APPLIFE DIGITAL SOLUTIONS, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
|
| Three Months Ended
September 30,
|
|
| 2023
|
| 2022
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
| $
| (671,466)
|
| $
| (659,747)
|
Adjustment to reconcile change in net loss to net cash used in operating activities:
|
|
|
|
|
|
Amortization
|
| 139,224
|
|
| 69,113
|
Interest expense
|
| (920)
|
|
| 25,274
|
Stock compensation expense
|
| 460,101
|
|
| 495,376
|
Change in fair value of derivative liability
|
| (52,641)
|
|
| (115,249)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
| (1,680)
|
|
| -
|
Prepaid expenses
|
| (4,086)
|
|
| 3,197
|
Inventories
|
| 1,458
|
|
| (6,968)
|
Accounts payable and accrued expenses
|
| 27,049
|
|
| (112)
|
Unearned income
|
| 271
|
|
| -
|
Net cash used in operating activities
|
| (102,690)
|
|
| (189,116)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITY:
|
|
|
|
|
|
Proceeds from notes payable to shareholders
|
| 80,000
|
|
| 225,000
|
Net cash provided from financing activity
|
| 80,000
|
|
| 225,000
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
| (22,690)
|
|
| 35,884
|
Cash, beginning of period
|
| 57,619
|
|
| 189,233
|
Cash, end of period
| $
| 34,929
|
| $
| 225,117
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
Increase in derivative liability upon issuance of convertible note
| $
| 80,000
|
| $
| -
|
Payment of notes payable with issuance of options to purchase common stock
| $
| 118,016
|
| $
| -
|
Settlement of derivative liability upon conversion of debt
| $
| 86,199
|
| $
| -
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
APPLIFE DIGITAL SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization, Going Concern and Summary of Significant Accounting Policies
Organization
APPlife Digital Solutions Inc. (the “Company”) is a business incubator and portfolio manager that uses digital technology to create and invest in e-commerce and cloud-based solutions. The Company was formed March 5, 2018 in Nevada and has offices in San Francisco, California and Shanghai, China. Our office in San Francisco, California allows us to take advantage of the marketing opportunities available in the United States as well as keeping close proximity to sources of capital whether it is debt or equity. Our offices in Shanghai, China allows us to take advantage of a high concentration of skilled tech coders and developers at lower capital costs than in more developed countries such as the United States or Europe. The Company’s mission is using digital technology to create APPs and websites that make life, business and living easier, more efficient and just smarter.
Rooster Essentials APP SPV, LLC (the “Rooster”), incorporated on April 9, 2019, is a wholly owned subsidiary of the Company. Rooster is a fully customizable men’s ecommerce platform that delivers daily use grooming needs and essential items.
B2BCHX SPV LLC (the “B2BCHX”), incorporated on June 5, 2019, is a wholly owned subsidiary of the Company. B2BCHX does an independent background check on mainland Chinese companies for small businesses globally.
Office Hop, incorporated on January 28, 2021, is a wholly owned subsidiary of the Company. Office Hop is a global sharing model platform for short term rentals of office and meeting rooms. Users can find an office or conference space for hourly, half-day, full-day, or weekly rental. Hosts can list their spare office or meeting rooms.
Going Concern
The Company has generated losses and negative cash flows from operations since inception. The Company has historically financed its operations from equity financing. The Company anticipates additional equity financings to fund operations in the future. Should management fail to adequately address the issue, the Company may have to reduce its business activities or curtail its operations. There can be no assurance that any additional financings, would be available to the Company on satisfactory terms and conditions if at all.
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and classification of liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for the interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited condensed consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date. All intercompany transactions have been eliminated in consolidation. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in these statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10–K for the fiscal year ended June 30, 2023, as filed with the SEC on October 2, 2023. Operating results for the three months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the fiscal year ending June 30, 2024.
5
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers cash equivalents to include cash and investments with an original maturity of three months or less.
Income Taxes
The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. The Company had no accrual for interest or penalties as of September 30, 2023. The Company files income tax returns with the Internal Revenue Service (“IRS”) and the state of California.
Use of Estimates
Generally accepted accounting principles require that the consolidated financial statements include estimates by management in the valuation of certain assets and liabilities. Significant matters requiring the use of estimates and assumptions include, but are not necessarily limited to, fair value of the Company’s stock, stock-based compensation, BCF (Beneficial Conversion Feature) liabilities feature of convertible debt, and valuation allowance relating to the Company’s deferred tax assets. Management uses its historical records and knowledge of its business in making these estimates. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made. Accordingly, actual results could differ from those estimates.
Revenue Recognition
The Company will recognize revenue from the sale of products and services in accordance with ASC 606, “Revenue from Contracts with Customers”, by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Stock Based Compensation
The Company accounts for share-based compensation in accordance with the fair value recognition provision of FASB ASC 718, Compensation – Stock Compensation (“ASC 718”), prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on the estimated grant date fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505, Equity–based Payments to Non-Employees (“ASC 505”). Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares (“dilutive securities”) that were outstanding during the period. Dilutive securities include
6
stock options and warrants granted, convertible debt, and convertible preferred stock. There were 61,136,837 and 23,752,035 potentially dilutive securities for the three months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and 2022, there were 90,000,000 restricted stock units to Matt Reid, respectively, that were excluded in the calculation of the weighted-average number of common shares outstanding during the period since they are still unvested.
Fair Value of Financial Instruments
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclosure the fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts reported in the Company’s consolidated financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term nature of these consolidated financial instruments.
Derivative Liability
FASB ASC 815, Derivatives and Hedging requires all derivatives to be recorded on the consolidated balance sheet at fair value. As of September 30, 2023, we used the Black-Scholes-Merton (BSM) model to estimate the fair value of the conversion feature of the convertible note. Key assumptions of the BSM model include the market price of our stock, the conversion price of the debt, applicable volatility rates, risk-free interest rates and the instrument’s remaining term. These assumptions require significant management judgment. In addition, changes in any of these variables during a period can result in material changes in the fair value (and resultant gains or losses) of this derivative instrument.
Inventories
Inventory, consisting of raw materials, work in process and products available for sale, are primarily accounted for using the first-in, first-out method (“FIFO”), and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns to product vendors. As of September 30, 2023, the Company had inventories of approximately $63,751 net of allowance for inventory reserves amounting to $2,736.
7
Note 2 – Notes payable
On January 5, 2023, the Company financed its insurance premiums through its insurance broker amounting to $40,127 that carries an annual interest rate of 12% and matures through November 2023 in ten equal payments of $4,013. The net carrying amount of the note is $8,025 and $16,051 as of September 30, 2023 and June 30, 2023, respectively.
Note 3 – Notes payable to stockholders
On February 4, 2022, the Company sold convertible note bearing 12% interest per annum in the principal amount of $350,000 (“February 2022 Notes”). The note will be paid in three tranches with first tranche of $100,000 received on March 28, 2022. The second and third tranches of $150,000 and $100,000 each, were received on May 3, 2022, and June 21, 2022, respectively. The note is subject to certain ownership limitations and will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion rate of $ 0.013. The February 2022 Notes contain embedded derivatives, see Note 8.
On August 26, 2022, the Company sold convertible note bearing 12% interest per annum in the principal amount of $325,000 (“August 2022 Notes”). The note is disbursed in three tranches with first tranche of $125,000 received on September 1, 2022. The second tranche of $100,000 was received on September 19, 2022 and the third tranche of $100,000 was received on October 15, 2022. The note is subject to certain ownership limitations and will be convertible at the option of the holder at any time into shares of the Company’s common stock at an effective conversion rate of $0.046. The August 2022 Notes contain embedded derivatives, see Note 8.
On December 21, 2022, the Company sold convertible note bearing 12% interest per annum in the principal amount of $120,000 (“December 2022 Notes”). The note is disbursed in four tranches with first tranche of $40,000 received on January 10, 2023, and the remaining tranches of $20,000, $20,000 and $40,000 received on February 10, 2023, March 3, 2023 and March 31, 2023, respectively. The December 2022 Notes contain embedded derivatives, see Note 8.
On April 24, 2023, the Company sold convertible note bearing 12% interest per annum in the principal amount of $280,000 (“April 24, 2023 Notes”). The note is disbursed in two tranches with first tranche of $80,000 received on July 31, 2023, and the remaining tranche of $200,000 to be issued within three (3) business days of signing and effect of the acquisition agreement with LeSalon Beauty Ltd. The April 24, 2023 Notes contain embedded derivatives, see Note 8.
On April 30, 2023, the Company sold convertible note bearing 12% interest per annum in the principal amount of $100,000 (“April 30, 2023 Notes”). The note is disbursed in three tranches with first tranche of $20,000 received on May 12, 2023, and the remaining tranches of $40,000 each received on May 31, 2023 and June 28, 2023, respectively. The April 30, 2023 Notes contain embedded derivatives, see Note 8.
On September 27, 2023, the Company converted the first tranche of the February 2022 Notes with principal balance amounting to $100,000 and $18,016 of accrued interest into 5,632,283 stock options.. The options expire in five years with the exercise price at $0.02. The options were valued at $167,961 using Black Scholes.
|
|
| Amount
|
Balance of notes payable, net of discount on June 30, 2023
| $
| 414,732
|
Amortization of debt discount
|
|
| 139,224
|
New Issuances
|
|
| 80,000
|
Embedded Conversion Feature - Debt discount
|
|
| (80,000)
|
Conversion of Notes Payable to stock options
|
|
| (100,000)
|
Balance of notes payable, net of discount as of September 30, 2023
| $
| 453,956
|
Less current portion
|
| 221,076
|
Noncurrent portion of notes payable, net of discount as of September 30, 2023
| $
| 232,880
|
8
Note 4 – Related Party Transactions
Notes Payable to Stockholder
During the three months ended September 30, 2023, the Company received $280,000 in notes payable to a related party. The first tranche of $80,000 was received on July 31, 2023. The remaining balance of $200,000 is to be received within three (3) business days of signing and effect of the acquisition agreement with LeSalon Beauty Ltd.
On September 27, 2023, the Company converted the first tranche of the February 2022 Notes amounting to $100,000 notes into options to purchase common stock. See Note 3, Notes Payable to Shareholders, for detail.
Note 5 – Concentrations
Cash Concentration
The Company maintains its cash and cash equivalents at financial institutions in the United States and China, which may, at times, exceed federally insured limits or similar limits in foreign jurisdictions. On September 30, 2023, the Company’s cash balance did not exceed the FDIC insurance limit. The Company has not experienced any losses in such accounts.
Note 6 – Commitments and Contingencies
Legal Matters
From time to time the Company may be involved in certain legal actions and claims arising in the ordinary course of business. The Company was not a party to any specific legal actions or claims at September 30, 2023.
Other Risks
There have been outbreaks in several countries, including the United States, of the highly transmissible and pathogenic coronavirus (“COVID-19”). The outbreak of such COVID-19 resulted in a widespread health crisis that adversely affected general commercial activity and the economies and financial markets of many countries, including the United States. Although to date, the Company has not been adversely affected by COVID-19, the measures taken by the governments of countries affected could adversely affect the Company’s business, financial condition, and results of operations.
Note 7 – Stockholders’ Deficit
As of September 30, 2023, and June 30, 2023, there were 150,543,635 shares of common stock issued and outstanding.
Restricted stock and stock options
During the three months ended September 30, 2023 and 2022, the Company recognized stock compensation expense on outstanding restricted stock awards of $359,375 and $436,504, respectively.
During the three months ended September 30, 2023 and 2022, the Company recognized $100,726 and $58,872 of expense related to the vesting of stock options to its board members and consultants. Stock compensation expense is summarized as follows:
|
|
| Three Months
Ended
|
|
| Three Months
Ended
|
|
|
|
| September 30, 2023
|
|
| September 30, 2022
|
|
Restricted stock awards
|
| $
| 359,375
|
| $
| 436,504
|
|
Stock options awards
|
|
| 100,726
|
|
| 58,872
|
|
Stock compensation expense
|
| $
| 460,101
|
| $
| 495,376
|
|
9
During the three months ended September 30, 2023, the Company granted 4,176,471 options to its board members and consultants. The options granted in fiscal year 2024 vest pro-rata over the member’s term, have exercise prices ranging from $0.017 - $0.021 and expire in five years from the date of grant.
On September 27, 2023, the Company converted a total of $118,016 in outstanding notes payable and interest into 5,638,283 options to purchase common stock (see Notes 3 and 4).
| Options
|
| Weighted
Average
Exercise Price
per Share
|
| Weighted
Average
Remaining
Life (Years)
|
Outstanding – June 30, 2023
|
|
| 51,322,083
|
|
| $
| 0.04
|
|
|
| 4.14
|
Granted
|
|
| 9,814,754
|
|
|
| 0.02
|
|
|
| 4.88
|
Exercised
|
|
| -
|
|
|
| -
|
|
|
| -
|
Outstanding – September 30, 2023
|
|
| 61,136,837
|
|
| $
| 0.04
|
|
|
| 4.04
|
Outstanding – June 30, 2022
|
|
| 23,752,035
|
|
| $
| 0.11
|
|
|
| 2.92
|
Granted
|
|
| -
|
|
|
| -
|
|
|
| -
|
Forfeited
|
|
| -
|
|
|
| -
|
|
|
| -
|
Exercised
|
|
| -
|
|
|
| -
|
|
|
| -
|
Outstanding – September 30, 2022
|
|
| 23,752,035
|
|
| $
| 0.08
|
|
|
| 4.33
|
The Company valued the options granted with Black Scholes using the following inputs:
|
| Three Months Ended
September 30, 2023
|
|
| Three Months Ended September 30, 2022
|
|
Stock price
|
| $
| 0.017 – 0.021
|
|
| $
| 0.026 – 0.057
|
|
Exercise price
|
| $
| 0.017 – 0.021
|
|
| $
| 0.018 – 0.046
|
|
Expected term (in years)
|
|
| 1.00 - 5.00
|
|
|
| 0.99 – 2.14
|
|
Volatility (annual)
|
|
| 250.6 - 297.8
| %
|
|
| 213 - 215
| %
|
Risk-free rate
|
|
| 3.48% - 4.67
| %
|
|
| 3.37% - 4.22
| %
|
Note 8 – Derivative Liability
The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion options and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that are categorized within Level 3 of the fair value hierarchy for the three months ended September 30, 2023 is as follows:
|
| Three Months Ended
September 30, 2023
|
|
Stock price
|
| $
| 0.01 – 0.03
|
|
Exercise price
|
| $
| 0.01 – 0.03
|
|
Contractual term (in years)
|
|
| 1.00 – 5.00
|
|
Volatility (annual)
|
|
| 296% - 302
| %
|
Risk-free rate
|
|
| 4.88% - 5.03
| %
|
10
The foregoing assumptions are reviewed quarterly and are subject to change based primarily on management’s assessment of the probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuations.
Financial Liabilities Measured at Fair Value on a Recurring Basis
Financial liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative liability – warrants and derivative liabilities:
|
| Fair value measured at September 30, 2023
|
|
| Quoted prices in active markets
|
|
| Significant other observable inputs
|
|
| Significant unobservable inputs
|
|
| Fair value at
|
|
| (Level 1)
|
|
| (Level 2)
|
|
| (Level 3)
|
|
| September 30, 2023
|
Derivative liability
|
| $
| -
|
|
| $
| -
|
|
| $
| 916,510
|
| $
| 916,510
|
Total
|
| $
| -
|
|
| $
| -
|
|
| $
| 916,510
|
| $
| 916,510
|
|
| Fair value measured at June 30, 2023
|
|
| Quoted prices in active markets
|
|
| Significant other observable inputs
|
|
| Significant unobservable inputs
|
|
| Fair value at
|
|
| (Level 1)
|
|
| (Level 2)
|
|
| (Level 3)
|
|
| June 30, 2023
|
Derivative liability
|
| $
| -
|
|
| $
| -
|
|
| $
| 1,004,846
|
| $
| 1,004,846
|
Total
|
| $
| -
|
|
| $
| -
|
|
| $
| 1,004,846
|
| $
| 1,004,846
|
The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
| ·
| Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
|
| ·
| Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
|
|
|
|
| ·
| Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
There were no transfers between Level 1, 2 or 3 during the three months ended September 30, 2023 and 2022.
During the three months ended September 30, 2023 and 2022, the Company recorded gains of $52,641 and $115,249, respectively, from the change in fair value of derivative liability.
The following table presents changes in Level 3 liabilities measured at fair value for the periods ended September 30, 2023:
|
| Derivative Liability
|
Balance as of June 30, 2023
|
| $
| 1,004,846
|
Additions during the period
|
|
| 50,504
|
Change in fair value
|
|
| (52,641)
|
Change due to conversion / exercise / redemptions
|
|
| (86,199)
|
Balance as of September 30, 2023
|
| $
| 916,510
|
The balance of the derivative liability at September 30, 2023 and June 30, 2023 was $916,510 and $1,004,846, respectively.
11
Note 9 – Subsequent Events
On October 3, 2023, the Company entered into a contractor agreement (the “CLO Agreement”) with its Chief Legal Officer (the “CLO”), Michael Wheeler. Under the terms of the agreement, the CLO shall receive stock options for the legal corporate transactional work that has been and will be conducted in the near future in an amount of (a) 3,000,000 shares to vest upon execution of the CLO Agreement, (b) 3,000,000 shares to vest on October 3, 2024 and (c) 5,000,000 shares to vest on October 3, 2025 which shall have a term of five years from the date the options become exercisable.
October 10, 2023, the Company’s Chief Technical Officer (the “CTO”), Brian Thomas, shall receive stock options for shares of common stock as compensation for services rendered in the aggregate amount of 10,982,708 shares to vest in twelve (12) quarters of 915,225 stock options each quarter for a five-year term from the date the Company granted the stock options in pursuant to the contractor agreement entered into by the Company and the CTO on September 15, 2023.
On October 11, 2023, the Company entered into a contractor agreement (the “EVP Agreement) with its EVP Director of Digital Operations (the “EVP”), Mark Messina. Under the terms of the agreement, the EVP shall receive stock options as compensation for services rendered in the aggregate amount of 6,259,714 shares to vest quarterly over the term of the EVP Agreement and have a term of five years from the date such stock options become exercisable. The EVP shall be able to exercise the options for a five-year term from the date the Company granted such stock options.
On October 24, 2023, the Company entered into an asset purchase agreement with LeSalon Beauty Ltd., a company incorporated in England and Wales (“LeSalon”). Under the terms of the APA, the Company and LeSalon have agreed to purchase the assets of LeSalon in exchange for a total purchase price of $1,400,000, which shall consist of $100,000 cash to be paid within fourteen (14) days of closing of the APA and $1,300,000 worth of restricted common stock of the Company, to be paid within forty-five (45) days of the closing of the APA. In the event the common stock of the Company does not trade exceed a three (3) day average trading price of at least $0.10 beginning on the date of the APA and ending on the six (6) month anniversary of the APA (the “Makeup Period”), the Company shall make up the difference by taking 13,000,000 shares and multiplying it by the product of $0.10 minus the highest three (3) day average traded price during the Make-up Period. LeSalon’s founders agree to provide transition services to the Company for a period of at least twelve (12) months following the closing of the APA.
On November 6, 2023, the Company entered into a Brand Advisory Agreement (the “BA Agreement”) with its Brand Ambassador, Sarah Uphoff. Under the terms of the agreement, the Brand Ambassador shall receive stock options as compensation for services rendered in the aggregate amount of 500,000 shares to vest in four (4) quarters of 125,000 stock options each quarter for one (1) year from the date the Company granted the stock options in pursuant to the BA agreement. The share options have a term of five (5) years from the date they become exercisable.
On November 9, 2023, the Company entered into a Digital Marketing Director Agreement (the “DMD Agreement”) with its Brand Advisor, Grace Fernandez. Under the terms of the agreement, the Brand Advisor shall receive stock options as compensation for services rendered in the aggregate amount of 500,000 shares to vest in 4 quarters of 125,000 stock options each quarter for a 1-year term from the date the Company granted the stock options in pursuant to the BA agreement. The share options have a term of 5 years from the date they become exercisable.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Overview
APPlife Digital Solutions, Inc. (the “Company”) was formed March 5, 2018, in Nevada and has offices in San Francisco, California and Shanghai, China. Our office in San Francisco, California allows us to take advantage of the marketing opportunities available in the United States as well as keeping close proximity to sources of capital whether it is debt or equity. Our offices in Shanghai, China allows us to take advantage of a high concentration of skilled tech coders and developers at lower capital costs than in more developed countries such as the United States or Europe. The Company’s mission is using digital technology to create and invest in eCommerce and Cloud based businesses that make life, business and living easier, more efficient, and just smarter.
Plan of Operation
Our marketing and business management/executive team will operate from both Shanghai China and our offices in San Francisco. Matt Reid is technically the only employee of the Company, and he resides in Shanghai, China, in order to manage the independent contractor teams of developers the Company hires. We have an attorney in Shanghai engaged to help us with the contracts and negotiations with developers and other similar items. We have multiple independent contractor team members for the Company that live and work in the US who make up our business management and executive teams. They do not operate in China, and we generate no revenue in China. Our independent contractors fill positions such as Chief Legal Officer, Executive Project Director, Accountant and Investor relations manager and are all located in New York. Our Director of Marketing, PR agent and multiple lower-level independent contractors reside and work in California. None of the operating business models we have are generating any revenue from Chinese based businesses. Currently 100% of our revenue comes from an ecommerce platform servicing US customers and there are no current plans to buy or develop any new Chinese based business models.
We will continue to explore new concepts and opportunities to invest in projects that meet our criteria We have incurred expenses and operating losses, as part of our activities in developing e-commerce platforms, B2BCHX, OFFICEHOP, ROOSTER ESSENTIALS, Valida and Global Hemp Service LLC. The capital we raise will go into marketing, acquisitions, and revenue generation. We believe this will take our vision forward and to the next level.
The APPlife Digital Solutions business model is two-fold. First, is to market our current in-house developed projects ecommerce and cloud-based business over the next year, work to add partnerships and add additional in-house developed projects. We plan to engage multiple resources such as adding staff, create partnerships, and as capital becomes available, to market and grow revenue.
The second, but equally important part of our business model is to target acquisitions and projects that can be assisted by our marketing and capitalization capabilities where we can play an active role in the project’s success and make the acquisitions to add to our revenue stream. We seek acquisition targets that have a model that fits our vision and area of interest, is currently generating revenue with room for growth and a strong management team that will stay on board and continue to operate the entity post-acquisition. We have signed an asset purchase agreement to buy the assets around the operations of an online beauty company with revenue.
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Our current projects:
B2BCHX is our first fully developed app that is available in Google Play and a functioning ecommerce and mobile website. B2BCHX allows business owners around the world to order three levels of background checks in English on Chinese companies to prevent fraudulent business transactions, to gather information in order to gain confidence when doing business with a Chinese entity or to pursue legal remedy against fraudulent Chinese Company. The reports are researched and written by a licensed law firm in Shanghai China in a partnership agreement with B2BCHX. These reports are not auto generated and are carefully researched to give our users the most accurate information. The retail price for each report is $79, $399 and $1299. The partnership with the law firm is on a 20% revenue share, which leaves B2BCHX an 80% per report profit margin to cover development expenses, maintenance and profit. We are waiting for a temporary law change that will allow the attorney to send information on Chinese entities overseas.
ROOSTER ESSENTIALS ecommerce website, has been operations in the third quarter of fiscal year 2020 and launched its full commercial operations in the second quarter of 2022. ROOSTER ESSENTIALS is an online men’s grooming supply store, and it allows men to fully customize which products they receive and set up an auto-delivery schedule for each product for automatic recurring delivery. ROOSTER ESSENTIALS currently carries over 200 products from over 80 brands. We anticipate the sources of revenue will come from purchases, advertising and sponsorships.
OFFICE HOP entered beta testing in the fourth quarter of 2021 and is now fully functional.. We believe OFFICE HOP fits perfectly into the needs of the post Covid working world, where short-term offices and meeting rooms will be in high demand. The OFFICE HOP model is like Airbnb for short term shared or private office space and meeting rooms. Those offices that have an extra office, shared desk, an empty meeting room or conference room may list the space and act as a host for a user. Those users in need of a short-term shared desk, meeting room or private office may locate one on our platform and rent it out for use as needed by the hour, half day, full day, week or month. We will also offer access to creative spaces such as photo studios and pop-up art galleries and will offer restaurants with private rooms a way to rent out the space with a menu included for group or lunch meetings. The revenue is expected to come from the 10-15% service fee charged to Users for finding and making a transaction with one of our listed properties. The platform is global. We will begin operations in North America and Europe and then eventually operate in South America and Asia.
Global Hemp Services LLC is a low risk and low-cost participation in the fast growing Hemp and CBD market space. We have licensed out our fully functional ecommerce platform in exchange for a 15% equity position and 2.5% revenue share, with exclusive rights to purchase an additional 36% of the equity (for a total of 51%) upon reaching revenue benchmarks. Global Hemp Service LLC distributes Hemp and CBD products globally, including Hemp based building materials, textiles, plastics, paper, personal care items and various CBD products. They will distribute wholesale to shops and stores and retail directly to consumers.
Lollipop NFT will have a new name and will now be known as Valida. We have changed the model initially presented for Lollipop. Formerly an online marketplace, consignment store, creator platform, and wallet, it is now intended to be what we call a super wallet. It is non-custodial and will be able to be connected through API directly to various marketplaces of the user’s choice. We will focus on storing and sharing of NFTs that represent practical use. For example, we will focus on Driver’s licenses, Diplomas, Real Estate escrow documents and title. The storage and ability to reference these valuable NFT documents as well as collections of NFT for storage will be available as the core model. The wallet will be a digital wallet, with cold storage for security. Once completed the system code will be audited by a third-party auditor and there will be multiple security daemons to monitor account login and asset transfers to protect the user. We have completed the design and preliminary development phase of this project, but have not yet begun writing the code. We plan to use the Polygon blockchain to create the wallet and have also lined up tech support with Polygon. We anticipate having a cold wallet system that allows the users to transfer between storage and active modes and plan to include 2FA, fingerprint and/or facial recognition technology. We plan to have multiple additional security daemons that review account holdings and prevent unauthorized transfers and withdrawals, however we may be liable for any cybersecurity breach resulting in the loss of customer assets. We plan to have multiple additional security daemons that review account holdings and prevent unauthorized transfers and withdrawals. The main focus of our user base will be practical use NFTs. We believe this is the future best use scenario for NFTs. This is what we believe will set us apart from those systems designed to buy and sell digital art and items that may be considered securities. We expect users to store their important documents and certifications in files. An example is we will allow universities to bulk upload diplomas into the system that will be an image of the
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certificate with the graduate’s name in place. The Meta Data will show in a border area that discloses the name of the University, the degree, date of issue and an official University stamp. The User will have the option of receiving the NFT version by registering and then using a code provided by the school to download the diploma NFT into the wallet. This would also apply to Driver’s licenses issued by State DMVs, Real Estate Broker licenses, Wills and other important legal documents, Escrow or Title paperwork. We are not intending on blocking people from storing other types of NFTs, but our format and storage UI is not appealing to those collecting digital art. Our interface will resemble a windows filing system. It is tailored to cater to file storage for the practical use type.
Our DRINX project is in early stage of development and we believe the beta version will be ready by the second quarter of fiscal year 2024. DRINX app allows anyone to purchase a virtual drink ticket anywhere and at any time for friends and colleagues. We anticipate the sources of revenue will come from advertising and sponsorships from alcohol companies promoting products on the app, user fee of $0.99 to send each drink and discounts provided by the bars and restaurants for purchases made by the app.
Results of Operations for Three Months Ended September 30, 2023 and September 30, 2022
Revenue
For the three months ended September 30, 2023 and 2022, we generated revenue of $3,854 and $16,961, respectively. The Company has been in the process of marketing and developing its apps, hiring developers and coders, incurring professional fees for registering its common stock and identifying other apps and partnerships to generate revenues as the Company expands its operations.
Operating Loss
For the three months ended September 30, 2023 and 2022 we had operating losses of $585,309 and $657,234, respectively. This increase was due primarily to increase in stock compensation and professional fees paid to consultants.
Other Income (Expense)
For the three months ended September 30, 2023 and 2022, we had other expenses of $86,157 and $2,513, respectively. The other expense during the three months ended September 30, 2023, was due to the interest expense of $138,798, partially offset by the change in fair value of derivative liabilities of $52,641. The other expense during the three months ended September 30, 2022, was primarily due to interest expense of $117,762 partially offset by the change in fair value of derivative liabilities of $115,249.
Net loss
We reported a net loss of $671,466 and $659,747 for the three months ended September 30, 2023 and 2022, respectively.
Working Capital (Deficit)
|
| September 30, 2023
|
|
|
| June 30, 2023
|
Current assets
| $
| 131,856
|
|
| $
| 158,264
|
Current liabilities
|
| 1,342,187
|
|
|
| 1,442,548
|
Working capital (deficit)
| $
| (1,210,331)
|
|
| $
| (1,284,284)
|
We anticipate generating losses and, therefore, may be unable to continue operations in the future. If we require additional capital, we will have to issue debt or equity or enter into a strategic arrangement with a third party. The current liabilities of $1,342,187 include $916,510 of derivative liabilities which relate to the convertible notes payable and stock options. Upon exercise of the stock options and settlement of notes payable, the derivative liability will be reclassified as equity.
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Going Concern
As reflected in the accompanying consolidated financial statements, the Company has minimal revenue generating operations and has an accumulated deficit of $17,545,870 and $16,874,404 as of September 30, 2023 and June 30, 2023, respectively. In addition, the Company has experienced negative cash flows from operations since inception. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company anticipates additional equity financing to fund operations in the future. Should management fail to adequately address the issue, the Company may have to reduce its business activities or curtail its operations.
Liquidity and Capital Resources
| Three Months Ended September 30, 2023
|
| Three Months Ended September 30, 2022
|
Net Cash Used in Operating Activities
| $
| (102,690)
|
| $
| (189,116)
|
Net Cash Provided by Financing Activities
|
| 80,000
|
|
| 225,000
|
Net (Decrease) Increase in Cash
| $
| (22,690)
|
| $
| 35,884
|
Our cash balance was $34,929 on September 30, 2023. We recorded a net loss of $671,466 for the three months ended September 30, 2023. We expect our expenses will continue to increase during the foreseeable future as a result of increased operations and the development of our apps and business operations. We anticipate generating revenues with our B2BCHX app, but only minimal revenues for our other apps over the next twelve months. Consequently, we are dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and consolidated financial condition. There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate.
We presently do not have any significant credit available, bank financing or other external sources of liquidity. Due to our operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.
No assurance can be given that sources of financing will be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures or may be required to reduce the scope of our planned marketing efforts and development of our apps, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:
·Curtail the development of our apps,
·Seek strategic partnerships that may force us to relinquish significant rights to our apps, or
·Explore potential mergers or sales of significant assets of our Company.
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Operating Activities
During the three months ended September 30, 2023 and 2022, the Company used $102,690 and $189,116 in cash to fund our operating activities, respectively.
During the three months ended September 30, 2023, the cash used in operating activities was the result of net loss during the period and gain from change in fair value of derivative liabilities, partially offset by amortization of debt discount, interest expense, issuances of common stock for services, stock compensation expense and an increase in working capital accounts.
During the three months ended September 30, 2022, the cash used was primarily the result of net loss during the period and gain from change in fair value of derivative liabilities, partially offset by amortization of debt discount, interest expense, issuance of common stock for services, stock compensation expense and an increase in working capital accounts.
Financing Activities
Net cash provided by financing activities was $80,000 and $225,000 during the three months ended September 30, 2023 and 2022, respectively.
During the three months ended September 30, 2023, the Company received $80,000 of proceeds from the issuance of notes payable to shareholders.
During the three months ended September 30, 2022, the Company received $225,000 of proceeds from the issuance of notes payable to shareholders.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its financial statements and accompanying notes. Note 1, “Summary of Significant Accounting Policies,” of the Notes to Financial Statements included in this Form 10-Q, describes the significant accounting policies and methods used in the preparation of the Company’s financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s management has reviewed these critical accounting policies and related disclosures.
Revenue Recognition
The Company will recognize revenue from the sale of products and services in accordance with ASC 606, “Revenue from Contracts with Customers,” by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Stock Based Compensation
The Company accounts for share-based compensation in accordance with the fair value recognition provision of FASB ASC 718, Compensation – Stock Compensation (“ASC 718”), prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities,
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or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on the estimated grant date fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505, Equity–based Payments to Non-Employees (“ASC 505”). Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Derivative Liability
FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded on the consolidated balance sheet at fair value. As of September 30, 2023, we used the Black-Scholes-Merton (BSM) model to estimate the fair value of the conversion feature of the convertible note. Key assumptions of the BSM model include the market price of our stock, the conversion price of the debt, applicable volatility rates, risk-free interest rates and the instrument’s remaining term. These assumptions require significant management judgment. In addition, changes in any of these variables during a period can result in material changes in the fair value (and resultant gains or losses) of this derivative instrument.
Emerging Growth Company
We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Seasonality
We do not expect our sales to be impacted by seasonal demands for our products and services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were
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not effective as of September 30, 2023, due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.
Changes in Internal Control over Financial Reporting
Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS
*Pursuant to 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| APPLIFE DIGITAL SOLUTIONS, INC.
|
|
|
Dated: November 14, 2023
| /s/ Matt Reid
|
| Matt Reid,
|
| Principal Executive Officer,
|
| Principal Accounting Officer and Director
|
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