the amounts accrued in cash or by issuing shares. The President of the Company can also consider submitting a request to the Board of Directors for permission to convert some, or all, of her accrued compensation into shares of the Company’s common stock on payments due above of $170,300, but only after January 1, 2019. The share price considerations will be either the publicly quoted share price, when such a publicly quoted price is available; or equal to or above the last cash price the Company recorded for the sale of its common shares to third parties.
Intellectual Property Information
Our success and ability to compete will be dependent to a significant degree on our intellectual property, which may include our trade name, trading models, visual chart styling and platform functionality. We intend to develop our technology internally and further acquire software. We will rely primarily on trade secret, trademark, copyright, domain name, patent and contract law to protect our intellectual property. It is our intention to enter into confidentiality, intellectual property invention assignment and/or noncompetition and non-solicitation agreements or restrictions with our employees, independent contractors and business partners, and to control access to and distribution of our intellectual property. Currently, we do not have any registered copyrights or patents; however, we may obtain such registrations in the future.
Government Regulation
We do not expect to be subject to material governmental regulation. However, it is our policy to fully comply with all governmental regulation and regulatory authorities.
Research and Development
We have incurred minimal cost in the fiscal years ended July 31, 2018 and 2017, respectively, on research and development of our website and mobile applications that was included as part of consulting services incurred to date. We plan to spend further funds on research and development activities in the future as the development of our software applications continue if we are able to raise the necessary funding.
Environmental Compliance
We believe that we are not subject to any material costs for compliance with any environmental laws.
Results of Operations
We have little operating history upon which to evaluate our intended business and sales. In addition, we have a history of losses. Our activities have been directed at developing our business plans as to eventually generate significant revenues while marketing gaming and lifestyle apps inside of Snapt Games.
For the Three Months Ended July 31, 2018 Compared to the Three Months Ended July 31, 2017
Revenue
The Company generated $7,119 in Games revenue during the three months ended July 31, 2018 compared to $0 in 2017.
19
Operating Expenses
Operating expenses were $388,546 for the three month period ended July 31, 2018 compared to $936,560 for the three month period ended July 31, 2017, which is a decrease of $548,014. The decrease in operating expenses for the three months ended July 31, 2018 as compared to the three Months ended July 31, 2017 was due primarily to a decrease in one time compensation to officers and directors related to a stock grant.
Operating Loss
We incurred an operating loss of $381,427 and $936,560 for the three months ended July 31, 2018 and 2017, respectively. The decrease of $555,133 is due to the factors described above.
Other Income (Expense)
Other Income (Expense) for the three months ended July 31, 2018 totaled ($470,065) compared to ($91,766) for the three months ended July 31, 2017. The increase in Other Expenses of $378,299 was mainly attributed to a loss in change of derivative liabilities.
Net Loss
The Company incurred a net loss of $851,492 for the three months ended July 31, 2018 compared to a net loss of $1,028,326 for the three months ended July 31, 2017, a decrease of $176,834 due to the factors discussed above.
For the Six Months Ended July 31, 2018 Compared to the Six Months Ended July 31, 2017
Revenue
The Company generated $7,184 in App revenue during the six months ended July 31, 2018 compared to $11 in 2017.
Operating Expenses
Operating expenses were $489,102 for the six month period ended July 31, 2018 compared to $1,020,608 for the six month period ended July 31, 2017, which is a decrease of $531,506. The decrease in operating expenses for the six months ended July 31, 2018 as compared to the six Months ended July 31, 2017 was due primarily to a decrease in one time compensation to officers and directors related to a stock grant.
Operating Loss
We incurred an operating loss of $481,918 and $1,020,597 for the six months ended July 31, 2018 and 2017, respectively. The decrease of $538,679 is due to the factors described above.
Other Income (Expense)
Other Income (Expense) for the six months ended July 31, 2018 totaled ($529,932) compared to ($98,446) for the six months ended July 31, 2017. The increase in Other Expenses of $431,486 was mainly attributed to a loss in change of derivative liabilities.
Net Loss
The Company incurred a net loss of $1,011,850 for the six months ended July 31, 2018 compared to a net loss of $1,119,043 for the six months ended July 31, 2017, a decrease of $107,193 due to the factors discussed above.
Cash flow information for the Six Months ended July 31, 2018 compared to the Six Months ended July 31, 2017
As of July 31, 2018, the Company had cash of $9,388, insufficient revenue to meet its ongoing operating expenses, and liabilities of $1,685,979 accumulated losses of $3,808,089 and a shareholders’ deficit of $1,605,859.
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The unaudited financial statements for the Six Months ended July 31, 2018 have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company anticipates future losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans, loans from directors and, or, the sale of common stock. There is no assurance that this series of events will be satisfactorily completed.
Net cash used for operating activities was $190,562 for the six month period ended July 31, 2018. This compares to net cash used for operating activities of $84,597 for the six month period ended July 31, 2017. In both periods our negative cash flow from operations is the result of insufficient revenue and profits to offset ongoing operating expenses.
Cash flows used in investing activities were at $48,500 and $20,007 for the six month periods ended July 31, 2018 and 2017 arising from software development.
Cash flows provided by financing activities were $201,750 for the six month period ended July 31, 2018 which compares to cash flows provided by financing activities of $122,180 for the six month period ended July 31, 2017. During the Six Months ended July 31, 2018 we received $232,500 of cash proceeds from the issuance of convertible notes payable. During the same period we made payments of $30,750 to pay down Notes Payable and Convertible Notes Payable. By comparison, during the Six Months ended July 31, 2017, we made repayments to a director in the amount of $5,000, received $105,000 from the issuance of common and preferred shares, received $50,000 from issuance of convertible notes and made payments of $27,820 to pay down Notes Payable and Convertible Notes Payable.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements with any party.
Liquidity and Capital Resources
As of July 31, 2018, we had cash and cash equivalents of $9,388.
Over the next twelve months we do expect some material capital costs to develop operations. Our estimated operating costs of $655,000 will be used for operations and reporting, but will be used to pay salaries as deemed reasonable by management.
To date, we have realized only nominal sales revenue. As a result, we expect that we may need to further engage in the private placement of our debt and equity securities in order to continue to fund operations. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to raise an estimated $1.5 million to fully implement our business plan and to successfully develop and market our apps, generate revenues and operate a profitable business.
In any case, we try to operate with minimal overhead while we undertake to attract participants to help build our products. Our primary activity will be to seek to develop clients for our services and, consequently, our sales. If we succeed in developing clients for our services and generating sufficient sales, we will have the potential to become profitable. We cannot guarantee that this will ever occur. Our plan is to build our company in any manner which will be successful and provide value for our shareholders.
Plan of Operation
Our business plan is to attract additional capital and sufficient product sales and provide services within our present organizational structure and resources, to become profitable in our operations.
Marketing and Sales Efforts:
Our marketing efforts will primarily be related to assuring our product is easily found in app stores and create a smooth downloading experience. We anticipate allocating seven percent of funds raised for marketing as well as generating product awareness through paid investor relations programs. We believe that there will be sufficient funds available if a suitable advertising or promotional opportunity presents itself.
Once the app is live and we have had to begin initial Search Engine Optimization (“SEO”) work and internet marketing, we believe sales will be initially supported through the Apple store and our website. The website will be set up to record all visitors automatically and billing will be handled by Apple’s extensive billing backend. This system will allow us to minimize staff, maintain efficient delivery of products, and keep records for both accounting and marketing.
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Successful implementation of our business strategy depends on factors specific to the internet, regulations regarding equities trading, app development licenses and the hand held device industry and numerous other factors that may be beyond our control. Adverse changes in the following factors could undermine our business strategy and have a material adverse effect on our business, financial condition, and results of operations and cash flow.
Our marketing efforts will primarily be related to assuring our product is easily found in app stores and create a smooth downloading experience. We anticipate allocating seven percent of funds raised for marketing as well as generating product awareness through paid investor relations programs. We believe that there will be sufficient funds available if a suitable advertising or promotional opportunity presents itself.
Once the app is live and we have had to begin initial Search Engine Optimization (“SEO”) work and internet marketing, we believe sales will be initially supported through the Apple store and our website. The website will be set up to record all visitors automatically and billing will be handled by Apple’s extensive billing backend. This system will allow us to minimize staff, maintain efficient delivery of products, and keep records for both accounting and marketing.
Successful implementation of our business strategy depends on factors specific to the internet, regulations regarding equities trading, app development licenses and the hand held device industry and numerous other factors that may be beyond our control. Adverse changes in the following factors could undermine our business strategy and have a material adverse effect on our business, financial condition, and results of operations and cash flow:
the competitive environment in the app sector that may force us to reduce prices below the optimal desired pricing level or increase promotional spending;
the ability to anticipate changes in consumer preferences and to meet customers’ needs for trading products in a timely cost effective manner; and
the ability to establish, maintain and eventually grow market share in a competitive environment.
For delivery of our information globally, geopolitical changes, changes in trading regulations, currency fluctuations, natural disasters, pandemics and other factors beyond our control may increase the cost of items we purchase, create communication issues or render product delivery difficult which could have a material adverse effect on our sales and profitability.
For delivery of our information globally, geopolitical changes, changes in trading regulations, currency fluctuations, natural disasters, pandemics and other factors beyond our control may increase the cost of items we purchase, create communication issues or render product delivery difficult which could have a material adverse effect on our sales and profitability.
Consulting Services
During the Six Months ended July 31, 2018, the Company no longer provides technical writing and computer assisted design services to other startups. This revenue source diminished as was anticipated and is $0 for the quarter ending July 31, 2018.
Seasonality
We do not expect our revenues to be impacted by seasonal demands for our services.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of July 31, 2018, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control system is intended to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements and that we have controls and procedures designed to ensure that the information required to be disclosed by us in our reports that we will be required to file under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely and informed decisions regarding financial disclosure.
Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2018. Based on this assessment, management believes that as of July 31, 2018, our internal control over financial reporting was not effective based on those criteria.
Management’s assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
Lack of appropriate segregation of duties;
Limited capability to interpret and apply accounting principles generally accepted in the United States;
Lack of formal accounting policies and procedures that include multiple levels of review.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. 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, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
We have made no change in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the six month periods ended July 31, 2018 and 2017, there was one legal proceeding, to which we are a party, which would not have a material adverse effect on our business, financial condition or operating results and none other are threatened or pending to the best of our knowledge.
ITEM 1A. RISK FACTORS
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
ITEM 3. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS .
Common Stock
The Company issued 5,000,000 to Triton Fund LLC as a donation; the donation supports the initiative founded by undergraduates from the University of California, San Diego (UC San Diego) and provided a press release accordingly on April 30, 2018. The share issuance was recorded as deferred offering costs and valued at $21,000.
Conversion notice was filed on May 31, 2018, in the amount of $15,000 each where the company issued 5,928,894 shares, This investor subsequently extended the note until October 14, 2018.
During the three months ending April 30, 2018 the Company issued 10,000,000 shares to settle $5,000 in convertible notes payable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the quarter ended July 31, 2018, there were no purchases of equity securities by the Company and affiliated purchasers.
Stock Options
The Company adopted the 2013 Equity Incentive Plan (the “Plan”) on January 31, 2012, reserving 5,500,000 shares for future issuances, of which a maximum of 2,500,000 may be issued as incentive stock options. The Plan provides for the issuance of non-statutory stock options or restricted stock to officers and employees, with an exercise price that is at least equal to the fair market value of the Company’s common stock on the date of grant. Vesting terms and the lives of the options are to be determined by the Board of Directors upon grant. As of July 31, 2018, no options have been issued under this Plan.
ITEM 4. DEFAULTS UPON SENIOR SECURITIES
On June 17, 2015 and June 28, 2015, the Company received $3,000 and $2,700, respectively, by way of unsecured short-term loans from a non-related party for a term of six months at 5% interest due upon repayment. The loans and accrued interest were scheduled to be repaid on December 31, 2015. The Company was successful in obtaining an extension until September 1, 2016. Currently, these short-term loans are past due, however there are no default penalties associated with these loan agreements. There can be no assurance that we will be able to reach any further agreement to extend or amend the terms of the agreement with this creditor or that we will be able to raise the funding necessary to repay the balances due under this agreement. The initiation of any collection action by any creditor may affect our ability to execute on our business plan. Additional short term loans were provided in September, 2015 in the amount of $1,950, with a maturity date of January 31, 2016. This short-term lending arrangement is also past due, but does not carry any default penalty.
ITEM 5. MINE SAFETY DISCLOSURES
Not applicable to our Company.
ITEM 6. OTHER INFORMATION
None.
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ITEM 8. EXHIBITS
EXHIBITS. The following exhibits required by Item 601 to be filed herewith are incorporated by reference to previously filed documents:
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Exhibit Number |
Description |
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Articles of Incorporation |
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Bylaws |
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Certification of Chief Executive Officer pursuant to Section 302 |
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Certification of Chief Financial Officer pursuant to Section 302 |
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Certification of Chief Executive Officer pursuant to Section 906 |
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Certification of Chief Financial Officer pursuant to Section 906 |
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Exhibit 101.INS |
XBRL Instance Document (1) |
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Exhibit 101.SCH |
XBRL Taxonomy Extension Schema Document (1) |
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Exhibit 101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document (1) |
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Exhibit 101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document (1) |
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Exhibit 101.LAB |
XBRL Taxonomy Extension Label Linkbase Document (1) |
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Exhibit 101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document (1) |
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(1) |
Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
* Previously filed with Form S-1 Registration Statement, May 23, 2012
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 19, 2018.
APT Systems, Inc.
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By: /s/ Glenda Dowie |
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Glenda Dowie, President and Chief Executive Officer |
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By: /s/ Carl Hussey |
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Carl Hussey, Treasurer and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacity and on the date indicated.
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/s/ Glenda Dowie |
President, Chief Executive Officer and Director |
September 19, 2018 |
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Glenda Dowie |
Title |
Date |
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/s/ Joseph Gagnon |
Secretary, Chief Technical Officer and Director |
September 19, 2018 |
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Joseph Gagnon |
Title |
Date |
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/s/ Carl Hussey |
Treasurer, Chief Financial Officer and Director |
September 19, 2018 |
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Carl Hussey |
Title |
Date |
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO SEC Rules 13a-14(a) and 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Glenda Dowie, certify that:
1. I have reviewed this Quarterly report on Form 10-Q of APT Systems, Inc.;
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(s) 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 registrant's board of directors (or persons performing the equivalent functions):
a) all 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.
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Date: September 19, 2018 |
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/s/ Glenda Dowie |
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Glenda Dowie |
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Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SEC Rules 13a-14(a) and 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carl Hussey, certify that:
1. I have reviewed this Quarterly report on Form 10-Q of APT Systems, Inc.;
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(s) 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(s) 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 registrant's board of directors (or persons performing the equivalent functions):
a) all 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.
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Date: September 19, 2018 |
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/s/ Carl Hussey |
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Carl Hussey |
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Chief Financial Officer |
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 Quarterly Report on Form 10-Q of APT Systems, Inc. (the "Company”) for the quarter ended July 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Glenda Dowie, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to 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 Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Date: September 19, 2018 |
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/s/ Glenda Dowie |
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Glenda Dowie |
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Chief Executive Officer |
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 Quarterly Report on Form 10-Q of APT Systems, Inc. (the "Company”) for the quarter ended July 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Carl Hussey, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to 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 Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Date: September 19, 2018 |
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/s/ Carl Hussey |
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Carl Hussey |
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Chief Financial Officer |