UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) For the quarterly period ended or For the transition period from Commission AppTech Payments Corp. (Exact name of registrant as specified in its charter) 5876 Owens Ave.Suite 100 Carlsbad, California92008 (Address of Principal Executive Offices & Zip Code) (760)707-5959 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: None 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. Yesx 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the As of August 4, 2022, the registrant had shares AppTech Payments Corp. Form 10-Q Table of Contents SPECIAL NOTE Various statements All written and We encourage you to read the discussion and analysis of our financial condition and our financial statements contained in this Quarterly Report on Form 10-Q. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements Unless the context otherwise requires, throughout this Quarterly Report on Form 10-Q, the words “AppTech” “we,” “us,” the “registrant” or the “Company” refer to 3 PART I – FINANCIAL INFORMATION Item 1. Financial Statements APPTECH PAYMENTS CORP. CONSOLIDATED FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS (The financial statements have been condensed for presentation purposes) 4 APPTECH PAYMENTS CORP. CONSOLIDATED BALANCE SHEETS JUNE 30, 2022 AND DECEMBER 31, 2021 (UNAUDITED) (in thousands, except per share data) See accompanying notes to the financial statements. 5 APPTECH PAYMENTS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED) (in thousands, except per share data) See accompanying notes to the financial statements. 6 APPTECH PAYMENTS CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED) (in thousands, except per share data) See accompanying notes to the financial statements. 7 APPTECH PAYMENTS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED) (in thousands, except per share data) See accompanying notes to the financial statements. 8 APPTECH PAYMENTS CORP. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (In thousands, except per share data) NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS AppTech Payments Corp. is a Fintech Company headquartered in Carlsbad, California. AppTech utilizes innovative payment processing and digital banking technologies to complement its core merchant services capabilities. The Company’s patented and proprietary software will provide progressive and adaptable products that are available through a suite of synergistic offerings directly to merchants, banking institutions, and business enterprises. AppTech is developing an embedded, highly secure digital payments and banking platform that powers commerce experiences for clients and their customers. Based upon industry standards for payment and banking protocols, we will offer standalone products and fully integrated solutions that deliver innovative, unparalleled payments, banking, and financial services experiences. Our processing technologies can be taken off-the-shelf or tapped into via our RESTful APIs to build fully branded and customizable experiences while supporting tokenized, multi-channel, and multi-method transactions. In 2013, AppTech merged with Transcendent One, Inc., whereby Transcendent One, Inc. and its management took controlling ownership of the Company. During this time, AppTech operated as a merchant services provider, continuing the business conducted by Transcendent One, Inc. In 2017, the Company acquired assets from GlobalTel Media, Inc. The assets included patented, enterprise-grade software for advanced text messaging. In addition to the software, this acquisition included associated databases, four patents in text technology, and additional intellectual property for mobile payments. In 2020, AppTech entered into a strategic partnership with Infinios (formerly “NEC Payments”), to extend its product offering to include flexible, scalable, and secure payment acceptance and issuer payment processing that supports the digitization of business and consumer financial services and the migration of cash and other legacy payment types to contactless card and real time payment transactions. In 2021, the Company announced its intent to launch an innovative and patented mobile text payment solution in addition to a suite of digital banking and payment acceptance products designed in the Business-to-Business (“B2B”) and Business-to-Consumer (“B2C”) payment and software space. On December 23, 2021, AppTech Payments Corp. (“AppTech” or The Company successfully completed its capital raise and uplisting onto NASDAQ (herein referred to as its “Offering”) on January 7, 2022. As part of the Offering, the Company executed a 9.5 to 1 reverse split of its common stock. In addition, the Offering sold units of our common stock (a unit consisting of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. In addition, 542,168 warrants were granted by EF Hutton and the Offering warrants of 3,614,458, all having a 5 five-year expiration and an exercise price of $5.19. The Offering provided net proceeds of approximately $13.4 million. All shares and share prices within this 10-Q have been adjusted to reflect the stock split. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated unaudited financial statements have been prepared in 9 The Basis of Consolidation The consolidated financial statements include the accounts of AppTech Payments Corp., its wholly owned subsidiary of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimated liabilities related to various vendors in which communications have ceased, contingent liabilities, and realization of tax deferred tax assets. Actual results could differ from those estimates. Concentration of Credit Risk Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250 thousand per institution that pays Federal Deposit Insurance Corporation (“FDIC”) insurance premiums. The Company has never experienced any losses related to these The accounts receivable from merchant services are paid by the financial institutions on a monthly basis. The Company currently uses seven financial institutions to service their merchants for which represented 100% of accounts receivable as of June 30, 2022. The loss of one of these financial institutions would not have a significant impact on the Company’s operations as there are additional financial institutions available to the Company. For the six months ended June 30, 2022 and 2021, the one merchant (customer) represented approximately 8% and 40%of the total revenues, respectively. The loss of this customer would not have significant impact on the Company’s operations. Software Development Costs The Company capitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred. Fair Value Measurements The Company follows FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) to measure and disclose 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: 10 Financial 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 financial statements for cash, accounts payable and accrued expenses approximate their fair value because of the immediate or short-term maturity of these financial instruments. Transactions involving related parties cannot be presumed to be carried out on an arms-length basis, as the requisite conditions of competitive, free-marketing dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. The following table presents liabilities that are measured and recognized at fair value as of June 30, 2022 and December 31, 2021 on recurring basis (in thousands): See Note 6 for discussion of valuation and roll forward related to derivative liabilities. Intangible Assets and Patents Our intangible assets only consist of patents. We amortize the patents on a straight-line basis over 15 years, which approximates the way the economic benefits of the intangible asset will be consumed. Research and Development In accordance with ASC 730, Research and Development (“R&D”) costs are expensed when incurred. R&D costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and other outside services. Total R&D costs for the six months ended June 30, 2022 and 2021 were $4.9 million and $0, respectively. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, increased by the potentially dilutive common shares that were outstanding during the year. Dilutive securities include stock options, warrants granted, convertible debt and convertible preferred stock. 11 The number of common stock equivalents not included in diluted income per share was and for the six months ended June 30, 2022 and 2021, respectively. The weighted average number of common stock equivalents is not included in diluted income (loss) per share, because the effects are anti-dilutive. Derivative Liability The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable anti-dilution provisions. The conversion terms of the convertible notes and warrants 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 option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and at each reporting period. New Accounting Pronouncements The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company. Risks and Uncertainties On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Since the Company derives its revenues from processing of purchases from our merchant services clients, a downturn in economic activity, such as associated with the current coronavirus pandemic, could reduce the volume of purchases it processes, and thus its revenues. In addition, such a downturn could cause its merchant customers to cease operations permanently decreasing our payment processing unless new customers are found. The continuing effects of the potential impact cannot be estimated at this time. NOTE 3 – PATENTS Patents On June 22, 2017, AppTech executed an Amendment to Asset Purchase Agreement with GlobalTel Media, Inc., the details of which were previously disclosed by AppTech. The referenced agreement acquired intellectual property assets including but not limited to USPTO 8,073,895 & 8,572,166 “System and Method for Delivering Web Content to a Mobile Device”, USPTO 8,315,184 “Computer to Mobile Two-Way Chat System and Method”, and USPTO 8,369,828 “Mobile-to-Mobile Payment System and Method”. AppTech intends to use these assets as an integral part of future business expansion and product development. As of June 30, 2022 and December 31, 2021, there were zero dollars in accounts payable related to the assumption of liabilities in connection with the patents. 12 In April 2022, the Company fully executed a Definitive Agreement to acquire HotHand Inc. (“HotHand”), a patent-holding company. HotHand did not have any operations, so the transaction was an asset acquisition of its portfolio of thirteen patents including USPTO 7,693,752; USPTO 8,554,632; USPTO 8,799,102; USPTO 9,436,956; USPTO 10,102,556; USPTO 10,127,592; USPTO 10,600,094; USPTO 10,621,639; USPTO 10,846,726; USPTO 10,846,727; USPTO 10,909,593; USPTO 11,107,140; USPTO 11,345,715. These patents are focused on the delivery, purchase, or request of any products or services within specific geolocation and time parameters, provided by a consumer’s cell phone anywhere in the United States. Additionally, HotHand’s family of patents includes a patent that protects advertising on a store’s mobile application when the cell phone is in the store and the ads shown are being triggered by geolocation tagging. AppTech is currently integrating the HotHand Intellectual Property (“IP”) into an elite digital platform. In addition to offering an embedded, highly secure, and patent-backed product, AppTech will offer licensing agreements for its IP. The Company anticipates generating revenues from the HotHand IP near the end of the first quarter of 2023. HotHand was acquired for 225,000 shares of common stock and was recorded as an intangible asset based on the fair market value of the common stock on the date of acquisition (April 18, 2022). The Company expects to amortize the asset over fifteen years. Further, the purchase agreement outlines revenue milestones that may trigger $500 thousand payables to HotHand’s former owners. As of August 4, 2022, the shares have not been issued. See Note 8 for more information on capitalized prepaid software development and license. NOTE 4 – ACCRUED LIABILITIES Accrued liabilities as of June 30, 2022 and December 31, 2021 consist of the following (in thousands): Accrued Interest Notes payable and convertible notes payable incur interest at rates between 10% and 24%, per annum. Accrued Residuals The Company pays commissions to independent agents which refer merchant accounts. The amounts payable to these independent agents is based upon a percentage of the amounts processed on a monthly basis by these merchant accounts. Anti-dilution provision The agreement between the Company and Infinios, formerly NEC Payments B.S.C., has an anti-dilution provision. To remain in compliance, the Further, in connection with the shares to be issued as part of the HotHand acquisition, and to be in 13 NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE The Company funded operations through cash flows generated from operations and the Subordinated Notes Payable In 2016, the Company issued $350 thousand in subordinated notes payable to third parties that incurred interest at 10% per annum. On Convertible Notes Payable In 2020, the Company entered into a In the event of a default of the Note, the Holder, in its sole discretion may elect to use a conversion price equal to the The embedded conversion feature of this Note As of June 30, 2022, the convertible note payable discount is $0. See Note 6– Derivative Liabilities. In 2015, the Company issued $50 thousand in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $9.50 per share. The Company amended the convertible note on March In 2014, the Company 14 Notes Payable In 2020, the Company entered into a 30-year unsecured note payable with U.S. Small Business Administration for $68 thousand in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principal and interest are Two significant shareholders funded the Company’s operations through notes payable in primarily 2009 and 2010. The notes payable incur interest at 10% per annum and were due on December 31, 2016. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with a significant shareholder. The parties agreed to reduce the outstanding accrued interest in the amount of $275 thousand. On September 29, 2021, the Company converted notes issued for $51 thousand of principal and accrued interest into 5,329 shares of the Company’s common stock. On September 29, 2021, the Company entered into a forbearance agreement which granted the holder 3,140 shares with a current fair market value of $35 thousand in exchange for not enforcing the terms of the agreement for a period of twelve months. On February 4, 2022 and June 29, 2022, the Company entered into an amended forbearance agreement. The parties agreed to reduce the outstanding accrued interest in the amount of $150 thousand along with a $100 thousand payment of accrued interest. As of June 30, 2022, and December 31, 2021, the aggregate balance of the notes payable was $597 thousand and accrued interest was $133 thousand and $383 thousand, respectively. In Q3 of 2021, the Company converted notes issued for $503 thousand into 52,942 shares of the Company’s common stock. Also, the Company entered into a forbearance agreement which granted the holders 2,760 shares of the Company’s common stock with a current fair market value of $120 thousand in exchange for not enforcing the terms of the agreement for a period of twelve months. NOTE 6–DERIVATIVE LIABILITIES The Company issued debts that consist of the issuance of convertible notes with variable conversion provisions. In addition, the Company issued warrants with variable conversion provisions. The conversion terms of the convertible notes and warrants are variable based on certain factors, such as the Based on the convertible notes described in Note 6, the derivative liability day one loss is $390 thousand and the change in fair value at June 30, 2022 and December 31, 2021 is $173 thousand and ($26 thousand), respectively. The fair value of applicable derivative liabilities on notes, warrants and change in fair value of derivative liability are as follows for the six months ended June 30, 2022 (in thousands). 15 As of June 30, 2022, the fair value of the derivative liability convertible notes is estimated using a Monte Carlo pricing model with the following assumptions: As of June 30, 2022, the fair value of the derivative liability – warrants is estimated using a Monte Carlo pricing model with the following assumptions: NOTE 7–RIGHT OF USE ASSET Lease Agreement In January 2020, the Company entered into a lease agreement commencing February 8, 2020 for its current facility which expires in 2025. The term of the lease is for five years. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 12% within the calculation. The following are the expected lease payments as of June 30, 2022, including the total amount of related imputed interest (in thousands): Years ended December 31: The rent expense was $31 thousand and $31 thousand for the six months ended June 30, 2022 and 2021, respectively. NOTE 8 - COMMITMENTS AND CONTINGENCIES Litigation Former Shareholders Lawsuit In November 2017, two shareholders of AppTech, Laura Farris and Eric Ottens, filed a lawsuit against the Company in the State of California, claiming conversion, aiding and abetting conversion, breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and declaratory relief. The lawsuit was removed to the United States District Court for the Southern District of California. On December 19, 2019, the Company entered into a settlement and release agreement with the plaintiffs. On January 24, 2021, the parties entered a stipulation modifying the repayment schedule of the settlement which altered the timing of payments over the three-year repayment period. The final payment was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company. 16 Other Resolved Lawsuit In July 2020, Flowpay Corporation, a Delaware corporation (“Flowpay”), and R. Wayne Steiger, the President of Flowpay, having a non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the County of San Diego, State of California. The claims included breach of contract, intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Management believes the non-binding MOU terminated after no definite agreement was executed between the parties, and negotiations ceased December 20, 2016. On May 19, 2022, AppTech entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Flowpay and Mr. Steiger. Under the terms of the Settlement Agreement, Flowpay and Mr. Steiger dismissed with prejudice all claims against the Company, its Chief Executive Officer, a Director and a third party individual. Convertible Note and Warrant Lawsuit On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the Southern District of New York against the Company. In its complaint, EMAF alleged that the Company breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess of $2.75 million, reimbursement of costs and expenses, including reasonable legal fees, and non-interference. We believe EMAF’s claims are meritless and intend to vigorously defend against this lawsuit. Significant Contracts Capital Raise In February 2021, the Company entered into an engagement letter with Maxim Group LLC (“Maxim”) as the lead management underwriter for a On October 18, 2021, the Company entered into an engagement letter with EF Hutton, division of Benchmark Investments, LLC. (“EF Hutton”) to act as lead underwriter, deal manager and investment banker for the Company’s proposed firm commitment follow-on public offering and uplisting. This engaged EF Hutton through the earlier of (i) Silver Alert Services, LLC In August 2020, the Company entered into a strategic partnership with Silver Alert Services, LLC doing business as Lifelight Systems (“Lifelight”). The partnership would expand AppTech’s reach into new markets and provide advanced technological solutions for the telehealth and personal emergency response systems markets. The strategic partnership was cancelled on February 17, 2022. Infinios Financial Services (formerly NEC Payments B.S.C.) On October 1, 2020, the Company entered into a strategic partnership with Infinios Financial Services BSC (formally NEC Payments B.S.C) (“Infinios”) through a series of On February 11, 2021, the Company entered into an amended and restated Subscription License and Services Agreement, Digital Banking Platform Operating Agreement and Subscription License Order Form with Infinios (collectively the “Restated Agreements”). The gross total fees due under the Restated Agreements are $2.2 million excluding pass-through costs associated with infrastructure hosting fees. 17 On February 19, 2021, the Company completed and validated its contractual obligations and paid to Infinios the $100 thousand engagement fee. On February 28, 2021, the Company paid the initial fee of $708 thousand to Infinios prior to the Funding Date. On March 25, 2021, the Company issued 1,895,948 shares of common stock to an Infinios affiliate on a fully diluted basis with piggyback rights. The Company valued the common stock issuance at $67.5 million based upon the closing market price on the effective date of the transaction based on the closing market price of the Company’s common stock. The issuance was recorded as a $3.8 million asset and $63.8 million expense in excess fair value of equity issuance over assets received. The capitalized asset was classified as capitalized prepaid software development of $2.8 million and capitalized licensing of $1.0 million. The estimated amortization is a 5-years life based on the term of the licensing agreement. The amortization is set to begin once the platform begins processing transactions (in thousand). As of June 30, 2022, the following fees were paid (in thousands): The annual maintenance subscription fee of $113 thousand will be due annually beginning in the month of the platform launch. In addition, the infrastructure support fee of $72 thousand will be due annually beginning in 2022 and ending in 2026. Innovations Realized LLC On October 2, 2020, the Company entered into an independent contractor services agreement with Innovations Realized, LLC (“IR”) to develop a strategic operating plan focused on the design, execution and go-to-market implementation of the Infinios platform to enter the United States market. Under the agreement, the Company granted options to purchase 42,105 shares at a price of $0.095 and 263,157 shares at $2.375 and exercisable for two years after vesting. These options vest in equal monthly installments over 24 months. These options had a grant date fair value of $1.4 million and $8.7 million using a Black Scholes pricing model. The estimated amortization is a 5-year life based on the term of the licensing agreement. On February 18, 2021, the Company entered into an amended independent contractor services agreement for $760 thousand with IR. The final payment owed to IR of $171 thousand was paid in January 2022. Investor Relations On January 2, 2022, the Company entered into an agreement with an investor relations firm (“IR Firm”) that compensated IR Firm $50 thousand and 100,000 shares upon the successful uplisting onto NASDAQ. In addition, on January 31, 2022, the Company entered into a consulting agreement with IR Firm. The Company agreed to a six-month commitment with IR Firm that pays $5 thousand per month, grants IR Firm a stock purchase agreement to buy 45,000 shares of the Company stock at $0.001 per share and grants a monthly budget of approximately $100 thousand (with monthly automatic renewals unless the agreement were canceled in writing). In return, IR Firm agrees to provide investor relations outreach, public relations, advisory and consulting services, to AppTech. Payment for the two agreements was made in February 2022. On May 31st, 2022, the Company entered into a six months agreement with another investor relations firm. The firm received 100,000 shares of AppTech’s common stock valued at the closing price on May 31st, 2022, in return for providing marketing and investor relation services. 18 NOTE 9 – STOCKHOLDERS’ DEFICIT Common Stock During the six months ended June 30, 2022 and 2021, the Company issued and , respectively, shares of common stock to several consultants in connection with business development and professional services. The Company valued the common stock issuances at $566 thousand and $491 thousand, respectively, based upon the closing market price of the Company’s common stock on the date in which the performance was complete or issued based upon the vesting schedule and the During the six months ended June 30, 2022 and 2021, the Company granted and shares of common stock to the board of directors valued at $152thousand and $197 thousand, respectively. The shares vest quarterly over the period of approximately one year. During the six months ended June 30, 2022, the Company issued shares of common stock to HotHand according to the Merger Agreement. See Note 8 – Significant Contracts for additional common stock issuance. Stock Options During the year ended December 31, 2021: The fair value of the options for the year ended December 31, 2021 is estimated using a Black-Scholes option pricing model with the During the six months ended June 30, 2022: options to purchase shares of common stock at a weighted average price of $ were granted as compensation to employees. The options vest in equal monthly installments ranging from instantly to 24 months. The options were valued at $992 thousand using a Black-Scholes options pricing model. options to purchase shares of common stock at a weighted average price of $ were granted as compensation for various services including engineering, accounting, and sales. The options were valued at $444 thousand using a Black-Scholes options pricing model. 19 The fair value of the options for the six months ended June 30, 2022 is estimated using a Black-Scholes option pricing model with the following range of assumptions: The following table summarizes option activity: The remaining expense outstanding through June 30, 2022 is $ million which is expected to be expensed over the next 27 months in general and administrative expense. On December 7, 2021, the board authorized the Company’s Equity Incentive Plan in order to The Company extended its stock repurchase agreement with the Chief Financial Officer. Terms of the updated agreement state that the Company has until October 21, 2022 to buyback 263,158 shares of its common stock for $500 thousand. Warrants In 2020, the Company entered into a security purchase agreement with an investor pursuant to which the Company agreed to sell the investor a $300 thousand convertible note bearing interest at 12% per annum. The Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock, with an exercise term of five (5) years, at a per share price of $14.25 which may be exercised by cashless exercise. The number of warrants adjusted in the period ending March 31, 2022 due to a reset event on January 7, 2022 changed the exercise price from $9.50 to $2.52 and increased the number of warrants from 31,578 to 119,095. The warrants were deemed a derivative liability and recorded as a debt discount at their date of issuance. In total, the Company has 4,275,464 warrants outstanding. 3,614,458 were related to the Offering, 542,168 were granted on January 7 and the reset event added an additional 119,095. See Note 1 for information on warrants issued during the Offering and note 6 for additional information on the derivative liability. 20 NOTE 10 – SUBSEQUENT EVENTS Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist other than those disclosed below. In July 2022, the Company entered into a consulting services agreement with an investor relations firm. The firm is to receive cash compensation, in return for providing marketing and investor relation services. In July 2022, the Company amended its option agreements with all employees, consultants and board of directors. The board of directors are scheduled to meet in August 2022 to vote on the measure. If approved by the 21 Item 2. Management’s Discussion and The following discussion and Business Overview The financial services industry is going through a period of intensive change driven by the advancement of technology and the rapid rise of contactless transactions due to societal changes, in part, as a response to COVID-19. End-users expect ease of use and an enhanced user experience in all their daily financial interactions. In this rapidly evolving digital marketplace, businesses have broad and frequently changing requirements to meet consumer expectations and operational efficiencies to maintain their competitive edge. To survive and succeed in this environment, businesses need to adopt new technologies to engage, communicate and process payments and manage payouts with their customers from a supplier that widely supports innovation and adaptation as the industry evolves. We believe our technologies will greatly increase the adoption of omni-channel payments and digital banking solutions in sectors that must quickly adapt and migrate to new, secure digital Fintech technologies. By embracing advancements in the payment and banking industries, we are well-positioned to meet the growing needs of existing and prospective clients and intend for our current and future products to be at the forefront of solving these accelerated market needs. AppTech’s platform is currently in the testing phase, with an expected general launch date occurring in the fourth quarter of 2022. The platform will be delivering a best-in-class financial technologies and capabilities through an ever-evolving modular cloud/edge-based platform. This platform houses a large array of financial products and services that can be taken off-the-shelf or consumed via modern APIs. Within its platform, AppTech offers three primary products: Payments-as-a-Service (“PaaS”), Banking-as-a-Service (“BaaS”), and Commerce-as-a-Service (“CXS”). The platform will offer PaaS via integrated solutions for frictionless digital and mobile payment acceptance. These solutions will provide advanced payment processing solutions for credit cards, ACH, and gift/loyalty cards by catering to the needs of each merchant. PaaS will also solve for multi-use case, multi-channel, API-driven, account-based issuer processing for card, digital tokens, and payment transfer transactions. AppTech is positioned to further fuel digital transformation through BaaS, layered with financial management tools that power Financial Institutions to give businesses, professionals, and individuals the ability to better manage their finances anywhere, anytime at a fraction of the cost of traditional banking and financial services. BaaS creates an ecosystem of immersive and scalable digital financial management services backed by Mastercard & Visa processing certifications. The global financial services platform architecture is designed to be flexible and configurable to meet current and future market needs. CXS matches the Fintech layer with User Experience. Experiences are a combination of PaaS, BaaS and other complimentary technologies that offer seamless integration opportunities to achieve on-demand, immersive customer experiences that drive customer LTV, loyalty, and retention. The platform also incorporates AppTech’s core, patented text payment and geofence triggered ecommerce and/or advertising via cell phone capabilities delivering experiences that focus on frictionless use cases and end-users desire for payment transaction simplicity, control, and comfort. The Company believes that these features will be particularly beneficial for unbanked and under-banked in developing or emerging markets where access to the internet on a mobile device and modern banking institutions may not be readily available. Particularly by extending merchants’ marketplace capabilities via new channels to request and receive frictionless, digital payments and engaging end-users by utilizing a familiar, convenient, and widely adopted technology. 22 AppTech’s world-class embedded digital Fintech platform delivers scalable solutions for automated and embedded customizable experiences. These Commerce Experiences drive enterprise business growth, value, and operational efficiencies while providing economic freedom for end users. Financial Operations Overview The following discussion sets forth certain components of our statements of operations as well as factors that impact those items (in thousands, except per share data). Revenues Our Revenues. We derive our revenue by providing financial processing services to businesses. Expenses Cost of Revenue. Cost of revenue includes costs directly attributable to processing and other services the company provides. These also include related costs such as residual payments to our business development partners, which are based on a percentage of the net revenue generated from client referrals. General and Administrative. General and administrative expenses include professional services, rent, utilities, and other operating costs. Research and Development. Research and development costs include costs of acquiring patents and other unproven technologies, contractor fees and other costs associated with the development of the SMS short code texting platform, contract and outside services. Interest Expense, net. Our interest expense consists of interest on our outstanding indebtedness and amortization of debt issuance costs. Results of Operations This section includes a summary of our historical results of operations, followed by detailed comparisons of our results for the three and six months ended June 30, Revenue Revenue was Revenue was approximately $227 thousand for the six months ended June 30, 2022, compared to $252 thousand for the six months ended June 30, 2021, representing a decrease of 10%. The decrease was principally driven by an adjustment in our revenue related to a processor. Cost of Revenue Cost of revenue was 23 Cost of revenue was General and Administrative Expenses General and administrative expenses were approximately $1.3 million for the three months ended General and administrative expenses were approximately $4.1 million for the six months ended Research and Development Expenses Research and development expenses were approximately $2.9 million for the three months ended Research and development expenses were approximately $4.9 million for the six months ended June 30, 2022, compared to Excess Fair Value of Equity Issuance Over Assets Received Excess fair value of equity issuance over assets received expenses was $72 thousand for the three months ended Excess fair value of equity issuance over assets received expenses was $904 thousand for the six months ended June 30, 2022, compared to Interest Expense, net Interest expenses, net was approximately $41 thousand for the three months ended Interest expenses, net was approximately $96 thousand for the six months ended June 30, 2022, compared to Change in Fair Value of Derivative Liability Change in fair value of derivative liability was approximately $37 thousand for the three months ended 24 Change in fair value of Liquidity and Capital Resources As noted earlier, the Company successfully completed its Offering on January 7, 2022. For further discussion, see Note 1. As of June 30, 2022, we had cash and cash equivalents of approximately $7.8 million, working capital of approximately $4.0 million, and stockholders’ equity of approximately $11.2 million. During the six months ended June 30, 2022, we met our immediate cash requirements through existing cash balances. Additionally, we used equity and equity-linked instruments to pay for services and compensation. Net cash used in Operating Activities Net cash used in Net cash used in operating activities during the six months ended June 30, 2021 was approximately $0.7 million, which is comprised of (i) our net loss of $72.6 million, adjusted for non-cash expenses totaling $72.0 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) changes in operating assets and liabilities using approximately $96 thousand. Investing Activities Net cash used by investing activities during the six months ended June 30, 2022 was approximately $185 thousand and was primarily due to the internal capitalized software costs. Net cash used by investing activities during the six months ended June 30, 2021 was approximately $1.3 million and was primarily due to the purchase of capitalized software costs. Financing Activities Net cash provided by financing activities during the six months ended June 30, 2022 was approximately $13.3 million, which principally consists of net proceeds of $13.4 million through the issuance of common shares and warrants in our public offering. Net cash provided by financing activities during the six months ended June 30, 2021 was approximately $2.4 million, which principally consists of net proceeds of $2.4 million through the sale of repurchase options. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, goodwill and intangible assets, derivative financial instruments, and equity-based compensation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. 25 Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations. The accounting policies we believe to be most critical to understanding our financial condition and results of operations are discussed below. As of Software Development Costs The Company Recent Accounting Pronouncements As of June 30, Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 3. Quantitative and Qualitative Disclosures About Market Risk. Because we are allowed to comply with the disclosure obligations applicable to a Item 4. Control and Evaluation of Disclosure Controls and Procedures Under the supervision and Changes in Internal Control over Financial Reporting There have not been any changes in our internal control over financial reporting Limitations on the Effectiveness of Controls Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected. 26 Item 1. Legal Proceedings On December 19, 2019, the Company entered into a settlement and release agreement with two shareholders. The total obligation was for $240 thousand and the final payment was made in March 2022. The litigants are now paid in full and no further action is warranted by the Company. In July 2020, Flowpay Corporation, a Delaware corporation (“Flowpay”), and R. Wayne Steiger, the President of Flowpay, having a non-binding Memorandum of Understanding (“MOU”) filed a lawsuit against AppTech Payments Corp. (formally “AppTech Corp.”) in the County of San Diego, State of California. The claims included breach of contract, intentional misrepresentation, negligent misrepresentation, and unjust enrichment. Management believes the non-binding MOU terminated after no definite agreement was executed between the parties, and negotiations ceased December 20, 2016. On May 19, 2022, AppTech entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Flowpay and Mr. Steiger. Under the terms of the Settlement Agreement, Flowpay and Mr. Steiger dismissed with prejudice all claims against the Company, its Chief Executive Officer, a Director and a third party individual. On July 14, 2021, EMA Financial LLC, a Delaware limited liability company (“EMAF”), filed a complaint in the Southern District of New York against the Company. In its complaint, EMAF alleged that the Company breached the terms of a convertible note and a related warrant agreement purchased by EMAF pursuant to a securities purchase agreement between the parties. EMAF sought specific performance, payment of damages to be determined but not in excess of $2.75 million, reimbursement of costs and expenses, including reasonable legal fees, and non-interference. We believe EMAF’s claims are meritless and intend to vigorously defend against this lawsuit. Item 1A. As a smaller reporting company, as defined Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Mine Safety Disclosures. Not Applicable. Item 5. Other Information. None. 27 Item 6. EXHIBIT INDEX 28 Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the 29 x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SeptemberJune 30, 2008o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 __________________________ to __________File Number : 0-27569Nevada7389 (State or other jurisdiction ofincorporation or organization) (Primary Standard IndustrialClassification Code Number) ( IRSI.R.S. EmployerIdentification No.)Number)Title of each class Trading Symbol(s) Name of each exchange on which registered 109 North Post Oak Lane, Suite 422 Capital Market Houston, TX 77024(Addresscommon stock at an exercise price of $5.19 (713) 621-2737(Registrant’s telephone number, including area code) Capital Market a small reportingemerging growth company. See the definitions of “large accelerated filer,” “accelerated“ accelerated filer” “smaller reporting company,” and “small reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.oAccelerated filer o☐ Non-accelerated filer o (Do not check if a small reporting company)FilerSmaller reporting company x☒ Emerging growth company ☐ Exchange Act). The numberoutstanding of our common stock at November 7, 2008 was 64,576,333.(par value 0.001) issued and outstanding.Transitional Small Business Disclosure Format (check one): Yes: o No: xNATURAL NUTRITION, INC.FORMINDEX2PART I - FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSNATURAL NUTRITION, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2008 December 31, 2007 (Unaudited) (Audited) Cash $ 1,677,987 $ 1,923,429 Trade accounts receivable-net of $13,726 and $35,307 allowance for doubtful accounts 2,386,331 1,860,411 Notes receivable - net of allowance of $929,973 and $-0- 280,561 1,203,405 Inventory-net of allowance of $48,897 and $108,400 1,945,938 1,770,595 Investment in marketable securities 50,000 1,692,856 Deferred finance costs 111,849 134,977 Prepaids, accrued interest and other accounts receivable 472,656 287,984 Total current assets 6,925,322 8,873,657 Fixed assets, net 1,253,707 1,361,530 Intellectual property 3,558,464 4,294,719 Goodwill 9,282,970 9,900,198 Total noncurrent assets 14,095,141 15,556,447 $ 21,020,463 $ 24,430,104 Accounts payable, accrued liabilities and other current liabilities $ 1,817,051 $ 1,382,476 Accrued interest payable 374,254 275,503 Current portion of note payable - net of discount of $244,625 and $318,501 1,164,885 1,210,539 Deferred taxes payable 2,527,725 2,419,767 Total current liabilities 5,883,915 5,288,285 Convertible debenture payable--net of discount of $141,793 and $167,777 15,018,104 15,233,120 Convertible note payable--net of discount of $1,367,932 and $1,617,208 6,515,452 6,146,646 Derivative liabilities 5,805,954 12,184,777 Deferred taxes payable - 649,226 Capital lease obligations 101,296 148,902 Accrued interest payable 2,057,487 1,483,384 Total liabilities 35,382,208 41,134,340 Preferred stock, $.01 par value; 10,000,000 shares authorized Preferred stock Series A Convertible $0.01 par value; 100,000 shares authorized, 19,643 and 94,443 shares issued and outstanding and no liquidation or redemption value 196 944 Preferred stock Series B Convertible $0.001 par value; 100,000 shares authorized, 71,455 and -0- shares issued and outstanding and no liquidation or redemption value 72 - Common stock, par value $0.001; 10,000,000,000 shares authorized; 69,645,958 and 37,196,387 issued and outstanding 69,646 29,757 Additional paid-in capital 737,899 497,074 Retained deficit (15,387,024 ) (18,511,466 ) Accumulated other comprehensive income, foreign currency translation adjustment 217,466 1,279,455 Total shareholders' deficit (14,361,745 ) (16,704,236 ) $ 21,020,463 $ 24,430,104 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).3NATURAL NUTRITION, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Sales revenue $ 12,264,672 $ 5,771,105 Fee income - 2,965 Trading gains (losses) (129,500 ) 3,897 Dividends from marketable securities 36,257 9,015 Interest income from notes and debenture receivable 167,462 206,309 Total revenue 12,338,891 5,993,291 Cost of sales revenue 9,790,380 4,767,414 Selling, general and administrative expenses (2008 and 2007 include $-0- and $199,835, respectively of expenses allocated from an affiliated entity) 4,396,710 3,417,787 Total operating expenses 14,187,090 8,185,201 (1,848,199 ) (2,191,910 ) Net change in fair value of derivative (6,389,641 ) 1,561,112 Loss on sale of investment 11,480 - Interest and other income (335,546 ) (33,776 ) Interest expense 1,809,867 1,279,193 Total other (income) expense (4,903,840 ) 2,806,529 Income (Loss) before provision for income taxes 3,055,641 (4,998,439 ) (68,800 ) (59,442 ) $ 3,124,441 $ (4,938,997 ) Net income (loss) per share - basic $ 0.06 $ (0.31 ) Net income (loss) per share - diluted $ 0.02 $ (0.31 ) Weighted shares outstanding - basic 49,855,367 16,060,568 Weighted shares outstanding - diluted 145,965,917 16,060,568 $ 3,124,441 $ (4,938,997 ) Foreign currency translation income (expense) adjustment (1,061,989 ) 1,194,593 $ 2,062,452 $ (3,744,404 ) See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).4NATURAL NUTRITION, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Sales revenue $ 3,910,138 $ 4,201,764 Trading gains (losses) 11,527 (8,114 ) Dividends from marketable securities 7,332 546 Interest income from notes and debenture receivable 49,249 52,826 Total revenue 3,978,246 4,247,022 Cost of sales revenue 3,173,853 3,467,897 Selling, general and administrative expenses (2008 and 2007 include $-0- and $50,114, respectively of expenses allocated from an affiliated entity) 2,048,882 1,152,694 Total operating expenses 5,222,735 4,620,591 (1,244,489 ) (373,569 ) Net change in fair value of derivative 104,024 (1,201,440 ) Interest and other income (117,277 ) (16,538 ) Interest expense 606,922 648,459 Total other (income) expense 593,669 (569,519 ) Income (Loss) before provision for income taxes (1,838,158 ) 195,950 4,024 (92,179 ) $ (1,842,182 ) $ 288,129 Net income (loss) per share - basic $ (0.03 ) $ 0.01 Net income (loss) per share - diluted $ (0.01 ) $ 0.00 Weighted shares outstanding - basic 66,104,072 19,259,139 Weighted shares outstanding - diluted 154,924,622 2,209,918,984 $ (1,842,182 ) $ 288,129 Foreign currency translation adjustment (662,948 ) 1,133,419 $ (2,505,130 ) $ 1,421,548 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).5NATURAL NUTRITION, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) Net income (loss) $ 3,124,441 $ (4,938,997 ) Adjustment to reconcile net income to net cash provided by (used in) operating activities (3,196,288 ) 5,900,519 Net cash provided by (used in) operating activities (71,847 ) 961,522 Cash acquired in acquisition - 609,022 Purchase of assets (147,391 ) (95,223 ) Sale of asset - 100,000 Net cash provided by (used in) investing activities (147,391 ) 613,799 Proceeds from issuance of convertible note, net - 1,070,910 Payments on capital lease obligations (47,606 ) (16,123 ) Net cash provided by (used in) financing activities (47,606 ) 1,054,787 21,317 164,893 (245,527 ) 2,795,001 1,923,429 148,691 $ 1,677,902 $ 2,943,692 Interest paid $ 750,000 $ 710 Taxes paid $ 355,156 $ - Purchase of INII: Fair value of assets acquired $ - $ 18,985,445 Liabilities assumed $ - $ 4,720,596 Discount on convertible note $ - $ 2,185,159 Embeded derivative and warrant liability $ - $ 1,180,870 Non-cash portion of convertible note payable $ - $ 8,221,964 Deferred finance costs $ - $ 153,000 Conversion of debentures, preferred stock and stock for services: Convertible debt $ 12,000 Preferred stock $ (677 ) $ 8 Common stock $ 32,200 $ 8,658 Paid in capital $ 240,825 $ 87,443 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).6Natural Nutrition, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)1- BASIS OF PRESENTATIONOur Condensed Consolidated Balance Sheet as of September 30, 2008, the Condensed Consolidated Statements of Operations for the nine and three months ended September 30, 2008 and 2007, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 have not been audited. TheseREGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONShave been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Reportthis Quarterly on Form 10-KSB for10-Q of AppTech Payments Corp. (we, our, AppTech or the fiscal year ended December 31, 2007. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation of Natural Nutrition, Inc. (the “Company”) and Subsidiaries. The results forCompany) are “forward-looking statements” within the nine months are not necessarily indicativemeaning of the results expected for the year.As used herein, the “Company”, “management”, “we”Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and “our” refers to Natural Nutrition, Inc., or Natural Nutrition, Inc. together with its subsidiaries. The Company's fiscal year ends on December 31st.Certain information and footnote disclosures normallyuncertainties. All statements, other than statements of historical facts, included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the published rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial statements. The unaudited Condensed Consolidated Financial Statements and the notes thereto in this report should be read in conjunction with the audited Consolidated Financial Statementsregarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and notes thereto included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 (the “10-KSB”).Natural Nutrition, Inc. (the “Company”) was incorporated in Florida on July 2, 1998. On August 25, 2005, the Company completed the closingobjectives of that certain Share Exchange Agreement, by and between the Company, CSI Business Finance, Inc., a Texas corporation and now wholly-owned subsidiary of the Company herein referred to as ("CSI-BF") and the shareholder of CSI-BF (the "CSI-BF Shareholder"). In September of 2006, CSI Business Finance, Inc. changed its name to Natural Nutrition, Inc. and simultaneously redomiciled from Florida to Nevada.On August 25, 2005, the Company effectively exchanged with the CSI-BF Shareholder the issued and outstanding common stock of CSI in exchange for 100,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share, of the Company, and CSI-BF became a wholly-owned subsidiary of the Company. Each share of the Company's Series A Preferred Stock is convertible into 780 shares of common stock of the Company, beginning one year after the effective date of the merger. The Preferred shares were subsequently distributed to the shareholders of Corporate Strategies, Inc., the former shareholder of CSI-BF. In addition, at the exchange date, 5,408,576 shares of common stock of the Company were issued to pay off notes and debentures. If the preferred shareholders were to convert to common stock as of the date of the merger, they would hold 97,500,000 shares, or ninety-two and one half percent (92.5%) of the issued and outstanding shares of common stock of the Company. This conversion would result in the Series A Convertible Preferred shareholders effectively controlling the Company.The Series A and Series B Convertible Preferred shareholders and the holders of the common stock of the Company vote together and not as separate classes, and the Preferred Stock shall be counted on an "as converted" basis, thereby giving the Preferred shareholders control of the Company. The transaction was accounted for as a reverse acquisition since control of the Company passed to the shareholders of the acquired company (CSI-BF).On January 29, 2008, our Board of Directors approved a 5 for 4 forward common stock split. All references to our common stock in this documentmanagement are stated in shares after the forward stock split. Our Board of Directors had previously approved a 1 for 25 reverse common stock split on May 23, 2006.The accompanying condensed consolidated financialforward-looking statements. These statements for prior years contain certain reclassifications to conform with the current year presentation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.7NOTE 2. INCOME (LOSS) PER COMMON SHARE AND STOCK BASED COMPENSATIONNet Income (Loss) Per Common ShareIn accordance with SFAS No. 128, "Earnings per Share", basic earnings per share are computed based on the weighted average shares of common stock outstanding during the periods. Diluted earnings per share are computed based on the weighted average shares of common stock plus the assumed issuance of common stock for all potentially dilutive securities.Basic and diluted earnings per share calculations are included below: Nine Months Ended Three Months Ended September 30, September 30, 2008 2007 2008 2007 Income (loss) from continuing operations $ 3,124,441 $ (4,938,997 ) $ (1,842,182 ) $ 288,129 Less effect of derivatives and convertible note and debenture (7,715 ) 2,839,392 - (552,992 ) Net income (loss) $ 3,116,726 $ (2,099,605 ) $ (1,842,182 ) $ (264,863 ) Basic weighted average shares 49,855,367 16,060,568 66,104,072 19,259,139 Effect of dilutive securities: Preferred stock 88,820,550 73,665,540 88,820,550 73,665,540 Convertible note and debenture 7,290,000 2,116,994,305 - 2,116,994,305 Diluted weighted average shares 145,965,917 2,206,720,413 154,924,622 2,209,918,984 Income (loss) per share: Basic: $ 0.06 $ (0.31 ) $ (0.03 ) $ 0.01 Diluted: $ 0.02 $ (0.31 ) $ (0.01 ) $ (0.00 ) A secured promissory note in the principal amount of $9,292,894 was outstanding during the three months ended September 30, 2008, but its conversion shares were not included in the computation of diluted per share net income for the three months ended September 30, 2008, because they were anti-dilutive. There were no similar potentially dilutive shares outstanding for the three months and nine months ended September 30, 2007.NOTE 3- PURCHASE OF THE SENIOR DEBT OF INTERACTIVE NUTRITION INTERNATIONAL, INC.Effective May 31, 2007, the Company closed on a purchase agreement (the “Purchase Agreement”) with Nesracorp. Inc., a company organized under the laws of Canada (the “Vendor”) pursuant to which the Company purchased from the Vendor, and the Vendor sold, assigned transferred and conveyed to the Company, all of Vendor’s right, title, benefit and interest in (a) all of the then outstanding principal and interest accrued thereon (the “Indebtedness”) owed to the Vendor by Interactive Nutrition International, Inc. (“INII”), a company organized under the laws of Canada and a wholly-owned subsidiary of the Company, under a promissory note in the original principal amount of Fifteen Million Canadian Dollars (Cdn$15,000,000) issued (in part) by INII to the Vendor on March 31, 2004 (the “Subsidiary Note”) and (b) a general security agreement, of even date with the Subsidiary Note, and a share pledge agreement, of even date with the Subsidiary Note, both granted concurrently by INII and its shareholder, the Company (as successor in interest to the now defunct Bio One Corporation) in connection with the Indebtedness (together, both instruments are hereinafter referred to as the “Security”) for a purchase price equal to (i) Seven Million Six Hundred Fifty Thousand Canadian Dollars (Cdn$7,650,000) and (ii) the execution by the Company of that certain Mutual Release. The Company and the Vendor entered into an Assignment and Conveyance (“Assignment”), of even date with the Purchase Agreement, in order to properly effectuate the assignment by the Vendor to the Company of all of the right, title, benefit and interest in and to the Purchased Assets (as defined therein), which such Purchased Assets include, without limitation, the Indebtedness, the Security and all loan, security and other documentation relating to the Indebtedness and the Security purchased under the Purchase Agreement. The Company and the Vendor executed the Purchase Agreement, the Mutual Release and the Assignment on May 25, 2007; however they closed the transactions upon the execution of the SPA (as defined and discussed herein below) on May 31, 2007.8On May 31, 2007, the Company entered into a securities purchase agreement (the “SPA”) with YA Global Investments, L.P. (f/k/a Cornell Capital Partners, LP and herein referred to as the “Investor”) pursuant to which the Company sold to the Investor, and the Investor purchased from the Company, a secured convertible promissory note (the “Note”) in the principal amount of Nine Million Two Hundred Ninety-Two Thousand Eight Hundred Ninety-Four United States Dollars (US$9,292,894), the proceeds of which shall be used by the Company to finance the consideration paid by the Company to the Vendor in connection with the Purchase Agreement and Assignment (as discussed herein above) and for other general corporate purposes.The Note shall accrue interest at a rate equal to twelve percent (12%) per annum, except that from and after the occurrence and during the continuance of an Event of Default (as defined in the Note), the interest rate shall be increased to eighteen percent (18%). The Note shall mature, unless extended by the holder, upon the earlier of (i) June 1, 2012, (ii) the consummation of a Change of Control (as defined in the Note) and (iii) the occurrence of an Event of Default or any event that with the passage of time and the failure to cure would result in an Event of Default. The Company may prepay the Note at any time upon not less than thirty (30) days prior written notice to the holder; provided, that any such prepayments shall applied first to unpaid late charges on principal and interest, if any, then to unpaid interest and then unpaid principal thereon. Furthermore, the Note shall be convertible into fully paid and nonassessable shares of the Company’s common stock, at the holder’s discretion, at a conversion rate to be determined by dividing the amount to be converted by the lesser of (x) $0.04, subject to adjustment as provided herein and (y) eighty percent (80%) of the lowest daily weighted average price of the Company’s common stock during the five (5) trading days immediately preceding the conversion date. The Company shall not effect any conversion, and the holder of shall not have the right to convert any portion of the Note to the extent that after giving effect to such conversion, the holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.All payments due under the Note shall be senior to all other Indebtedness (as defined in the Note) of the Company and its subsidiaries other than certain Permitted Indebtedness (as defined in the Note). So long as the Note is outstanding, the Company shall not, and the Company shall not permit any of its subsidiaries to, directly or indirectly (a) incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by the Note and the Subsidiary Note and (ii) other Permitted Indebtedness, (b) allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its subsidiaries other than certain permitted liens, (c) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Permitted Indebtedness, whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment: (i) an event constituting an Event of Default has occurred and is continuing; or (ii) an event that with the passage of time and without being cured would constitute an Event of Default has occurred and is continuing; or (iii) make any payments to Turnaround Partners, Inc. (“TAP”), Corporate Strategies, Inc. (“CSI”) or any of their members, partners, employees, stockholders, or any of their respective affiliates, except (1) with the prior consent of the holder, (2) pursuant to either the Zeidman Agreement (as defined herein below) or that certain Connolly Agreement (as defined herein below), (3) reasonable rent and overhead charges allocable to the Company in respect of shared space with CSI, (4) so long as Mr. Timothy J. Connolly (“Mr. Connolly”) is serving as CEO of the Company, the reimbursement to Mr. Connolly for all direct expenses incurred by Mr. Connolly in connection with such service and (5) payments by CSI-BF to Mr. Connolly for compensation payable to Mr. Connolly solely out of cash generated from CSI-BF’s operations.Until the Note has been converted, redeemed or otherwise satisfied in full in accordance with its terms, the Company shall not, directly or indirectly, redeem, repurchase, or declare or pay any cash dividend or distribution on, its capital stock without the prior express written consent of the holder or, dissolve, liquidate, consolidate with or into another person, or dispose of or otherwise transfer (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any person or acquire any assets or business or any interest in any person or entity in excess of One Hundred Thousand United States Dollars (US$100,000), except for purchases of inventory, raw materials and equipment in the ordinary course of business. So long as the Note is outstanding, for each accounting period identified in an Exhibit to the Note, the Company shall maintain EBITDA for such accounting period which equals or exceeds the applicable EBITDA threshold for such accounting period. The Company has been in discussions with the lender regarding the interpretation of the Exhibit to the Note as to whether it should be interpreted on a fiscal year or calendar year basis. An agreement on this issue has not yet been reached. On a strict calendar year basis as presented in the Exhibit to the Note, our EBITDA for the 9 months ended September 30, 2008 was CDN$1,392,119 versus CDN$1,387,238 as required under the Exhibit to the Note.9In connection with the SPA, the Company also issued to the Investor warrants to purchase, in Investor’s sole discretion, Seventy-Eight Million One Hundred Thirty-Five Thousand Two Hundred Twenty-Four (78,135,224) shares of common stock at a price of $0.008 per share (the “Warrant”). So long as the Company is in default under any of the Transaction Documents (as defined in the SPA) or the shares underlying the Warrant are not subject to an effective registration statement, the holder may, in its sole discretion during such time, exercise the Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price (as defined in the Warrant), elect instead to receive upon such exercise the net number of shares of Common Stock determined according to a specified formula set forth in the Warrant. The Company shall not effect the exercise of the Warrant, and the holder shall not have the right to exercise the Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates) would beneficially own in excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such exercise.Contemporaneously with the execution and delivery of the SPA, the Company and the Investor executed and delivered a registration rights agreement (the “RRA”) pursuant to which the Company shall provide certain registration rights to Investor with respect to the Registrable Securities (as defined in the RRA) under the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder, and applicable state securities laws. Specifically, if the Company shall receive at any time and from time to time after the aggregate principal amount of the Note is below One Million Five Hundred Thousand United States Dollars (US$1,500,000) in whatever form, including without limitation, the reduction of the outstanding balance by conversions by the Investor into shares of Common Stock or cash payments by the Company, a written request from the holders of at least fifty percent (50%) of the Registrable Securities then outstanding, that the Company file with the SEC a registration statement covering the resale of the Registrable Securities, then the Company shall, within thirty (30) days of the receipt thereof, provide written notice of such request to all other holders of Registrable Securities, if any, and file with the SEC such registration statement, as soon as practicable, following receipt of the registration request. The registration statement shall register for resale at least thirty-three percent (33%) of the Company’s market capitalization based on the Company’s shares of Common Stock issued and outstanding and market price of the Company’s shares of Common Stock at the time of the registration request less any shares of Common Stock held by affiliates of the Company, or such greater amount as the Company in good faith believes the SEC may permit to be registered. The Company shall use its best efforts to have the registration statement declared effective by the SEC no later than such date as follows: (i) in the event that the registration statement is not subject to a review by the SEC, sixty (60) calendar days after the date of the registration request or (ii) in the event that the registration statement is subject to a review by the SEC, one hundred twenty (120) calendar days after the date of the registration request.In connection with the SPA, the Company and the Investor also entered into an amended and restated security agreement, of even date with the SPA (the “2007 Security Agreement”), pursuant to which the Company amended and restated that certain Security Agreement, dated September 9, 2005 (the “2005 Security Agreement”), to secure within the definition of “Obligations” as previously defined under the 2005 Security Agreement, those obligations of the Company under the SPA, the Note and the Transaction Documents (as defined in the SPA). The Company and the Investor also entered into a securities pledge agreement, of even date with the SPA (the “2007 Pledge Agreement”), in order for the Company to pledge that certain Pledged Property (as defined therein), which includes the Subsidiary Note, to secure its obligations under the SPA, the Note and the Transaction Documents (as defined in the SPA).In connection with the SPA, the Company, the Investor and Mr. Timothy J. Connolly, acting on behalf of CSI, entered into an agreement, of even date with the SPA (the “Connolly Agreement”), pursuant to which the Company granted to Mr. Connolly, on behalf of CSI, shares representing ten percent (10%) of the common stock of INII (the “INII Stock”) outstanding as of the date of the Agreement as compensation for management services performed by CSI to the Company. Such grant vested and the INII Stock has been deemed fully earned as of the date of the Agreement. As a condition to this grant, Mr. Connolly entered into a lock-up agreement and a securities pledge agreement with the Investor, whereby Mr. Connolly pledged the INII Stock as collateral to secure all obligations owed by the Company to the Investor. Effective as of December 31, 2007, the Company entered into a Purchase Agreement with Corporate Strategies, Inc. (Seller) and CSI Business Finance, Inc. pursuant to which the Seller conveyed, transferred and assigned to the Company all of its title to and rights in Seller’s ten percent (10%) interest in the total issued and outstanding capital stock of INII in exchange for the conveyance, transfer and assignment to the Seller by the CSI Business Finance, Inc. and the Company of certain Notes held by CSI Business Finance, Inc. and the Company plus a cash payment equal to One Hundred Ninety-Eight Thousand Eight Hundred Ninety-Nine Dollars and Ten Cents ($198,899.10). In addition, the Company assumed payment for all of the Seller’s office lease, equipment payments and any other payments related to the office space at 109 N. Post Oak Lane, Suite 422, Houston, Texas 77024 for the remainder of the lease term and any renewals.In connection with the SPA, the Company entered into a five (5) year employment agreement with Mr. Fred Zeidman pursuant to which Mr. Zeidman shall serve as a non-executive Chairman of the Board (the “Zeidman Agreement”). In consideration for his services, Mr. Zeidman shall receive, as compensation for all services rendered by Mr. Zeidman in performance of his duties or obligations under the Zeidman Agreement, a monthly base salary of Twelve Thousand Five Hundred United States Dollars (US$12,500). In addition to a base salary, Mr. Zeidman shall also have the right to receive an incentive fee equal to up to ten percent (10%) of the Net Proceeds (as defined therein) of the Sale (as defined therein) of INII. This bonus shall incrementally vest twenty percent (20%) per year on the anniversary date of the Zeidman Agreement, so long as (A) Mr. Zeidman’s employment with the Company has not terminated as of the applicable vesting date and (B) the actual financial results of INII for the twelve (12) month period prior to the applicable vesting date are not less than ninety percent (90%) of the pro forma EBITDA results of INII attached to the Zeidman Agreement as Exhibit A; provided that upon a Sale prior to the fifth (5th) anniversary of the commencement date, so long as Mr. Zeidman’s employment has not terminated prior to such Sale, then the remaining part of the bonus shall vest upon the consummation of such Sale. Mr. Zeidman is also entitled to be reimbursed by the Company for all reasonable and necessary expenses incurred by Mr. Zeidman in carrying out his duties under the Zeidman Agreement in accordance with the Company’s standard policies regarding such reimbursements. Mr. Zeidman is also entitled during the term of the Zeidman Agreement, upon satisfaction of all eligibility requirements, if any, to participate in all health, dental, disability, life insurance and other benefit programs now or hereafter established by the Company which cover substantially all other of the Company’s employees and shall receive such other benefits as may be approved from time to time by the Company.10Since the acquisition was completed on May 31, 2007, only the period from June 1 through September 30, 2007 is included in our nine months results of operations ending September 30, 2007.The following unaudited pro forma financial information presents the consolidated results of operations for the three and nine months ended September 30, 2008, as if the acquisition had occurred on January 1, 2007, after giving effect to certain adjustments. The pro forma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during this period. Three months ended September 30, Nine months ended September 30, 2008 2007 2008 2007 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net sales $ 3,978,246 $ 4,247,022 $ 12,338,891 $ 12,866,026 Net income (loss) $ (1,842,182 ) $ (358,367 ) $ 3,124,441 $ (5,445,645 ) Weighted shares outstanding - basic 66,104,072 19,259,139 49,855,367 16,060,568 Weighted shares outstanding - diluted 154,924,622 2,209,918,984 145,965,917 2,206,720,413 Net income (loss) per share - basic $ (0.03 ) $ (0.02 ) $ 0.06 $ (0.34 ) Net income (loss) per share - diluted $ (0.01 ) $ (0.02 ) $ 0.02 $ (0.00 ) NOTE 4 - CONVERTIBLE DEBENTURES AND NOTES PAYABLE AND DERIVATIVE FINANCIAL INSTRUMENTSEffective September 9, 2005, the Company issued a secured convertible debenture (the "Debenture") to the Investor in the amount of $15,635,199. Effective May 31, 2007, the convertible debenture was renegotiated and the due date was extended until June 1, 2012 and the fixed conversion price was reset. All other terms and conditions remained the same. The notes bear interest at 5%, which is accrued until maturity on June 1, 2012. The note is convertible, at the option of the holders, into common stock of the Company at a price of $0.0096 per share, subject to standard anti-dilution provisions relating to splits, reverse splits and other transactions plus a reset provision whereby the conversion prices may be adjusted downward to a lower price per share based on the average of the three lowest closing prices for the five trading days prior to conversion. The Holder has the right to cause the notes to be converted into common stock, subject to an ownership limitation of 4.99% of the outstanding stock. The Company has the right to repurchase the Notes at 106% of the face amount.On May 31, 2007, the Company entered into a securities purchase agreement (the “SPA”) with the Investor pursuant to which the Company sold to the Investor, and the Investor purchased from the Company, a secured convertible promissory note (the “Note”) in the principal amount of Nine Million Two Hundred Ninety-Two Thousand Eight Hundred Ninety-Four United States Dollars (US$9,292,894), the proceeds of which shall be used by the Company to finance the consideration paid by the Company to the Vendor in connection with the Purchase Agreement and Assignment (as discussed herein above) and for other general corporate purposes.The Note shall accrue interest at a rate equal to twelve percent (12%) per annum, except that from and after the occurrence and during the continuance of an Event of Default (as defined in the Note), the interest rate shall be increased to eighteen percent (18%). The Note shall mature, unless extended by the holder, upon the earlier of (i) June 1, 2012, (ii) the consummation of a Change of Control (as defined in the Note) and (iii) the occurrence of an Event of Default or any event that with the passage of time and the failure to cure would result in an Event of Default. The Company may prepay the Note at any time upon not less than thirty (30) days prior written notice to the holder; provided, that any such prepayments shall applied first to unpaid late charges on principal and interest, if any, then to unpaid interest and then unpaid principal thereon. Furthermore, the Note shall be convertible into fully paid and nonassessable shares of the Company’s common stock, at the holder’s discretion, at a conversion rate to be determined by dividing the amount to be converted by the lesser of (x) $0.04, subject to adjustment as provided herein and (y) eighty percent (80%) of the lowest daily weighted average price of the Company’s common stock during the five (5) trading days immediately preceding the conversion date. The Company shall not effect any conversion, and the holder of shall not have the right to convert any portion of the Note to the extent that after giving effect to such conversion, the holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.11The derivatives from the debenture and note payable have been accounted for in accordance with SFAS 133 and EITF No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock."The Company has determined that the following instruments have derivatives requiring evaluation and accounting under the relevant guidance applicable to financial derivatives:Cornell Debenture Payable issued 9/9/05 in the face amount of $15,635,199Cornell Note Payable issued 5/31/07 in the face amount of $9,292,894The Company has identified that the above debenture and note have embedded derivatives. These embedded derivatives have been bifurcated from their respective host debt contracts and accounted for as derivative liabilities in accordance with EITF 00-19. When multiple derivatives exist within the Convertible Debentures, they have been bundled together as a single hybrid compound instrument in accordance with SFAS No. 133 Derivatives Implementation Group Implementation Issue No. B-15, "Embedded Derivatives: Separate Accounting for Multiple Derivative Features Embedded in a Single Hybrid Instrument."The embedded derivatives within the Convertible Debenture and Note have been recorded at fair value at the date of issuance; and are marked-to-market each reporting period with changes in fair value recorded to the Company's income statement as "Net change in fair value of derivatives." The Company has utilized a third party valuation firm to fair value the embedded derivatives using a layered discounted probability-weighted cash flow approach. The fair value model utilized to value the various embedded derivatives in the Convertible Debenture and Note, comprises multiple probability-weighted scenarios under various assumptions reflecting the economics of the Convertible Debenture, such as the risk-free interest rate, expected Issuer stock price and volatility, likelihood of conversion and or redemption, and likelihood default status.The fair value of the derivative liabilities are subject to the changes in the trading value of the Company's common stock, as well as other factors. As a result, the Company's financial statements may fluctuate from quarter-to-quarter based on factors, such as the price of the Company's stock at the balance sheet daterisks and the amount of shares converted by the debenture holders. Consequently, our financial position and results of operations may vary from quarter-to-quarter based on conditions other than our operating revenues and expenses.The conversion feature, reset provision and the Company’s optional early redemption right to the debenture payable have been bundled together as a single compound embedded derivative liability, and using a layered discounted probability-weighted cash flow approach, was initially fair valued at $413,603 at September 9, 2005. As of May 31, 2007, the maturity date of the Investor debenture dated September 9, 2005 was extended to June 1, 2012 and the fixed conversion price was reset to $0.0096. This modification of the debt was tested under EITF 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments and EITF 06-06, Debtors Accounting for a Modification (or Exchange) of Convertible Debt Instruments to determine if an extinguishment had occurred. The Company’s third party valuation firm determined that the debt was not extinguished, so no gain or loss was recorded. The compound embedded derivative was valued at $3,583,192 at September 30, 2008 using the same methodology. For the period since December 31, 2007 through September 30, 2008, the change in fair value of the derivative liability was a decrease of $1,160,186, which has been classified as net change in fair value of derivative.The above compound embedded derivative plus the loan costs paid the lender in the amount of $687,832 are recorded as a discount against the notional carrying amount of the debenture payable. The unamortized discount is being amortized over the term of the note using the effective interest method. Recorded in interest expense for this amortization is $25,840 at September 30, 2008 and $169,955 at September 30, 2007.The conversion feature, reset provision and the Company’s optional early redemption right to the note payable have been bundled together as a single compound embedded derivative liability, and using a layered discounted probability-weighted cash flow approach, was initially fair valued at $554,080 at May 31, 2007. Using the same methodology, the single compound embedded derivative liability was valued at $1,540,064 at September 30, 2008. For the period since December 31, 2007 through September 30, 2008, the change in fair value of the derivative liability was a decrease of $2,770,894, which has been classified as net change in fair value of derivative.In addition to the above, the Company issued warrants that resulted in a warrant derivative liability. This warrant derivative liability using the Black-Sholes Option Pricing Model was initially fair valued at $626,790 at May 31, 2007. Using the same methodology, the warrant derivative liability was valued at $682,698 at September 30, 2008. For the period since December 31, 2007 through September 30, 2008, the change in fair value of the derivative liability was a decrease of $2,447,742, which has been classified as net change in fair value of derivative. The significant assumptions for the Black-Sholes Option Pricing Model at September 30, 2008 was the current stock price, 0% dividend yield, a risk free interest rate of 3.38% and a 250% volatility.12The above compound embedded derivative plus the warrant derivative plus the loan costs paid the lender in the amount of $1,004,289 are recorded as a discount against the notional carrying amount of the note payable. The unamortized discount is being amortized over the term of the note using the effective interest method. Recorded in interest expense for this amortization is $323,152 at September 30, 2008 and $141,913 at September 30, 2007.The significant assumptions for the Company’s debenture and note utilized in valuing the embedded derivatives as of September 30, 2008:- The stock price would increase at the cost of equity with a short-term volatility of 240%- Registration default would occur only 5% of the time- Other forms of default would occur 5% of the time, increasing .3% per quarter- Alternative financing would be available starting at 0%, increasing 5% per quarter to a maximum of 20%- Common Shares outstanding would increase 5% per quarter- Exercise pricing reset events would occur 5% of the time with an adjustment factor to the warrant exercise price of 0.9989- Quarterly conversions of the debentures would be limited to the lesser of 4.99% of the outstanding stock or 25% of the average 22-day trading volume.NOTE 5 - SEGMENT REPORTINGOur Company has two business segments: business services (which consist of lending services) and manufacturing and sales of nutritional products through our wholly owned subsidiary, INII. The Company intends to wind down the business services segment as these assets are monetized and devote these resources to expanding the international marketing, sales, and distribution of the Company’s nutritional products.The Company's operations are conducted in the United States and Ottawa, Ontario, Canada. Revenue $ 57,683 $ 12,281,208 Interest expense 818,094 991,773 Income (loss) before income tax 3,491,612 (435,971 ) Income tax benefit - (68,800 ) Segment assets 9,195,654 11,824,809 Additions to long-term assets 109,122 38,269 Depreciation and amortization 5,904 623,608 Revenue $ 222,186 $ 5,771,105 Interest expense 656,256 622,937 Loss before income tax (4,855,073 ) (143,366 ) Income tax benefit - (59,442 ) Segment assets 3,723,371 21,150,287 Additions to long-term assets - 95,223 Depreciation and amortization 2,271 278,929 13NOTE 6 - RELATED PARTY TRANSACTIONSTurnaround Partners, Inc. (f/k/a Emerge Capital Corp.) and the Company are separate public entities that were previously under common control. On December 5, 2007, a new majority shareholder invested in Turnaround Partners, Inc. At that time, Timothy J. Connolly and Fred Zeidman resigned as officers and directors and Turnaround Partners, Inc. is no longer affiliated with Natural Nutrition, Inc.Brokerage feesCorporate Strategies, Inc. previously had an arrangement whereby it introduced prospective financing clients to the Company. If a transaction was consummated, Corporate Strategies, Inc. earned a fee from the borrower. For the quarters ended September 30, 2008 and 2007 such fees have totaled $-0- and $2,965, respectively. No fees are paid to Corporate Strategies, Inc. by the Company since they are paid by the borrower. No further fees are expected to be paid as the Company is no longer in the business of lending.Allocation of operating expensesCorporate Strategies, Inc., a wholly owned subsidiary of Turnaround Partners, Inc, previously performed certain administrative and management functions for the Company. Based on an estimation of efforts expended, the Company was allocated $-0- and $199,835 for the nine months ended September 30, 2008 and 2007, respectively. Corporate Strategies, Inc. no longer provides these functions for the Company.NOTE 7 - COMMON AND PREFERRED STOCKDuring the first nine months of this year, we have issued 39,888,848 new shares of common stock. We issued 3,011,385 shares for the conversion of preferred stock into common stock, 7,689,285 shares as a result of the 5 for 4 stock split approved on January 28, 2008, 24,188,178 shares for the conversion of convertible debentures and 5,000,000 shares for services.In May 2007 the Company granted the CEO super voting rights in consideration for the CEO entering into a Lockup Agreement for so long as he continues to serve as CEO, preventing him from selling shares of the Company until all amounts owed to the Investor have been fully paid. The Board of Directors approved the designation of Series B convertible preferred stock, par value $.001 to be issued to the CEO which have substantially the same powers and other special rights as the Series A preferred stock except that such new shares shall include super voting rights. Each share of the Series B convertible preferred stock is convertible into 975 shares of common stock. The holders of Series B preferred stock and the holders of common stock shall vote together and not as separate classes, and the Series B preferred stock shall be counted on an “as converted” basis multiplied by One Hundred (100). The transaction converting the CEO’s 71,455 Series A preferred stock to Series B preferred stock was completed during the quarter ended September 30, 2008.14MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKSThis Quarterly Report on Form 10-QSB, and the accompanying MD&A, contains forward-looking statements. Statements contained in this report about Natural Nutrition, Inc.'s future outlook, prospects, strategies and plans, and about industry conditions and demand for our financial services are forward-looking. All statements that express belief, expectation, estimates or intentions, as well as those that are not statements of historical fact, are forward looking. The words "proposed," "anticipates," "anticipated," "will," "would," "should," "estimates" and similar expressions are intended to identify forward-looking statements. Forward-looking statements represent our reasonable beliefuncertainties and are based on information currently available to our current expectationsmanagement. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and assumptions with respect to future events. While we believe our expectationssimilar expressions or words, identify forward-looking statements. The events and assumptions are reasonable, they involve risks and uncertainties beyond our control that could cause the actual results or outcome to differ materially from the expected results or outcomecircumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. In light of these risks, uncertaintiesMeaningful factors that could cause actual results to differ include:● uncertainty associated with anticipated launch of our text payment platform and other potential advanced payment solutions we intend to launch in the future; ● substantial investment and costs associated with new potential revenue streams and their corresponding contractual obligations; ● dependence on third-party channel and referral partners, who comprise a portion of our sales force, for gaining new clients; ● a slowdown or reduction in our sales due to a reduction in end-user demand, unanticipated competition, regulatory issues, or other unexpected circumstances ● uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of the products we offer or intend to offer in the future; ● our current dependence on third-party payment processors to facilitate our merchant services capabilities; ● delay in or failure to obtain regulatory approval of our text payment system or any future products in additional countries; ● uncertainty associated with our ability to achieve profitability through the HotHand patents; ● the adverse effects of COVID-19 on processing volumes resulting from (a) limitations on in-person access to our merchants’ businesses or (b) the unwillingness of customers to visit our merchants’ businesses; assumptions,oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking events discussed in this quarterly report may not occur. Such risks and uncertainties include, without limitation, our successful efforts in the outcome of our litigation concerning our investment in INII,statements we make or the extension of our agreement in lieu of foreclosure, our success in trading marketable securities, our ability to maintain contracts that are critical tomade on our operations, actual customer demand for our financing and related services, collection of accounts and notes receivable, our ability to obtain and maintain normal terms with our vendors and service providers and conditions in the capital markets and equity markets during the periods covered by the forward-looking statements. The forward-looking statements contained in this report speak only as of the date hereof.behalf. We undertake no obligation and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any other reason. Allfurther disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).attributableand estimates.Natural Nutrition,AppTech Payments Corp. June 30,
2022 December 31,
2021ASSETS Current assets Cash $ 7,790 $ 8 Accounts receivable 50 40 Prepaid expenses 466 95 Prepaid license fees - current 479 479 Total current assets 8,785 622 Prepaid offering cost — 92 Prepaid license fees - long term 3,180 3,180 Intangible assets 407 — Note receivable 26 26 Right of use asset 158 189 Security deposit 8 8 Capitalized software development and license 3,625 3,440 TOTAL ASSETS $ 16,189 $ 7,557 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 394 $ 1,255 Accrued liabilities 1,651 3,136 Right of use liability 64 61 Stock repurchase liability 430 430 Convertible notes payable, net of $37 and $51 debt discount 680 679 Notes payable 1,104 438 Notes payable related parties — 685 Derivative liabilities 426 599 Total current liabilities 4,749 7,283 Long-term liabilities Right of use liability 131 163 Notes Payable, net of current portion 67 67 Total long-term liabilities 198 230 TOTAL LIABILITIES 4,947 7,513 Commitments and contingencies (Note 9) Stockholders’ Equity Series A preferred stock; $ par value; shares authorized; shares issued and outstanding on June 30, 2022 and December 31, 2021 — — Common stock, $ par value; shares authorized; and and outstanding at June 30, 2022 and December 31, 2021, respectively 16 12 Additional paid-in capital 145,001 124,225 Accumulated deficit (133,775 ) (124,193 ) Total stockholders’ equity 11,242 44 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 16,189 $ 7,557 For the Three Months Ended June 30, For the Six Months Ended June 30, 2022 2022 2021 2022 2021 Revenues $ 123 $ 151 $ 227 $ 252 Cost of revenues 62 36 113 70 Gross profit 61 115 114 182 Operating expenses: General and administrative, including stock based compensation of $ million and $ million, for the three months ended, and $ million and $ million for the six months ended June 30, 2022 and 2021, respectively 1,320 3,561 4,101 5,341 Research and development, including stock based compensation of $ million and $ million, for the three months ended, $ million and $ million for the six months ended June 30, 2022 and 2021, respectively 2,884 — 4,936 — Excess fair value of equity issuance over assets received 72 1,091 904 65,034 Total operating expenses 4,276 4,652 9,941 70,375 Loss from operations (4,215 ) (4,537 ) (9,827 ) (70,193 ) Other income (expenses) Interest expense (41 ) (2,432 ) (96 ) (2,561 ) Change in fair value of derivative liability 37 453 173 (55 ) Other income (expenses) 92 175 168 175 Total other income (expenses) 88 (1,804 ) 245 (2,441 ) Loss before provision for income taxes (4,127 ) (6,341 ) (9,582 ) (72,634 ) Provision for income taxes — — — — Net loss $ (4,127 ) $ (6,341 ) $ (9,582 ) $ (72,634 ) Basic and diluted net loss per common share $ (0.25 ) (0.58 ) $ (0.60 ) (6.70 ) Weighted-average number of shares used basic and diluted per share amounts 16,246,260 10,832,745 15,857,753 10,832,745 Series A Preferred Common Stock Additional Paid- in Accumulated Stockholders’ Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance December 31, 2020 14 $ — 9,317,017 $ 9 $ 36,744 $ (44,948 ) $ (8,195 ) Net loss — — — — — (66,293 ) (66,293 ) Imputed interest — — — — 3 — 3 Stock based compensation — — 35,737 — 429 — 429 Issuance of options for capitalized prepaid software development and license — — — — 1,891 — 1,891 Common stock issued for purchase of judgment — — 21,053 — 1,000 — 1,000 Common stock issued for capitalized prepaid software development and license — — 1,895,949 2 67,541 — 67,543 Common stock cancelled — — (15,789 ) — (10 ) — (10 ) Net Proceeds from sale of repurchase option — — — — 1,973 — 1,973 Balance Balance March 31, 2021 14 — 11,253,967 11 109,571 (111,241 ) (1,659 ) Net loss — — — — — (6,340 ) (6,340 ) Imputed interest — — — — 3 — 3 Stock based compensation — — 23,137 — 2,988 — 2,988 Issuance of options for capitalized prepaid software development and license — — — — 1,091 — 1,091 Common stock issued for convertible notes payable, accrued interest, derivative liabilities, and accounts payable — — 500,726 1 3,945 — 3,946 Net Proceeds from sale of repurchase option — — — — 458 — 458 Balance June 30, 2021 14 $ — 11,777,830 $ 12 $ 118,056 $ (117,581 ) $ 487 Balance December 31, 2021 14 $ — 11,944,600 $ 12 $ 124,225 $ (124,193 ) $ 44 Net loss — — — — — (5,455 ) (5,455 ) Common Stock Issued for Forbearance — — 2,104 — 3 — 3 Stock based compensation — — 310,223 — 2,732 — 2,732 Common stock cancelled — — (126,315 ) — — — — Net Proceeds from sale of Offering Shares — — 3,614,458 4 13,391 — 13,395 Balance Mar 31, 2022 14 — 15,745,070 16 140,351 (129,648 ) 10,719 Net loss — — — — — (4,127 ) (4,127 ) Common stock issued for Stock Based Compensation — — 140,681 — 2,120 — 2,120 Anti-Dilution Provision (Infinios) — — 451,957 2,123 2,123 Common stock issued for HotHand Patents — — 225,000 — 407 — 407 Balance June 30, 2022 14 $ — 16,562,708 $ 16 $ 145,001 $ (133,775 ) $ 11,242 June 30,
2022 June 30,
2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (9,582 ) $ (72,634 ) Adjustments to reconcile net loss to net cash used in operating activities: Issuance of stock based compensation 4,603 4,815 Common Stock Issued for Forbearance 3 — Stock issued for purchase of judgment — 1,000 Stock issued for excess fair value of equity over assets received 904 66,125 Imputed interest on notes payable — 7 Amortization of debt discount 32 177 Gain on extinguishment of accounts payable — (175 ) Change in fair value of derivative liabilities (173 ) 55 Changes in operating assets and liabilities: Accounts receivable (10 ) (32 ) Prepaid expenses (29 ) (30 ) Accounts payable (861 ) (23 ) Accrued liabilities (266 ) (16 ) Right of use asset and liability 1 5 Net cash used in operating activities (5,378 ) (726 ) CASH FLOWS FROM INVESTING ACTIVITIES Capitalized prepaid software development and license (185 ) (1,340 ) Net cash used in investing activities (185 ) (1,340 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on loans payable - related parties — (34 ) Payments on notes payable (50 ) — Net Proceeds from offering 13,395 — Repurchase of common stock — (10 ) Proceeds from sale of repurchase options — 2,406 Net cash provided by financing activities 13,345 2,362 Changes in cash and cash equivalents 7,782 296 Cash and cash equivalents, beginning of period 8 58 Cash and cash equivalents, end of period $ 7,790 $ 354 Supplemental disclosures of cash flow information: Non-cash investing and financing transactions $ — $ 5,491 Common stock issued for conversion of accounts payable — 206 Forgiveness of debt through conversion of accounts payable — 175 Common stock issued convertible notes, accrued interest and derivative liabilities — 1,253 Issuance of stock for prepaid services 250 — Issuance of stock for intangible assets 407 — any person acting onthe “Company”) re-domiciled to Delaware and changed its behalf are expressly qualified in their entirety byname from “AppTech Corp.” to “AppTech Payments Corp.” AppTech stock trades under the cautionary statements contained orsymbol “APCX” and its warrants trade under the symbol “APCXW.”our Form 10-KSBaccordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended June 30, 2022 and June 30, 2021. Although management believes that the disclosures in our future periodic reports filedthese unaudited financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC.following M,D&Aaccompanying consolidated unaudited financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022. The interim results for the three months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any future interim periods.unaudited Consolidated balances.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. Statementsassets 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.Schedule of derivative liabilities June 30, 2022 Level 1 Level 2 Level 3 Total Carrying Value Derivative liabilities $ — $ — $ 426 $ 426 December 31, 2021 Level 1 Level 2 Level 3 Total Carrying Value Derivative liabilities $ — $ — $ 599 $ 599 Schedule of anti dilutive stock June 30, 2022 June 30, 2021 Series A preferred stock 1,149 1,149 Convertible debt 174,060 186,325 Warrants 4,275,464 21,053 Options 1,061,132 706,053 Common stock 664,297 357,421 Total 6,176,102 1,272,001 Schedule of Accrued Liabilities June 30, 2022 December 31, 2021 Accrued interest – third parties $ 1,197 $ 1,420 Accrued payroll 316 294 Accrued residuals 35 98 Anti-dilution provision 72 1,290 Other 31 34 Total accrued liabilities $ 1,651 $ 3,136 related notes thereto included elsewhere herein,Company accrued shares of its common stock at $ per share for a total value of $ million as of December 31, 2021. Further, in connection with the capital raise discussed in Note 1, the Company issued an additional shares of its common stock at $ per share for a value of $ thousand or a total value of $2.1 million. The 451,957 total shares were issued in May 2022.conjunctioncompliance with our audited financial statements, togetherits anti-dilution provision with footnotesInfiinios, the Company accrued an additional shares of its common stock at $ per share for a total of $ thousand. The shares have not been issued to Infinios as of August 4, 2022.MD&A,issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of June 30, 2022. Related parties noted below are either members of management, board of directors, significant shareholders or individuals in our 2007 annual report filed on Form 10-KSB withwhich have significant influence over the SEC.OverviewAugust 25, 2005, Health Express USA, Inc., a Florida corporation,September 30, 2021, the Company converted the notes issued for $530 thousand of principal and interest into 55,767 shares of the Company’s common stock. Since the notes were converted to equity, there will no longer be any accrued interest related to the subordinated notes.share exchange agreement with CSI-BF and CSI, the stockholder of CSI-BF. The transaction is being reflected as a reverse acquisition since control of the Company has passed to the shareholders of CSI. The Company was subsequently renamed in 2005 to CSI Business Finance, Inc. (the Florida corporation). In September of 2006, we changed our name from CSI Business Finance, Inc. to Natural Nutrition, Inc. and simultaneously migrated from Florida to Nevada.On May 23, 2006, our Board of Directors approved a 1 for 25 reverse split of our Common Stock. On January 29, 2008, our Board of Directors approved a 5 for 4 forward common stock split. All references to our common stock in this document are stated in shares after the forward stock split.All significant intercompany accounts and transactions have been eliminated in consolidation.Prior to and during a part of 2007, our Company, through our wholly-owned operating subsidiary, CSI Business Finance, Inc., primarily generated cash and revenue from financing and investing activities. These activities included equipment leasing, factoring and loan brokerage activities earned in originating and selling business leases, providing short term secured lending, and investing in marketable securities. Management of the Company mitigates its risk in lending by securing loans with pledged assets (collateral) that, when liquidated, have a reasonable probability of realizing proceeds that would retire the liability. In some instances, we obtain personal guarantees from individuals of net worth which are adequate to repay the liability in the event of default. We also traded marketable securities and options with available cash, and on margin. Because our trading involved leveraging, these transactions contained a considerable amount of risk. These activities and all new lending activities of CSI-BF were discontinued in 2007 following the settlement of the litigation and acquisition of the senior debt and operations of INII. Our management will now concentrate its efforts on collecting the remaining notes receivable from CSI-BF’s former operations. CSI-BF was renamed iNutrition Inc. and is currently the marketing arm of INII. CSI-BF’s mission is to grow the “direct to consumer” sales program for the INII sports nutrition and dietary supplement products. The core focus of all operations is now based on growing the business of INII, our largest asset, which was acquired pursuant to that certain agreement in lieu of foreclosure of a note purchased by the Company in March 2006. INII, a wholly-owned subsidiary of Natural Nutrition, Inc. (OTC Bulletin Board: NTNI), is a twelve (12) year-old specialty manufacturer of sports, nutritional and natural dietary supplement products. INII is an international leader in dietary supplements backed by over twelve (12) years of research and development. INII is authorized to sell sports nutrition products in over eighteen (18) countries throughout the world. All products are manufactured under strict Canadian government quality control measures.15Effective May 31, 2007, we closed on theSecurities Purchase Agreement with the Vendoran investor pursuant to which the Company purchasedagreed to sell to the investor a $300 thousand convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the Vendor,date of issuance. Upon maturity of the convertible note, interest rate will be increased to 24%. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at nine dollars and fifty cents $9.50 for the Vendor sold, assigned transferredone hundred and conveyedeighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty-five (25) trading day, ending on the last complete trading day prior to the Company, certain Indebtedness owedissue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares.Vendor by INII under that certain Subsidiarylower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.in the original principal amount of Fifteen Million Canadian Dollars (Cdn$15,000,000) issued (in part) by INIIwas deemed to require bifurcation and liability classification, at fair value. Pursuant to the VendorSecurities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock exercisable at fourteen dollars and twenty-five cents $14.25 and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 6 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable. As of June 30, 2022 and December 31, 2021, the convertible note payable balance was $280 thousand and $280 thousand, and has accrued interest of $85 thousand and $39 thousand, respectively.31, 20042, 2022 and (b)an agreed offer of a general security agreement, of even date with$10 thousand discount on the Subsidiary Note,principal and interest, resulting in a share pledge agreement, of even date with the Subsidiary Note, both granted concurrently by INII and its shareholder,$72 thousand payment in full.(as successorissued $400 thousand in convertible notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest between 10% to 12% per annum and are convertible at prices ranging from $3.14 to $9.50 per share. In addition, the now defunct Bio-One)Company issued 42,105 shares of common stock in connection with the Indebtedness (together, both instrumentsconvertible notes payable. The Company had an obligation to repurchase the 42,105 shares of common stock at $9.50 per share within one year of the note issuance date. On March 30, 2022, the Company entered into three forbearance agreements which granted the holders 2,105 shares of our common stock in exchange for not enforcing the terms of the agreement for a period of twelve months. As of June 30, 2022 and December 31, 2021, the Company held the obligation to repurchase the shares for $ thousand. As of June 30, 2022 and December 31, 2021, the accrued interest related to the convertible notes was $278 thousand and $268 thousand, respectively.hereinafter referreddeferred for thirty months from the date of the note. As of June 30, 2022 and December 31, 2021 the balance of the note payable was $68 thousand and $68 thousand, and accrued interest was $5 thousand and $4 thousand, respectively.“Securityfuture 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 option and warrants were recorded as derivative liabilities on the issuance date and revalued at June 30, 2022 and December 31, 2021.Schedule of fair value of derivative liabilities Derivative Liability Convertible Notes Derivative Liability Warrants Total Balance as of December 31, 2021 $ 274 $ 325 $ 599 Change in fair value (60 ) (113 ) (173 ) Balance as of June 30, 2022 $ 214 $ 212 $ 426 Schedule of pricing mode with assumptions Market value of common stock $ 0.59 Expected volatility % Expected term (in years) Risk-free interest rate % Market value of common stock $ 0.59 Expected volatility % Expected term (in years) Risk-free interest rate % Schedule of Future Minimum Rental Payments for Operating Leases 2022 $ 43 2023 88 2024 90 2025 7 Operating Lease Total 228 Less: Imputed interest (33 ) Total $ 195 purchase price equalfollow-on offering which is non-binding. On October 27, 2021, Maxim and the Company terminated all relevant agreements and the Company issued Maxim shares of the Company’s common stock in association with the termination.Seven Million Six Hundred Fifty Thousand Canadian Dollars (Cdn$7,650,000) andOctober 2022 or (ii) the execution byclosing of a follow-on offering. The Company completed its offering on January 7, 2022. The Company sold 3,614,458 units of our common stock (a unit consisting of one share of common stock and a warrant to purchase one share of common stock) at $4.15 per unit. The offering provided net proceeds of approximately $13.4 million. See note 1 for information on the capital raise completed in January 2022.that certain Mutual Release.agreements, which included the following: (a) Subscription License and Services Agreement; (b) Digital Banking Platform Operating Agreement; (c) Subscription License Order Form; and (d) Registration Rights Agreement (collectively the “Agreements”).Schedule of fees paid to NECP platform Engagement Fee (prepaid licensing cost) $ 100 License subscription fee (prepaid licensing cost) 750 Annual maintenance subscription fee (prepaid licensing cost) 113 Implementation fee (capitalized software cost) 325 Infrastructure implementation fee (capitalized software cost) 65 Training fee (50% due at Funding Date) 50 Total $ 1,403 Vendor entered into that certain Assignment,closing market price of eventhe Company’s common stock on the date of the agreement. The amounts were expensed to general and administrative expenses on the accompanying statements of operations.a) options to purchase shares of common stock at a weighted average price of $were granted as compensation to employees. The options vest in equal monthly installments over 6 and 12 months. The options were valued at $6.3 million using a Black-Scholes options pricing model. b) options to purchase shares of common stock at a weighted average price of $ were granted ascompensation for various services including accounting, sales, and marketing. The options were valued at $825thousand using a Black-Scholes options pricing model. shares were exercised. Purchase Agreement,following range of assumptions:Schedule of Black Scholes option pricing Market value of common stock on issuance date $5.34 - $33.25 Expected price $0.095 - $19.34 Expected volatility % - % Expected term (in years) - Risk-free interest rate % Expected dividend yields 0 a) b) Market value of common stock on issuance date $0.77 - $12.45 Exercise price $1.24- $12.04 Expected volatility - Expected term (in years) - Risk-free interest rate % Expected dividend yields 0 Schedule of option activity Number of shares Weighted Average exercise price Weighted Average remaining years Outstanding December 31, 2021 1,055,184 $ 6.62 Issued 400,527 $ 4.01 Exercised — $ — Cancelled (394,579 ) $ 2.56 Outstanding as of June 30, 2022 1,061,132 $ 7.15 Outstanding as of June 30, 2022, vested 781,767 $ 7.67 properly effectuatefacilitate the assignmentgrant of equity incentives to employees (including our named executive officers), directors, independent contractors, merchants, referral partners, channel partners and employees of our company to enable our company to attract, retain and motivate employees, directors, merchants, referral partners and channel partners, which is essential to our long-term success. A total of shares of common stock were authorized under the Equity Incentive Plan, for which as of June 30, 2022 a total of are available for issuance.Vendorboard of director’s, the shareholders would vote to ratify the Company of allamendment as part of the right, title, benefitannual shareholder meeting tentatively scheduled to take place in April 2023.interest inAnalysis of Financial Condition and to the Purchased Assets (as defined therein), which such Purchased Assets include, without limitation, the Indebtedness, the SecurityResults of Operationsall loan, security and other documentation relating to the Indebtedness and the Security purchased under the Purchase Agreement. The Company and the Vendor executed the Purchase Agreement, the Mutual Release and the Assignment on May 25, 2007; however, the parties closed the transactions upon the executionanalysis of the SPA on May 31, 2007.Recent Accounting PronouncementsIn March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 (SFAS 161). This statement requires enhanced disclosures about an entity’s derivative and hedging activities and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with earlier application encouraged. The Company will adopt SFAS 161 in the first fiscal quarter of 2009. Since SFAS 161 requires only additional disclosures concerning derivatives and hedging activities, adoption of SFAS 161 will not have an impact on the Company’s consolidatedour financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements, such as statements regarding the anticipated development and expansion of our business, our intent, belief or cash flows.current expectations, primarily with respect to the future operating performance of our company and the products and services we expect to offer and other statements contained herein regarding matters that are not historical facts. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also forward-looking statements which involve risks, uncertainties, and assumptions. Because forward-looking statements are inherently subject to risks and uncertainties, our actual results may differ materially from the results discussed in the forward-looking statements.RESULTS OF OPERATIONSThree Months Ended September20082022 and September 30, 2007INII2021, respectively.acquired by us on May 31, 2007.Sales revenueapproximately $123 thousand for the three months ended SeptemberJune 30, 2008 included sales for INII of $3,910,138 as2022, compared to $4,201,764$151 thousand for the three months ended SeptemberJune 30, 2007. This2021, representing a decrease of 19%. The decrease was principally driven by an adjustment in our revenue related to a processor.generated from sales of nutritional products from INII.Interest Income was $49,249approximately $62 thousand for the three months ended SeptemberJune 30, 2008 as2022, compared to $52,826$36 thousand for the three months ended SeptemberJune 30, 2007. Interest income2021, representing an increase of 72%, driven primarily by an increase in residual payouts from additional processing revenue.derived mainlyapproximately $113 thousand for the six months ended June 30, 2022, compared to $70 thousand for the six months ended June 30, 2021, representing an increase of 61%, driven primarily by an increase in residual payouts from notes receivable relating to investments. Dividend income was $7,332additional processing revenue.SeptemberJune 30, 2008 and $5462022, compared to $3.6 million for the three months ended SeptemberJune 30, 2007. Dividend income is2021, representing a decrease of 63%. The decrease was primarily derived from various investmentsdriven by a decrease in marketable securities. Forstock based compensation and a one-time stock issuance for the threepurchase of a judgment.SeptemberJune 30, 2008, we recorded net trading gains from various investments in marketable securities in the amount of $11,527 as2022, compared to losses$5.3 million for the six months ended June 30, 2021, representing decrease of $8,11423%. The decrease was primarily driven by an increase in payroll and bonuses, which was offset by a one-time stock issuance for the purchase of a judgment.SeptemberJune 30, 2007. The gains in the 2008 period are primarily a result of mark-to-market adjustments at September 30, 2008. We intend2022, compared to wind down these activities and make the primary focus of management as well as devoting the Company’s resources to expanding the international marketing, sales and distribution or INII’s nutritional products.Cost of goods sold, selling, general and administrative expenses and other income and expensesINIICost of sales for our revenue in INII was $3,173,853$— for the three months ended SeptemberJune 30, 2008 as2021. The increase was primarily due to the onboarding of engineers, developers, and the hardware and software needed to complete the platform. Only the salaries of the product development team were capitalized in January 2022.$3,467,897$— for the six months ended June 30, 2021. The increase was primarily due to the onboarding of engineers, developers, and the hardware and software needed to complete the platform. Only the salaries of the product development team were capitalized in January 2022.SeptemberJune 30, 2007. Cost of sales includes material, labor and manufacturing costs associated with the production of our products.Selling, general and administrative expenses were $517,7932022, compared to $1.1 million for the three months ended SeptemberJune 30, 20082021. In connection with the shares to be issued as part of the HotHand acquisition, and to be in compliance with its anti-dilution provision with Infiinios, the Company accrued an additional 39,706 shares of its common stock at $1.81 per share for a total of $72 thousand. The shares have not been issued to Infinios as of June 30, 2022.$513,954$65.0 million for the six months ended June 30, 2021. The excess fair value over assets occurring in 2021 was a one-time event that was due to the timing of the share issuance to Infinios. The shares were issued on a day that the fair value of our common stock closed at $3.75 per share. Approximately 18 million shares were issued, so the difference between the value of the newly issued shares and the value of the services performed was expensed as excess fair value of equity issuance over assets received. See Note 4 for additional information related to the Anti-dilution provision.SeptemberJune 30, 2007. These expenses include salaries and benefits, professional fees and other ordinary expenses necessary2022, compared to carry out our operations.Houston OperationsOur Houston operating expenses were approximately $1,324,396$2.4 million for the three months ended SeptemberJune 30, 2008 as2021, representing a decrease of 98%. The decrease was primarily due to the Company finalizing all of its forbearance agreements with outstanding debt holders in 2021.$638,739$2.6 million for threethe Six months ended SeptemberJune 30, 2007.Approximately $925,0002021, representing a decrease of 98%. The decrease was primarily due to the total expensesCompany finalizing all of its forbearance agreements with outstanding debt holders in 2008 relates to bad debt expense on notes receivable as compared to $447,3772021.SeptemberJune 30, 2007.16Salaries and Benefits were $160,9642022, compared to $453 thousand for the three months ended SeptemberJune 30, 2008ascompared to $134,742 for the three months ended September 30, 2007.2021. The primary reason for the increasedecrease was the allocation of manpowerprimarily due to the acquisition of INII in May 2007 including the assignment of a full time executive assistant to the Company.Professional fees were $108,951 for the three months ended September 30, 2008as compared to $20,475 for the same period ending September 30, 2007.The primary reason for the increase is consulting fees paid in 2008 for internet marketing consulting.Interest expense was $484,074 for the three months ended September 30, 2008and $475,729 for the three months ended September 30, 2007.Interest expense primarily relates to the expense associatedstandard market volatility coupled with the $15,635,199 five percent (5%) convertible debenture entered into in September 2005 and interest on our May 31, 2007 note.The Company was allocated overhead from a former affiliate in the amount of $-0- for the three months ended September 30, 2008, as compared to $50,114 for the three months ended September 30, 2007. The expenses included rent, office supplies, travel and other ordinary expenses necessary to carry out our corporate operations. The arrangement with the former affiliate was discontinued at the end of 2007 due to a change in ownershipresetting terms of the former affiliate.derivative.We recorded expenses of $104,024 for the net changeour derivatives associated with our convertible debenture and note.Nine Months Ended September 30, 2008 and September 30, 2007INIIderivative liability was acquired by us on May 31, 2007.Sales revenueapproximately $173 thousand for the ninesix months ended SeptemberJune 30, 2008 included sales for INII of $12,264,672 as2022, compared to $5,771,105a derivative asset of $55 thousand for the ninesix months ended SeptemberJune 30, 2007. Revenue for 2007 included INII operations for the four months ended September 30, 2007. This revenue was generated from sales of nutritional products from INII.Fee income from brokerage fees earned in originating and selling business leases and loans was $0 for the nine months ended September 30, 2008 versus $2,965 for the nine months ended September 30, 2007. We intend to wind down this activity and make the primary focus of management as well as devoting the Company’s resources to expanding the international marketing, sales and distribution of INII’s nutritional products.Interest Income was $167,462 for the nine months ended September 30, 2008 as compared to $206,309 for the nine months ended September 30, 2007. Interest income was derived mainly from notes receivable relating to investments. Dividend income was $36,257 for the nine months ended September 30, 2008 and $9,015 for the nine months ended September 30, 2007. Dividend income is primarily derived from various investments in marketable securities. For the nine months ended September 30, 2008, we recorded net trading losses from various investments in marketable securities in the amount of $129,500 as compared to gains of $3,897 for the nine months ended September 30, 2008.2021. The losses in 2008 were primarily attributable to losses relating to the auction rate securities discussed below. We intend to wind down these activities and make the primary focus of management as well as devoting the Company’s resources to expanding the international marketing, sales and distribution of INII’s nutritional products.Cost of goods sold, selling, general and administrative expenses and other income and expensesINIICost of sales for our revenue in INII was $9,790,380 for the nine months ended September 30, 2008 as compared to $4,767,414 for the nine months ended September 30, 2007 which included only four months after the acquisition of INII on May 31, 2007. Cost of sales includes material, labor and manufacturing costs associated with the production of our products.Selling, general and administrative expenses were $1,654,192 for the nine months ended September 30, 2008 as compared to $647,057 for the nine months ended September 30, 2007. These expenses include salaries and benefits, professional fees and other ordinary expenses necessary to carry out our operations.Houston OperationsOur Houston operating expenses were approximately $2,118,777 for the nine months ended September 30, 2008 as compared to $2,770,730 for nine months ended September 30, 2007.Salaries and Benefits were $498,261 for the nine months ended September 30, 2008ascompared to $412,405 for the nine months ended September 30, 2007.The primary reason for the increase was the allocation of manpower due to the acquisition of INII in May 2007 including the assignment of a full time executive assistant to the Company.17Professional fees were $347,141 for the nine months ended September 30, 2008as compared to $1,154,218 for the same period ending September 30, 2007.The primary reason for the decrease is an approximate $890,000 one-time fee paid to a former affiliate for past services rendered for control of INII in 2007.Interest expense was $1,430,541 for the nine months ended September 30, 2008and $956,344 for the nine months ended September 30, 2007.Interest expense primarily relates to the expense associated with the $15,635,199 five percent (5%) convertible debenture entered into in September 2005 and four month’s interest in 2007 on our May 31, 2007 note.The Company was allocated overhead from a former affiliate in the amount of $-0- for the nine months ended September 30, 2008, as compared to $199,835 for the nine months ended September 30, 2007. The expenses included rent, office supplies, travel and other ordinary expenses necessary to carry out our corporate operations. The arrangement with a former affiliate was discontinued at the end of 2007 due to a change in ownership of the former affiliate.We recorded income of $6,389,641 for the net change in fair value of our derivatives associated with our convertible debenture and note.Liquidity and Capital ResourcesOperating Activities We recorded net income for the nine months ended September 30, 2008 in the amount of $3,124,441. During the nine months ended September 30, 2008, our operations used cash in the amount of $245,527. Cash used by operating activities was primarily due to increasesstandard market volatility coupled with the resetting terms of the derivative.accounts receivable, inventoryor provided by, operating, investing and prepaid expenses, offset by increasesfinancing activities were as follows (in thousands): Six Months Ended June 30, 2022 2021 Net cash used in operating activities $ (5,378 ) $ (726 ) Net cash provided by (used in) investing activities (185 ) (1,340 ) Net cash provided by financing activities 13,345 2,362 accounts payable and accrued liabilities. Cash also increased as a result of reductions in investments in marketable securities.Investing ActivitiesWe used cash totaling $147,391 for the acquisition of fixed assetsoperating activities during the ninesix months ended SeptemberJune 30, 2008.2022 was approximately $5.4 million, which is comprised of (i) our net loss of $9.6 million, adjusted for non-cash expenses totaling $5.4 million (which includes adjustments for equity-based compensation, depreciation and amortization), and (ii) increased by changes in operating assets and liabilities of approximately $1.2 million.SeptemberJune 30, 2008, we had approximately $1,680,0002022, there have been no significant changes to our critical accounting estimates, except as described in cash and short-term investments. We believe the working capital availableNote 2 to us will be sufficient to meet our cash requirements for at least the next 12 months.Financing ActivitiesWe used cash totaling $47,606 for payment on capital lease obligations during the nine months ended September 30, 2008. The Company’s secured convertible promissory note in the amount of $9,292,894 requires that the Company maintain EBITDA for each accounting period which equals or exceeds the applicable EBITDA threshold for such accounting period. Our EBITDA for nine months ended September 30, 2008 was CDN$1,392,119 versus CDN$1,387,238 as required under the Exhibit to the Note for the nine months.had working capitalcapitalizes software development costs in developing internal use software when capitalizing requirements have been met. Costs prior to meeting the amountcapitalization requirements are expensed as incurred. Equity and options granted are capitalized as part of $1,041,407 at Septemberthe software development costs.2008. Included2022, there have been no significant changes to our recently issued accounting pronouncements, except as described in Note 2 to our working capital is $280,561 of short term notes receivable and $50,000 in investments in marketable securities.Our cash flows for the periods are summarized below: Nine Months Ended Nine Months Ended September 30, 2008 September 30, 2007 Net cash provided by (used in) operating activities Net cash provided by (used in) investing activities $ (147,391 ) $ 613,799 Net cash provided by (used in) financing activities $ (47,606 ) $ 1,054,787 Our cash has decreased by $245,527 since December 31, 2007.Management believes the Company has adequate working capital and cash to be provided from operating activities to fund current levels of operations. We anticipate that our company will grow. As our business grows we believe that we will have to raise additional capital in the private debt and public equity markets to fund our investments.18The Company leases administrative office spaceHouston, Texas atItem 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.current minimum annual cost“smaller reporting company,” as defined by Rule 12b-2 of $74,032. The Company is also responsible for its share of property tax, maintenancethe Exchange Act, with respect to this Annual Report on Form 10-K, we are not required to provide the information required by this item.utility costs on the office building lease. The lease expires in January 2010.INII leases its building and warehouse in Ottawa, Canada at a current minimum annual cost of $308,230. The Company is also responsible for its share of property tax, maintenance and utility costs on the warehouse lease. The leases expire on April 30, 2009.Future minimum payments under the office, building and warehouse leases described above, on a fiscal year basis are as follows:2008 $ 96,373 2009 177,852 2010 6,169 $ 280,394 InflationThe Company believes that inflation has not had a significant impact on operations since inception.19ITEM 4T. CONTROLS AND PROCEDURES(A) Procedures.The Company maintains disclosure controlsprocedures designed to ensure that information required to be disclosed in reports filed underwith the Securities Exchange Actparticipation of 1934, as amended, is recorded, processed, summarized, accumulated and communicated to the Company’sour management, including itsthe Chief Executive Officer ("CEO") who also serves asand the Company’s Interim Chief Financial Officer, ("CFO"),we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as appropriate, to allow timely decisions regarding required disclosure.As of the end of the period covered by this report, the Company's management carried out an evaluation, under the supervision and with the participation of the Company's CEO and CFO (one individual), of the effectiveness of the design and operation of the Company's system of disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act.report. Based on that evaluation, the material weaknesses described herein,Chief Executive Officer and the Company's CEO and CFO (one individual) hasChief Financial Officer concluded that the Company'sour disclosure controls and procedures were not effective as of the date of that evaluation, for the purposes of recording, processing, summarizing and timelyJune 30, 2022. of material information required to be disclosed in reports filed by the Company under the Exchange Act.Because of its size, the Company shares its accounting staff with another company located in the same suite in Houston, Texas and is comprised of its controller and a data entry clerk. The controller and data entry clerk are considered contract employees whom also work for the other company within the office suite as contract employees. We currently do not have the resources to hire full-time accounting personnel and do not anticipate hiring any full-time accounting personnel in the near future. Because of the structure of our staff, we have a failure to maintain effective controls over the selection, application and monitoring of our accounting policies to assure that certain complex equity transactions are accounted for in accordance with generally accepted accounting principles.Material Weaknesses IdentifiedIn connection with the audit of our Consolidated Financial Statements for the fiscal year ended December 31, 2007, our independent registered public accounting firm informed us that we had significant deficiencies constituting material weaknesses as defined by the standards of the Public Company Accounting Oversight Board, which had been identified in connection with the audit of our Consolidated Financial Statements for the fiscal years ended December 31, 2007.The material weaknesses identified by the auditor during the December 31, 2007 audit were the lack of segregation of duties necessary to maintain proper checks and balances between functions and the lack of procedures to properly account for non-routine transactions including the write down of stock investment, impairment of an investment in a partnership and recording of the additional liability at the liquidation value for a series of preferred stock which was to be completely liquidated at December 31, 2007.The absence of qualified full time accounting personnel was a contributing factor to the problems identified by the auditor. The specific circumstances giving rise to the weaknesses include utilizing the services of contract accountants on a part time basis in the absence of internal accounting personnel.(B) Changesin Internal Controls over Financial ReportingIn connection with the evaluation of the Company's internal controls during the Company's last fiscal quarter covered by this report required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, the Company's CEO and CFO (one individual) has determined that there were no changes to the Company's internal controls over financial reportingsix months ended June 30, 2022 that have materially affected, or are reasonably likely to materially effect, the Company'saffect, our internal controlscontrol over financial reporting.20ITEM 1. LEGAL PROCEEDINGSNoneITEMRISK FACTORSWe areRisk Factors.byin Rule 12b-2 of the Exchange Act, andwe are not required to provide the information under thi Item.required by this item.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNone.ITEM 5. OTHER INFORMATIONITEMEXHIBITS(a) Exhibits:EXHIBIT NO.DESCRIPTIONLOCATION3.1 and 3.2Articles of Incorporation and Conversion of Natural Nutrition, Inc.Incorporated by reference to Exhibits 3.1 and 3.2 to the Company’s Form 10-KSB as filed with the Securities and Exchange Commission on April 13, 2007 4.131.1CSI Business Finance, Inc. 2006 Stock Incentive Plan.Incorporated by reference as Exhibit 4.1 toCertification of the Company's Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 14, 2006.10.1Purchase Agreement, dated effective December 31, 2007, by and among Natural Nutrition, Inc., CSI Business Finance, Inc. and Corporate Strategies, Inc.Incorporated by reference as Exhibit 109.1 to the Company's Current Report on 8-K filed with the U.S. Securities and Exchange Commission on January 3, 200810.2Agreement, dated January 24, 2008, by and between Global Virtual Opportunities and Natural Nutrition, Inc.Incorporated by reference as Exhibit 10.1 to the Company's Current Report on Form 8-K as filed with the U.S. Securities and Exchange Commission on February 1, 200831.1Certificate pursuant to 15 U.S.C. Section 7241, as adopted pursuant toChief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002Provided herein dated August 4, 202232.1Certificate pursuant to 18 U.S.C.31.2 Certification of the Chief Financial Officer under Section 1350, as adopted pursuant to302 of the Sarbanes-Oxley Act of 2002 dated August 4, 202232.1 Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 dated August 4, 2022 Provided herein32.2 Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 dated August 4, 2022 21SIGNATURESIn accordance withCompanyregistrant has duly caused this Quarterly Report on Form 10-Qreport to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 2008Natural Nutrition, Inc.AppTech Payments Corp.(Registrant)Date: August 4, 2022 By: /s/ Luke D’Angelo /s/ Timothy J ConnollyLuke D’Angelo Titles:Chief Executive Officer, Interim Chairman and DirectorDate: August 4, 2022 By: /s/ Gary Wachs Gary Wachs Chief Financial Officer, Principal Executive OfficerTreasurer and Interim Principal Financial and Accounting OfficerDirector 22