UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If 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).
As of February, 7, 2021, there were
APPLIFE DIGITAL SOLUTIONS, INC.*
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION |
1 |
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ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
1 |
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
13 |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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ITEM 4. CONTROLS AND PROCEDURES |
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PART II - OTHER INFORMATION |
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ITEM 1. LEGAL PROCEEDINGS. |
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ITEM 1A. RISK FACTORS. |
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES. |
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ITEM 4. MINE SAFETY DISCLOSURES. |
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ITEM 5. OTHER INFORMATION. |
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ITEM 6. EXHIBITS |
20 |
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of APPlife Digital Solutions, Inc. (the Company), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words may, will, should, expect, anticipate, estimate, believe, intend, or project or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
*Please note that throughout this Quarterly Report, except as otherwise indicated by the context, references in this report to Company, ALDS, we, us and our are references to APPlife Digital Solutions, Inc.
APPLIFE DIGITAL SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31, 2021 |
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June 30, 2021
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ASSETS |
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Current assets |
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Cash |
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$
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$
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Prepaid expenses |
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Inventories |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities |
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Accounts payable and accrued expenses |
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$
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$
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Common stock payable |
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Notes payable - current, net |
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Derivative liabilities |
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Due to officer |
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Total current liabilities |
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Notes payable - noncurrent, net |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ deficit |
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Common stock, $
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Additional paid-in capital |
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Accumulated (deficit) |
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(
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(
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Total stockholders’ deficit |
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(
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(
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Total liabilities and stockholders’ deficit |
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$
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$
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
APPLIFE DIGITAL SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended December 31, |
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Six Months Ended December 31, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue |
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$
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$
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$
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Cost of goods sold |
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(
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(
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(
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(
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Gross profit |
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Operating expenses |
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Total operating expenses |
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Loss from operations |
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(
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(
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(
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(
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Other income (expense) |
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Interest expense |
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(
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(
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(
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(
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Loss on extension of notes payable |
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(
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(
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Gain on settlement of debt |
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Change in fair value of Common Stock |
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(
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(
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Change in fair value of derivative liability |
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Net loss before provision for income taxes |
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(
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(
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(
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(
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Provision for income taxes |
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Net loss |
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(
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(
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(
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(
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Basic and diluted loss per share |
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(
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$
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(
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$
(
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Average number of common shares outstanding -
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
APPLIFE DIGITAL SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
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Common Stock |
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Additional |
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Accumulated |
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Shares |
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Amount |
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Paid-In Capital |
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Deficit |
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Total |
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Balance, September 30, 2020 |
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$
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$
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$
(
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$
(
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Common stock issued for cash |
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Stock compensation |
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Common stock issued for services |
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Shares issued for prepayment penalty |
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Payment of notes payable with issuance of common stock |
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Loss on extension of notes payable |
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Eliminate derivative liability upon repayment of debt |
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Equity component of issuance of convertible notes |
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Net loss |
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(
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(
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Balance, December 31, 2020 |
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$
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$
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$
(
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$
(
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Balance, June 30, 2020 |
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$
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$
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$
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$
(
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Common stock issued for cash |
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Stock compensation |
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Common stock issued for services |
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Issuance of common stock payable |
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Shares issued for prepayment penalty |
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Payment of notes payable with issuance of common stock |
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Loss on extension of notes payable |
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Eliminate derivative liability upon repayment of debt |
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Equity component of issuance of convertible notes |
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Net loss |
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(
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(
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Balance, December 31, 2020 |
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$
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$
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$
(
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$
(
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Common Stock |
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Additional |
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Accumulated |
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Shares |
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Amount |
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Paid-In Capital |
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Deficit |
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Total |
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Balance, September 30, 2021 |
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$
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$
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$
(
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$
(
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Stock compensation |
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Common stock issued for services |
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Net loss |
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(
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(
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Balance, December 31, 2021 |
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$
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$
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$
(
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$
(
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Balance, June 30, 2021 |
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$
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$
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$
(
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$
(
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Common stock issued for cash |
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Stock compensation |
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Common stock issued for services |
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Net loss |
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(
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(
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Balance, December 31, 2021 |
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$
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$
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$
(
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$
(
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The accompanying notes are an integral part of these consolidated financial statements
3
APPLIFE DIGITAL SOLUTIONS, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
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Six Months Ended
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2021 |
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2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$
(
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$
(
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Adjustment to reconcile change in net loss to net cash used in operating activities: |
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Amortization |
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Issuance of common stock for services |
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Shares issued for prepayment penalty |
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Loss on extension of notes payable |
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Stock compensation expense |
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Change in fair value of derivative liability |
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(
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(
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Gain on settlement of debt |
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(
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Changes in operating assets and liabilities: |
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Accounts Receivable |
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Prepaid expenses and other current assets |
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Inventories |
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(
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(
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Common stock payable |
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Accounts payable and accrued expenses |
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Net cash (used) in operating activities |
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(
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(
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from notes payable |
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Proceeds from issuance of common stock |
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Payment on notes payable |
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(
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(
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Payment on amounts due to officer |
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(
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Net cash provided from financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$
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$
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$
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$
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Cash paid for taxes |
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$
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$
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Non-cash investing and financing activities: |
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Eliminate derivative liability upon repayment of debt |
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$
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$
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Issuance of common stock payable |
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$
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$
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Equity component of issuance of convertible notes |
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$
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$
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Payment of notes payable with issuance of common stock |
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$
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$
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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 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. 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 current pandemic known as COVID-19 as described in Note 5, creates additional uncertainty.
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, 2021, as filed with the SEC on September 25, 2020. Operating results for the six months ended December 31, 2021 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the fiscal year ending June 30, 2022.
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 December 31, 2021. 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.
6
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 stock options and warrants granted, convertible debt, and convertible preferred stock. There were no potentially dilutive securities for the period ended December 31, 2021 and year ended June 30, 2021.
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 December 31, 2021, 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 December 31, 2021, the Company had inventories of approximately $61,644. The Company has no allowance for inventory reserves.
7
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material on the Company’s financial statements and financial statement disclosures.
Note 2 – Notes Payable
In March 2018, the Company issued notes that carry an
On July 3, 2019, the Company issued a $
On November 22, 2019, Company issued a $
On July 14, 2020 and October 21, 2020, the Company sold convertible notes bearing
On January 12, 2021, the Company sold convertible notes bearing
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Amount |
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Balance of notes payable, net of discount on June 30, 2021 |
$ |
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Amortization of debt discount |
|
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|
|
Payments on notes payable |
|
|
(
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Gain on settlement of note payable less accrued interest |
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(
|
|
Balance of notes payable, net of discount as of December 31, 2021 |
$ |
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|
8
Note 3 – Related Party Transactions
Due to Officer
During the year ending June 30, 2018, the Company received advances from its officer to pay for certain operating expenses. On December 29, 2021, the officer was paid back $5,000, leaving remaining balance due to the officer on December 31, 2021 of $
Note 4 – Concentrations
Cash Concentration
The Company maintains its cash and cash equivalents at a financial institution which may, at times, exceed federally insured limits. As of December 31, 2021, the Company’s cash balance exceeded the FDIC insurance limit by $
Note 5 – Commitments and Contingencies
Agreements
On April 4, 2018, the Company entered into an agreement with GHS, where the Company is entitled, at its sole discretion, to request
On April 22, 2020, the Company, entered into a letter agreement with Maxim Group, LLC (“Maxim”) for Maxim to provide general financial advisory, investment banking, and digital marketing services for the Company. The fees paid to Maxim in exchange for the services under the agreement are a combination of cash and common stock. On May 7, 2020, the Company issued 2,250,000 shares of common stock to Maxim.
On July 21, 2020, the Company, entered into a letter agreement (the “Agreement”) with Carter, Terry Company (“CTCo”) for CTCo to act as the Company’s exclusive financial advisor and placement agent, on a best efforts basis. Under the terms of the Agreement, CTCo will be the Company’s exclusive financial advisor for an initial period of thirty (30) days and then reverting to a non-exclusive financial advisor for the next twelve (12) months, with an option to extend for an additional six (6) months. Both the Company and CTCo may cancel the Agreement at any time upon written notice to the other party. Within five (5) days of execution of the Agreement, the Company shall issue 500,000 shares of its restricted common stock to CTCo. As additional consideration, the Company shall pay CTCo a success fee of ten percent (10%) of the amount of any equity or hybrid equity capital raised up to $1,000,000, eight percent (8%) of the amount of any equity or hybrid equity capital raised up to $5,000,000, and six percent (6%) of the amount of any equity or hybrid equity capital raised over $5,000,000. In connection with the compensation set forth above, the Company shall also issue to CTCo restricted shares of its common stock equal to four percent (4%) of the capital raised divided by the last reported closing price of the Company’s common stock on the date of the close.
Common Stock Payable
As of December, 31, 2021, and June 30, 2021, the Company owes $
Other Risks
On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares. While we did not incur significant disruptions from the COVID-19 pandemic during the six months ended December 31, 2021, this situation could have an impact on our future business and results of operations in 2022 that may be material but cannot be reasonably estimated at this time due to numerous uncertainties.
Note 6 – Stockholders’ Deficit
As of December 31, 2021, and June 30, 2021, there were
9
On July 6, 2021, the Company entered into multiple subscription agreements with investors and issued
Common stock issued for services and stock options
During the six months ended December 31, 2021, the Company issued
For the six months ended December 31, 2021 and 2020, the Company recognized stock compensation expense on outstanding restricted stock awards of $
During six months ended December 31, 2021, the Company granted
|
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Options |
|
Weighted Average Exercise Price per Share |
|
Weighted Average Remaining Life (Years) |
|||||||
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Outstanding – June 30, 2021 |
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$ |
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- |
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Granted |
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Forfeited |
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- |
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Exercised |
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- |
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Outstanding – December 31, 2021 |
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$ |
|
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|
The Company recognized $105,689 of expense in connection with the options and valued with Black Scholes using the following inputs:
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Six Months Ended
|
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||
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Stock price |
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$ |
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Exercise price |
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$ |
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Expected term (in years) |
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Volatility (annual) |
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Risk-free rate |
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Note 7 – 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 issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and 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 six months ended December 31, 2021 is as follows:
10
|
|
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Six Months Ended
|
|
|
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Stock price |
|
$ |
|
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Exercise price |
|
$ |
|
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Contractual term (in years) |
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Volatility (annual) |
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% |
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Risk-free rate |
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% |
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 December 31, 2021 |
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Quoted prices in |
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Significant other |
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Significant |
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||||
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active markets |
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observable inputs |
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unobservable inputs |
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Fair value at |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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December 31, 2021 |
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Derivative liability |
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$ |
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$ |
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$ |
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$ |
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Total |
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$ |
- |
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$ |
- |
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$ |
4,053 |
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$ |
4,053 |
|
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Fair Value measured at June 30, 2021 |
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Quoted prices in |
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Significant other |
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Significant |
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active markets |
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observable inputs |
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unobservable inputs |
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Fair value at |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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June 30, 2021 |
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Derivative liability |
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$ |
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$ |
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$ |
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$ |
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Total |
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$ |
- |
|
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$ |
- |
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$ |
28,576 |
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$ |
28,576 |
|
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:
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● |
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets; |
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● |
Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and |
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● |
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 period ended December 31, 2021.
During the six months ended December 31, 2021 and 2020, the Company recorded loss of $24,523 and $2,512, respectively, from the change in fair value of derivative liability.
11
The following table presents changes in Level 3 liabilities measured at fair value for the period ended December 31, 2021:
|
|
Derivative Liability |
|
|
Balance – June 30, 2021 |
$ |
|
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Changes due to redemptions |
|
– |
|
Change in fair value of derivative liability |
|
(
|
|
Balance – December 31, 2021 |
$ |
|
The balance of the derivative liability at December 31, 2021 and June 30, 2021 was $4,053 and $28,576, respectively.
Note 8 – Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that on January 4, 2022, Company issued 1,898,023 shares of common stock at $0.0290 for an aggregate amount of $55,043 to two of its consulting companies in exchange of services.
On February 4, 2022, the Company issued a convertible promissory note to an investor in the amount of $350,000 with an interest rate of 12% per annum. The note consists of three tranches in the amount of: i) $100,000 to be issued on or before March 30, 2022; ii) $100,000 to be issued on or before May 5, 2022; and iii) $150,000 to be issued on or before June 30, 2022. The notes mature 18 months after each respective issuance. As of the date of this fling, no tranches have been issued.
12
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. 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 and an initial investment in Global Hemp Service The capital we raise will go into marketing, acquisitions and revenue generation. 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 OfficeHop, B2BCHX, ROOSTER ESSENTIALS ecommerce and cloud based business over the next year, work to add partnerships like the Global Hemp Service LLC and to add additional in-house developed projects including LollipopNFT in the third quarter of 2022 and DRINX starting in 2023. We plan to engage multiple resources such as adding staff, create partnerships, and as capital becomes available, to market and grow revenue for B2BCHX, OFFICE HOP, and ROOSTER ESSENTIALS.
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.
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.
13
ROOSTER ESSENTIALS ecommerce website, mobile website, has been developed and launched BETA operations in the third quarter of fiscal year 2020 and launched its full commercial operations in the 2 nd quarter of 2021. 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 currently carries over 200 products from over 80 brands. We anticipate the sources of revenue will come from purchases averaging $500 per user, per year and advertising and sponsorships. Men’s grooming products are the fastest growing segment of Health and Beauty. Currently a $26 Billion dollar market is forecasted to reach $100 billion by 2024.
OFFICE HOP entered beta testing in the fourth quarter of 2021 and is now fully functional and began commercial operations in January 2022. 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 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 be an online marketplace, consignment store, creator platform, and wallet for non-fungible tokens and is being developed for use by individuals of all levels, from beginners to experts. We have completed the design and preliminary development phase of this project. We expect to launch the platform in our third quarter of 2022. Users do not need have a superior technology background or a high-level understanding of non-fungible tokens to enjoy and profit from creating and selling NFT’s.
Our DRINX project is in early stage of development, and we believe the beta version will be ready in the fiscal year 2023. The Drinx project anticipated launch date has been postponed to facilitate the development of the Lollipop NFT platform. 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 December 31, 2021 and December 31, 2020
Revenue
For the three months ended December 31, 2021 and 2020, we generated revenue of $1,031 and $1,674, 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 December 31, 2021 and 2020 we had operating losses of $625,539 and $784,261, respectively. This loss was due primarily to the stock compensation and professional fees paid to consultants.
Other Income (Expense)
For the three months ended December 31, 2021 and 2020, we incurred $90,455 and $222,613 of other expenses, respectively. Other expenses during December 31,2021, were primarily due to interest expense on notes payable. We recorded change in fair value of derivative liability for the three months ended December 31, 2021 and 2020 of $6,136 and $8,846. Similarly, for the three months ended December 31, 2021,we incurred loss of $11,283 due to change in fair value of common stock and for the three months ended December 31, 2020, we had $30,532 of loss due to extension of debt.
14
Net loss
We reported a net loss of $715,994 and $1,006,874 for the three months ended December 31, 2021 and 2020, respectively.
Results of Operations for Six Months Ended December 31, 2021 and December 31, 2020
Revenue
For the six months ended December 30, 2021 and 2020, we generated revenue of $1,871 and $2,306, 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 six months ended December 31, 2021 and 2020 we had operating losses of $1,523,156 and $1,655,829, respectively. This loss was due primarily to the stock compensation and professional fees paid to consultants.
Other Income (Expense)
For the six months ended December 31, 2021 and 2020, we incurred $112,436 and $412,509 of other expenses, respectively, which was primarily due to interest expense on notes payable and a gain of $48,619 due to settlement of debt. We recorded change in fair value of derivative liability for the six months ended December 31, 2021 and 2020 of $24,523 and $2,512. Similarly, for the six months ended December 31, 2021, loss of $11,283 was recorded due to change in fair value of common stock and for the six months ended December 31, 2020, we had recorded $41,214 of loss due to extension of debt.
Net loss
We reported a net loss of $1,635,592 and $2,068,338 for the six months ended December 31, 2021 and 2020, respectively.
Working Capital
|
|
|
December 31, 2021 |
|
Current assets |
$ |
331,692 |
|
Current liabilities |
|
1,753,236 |
|
Working capital |
$ |
(1,421,544) |
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.
15
Going Concern
As reflected in the accompanying financial statements, the Company has minimal revenue generating operations and has an accumulated deficit $11,472,323 and $9,836,731 as of December 31, 2021 and June 30, 2021, 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. There can be no assurance that any additional financings, would be available to the company unsatisfactory terms and conditions if at all. The current pandemic known as COVID-19 as described in Note 5, creates additional uncertainty. The 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 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.
Liquidity and Capital Resources
|
|
|
Six Months Ended December 31, 2021 |
|
Six Months Ended December 31, 2020 |
|
Net Cash Used in Operating Activities |
$ |
(459,666) |
$ |
(424,693) |
|
Net Cash Used in Investing Activities |
|
— |
|
— |
|
Net Cash Provided by Financing Activities |
|
475,000 |
|
623,000 |
|
Net Increase in Cash |
$ |
15,334 |
$ |
198,307 |
Our cash balance was $265,407 on December 31, 2021. We recorded a net loss of $1,635,592 for the six months ended December 31, 2021. 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.
16
Operating Activities
During the six months ended December 30, 2021 and 2020, the Company used $459,666 and $424,693 in cash to fund our operating activities, respectively. The cash used in operating activities in 2021 is the result of net loss during the period offset primarily by amortization of debt discount, stock compensation expense and an increase in working capital accounts. The Company also recorded gain on settlement of debt and related accrued expense.
During the six months ended December 31, 2020, the cash used was primarily the result of stock compensation, issuance of common stock for services, issuance of common stock to employees and changes in working capital accounts.
Financing Activities
Net cash provided by financing activities was $475,000 and $623,000 during the six months ended December 31, 2021 and 2020, respectively. The increase in financing activities is primarily from the proceeds of issuance of common stock of $520,000 offset by decrease in payment on notes payable of $40,000.
During December 31, 2020, the Company received $688,000 from the proceeds received from issuance of notes payable offset by payment on notes payable of $185,000.
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.
17
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.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of Topic 326 is not expected to have a material on the Company’s financial statements and financial statement disclosures.
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 not effective as of December 31, 2021, 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.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
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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.
On October 19, 2021, the Company granted its consultant 4,000,000 shares of common stock, priced at $0.037 per share, for an aggregate purchase price of $148,000.
On October 19, 2021, the Company granted its marketing company 403,226 shares of common stock, priced at $0.037 per share, for an aggregate purchase price of $15,000.
On October 19, 2021, the Company granted its marketing company 403,226 shares of common stock, priced at $0.037 per share, for an aggregate purchase price of $15,000.
On October 19, 2021, as per the agreement, the Company granted its consultant 672,043 shares of common stock, priced at $0.037 per share, for an aggregate purchase price of $25,000.
On January 4, 2022, as per the agreement, the Company granted its consultant 1,190,476 shares of common stock, priced at $0.0290 per share, for an aggregate purchase price of $34,524.
On January 4, 2022, as per the agreement, the Company granted its consultant 707,547 shares of common stock, priced at $0.0290 per share, for an aggregate purchase price of $20,519.
The above referenced shares were issued in reliance on an exemption from registration under the Securities Act of 1933 set forth in Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder as the transaction did not involve a public offering and there was no general solicitation.
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
|
Exhibit Number |
Description of Exhibit |
Filing |
|
31. 1 |
Certification of Principal Executive Officer Pursuant to Rule 13a-14 |
Filed herewith. |
|
31. 2 |
Certification of Principal Financial Officer Pursuant to Rule 13a-14 |
Filed herewith. |
|
32. 1 |
CEO and CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act |
Filed herewith. |
|
101.INS* |
XBRL Instance Document |
Filed herewith. |
|
101.SCH* |
XBRL Taxonomy Extension Schema Document |
Filed herewith. |
|
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document |
Filed herewith. |
|
101.LAB* |
XBRL Taxonomy Extension Labels Linkbase Document |
Filed herewith. |
|
101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase Document |
Filed herewith. |
|
101.DEF* |
XBRL Taxonomy Extension Definition Linkbase Document |
Filed herewith. |
* 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.
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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.
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|
APPLIFE DIGITAL SOLUTIONS, INC. |
|
|
Dated: February 8, 2021 |
/s/ Matt Reid |
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|
Matt Reid, Principal Executive Officer, Principal Accounting Officer and Director |
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