UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

MARK ONE

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the Quarterly Period ended March 31,June 30, 2023; or

 

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transition period from ________ to ________

 

Commission File Number: 000-55403

 

APPYEA, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 46-1496846
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

16 Natan Alterman St, Gan Yavne, Israel  
(Address of principal executive offices) Zip Code

 

(800) 674-3561

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A

 

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. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☒
  Emerging growth company☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of May 15,August 14, 2023, there were outstanding 229,565,414240,321,157 shares of the registrant’s common stock, par value $0.0001 per share.

 

 

 

 

 

APPYEA, INC.

Form 10-Q

March 31,June 30 June 30, 2023

 

 Page
  
PART I — FINANCIAL INFORMATION
 
Item 1 – Unaudited Condensed Consolidated Financial Statements
 
Condensed Consolidated Balance Sheets – March 31,June 30, 2023 (unaudited) and December 31, 20223
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 (unaudited)4
  
Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (unaudited)5
Condensed Consolidated Statement of Changes in Stockholders’ Equity (deficit) for the three and six months ended March 31,June 30, 2023 and 2022 (unaudited)65-6
  
Condensed Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2023 and 2022 (unaudited)7
  
Notes to Unaudited Condensed Consolidated Financial Statements88-17
  
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations1618
  
Item 3 – Quantitative and Qualitative Disclosures About Market Risk21
Item 4 – Controls and Procedures22
PART II — OTHER INFORMATION22
Item 1 – Legal Proceedings22
Item 1A – Risk Factors22
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds22
Item 3 – Defaults upon Senior Securities22
Item 4 – Mine Safety Disclosures23
  
Item 54 – Other InformationControls and Procedures2324
PART II — OTHER INFORMATION24
  
Item 61 – ExhibitsLegal Proceedings2324
  
Exhibit IndexItem 1A – Risk Factors2324
  
SIGNATURESItem 2 – Unregistered Sales of Equity Securities and Use of Proceeds24
Item 3 – Defaults upon Senior Securities24
Item 4 – Mine Safety Disclosures25
Item 5 – Other Information25
Item 6 – Exhibits25
Exhibit Index25
SIGNATURES26

 

2

APPYEA INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2023

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Page
Condensed Consolidated Balance Sheets4
Condensed Consolidated Statements of Operations5
Condensed Consolidated Statements of Changes in Deficiency6
Condensed Consolidated Statements of Cash Flows7
Notes to the Condensed Consolidated Financial Statements8-15

3

 

APPYEA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

 

 March 31 December 31,  June 30, December 31, 
 2023 2022  2023 2022 
 Unaudited Audited  Unaudited Audited 
ASSETS                
Current assets                
Cash and cash equivalents  100   60   47   60 
Other accounts receivables  18   19   43   19 
        
Total current assets  118   79   90   79 
                
Non-current assets                
Property and equipment, net  1   2   1   2 
Intangible assets. net  118   124 
Total non-current asset  119   126 
Intangible assets, net  113   124 
Total non-current assets  114   126 
                
Total assets  237   205   204   205 
                

LIABILITIES AND DEFICIENCY

                
Current liabilities                
Trade payables  38   67   38   67 
Other accounts payable and related party payables  423   340   511   340 
Short-term loans from related party  80   80   79   80 
Convertible loans from related party  37   36   38   36 
Short-term loans  620   693 
Convertible loans measured at fair value  1,436   1,528 
Convertible Short-term loans at fair value  233   693 
Convertible loans at fair value  1,416   1,528 
Warrants liability  14   24   231   24 
Total current liabilities  2,648   2,768 
        
Total liabilities  2,648   2,768   2,546   2,768 
                
DEFICIENCY                

AppYea Inc. Stockholders’ Deficiency:

                
Convertible preferred stock, $0.0001 par value          -   - 
Common stock, $0.0001 par value  22   21   22   21 
Stock payables  28   27 
Stock Payables  74   27 
Additional Paid in Capital  2,351   1,912   2,716   1,912 
Accumulated deficit  (4,798)  (4,509)  (5,140)  (4,509)
Total AppYea Inc. stockholders’ deficiency  (2,397)  (2,549)  (2,328)  (2,549)
Non-controlling interests  (14)  (14)  (14)  (14)
                
Total Deficiency  (2,411)  (2,563)  (2,342)  (2,563)
                
Total liabilities and deficiency  237   205   204   205 

43

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands)

 

 2023 2022  2023  2022     2022 
 For the three months ended March 31,  For the period of three months ended June 30,  For the period of six months ended June 30, 
 2023 2022  2023  2022  2023  2022 
 Unaudited Unaudited  Unaudited  Unaudited 
              
Research and development expenses  9   25   7   17   16   42 
Sales and marketing  -   8   2   3   2   1 1 
General and administrative expenses  427   447   440   632   867   1,079 
                        
Operating loss  (436)  (480)  (449)  (652)  (885)  (1,132)
                        
Change in fair value of convertible loans and warrant liability  166   1,248   95   (125)  261   1,123 
Financial income (expenses), net  12   (30)  (7)  (46)
Loss before income tax benefit  (342)  (807)  (631)  (55)
                        
Financial expenses, net  (19)  16)
Income tax benefit  -   -   -   - 
                        
Net income (loss)  (289)  752 
Net loss  (342)  (807)  (631)  (55)
                        
Net income (loss) attributable to AppYea Inc.  (289)  752 
Net Loss attributable to AppYea Inc.  (342)  (807)  (631)  (55)
                        
Net Income (Loss) per Common Share        
Loss per Common Share                
                        
Basic  (0.001)  0.003   0   (0.003)  0   0 
Diluted  (0.001)  0.001   0   (0.003)  0   0 
                        
Weighted Average number of Common Shares Outstanding        
        
Basic  225,248,108   218,246,326 
Diluted  225,248,108   691,754,200 

Weighted Average number of Common Shares Outstanding basic and diluted

  234,943,286   219,074,483   230,272,456   218,660,405 

 

4

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY

(U.S. dollars in thousands except share data)

  Number  Amount  Number  Amount  Payables  Capital  Deficit  Total  interests  Deficiency 
  Preferred Stock  Common Stock  Stock  Additional Paid in  Accumulated    Non-controlling  Total 
  Number  Amount  Number  Amount  Payables  Capital  Deficit  Total  interests  Deficiency 
                Unaudited             
Balance as of January 1, 2023  300,000   -   220,930,798   21   27   1,912   (4,509)  (2,549)  (14)  (2,563)
                                         
Share issuance upon conversion of Convertible notes  -   -   19,390,359   1   -   242   -   243   -   243 
Stock payables  -   -   -   -   47   -   -   47   -   47 
Share based compensation  -   -   -   -   -   562   -   562   -   562 
Net loss  -   -   -   -   -   -   (631)  (631)  -   (631)
                                         
Balance as of June 30, 2023  300,000   -   240,321,157   22   74   2,716   (5,140)  (2,328)  (14)  (2,342)

  Preferred Stock  Common Stock  Stock  Additional Paid in  Accumulated    Non-controlling  Total 
  Number  Amount  Number  Amount  Payables  Capital  Deficit  Total  interests  Deficiency 
                Unaudited             
Balance as of January 1, 2022  300,000   -   218,246,326   21   -    768   (3,205)  (2,416)  (14)  (2,430)
                                         
Issuance of shares to service providers  -   -   2,484,472   -   -    80   -   80   -   80 
Stock payables  -   -   -   -   28       -   28   -   28 
Share based compensation  -   -   -   -   -    508   -   508   -   508 
Net loss  -   -   -   -   -    -   (55)  (55)  -   (55)
                                        

 

 

Balance as of June 30, 2022  300,000   -   220,730,798   21   28   1,356   (3,260)  (1,855)  (14)  (1869)

5

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY

(U.S. dollars in thousands except share data)

 

  Number  Amount  Number  Amount  Capital  Payables  Deficit  Total  interests  Equity 
  Preferred Stock  Common Stock  

Additional

Paid in

  Stock  Accumulated    Non-controlling  Total 
  Number  Amount  Number  Amount  Capital  Payables  Deficit  Total  interests  Equity 
  Unaudited 
Balance as of January 1, 2023  300,000       220,930,798   21   1,912   27   (4,509)  (2,549)  (14)  (2,563)
                                         
Share based Compensation  -   -   -   -   279   -   -   279   -   279 
Net Income  -   -   -   -   -   -   (289)  (289)  -   (289)
Stock Payables  -   -   -   -   -   1   -   1   -   1 
Share issuance upon conversion of Convertible notes.  -   -   8,634,616   1   160   -   -   161   -   161 
                                         
Balance as of March 31, 2023  300,000   -   229,565,414   22   2,351   28   (4,798)  (2,397)  (14)  (2,411)
  Preferred Stock  Common Stock  Stock  Additional Paid in  Accumulated    Non-controlling  Total 
  Number  Amount  Number  Amount  Payables  Capital  Deficit  Total  interests  Deficiency 
                Unaudited             
Balance as of April 1, 2023  300,000   -   229,565,414   22   28   2,351   (4,798)  (2,397)  (14)  (2,411)
                                         
Share issuance upon conversion of Convertible notes  -   -   10,755,743   -   -    83   -   83   -   83 
Stock payables  -   -   -   -   46       -   46   -   46 
Share based compensation  -   -   -   -   -    282   -   282   -   282 
Net loss  -   -   -   -   -    -   (342)  (342)  -   (342)
                                         
Balance as of June 30, 2023  300,000   -   240,321,157   22   74   2,716   (5,140)  (2,328)  (14)  (2,342)

 

   Number  Amount Number  Amount  Capital  Deficit  Total  interests  Equity 
  Preferred Stock Common Stock  

Additional

Paid in

  Accumulated    Non-controlling  Total 
   Number  Amount Number  Amount  Capital  Deficit  Total  interests  Equity 
  Unaudited 
Balance as of January 1, 2022  300,000      218,246,326   21-   768   (3,205)  (2,416)  (14)  (2,430)
Beginning balance, value  300,000      218,246,326   21-   768   (3,205)  (2,416)  (14)  (2,430)
                                    
Share based Compensation  -   -  -   -   252       252   -   252 
Net Income  -   -  -   - -  -   752   752   -   752 
                                    
Balance as of March 31, 2022  300,000   -  218,246,326   21 -  1,020   (2,453)  (1,412)  (14)  (1,426)
Ending balance, value  300,000   -  218,246,326   21 -  1,020   (2,453)  (1,412)  (14)  (1,426)
  Preferred Stock  Common Stock  Stock  Additional Paid in  Accumulated    Non-controlling  Total 
  Number  Amount  Number  Amount  Payables  Capital  Deficit  Total  interests  Deficiency 
                Unaudited             
Balance as of April 1, 2022  300,000       218,246,326   21   -   1,020   (2,453)  (1,412)  (14)  (1,426)
                                         
Beginning balance, value  300,000       218,246,326   21   -   1,020   (2,453)  (1,412)  (14)  (1,426)
Issuance of shares to service providers  -   -   2,484,472   -   -    80   -   80   -   80 
Stock payables  -   -   -   -   28       -   28   -   28 
Share based compensation  -   -   -   -   -    256   -   256   -   256 
Net loss  -   -   -   -   -    -   (807)  (807)  -   (807)
                                         
Balance as of June 30, 2022  300,000   -   220,730,798   21   28   1,356   (3,260)  (1,855)  (14)  (1869)
Ending balance, value  300,000   -   220,730,798   21   28   1,356   (3,260)  (1,855)  (14)  (1869)

 

6

 

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

 2023 2022 
 2023 2022  For The six Months Ended 
 For The Three Months Ended March 31,  June 30, 
 2023 2022  2023 2022 
 Unaudited  Unaudited 
Cash flows from operating activities:                
Net income (loss)  (289)  752 
Adjustments to reconcile income (loss) to net cash used in operating activities:        
Net loss  (631)  (55)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  6   6   12   12 
Share based compensation  279   252   570   603 
Financial income, net, including changes in fair value of convertible loans and warrants  (147)  (1,235)
Change in fair value of convertible loans and warrant liability and financial expenses  (261)  (1,077)
Changes in operating assets and liabilities:                
Other current assets  1   2   (24)  (9)
Accounts payables  74   96 
Accounts payable  76   124 
Accounts payables – related party  (21)  -   66   - 
                
Net cash used in operating activities  (97)  (127)  (192)  (402)
                

Cash flows from financing activities:

                
Proceeds on account of Stock Payables  40   13 
Proceeds from convertible Note received less issuance expenses  141   -   141   368 
Issuance of warrants measured at FV  -   9 
                
Net cash provided by financing activities  141   -   181   390 
                
Foreign exchange on Cash and cash equivalents  (4)  - 
Effect of foreign exchange on cash and cash equivalents  2   (5)
Change in cash and cash equivalents  40   (127)  (9)  (17)
Cash and cash equivalents at beginning of period  60   206   60   206 
                
Cash and cash equivalents at end of period  100   79   51   189 

 

7

 

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 - GENERAL

AppYea, Inc. (“AppYea”, “the Company”, “we” or “us”) was incorporated in the State of South Dakota on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is in the development stage with no significant revenues and no operating history. On November 1, 2021 the Company was redomiciled in the State of Nevada.

 

The Company’s common stock is traded on the OTC Markets, OTCQBpink tier, under the symbol “APYP”.

 

Reverse merger

 

In anticipation of the reverse merger described below, on July 2, 2021, Boris Molchadsky a majority shareholder of the Company, acquired in a private transaction from the former majority shareholder consisting of two hundred and twenty-five thousand (225,000) Shares of Series A Preferred Stock of the Company. The Series A Preferred Shares have the right to vote at 1,000 to 1 as shares of common stock and are convertible intoat a rate of 1,500 to 1 of theas shares of common stock of the Company.Company. The acquisition of the Preferred Shares provided Boris Molchadsky with control of a majority of the Company’s voting equity capital.capital.

 

On August 2, 2021, the Company entered into a stock exchange agreement with SleepX Ltd., a company formed under the laws of the State of Israel (“SleepX”) and controlled by the majority shareholder of AppYea, Pursuant to the agreement, the outstanding equity capital consisting of 1,724 common shares of SleepX was exchanged for 174,595,634 shares of common stock of the Company, based on the agreement that determined that to SleepX shareholders will be issued common shares in the amount that will result in them holding 80% of the issued common shares issued of AppYea. As a result, SleepX became a wholly owned subsidiary of the Company. On December 31, 2021, the terms of the agreement were fulfilled; however, the issuance of the shares to SleepX shareholders, due to administrative matters, was completed in March 2022 after the Company completed a reverse stock split. The shares that were issued are represented in the 2021 financial statements.

 

As aof the result of the transactiontransactions mentioned above, as of March 31, 2023, Mr. Molchadsky controls approximately 71.4% of the total voting power of AppYea.AppYea as of June 30, 2023 .

 

SleepX is an Israeli research and development company that has developed a unique product for monitoring and treating sleep apnea and snoring. The technology is protected by several international patents and, subject to raising working capital, of which no assurance can be provided, the Company plans to start serial production in Q4 2023. The Company will focus on further development and commercialization of the products. Its strategy will include continued investment in research and development and new initiatives in sales and marketing.

 

SleepX has incorporated, together with an unrelated third party, a privately held company under the laws of the State of Israel named Ta-nooma Ltd. (“Ta-nooma”). Ta-nooma has developed sleeping monitoring technology for which patent applications were filed and has no revenue from operations.operation. Since its incorporation and as of the financial statements date, SleepxSleepX holds 66.7% of the voting interest of Ta-nooma.

 

In addition to SleepX, the Company has four wholly owned subsidiaries with no active operations.

 

8

 

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 - GENERAL (cont.)

 

Financial position

 

The financial statements are presented on a going concern basis. The Company has not yet generated any material revenues, has suffered recurring losses from operations and is dependent upon external sources for financing its operations. As of March 31,June 30, 2023, and December 31, 2022, the Company has a stockholders’ deficiency of $2,397,0002,328,000 and $2,549,000, respectively. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company intends to continue to finance its operating activities by raising capital. There are no assurances that the Company will be successful in obtaining thean adequate level of financing needed for its long-term research and development activities on commercially reasonable terms or at all. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the development of its product candidates or may be required to implement cost reduction measures and may be required to delay part of its development programs.

 

The financial statements do not include any adjustments for the values of assets and liabilities and their classification may be necessary in the event that the Company is no longer able to continue its operations as a “going concern”.

 

NOTE 2- SIGNIFICANT ACCOUNTING POLICIES

 

The interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The interim financial statements do not include a full disclosure as required in annual financial statements and should be read with the annual financial statements of the Company as of December 31, 2022 from which the accompanying condensed consolidated balance sheet dated December 31, 2022, was derived.2022. The accounting policies implemented in the interim financial statements areis consistent with the accounting policies implemented in the annual financial statements as of December 31, 2022, except of the following accounting pronouncement adopted by the Company.company.

 

Recently Issued Accounting Pronouncements not yet adopted

 

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which is intended to address issues identified as a result of the complexity associated.

9

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 2- SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

with applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stocks, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods in those fiscal years, beginning after December 15, 2023 (effective January 1, 2024) for smaller reporting companies. The Company is determining the adoption of this new accounting guidance and the effect on its consolidated financial statements throughout the period until implementation.

 

Use of Estimates in Preparation of Financial Statements

 

The preparation of consolidated financial statements in conformity with U.S. GAAP accounting principles requires management to make estimates and assumptions. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

9

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3- RELATED PARTY BALANCES AND TRANSACTIONS

 

A. Loan from related party

 

During December 2022, Boris Molchadsky lent to the Company a total amount of NIS 80,000 ($22,734). The loan bears interest at an annual rate of 5%. The loan was fully repaid during the first and second quarters, 2023.

 

B. Short-term loans from related parties

 

During 2021, SleepX borrowed from Nexense an aggregate amount of $47,623. According to the agreement, the loan shall be repaid in the event that the Company’s profits are sufficient to repay the aggregate loan amount and upon such terms and in such installments as shall be determined by the Board. The loan shall bear interest at an annual rate equal to the minimum rate approved by applicable law in Israel (2.9% in 2023).

 

During 2020, the minority shareholder of Ta-nooma loaned Ta-nooma NIS 115,725. The loan does not carry any interest expense and the repayment terms have yet to be determined. As of March 31,June 30, 2023, the loan balance amounted to NIS 115,725 ($32,01231,277).

 

C. Convertible loans from related party

 

On August 22, 2021 Evergreen Venture Partners LLC, owned by Douglas O. McKinnon, former CEOprinciple stockholder of the Company, agreed to advance to the Company up to $265,000 in tranches under the terms of an 18 month unsecured promissory note. Under the terms of the note, which bears interest at a rate of 8% per annum, the investornote holder can convert the note into shares of common stock at 35% discount to the highest daily trading price over the 10 daysdays’ preceding conversion but in any event not less than $0.10 per share.share. The note contains standard events of default. As of March 31,June 30, 2022, the related party has advanced to the Company $25,000 funds under the Note and there are no assurances if there will be no additional amounts transferred.loans. As of March 31,June 30, 2023, the Companyprincipal plus interest is estimated by the loan atcompany as $36,92529,025.

D. Balances with related parties

SCHEDULE OF BALANCE WITH RELATED PARTIES

  March 31, 2023  December 31, 2022 
  In U.S. dollars in thousands 
       
Liabilities:        
Employees and payroll accruals  206   268 
Related party payables  120   140 
Short term loan  80   80 
Convertible loan  37   36 

 

10

 

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 3- RELATED PARTY BALANCES AND TRANSACTIONS (cont.)

D. Balances with related parties

SCHEDULE OF BALANCE WITH RELATED PARTIES

  

June 30,

2023

  December 31, 2022 
  In U.S. dollars in thousands 
    
Liabilities:        
Employees and payroll accruals  185   268 
Related party payables  206   140 
Short term loan  79   80 
Convertible loan
  38   36 

 

E. Transactions with related parties

 SCHEDULE OF TRANSACTION WITH RELATED PARTIES

 2023  2022 
 2023 2022  

Six months ended

June 30,

 
 For the three months ended March 31,  2023  2022 
 2023 2022  In U.S. dollars in thousands 
 In U.S. dollars in thousands    
Expenses:                
Salaries and related cost (including stock-based compensation in the amount of $272,000 and $252,000, respectively)  309   297 
Management fee to the Company’s CEO  90   35 
Salaries and related cost *)  614   593 
Salaries and related cost  309   297   614   593 

 

*)Including share-based compensation for the six months ended June 30, 2023 and 2022 in the amount of $526,000 and $487,000, respectively.

Both the Chairman and the chief financial officer are directors in the Company and do not receive compensation for their directorship roles. Company’s Bylaws provide that a director or officer shall be indemnified and held harmless by the Corporation, to the fullest extent permitted by the laws of the State of Nevada.

11

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4- CONVERTIBLE LOANS AND WARRANTS

 

The following table summarizes fair value measurements by level as of March 31,June 30, 2023 and December 31, 2022 measured at fair value on a recurring basis:

 SCHEDULE OF FAIR VALUE RECURRING BASIS

December 31, 2022 Level 1 Level 2 Level 3 Total  Level 1 Level 2 Level 3 Total 
 In U.S. dollars  In U.S. dollars in thousands 
Assets                                
None  -   -   -   -   -   -   -   - 
                                
Liabilities                                
Convertible Loans  -   -   2,257   2,257   -   -   2,257   2,257 
Warrants      -   24   24       -   24   24 

 

March 31, 2023 Level 1  Level 2  Level 3  Total 
 In U.S. dollars 
Assets  
None  -   -   -   - 
                 
Liabilities                
Convertible Loans  -   -   2,093   2,093 
Warrants      -   14   14 

11

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4 - CONVERTIBLE LOANS AND WARRANTS (cont.)

June 30, 2023 Level 1  Level 2  Level 3  Total 
  In U.S. dollars in thousands 
Assets                
None  -   -   -   - 
                 
Liabilities                
Convertible Loans  -   -   1,687   1,687 
Warrants      -   231   231 

 

The Convertible Loans changes consist of the following as of March 31,June 30, 2023 and December 31, 2022:

 SCHEDULE OF CONVERTIBLE LOANS AT FAIR VALUE

 March 31, 2023 December 31, 2022  June 30, 2023 December 31, 2022 
 Convertible Loans at Fair Value  Convertible Loans at Fair Value 
 March 31, 2023 December 31, 2022  June 30, 2023 December 31, 2022 
 $000 $000 
Opening Balance, (including short term loans from related party which is also convertible)  2,257   2,492 
Opening Balance  2,257   2,492 
Additional convertible loans (a)  153   526   153   526 
Repayment of convertible loan (b)  -   (18)  -   (18)
Conversion of convertible loan (c)  (161)  -   (243)  - 
Change in fair value of convertible loans liability  (156)  (743)  (480)  (743)
Closing balance  2,093   2,257   1,687   2,257 

 

(a)During the quartersix months ended March 31,June 30, 2023, and the year ended December 31, 2022, the Company received a principal amount of $152,750and $526,826respectively. The amount received during the quarterperiod  is convertible at a price equal 65% of the lowest trading price during the (10) days prior to the conversion date, with 35% discount.

(b)During the quartersix months ended March 31,June 30, 2023, and the year ended December 31, 2022, the Company repaid nill and $17,500, respectively.

(c)During the quartersix months ended March 31,June 30, 2023, and the year ended December 31, 2022, a total amount of $161,473 242,538and $0respectively, were converted into 8,634,61619,390,359    shares of common stock.

12

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 4 - CONVERTIBLE LOANS AND WARRANTS (cont.)

 

The estimated fair values of the Convertible loans were measured according to the Monte Carlo Model using the following assumptions:

 SCHEDULE OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED

 As of March 31, As of December 31,  As of June 30, As of December 31, 
 2023 2022  2023 2022 
Expected term (in years)  0.25-0.34   0.5   1-1.5   0.5 
Expected average (Monte Carlo) volatility  150%  169%  171%  169%
Expected dividend yield  -   -   -   - 
Risk-free interest rate  4.9%-5%  4.8%  5.2%-5.4%  4.8%
WACC  30%  30%  30%  30%

 

The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2022:

 SUMMARIZES RELATING TO OUTSTANDING AND EXERCISABLE WARRANTS

Warrants Outstanding and ExercisableWarrants Outstanding and Exercisable   Warrants Outstanding and Exercisable   

Number of

Warrants

 

Weighted Average Remaining Contractual life

(in years)

 

Weighted Average

Exercise Price

 Valuation as of
December 31, 2022		 
Number ofNumber of Weighted Average Remaining Contractual life Weighted Average Valuation as of 
WarrantsWarrants (in years) Exercise Price December 31, 2022 
300,000   2.9   0.043  $11,351 300,000   2.9   0.043  $11,351 
300,000   3.35   0.043  $11,679 300,000   3.35   0.043  $11,679 
8,334   2.9   0.6  $230 8,334   2.9   0.6  $230 
32,500   3.35   0.6  $992 32,500   3.35   0.6  $992 

 

The following table summarizes information relating to outstanding and exercisable warrants as of March 31,June 30, 2023:

Warrants Outstanding and Exercisable    
Number of
Warrants		  

Weighted Average Remaining

Contractual life

(in years)

  Weighted Average
Exercise Price		  Valuation as of
March 31, 2023		 
300,000   2.65   0.022  $6,448 
300,000   3.11   0.022  $6,671 
8,334   2.65   0.6  $108 
32,500   3.11   0.6  $492 
Warrants Outstanding and Exercisable    
Number of  Weighted Average Remaining Contractual life  Weighted Average  Valuation as of 
Warrants  (in years)  Exercise Price  June 30, 2023 
 300,000   2.41   0.022  $1,794 
 300,000   2.86   0.022  $1,955 
 8,334   2.41   0.6  $23 
 32,500   2.86   0.6  $116 
 7,000,000*  1.00   0.04  $227,014 

During the quarter the company issued a new warrant to an Additional Third Party Note holder. See Note 6-H.

13

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 4 - CONVERTIBLE LOANS AND WARRANTS (cont.)

The estimated fair values of the Warrants were measured according to the data as follows:

 SCHEDULE OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED

  As of March 31,  As of December 31, 
  2023  2022 
Expected term  2.65-3.11   2.9-3.35 
Expected average volatility  178%  179%
Expected dividend yield  -   - 
Risk-free interest rate  3.8%-3.9%  4.09%-4.15%
Common Stock Market Value $0.022  $0.043 

13

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

  As of June 30,  As of December 31, 
  2023  2022 
Expected term  2.41-2.86   2.9-3.35 
Expected average volatility  172.17%-174%  179%
Expected dividend yield  -   - 
Risk-free interest rate  4.54%-4.74%  4.09%-4.15%
Common Stock Market Value $0.009  $0.043 

 

NOTE 5 - STOCK BASED COMPENSATION

 

A.The table below depicts the number of options granted to such employee:consultants and employees:

SCHEDULE OF NUMBER OF OPTIONS GRANTED

 options  in USD 
 Three months ended March 31, 2023         
 Number of Weighted average exercise price  Six months ended June 30, 2023 
 options  in USD  

Number of

options

 Weighted average exercise price in USD 
          
Options outstanding at January 1, 2023  10,846,284  $0.0001   10,846,284  $0.0001 
Options granted during the period *)  1,859,776  $0.0001 
Options granted during the period  3,532,290  $0.0001 
Options outstanding at the end of period  12,706,060  $0.0001   14,378,574  $0.0001 
Options exercisable at the end of period  9,510,407  $0.0001   11,550,240  $0.0001 

 

B.The estimated fair values of the options granted to directors and employees were measured using Black and Scholes Model based on the following assumptions:

SCHEDULE OF FAIR VALUE OF OPTIONS

Grant date July 1, 2021 January 2022 Q1 2023  July 1, 2021 January 2022 Q1-Q2’2023 
Vesting period  2 years   2 years   2-3 years   2 years   2 years   0.25-3 years 
Expected average volatility  187.7%  187.7%  187.7%  187.7%  187.7%  178%-187.7% 
Expected dividend yield  -   -   -   -   -   - 
Common Stock Value $0.76  $0.01-$0.08  $0.02-$0.04  $0.76  $0.01-$0.08  $0.01-$0.02 
Risk-free interest rate  0.3%  1.81%  3.88%-3.39%   0.3%  1.81%  3.39%-3.98 %

 

For the threesix months ended March 31,June 30, 2023 and 2022 the company recognized expenses, to such options, in the amount of $279,000562,000 and $252,000507,000, respectively. The expense is non-cash stock-based compensation expense resulting from options awards to our Chief Financial Officer and advisorsadvisors. The expense represents the aggregate grant date fair value for the option awards granted and vested during the fiscal years presented, determined in accordance with FASB ASC Topic 718.

 

14

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 6 - SIGNIFICANT EVENTS DURING THE PERIOD

A.A-On January 1, 2023, the company engaged Ron Mekler as a board member. For his services he was granted stock option to purchase 500,000of the Company’s common stock, valued at $21,498. Upon grant, the Options vest as follows: (i) 50% following 12 months on the first anniversary of the appointment and (ii) the balance of shares of Common Stock, in four (4) consecutive fiscal quarters, beginning with the quarter ending March 31, 2024. The Option shall be exercisable at a per share exercise price of $0.0001and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between Mr. Mekler and the Company.

 

B.B-On February 1, 2023, the company engaged with Adi Shemer as a board advisor. For his services he was granted stock option to purchase 1,000,000of the Company’s common stock, valued at $20,498. Upon grant, the Options vest as follows: (i) 33% following 12 months on the first anniversary of the appointment and (ii) the balance of shares of Common Stock, in eight (8) consecutive fiscal quarters, beginning with the quarter ending April 31, 2024. The Option shall be exercisable at a per share exercise price of $0.0001and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between Mr. Shemer and the Company.

 

C.C-During the first quarter, the company signed an amendment with a Principal $437,190$437,190 CLA lender the following understandings: (i) the note shall be amended so that the Fixed Conversion Price is $0.022, (ii) the Note shall be increased by $7,500, (iii) if any portion of the balance due under the Note remains outstanding on April 30, 2023, an extension fee equal to 15% of such outstanding balance shall be added to it. (iv) The Maturity Date with respect to all Tranches advanced under the Note shall be amended to be July 31, 2023. (v) several sale limitations on trading during the period beginning on the Effective Date and ending on the Amended Maturity Date. The warrant exercise price was adjusted accordingly. Since this amendment was known already in December 2022 its results were included in the fair value as of 31.12.2022.

D-On May 1, 2023, the company engaged a consultant for management of CRM system and marketing campaigns. In consideration, the consultant was granted stock options to purchase 500,000 of the Company’s common stock, valued at $7,489. Upon grant, the Options vest as follows: (i) 33% following 12 months anniversary of the appointment and (ii) the balance of shares of Common Stock, in eight (8) consecutive quarters, beginning with the quarter ending April 30, 2024. The Option shall be exercisable, for a period of 2 years after reaching full vesting, at a per share exercise price of $0.0001 and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between the consultant and the Company.

E-On June 1, 2023, the company engaged a consultant for its digital marketing effort. For his services the consultant was granted stock options to purchase 500,000 of the Company’s common stock, valued at $5,414. Upon grant, the Options vest on a monthly basis over a period of 3 months from grant. The Option shall be exercisable for a period of two years following vesting, at a per share exercise price of $0.0001 and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between the consultant and the Company.

F-On June 14, 2023, SleepX Ltd, the Company’s subsidiary, was granted a patent (US20150119741A1) by the United States Patent and Trademark Office, titled: “Apparatus and Method for Diagnosing Sleep Quality.” The patent extends through February 2036, and provides broad coverage in the field of sleep monitoring.

G-On June 18 2023, the holders of the majority (the “Majority Holders”) of the Company outstanding convertible Preferred Series A Shares par value $0.0001 per share (the “Preferred Shares”) agreed to provide that each Preferred Share shall have voting rights equal to 3,000 shares of the Company’s Common Stock which may be vote at any meeting or any action of the Company shareholders at which the holders of the Common Stock are entitled to participate.

15

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 6 - SIGNIFICANT EVENTS DURING THE PERIOD (Cont.)

H-In connection with Note 7-C, the holder of the Additional Third Party Note agreed to extend the maturity date of such note to June 30, 2024 and to not convert such note during such period. In consideration thereof, the Company agreed with the holder that in the event that on June 30, 2024 the preceding 90 day VWAP is less than $0.04 (the “90 day VWAP”), then the Company will issue to the holder additional shares of the Company’s common stock where the number of shares is determined by quotient of (i) the spread below $0.04 times seven million shares divided by the 90 day VWAP. Solely for the purposes of illustration, if the 90-day VWAP is $0.03 the holder of the Additional Third Party Note would be issued an additional 2,333,333 shares [$0.01 X 7,000,000 / $0.03].

 

NOTE 7 - SUBSEQUENT EVENTS

A-On July 1, 2023, Asaf Porat, our CFO, was granted stock options to purchase 10,237,740 of the Company’s common stock, valued at $92,102. Upon grant, the Options vest over a period of 24 months, on a monthly basis. The Option is exercisable at a per share exercise price of $0.0001 and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement between Mr. Porat and the Company. In addition, subject to the investment in the Company, Mr. Porat shall be entitled to an additional 14,500,000 common shares on December 31, 2023.

B-On July 7, 2023, the Board of Directors appointed Adi Shemer as Chief Executive Officer (“CEO”) of the Company, effective immediately. Mr. Shemer has been working with the Company since February 2023 as a consultant. In connection with his appointment as CEO, Mr. Shemer and the Company’s subsidiary SleepX, Ltd. entered into an Employment Agreement (the “Agreement”) setting forth the terms of his employment and compensation. Under the Agreement, Mr. Shemer is entitled to monthly salary of 40,000 NIS (equivalent to $10,810 as of the date of this report), of which the payment of 20,000 NIS is deferred until such time as the Company raises at least $1 million in aggregate proceeds from the private placement of its securities. Under the Agreement, Mr. Shemer is also entitled to the following: (i) Manager’s Insurance under Israeli law to which SleepX contributes amounts equal to (a) 8-1/3 percent for severance payments, and 6.5%, or up to 7.5% (including disability insurance) designated for premium payment (and Mr. Shemer contributes an additional 6%) of each monthly salary payment, and (b) 7.5% of his salary (with Mr. Shemer contributing an additional 2.5%) to an education fund, a form of deferred compensation program established under Israeli law. Either Mr. Shemer or SleepX is entitled to terminate the employment at any time upon 30 days prior notice.
Under the Agreement, Mr. Shemer was awarded options under the Company’s employee stock option plan for 11,500,000 shares of the Company’s common stock at a per share exercise price of $0.0001, vesting over a period of 30 months, on a quarterly basis, beginning with the quarter ending September 30, 2023, provided that Mr. Shemer continues in the employ of SleepX and continues to provide CEO services to the Company. At the end of the 30-month period, Mr. Shemer is entitled to options for an additional 11,500,000 shares at the same exercise price provided he has been in the continuous employ of SleepX. The options are exercisable through July 2033. In connection with the consulting services rendered prior to his appointment as CEO, he was awarded options for 1,000,000 shares of the Company’s common stock, exercisable through July 2033 at a per share exercise price of $0.0001 per share, all of which have vested.

C-In June 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with a qualified investor (the “Investor”), pursuant to which the Company agreed to issue and sell (the “Offering”) an aggregate of 13,300,000 shares of the Company’s common stock par value $0.0001 per share (the “Common Stock”) at a per share purchase price of $0.01, and Common Stock purchase warrants, exercisable for a two year period from the date of issuance, to purchase up to an additional 13,300,000 shares of Common Stock at a per share exercise price of $0.04 (the “Warrants”). The subscription agreement was closed on July 19, 2023. As of June 30, 2023, the Company received $40,000 out of aggregate gross proceeds of $133,000 received by the end of July 2023.

16

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 7 - SUBSEQUENT EVENTS (Cont.)

 The subscription proceeds are being used by the Company to complete the IOS design and development of its biofeedback snoring treatment wristband (the “Snoring Treatment Device”) as well as general corporate matters. While not legally obligated, the Investors informally indicated that they would invest during the third quarter of 2023 an additional $266,000 by the purchase of additional shares of Common Stock and Warrants on the same terms as the initial investment, to be utilized towards the completion of the design and development and readying for commercialization of the Snoring Treatment Device.

Subject to the satisfactory operation of the Snoring Treatment Device as determined by the Investor, the Investor informally indicated that it would invest an additional $950,000 within a nine-month period by the purchase of additional shares of Common Stock and Warrants on the same terms as the initial investment. No assurance can be provided that the Investors will in fact provide the additional investments as indicated.
The Investor and other unaffiliated entities (collectively, the “Purchasers’) purchased from Leonite Fund LP and Diagonal Lending LLC outstanding convertible promissory notes issued by the Company in the aggregate amount of $724,658. Following the purchase of these outstanding notes, the Purchasers agreed to amend the terms of the notes to extend the maturity date of each note to December 31, 2024 and to amend the conversion price thereof to $0.00561 (in the case of note purchased from Leonite Funding LP) and $0.005 (in the case of the note purchased from Diagonal Lending LLC). In addition, the Purchasers agreed to not convert the notes purchased until the earlier of June 30, 2024 and such time as the Purchasers complete the purchase of an additional outstanding promissory note issued by the Company to an unrelated third party in the aggregate amount of $720,000 (the “Additional Third Party Note”).
In connection with the purchase from Leonite of the Note by the Purchasers, the 600,000 Warrants previously issued to Leonite were cancelled.
D-On July 25, 2023, SleepX LTD, the companyLtd, our subsidiary, has beenwas granted a patent (US20150119741A1)(US 11672472 B2) by the United States Patent and Trademark Office, titled: “Apparatus“Methods and Methodsystems for Diagnosing Sleep Quality.estimation of obstructive sleep apnea severity in wake subjects by multiple speech analyses.” The patent extends through February 2036,December 2038, and provides broad coverage in the field of sleep monitoring.
E-On July 26, 2023, Mr. Boris Molchadsky, our Chairman, sold 2,307 Series A convertible preferred stocks.
F-On August 4, 2023, the aforementioned Purchasers completed the purchase of 66,868 Series A convertible preferred stocks.

 

1517

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-looking Statements

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology. The statements herein and their implications are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance levels of activity, or our achievements, or industry results to be materially different from those contemplated by the forward-looking statements. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission, or the SEC, on March 31,June 30, 2023/ As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “AppYea” mean AppYea, Inc. and our wholly-owned subsidiaries Sleepx LTD and Ta-Nooma LTD unless otherwise indicated or as otherwise required by the context.

 

Overview

 

AppYea, Inc. is a digital health company, focused on the development of accurate wearable monitoring solutions to treat sleep apnea and snoring and fundamentally improve quality of life.

 

Our solutions are based on our proprietary intellectual property portfolio comprised of Artificial Intelligence (AI) and sensing technologies for the tracking, analysis, and diagnosis of vital signs and other physical parameters during sleep time, offering extreme accuracy at affordable cost.

 

AI is a broad term generally used to describe conditions where a machine mimics “cognitive” functions associated with human intelligence, such as “learning” and “problem solving. Basic AI includes machine learning, where a machine uses algorithms to parse data, learn from it, and then make a determination or prediction about a given phenomenon. The machine is “trained” using large amounts of data and algorithms that provide it with the ability to learn how to perform the task.

 

General Background

 

Snoring is a general disorder caused due to repetitive collapsing and narrowing of the upper airway. Individuals with snoring problems are at increased risk of accidental injury, depression and anxiety, heart disease and stroke. Currently available treatments include surgical and non-surgical devices.

 

According to Fior Markets, a market intelligence company, the Global Anti-Snoring Treatment Market is expected to grow from USD 4.3 billion in 2020 to USD 8.6 billion by 2028, with a 9.07% CAGR between 2021 and 2028. While North America had the largest market share of 28.12% in 2020, Asia-Pacific region is witnessing significant growth due to the increasing prevalence of obesity and sedentary lifestyles in emerging economies.

 

Currently available anti-snoring devices consist mainly of oral appliances that are recommended for use by patients suffering offrom snoring or obstructive sleep apnea. These appliances are put before sleep and have a simple function of pushing either the lower jaw or the tongue forward. This keeps the epiglottis parted from the uvula and prevents the snoring sound created by the vibration of soft tissues of palate.

 

Sleep apnea is a severe sleep condition in which individuals frequently stop breathing in their sleeping, this leads to insufficient oxygen supply to the brain and the rest of the body which, in turn may lead to critical problems. There are three main types of apnea: (i) Obstructive Sleep Apnea (“OSA”), the most common form caused by the throat muscles relaxing during sleep; (ii) Central sleep apnea, which occurs when the brain doesn’t send the proper signals to the muscles that control the breathing; and (iii) complex sleep apnea syndrome, which occurs when an individual suffers from both OSA and central sleep apnea. While OSA is a common disorder in the elderly population, affecting approximately 13 to 32% of people aged over 65, sleep apnea can occur at any age and affects approximately 25% of men and nearly 10% of women.

 

1618

 

In 2020, North America dominated the sleep apnea device market, as it accounted for 49% of the revenue, the global market size was valued at USD 3.7 billion and is expected to expand by 6.2% CAGR, according to a report by Grand View Research Inc., reaching USD 6.1 billion by 2028.

 

The global sleep apnea and snoring market is driven in large part by solutions that can be applied in at home-settings or healthcare settings, as these tools will drive decisions regarding specific treatments and the associated outlays. However, despite advances in medical imaging and other diagnostic tools, misdiagnosis remains a common occurrence. We believe that improved diagnoses and outcomes are achievable through the adoption of AI-based decision support tools.

 

Our Products and Product Candidates

 

Our initial focus is on the development of supporting solutions utilizing our proprietary platform. Our current business plan focuses on two principal devices and an App currently in development:

 

DreamIT – Biofeedback snoring treatment wristband, combined with the SleepX App.

 

This wristband uses unique algorithms designed by SleepX combined with sensors to monitor physiological parameters during sleep. Based on real time reactions, the wristband will vibrate, when necessary, in order to decrease the snoring and regulate breathing by gently bringing the user to a lighter sleep and thus ceasing the snoring event.

 

The DreamIT product is currently in testing and calibration stage in preparation for serial manufacturing.

 

DreamIT PRO – is a wristband for the treatment of sleep apnea using biofeedback in combination with SleepX PRO app. The unique algorithms of SleepX PRO, combined with the wristband sensors, monitor sleep apnea events and additional physiological parameters during sleep, and when necessary, the wristband vibrates according to real time events, in order to decrease and cease sleep apnea events.

 

The DreamIT PRO product is currently in advanced development stages, following which it would be ready to begin the testing stage in preparation for filing for FDA approval.

 

SleepX PRO – Is a medical application, available for downloading on a smartphone, and used to monitor breathing patterns in the sleep and identify sleep apnea episodes without direct contact to the user.

 

The SleepX PRO product is to begin final calibration, following which we will file for 510(k) FDA approval.

 

Recent Corporate History

 

Reverse Merger

 

On August 2, 2021, AppYea entered into a stock exchange agreement with SleepX Ltd., a company formed under the laws of the State of Israel (“SleepX”) and controlled by the majority shareholder of AppYea, our chief executive officerchairman Barry Molchadsky. Pursuant to the agreement, the outstanding equity capital consisting of 1,724 common shares of SleepX was exchanged for 174,595,634 shares of common stock of the Company, based on the agreement that determined that to SleepX shareholders will be issued common shares in the amount that will result in them holding 80% of the common shares issued of AppYea. The agreement was subject to certain terms before the agreement could be closed. On December 31, 2021, the agreement was consummated as the terms of the agreement were fulfilled; As a result, SleepX became a wholly owned subsidiary of the Company. The issuance of the shares to SleepX shareholders, due to administrative matters was completed in March 2022 after the Company completed a reverse stock split.

 

1719

 

In anticipation of the reverse merger described below, on July 2, 2021, Boris Molchadsky a majority shareholder of the Company, acquired in a private transaction from the former majority shareholder two hundred and twenty-five thousand (225,000) Shares of Series A Preferred Stock of the Company. The Series A Preferred Shares have the right to vote 1,0003,000 to 1 as shares of common stock and are convertible into 1,500 to 1 of the shares of common stock of the Company. The acquisition of the Preferred Shares provides Boris Molchadsky control of a majority of the Company’s voting equity capital.

 

The License Agreement

 

Our business derives from a licensing agreement entered into as of March 15, 2020, as subsequently amended (the “License Agreement”), by SleepX Ltd., our Israeli subsidiary, B.G. Negev Technologies and Applications Ltd., a company formed under the laws of the State of Israel (“BGN”) and Mor Research Application Ltd. a company formed under the laws of Israel (“Mor”; together with BGN, the Licensors”). BGN is a company wholly owned by Ben Gurion University of the Negev in Israel and Mor, is the technology transfer arm of the Clalit Health Services, an Israeli non-profit healthcare insurance and service provider. Under the License Agreement, our Israeli subsidiary was granted a worldwide royalty bearing and exclusive license exclusive worldwide license with the right to grant sub-licenses and with a term of 15 years, to certain intellectual property to research, develop, manufacture use, market, distribute, offer for sale and sell sensor and software solutions for monitoring snoring and sleep apnea.

 

On May 1, 2022, our Israeli subsidiary and the Licensors entered into an amendment to the License Agreement (the “Amended License Agreement”) to include under the license certain sleep apnea treatment solutions that by combining speech descriptors from three separate and distinct speech signal domains, these speech descriptors may provide the ability to estimate the severity of sleep apnea using statistical learning and speech analysis approaches.

 

As consideration for the licenses above, our Israeli subsidiary has agreed to pay the following to the Licensors:

 

 (i)A royalty of 3.0% of net sales received from the licensed products for a period of up to 15 years from initiation of sales in each state using licensed intellectual property;
   
 (ii)25% of sublicense fees received prior to attainment of all regulatory approval for marketing and sale of the licensed products in the first jurisdiction where the licensed products are intended to be sold; thereafter, 15% of sublicense fees received after the date regulatory approval, but prior to the first commercial sale of the licensed products; and 10% of sublicense fees received after the first commercial sale;
   
 (iii)An annual license fee, commencing on fifth anniversary of the License Agreement (i.e., March 2025) of $20,000, and thereafter on each anniversary date as follows

 

Year Amount ($) 
6 $40,000 
7 $60,000 
8 $80,000 
9-15 $100,000 

 

The Annual Fee is non-refundable, but it shall be credited each year due, against the royalty noted above, to the extent that such are payable, during that year.

 

 (iv)Milestone payment of $60,000 upon the attainment of regulatory approval from applicable authority in USA or Europe to market and sell the licensed products

 

As of the date of these financials, we have not achieved any of these milestones.

 

Under the License Agreement, the Licensors are entitled to terminate the License Agreement under certain conditions relating to a material change in the business of our Israeli subsidiary or a breach of any material obligation thereunder or to a bankruptcy event of our Israeli subsidiary. Under certain conditions, our Israeli subsidiary may terminate the License Agreement and return the licensed information to the Licensors.

 

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In the event of an acquisition of all of the issued and outstanding share capital of the Israeli Subsidiary or of the Company and/or consolidation of the Israeli Subsidiary or the Company into or with another corporation (“Non IPO Exit”) or a listing of our common stock on a national exchange such as Nasdaq (the IPO Exit”), then the Licensors shall be entitled to an exit fee equal to 5% of the valuation of our company at the time of such exit and with respect to an IPO Exit, shares of common stock which will reflect in the aggregate 5% of then outstanding common stock of the Company.

 

Key Financial Terms and Metrics

 

The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

 

Revenues

 

We have not generated any revenues from product sales to date.

 

Research and Development Expenses

 

The process of researching and developing our product candidates is lengthy, unpredictable, and subject to many risks. We expect to continue incurring substantial expenses for the next several years as we continue to develop our product candidates. We are unable, with any certainty, to estimate either the costs or the timelines in which those expenses will be incurred. The design and development of our devices will consume a large proportion of our current, as well as projected, resources.

 

Our research and development costs include costs are comprised of:

 

● internal recurring costs, such as personnel-related costs (salaries, employee benefits, equity compensation and other costs), materials and supplies, facilities and maintenance costs attributable to research and development functions; and

 

● fees paid to external parties who provide us with contract services, such as programing, preclinical testing, manufacturing and related testing and clinical trial activities.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries, employee benefits, equity compensation, and other personnel-related costs associated with executive, administrative and other support staff. Other significant general and administrative expenses include the costs associated with professional fees for accounting, auditing, insurance costs, consulting and legal services, along with facility and maintenance costs attributable to general and administrative functions.

 

Financial Expenses

 

Financial expenses consist primarily impact of exchange rate derived from re-measurement of monetary balance sheet items denominated in non-dollar currencies. Other financial expenses include bank’s fees and interest on long term loans. Financial income derives mainly from change in derivative value of convertible loans.

 

Results of Operations

 

Comparison of the Three and Six Months Ended March 31,June 30, 2023 to the Three and Six Months Ended March 31,June 30, 2022

 

 

For the three- months period ended

March 31

  For the three- months period ended June 30  For the Six- months period ended June 30 
 2023 2022  2023  2022  2023  2022 
      U.S dollars 
Research and development expenses  9,000   25,000   7,000   17,000   16,000   42,000 
General and administrative expenses  427,000   447,000   440,000   632,000   867,000   1,079,000 
                        
Financing expenses, net  19,000   16,000 
Financial income (expenses), net  12,000   (30,000)  (7,000)  (46,000)
                        
Loss for the period  289,000   752,000   (342,000)  (807,000)  (631,000)  (55,000)

 

1921

 

Revenues. We have not recorded any revenues to date.

 

Research and Development Expenses, Research and development expenses decreased from $25,000 to $9,000$17,000 and $42,000 during the three and six months ended March 31,June 30, 2022 to $7,000 and 2023, respectively.$16,000, respectively, for the corresponding periods in 2023. The decrease in each of the three and six month periods is primarily attributable to decreased investment in intellectual property and development of our products.

 

General and Administrative Expenses. General and administrative expenses decreased from $447,000 to $427,000 during$632,000 and $1,079,000 for the three and six months ended March 31, 2022June 30, 2022. to $440,000 and 2023, respectively.$867,000, respectively, for the corresponding periods in 2023. The decrease is primarily attributabledue to salary and professional services expenses, of which $279,000$526,000 were non-cash stock based non-cash compensation expenses resulting from options awards to our Chief Financial Officer and advisors.

 

Loss. Loss for the three months and six months ended March 31, 2022 andJune 30, 2023 was $752,000$342,000 and $289,000$631,000, respectively, and is primarily attributable to non-cash stock based compensation expenses referred to above.

Liquidity and Capital Resources

 

From inception, and through the date of the Acquisition, we have funded our operations from a combination of loans and sales of equity instruments.

 

As of March 31,June 30, 2023, we had a total of $100,000$47,000 in cash resources and approximately $2,648,000$2,546,000 of liabilities, consistingall of $2,648,000 ofwhich are current liabilities from financing.

 

(a) During the quarter, the company received a principal amount of $152,750 from Investor 3, and a total amount of $161,473 from the company notes were converted into shares.

The companyAppYea has experienced operating losses since its inception and had a total accumulated deficit of $4,798,000$5,140,000 as of March 31, 2022. The company expectsJune 30, 2023. We expect to incur additional costs and require additional capital. We have incurred losses in nearly every year since its inception. These losses have resulted in significant cash used in operations. During the fiscal quarters ended March 31,June 30, 2023 and 2022, our cash used in operations was approximately $97,000$192,000 and $127,000,$402,000, respectively. We need to continue and amplify our research and development efforts for our product candidates (which are in various stages of development), strengthen our patent portfolio, establish operations processes and pursue FDA clearance and international regulatory approvals as we continue to conduct these activities, we expect the cash needed to fund operations to increase significantly over the next several years.

 

The following table provides a summary of operating, investing, and financing cash flows for the quartersperiod ended March 31,June 30, 2023 and 2022 respectively (in thousands):respectively:

 

 For the three ended  For the six months ended 
 March 31, 2023 March 31, 2022  June 30, 2023  June 30, 2022 
 US Dollars (In thousands)  US Dollars 
Net cash used in operating activities $97   127  $192,000   402,000 
Net cash used in investment activities  -   -   -   - 
Net cash provided by Financing Activities (income) $(141)  -  $(181,000)  (390,000)

 

2022

 

In June-July 2023, we raised an aggregate of $133,000 from the private placement of shares of our common stock at a per share price of $0.01 and the issuance of warrants, exercisable for a two year period from the date of issuance for an identical number of shares at a per share exercise price of $0.04, in respect of the raise the investor is entitled to an aggregate 13,300,000 shares of our common stock and warrants for an identical number of shares. The subscription proceeds are being used to complete the IOS design and development of its biofeedback snoring treatment wristband (the “Snoring Treatment Device”) as well as general corporate matters. While not legally obligated, the investor informally indicated that it would invest during the third quarter of 2023 an additional $266,000 by the purchase of additional shares of Common Stock and Warrants on the same terms as the initial investment, to be utilized towards the completion of the design and development and readying for commercialization of the Snoring Treatment Device. Subject to the satisfactory operation of the Snoring Treatment Device as determined by the investor, the investor informally indicated that it would invest an additional $950,000 within a nine-month period by the purchase of additional shares of Common Stock and Warrants on the same terms as the initial investment. No assurance can be provided that the Investors will in fact provide the additional investments as indicated.

Management believes that funds on hand, will enable us to fund our operations and capital expenditure requirements through October 31st, 2023. We need to raise additional operating capital in order to maintain operations as presently conducted and to realize our business plan. Management believes that funds on hand, will enable us to fund our operations and capital expenditure requirements through July 31st, 2023.

Our accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. However, the Company has incurred substantial losses. Our current liabilities exceed our current assets and available cash is not sufficient to fund the expected future operations. The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.

 

We cannot be sure that future funding will be available to us on acceptable terms, or at all. Due to often volatile nature of the financial markets, equity and debt financing may be difficult to obtain.

 

We may seek to raise any necessary additional capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights, future revenue streams, or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through private or public equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

 

Going Concern

 

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We have a stockholders’ deficit of $2,397,000$2,342,000 and a working capital deficit of $2,530,000$2,456,000 at March 31,June 30, 2023 as well as negative operating cash flows. Our report from our independent registered public accounting firm for the quarter ended March 31,June 30, 2023 includes an explanatory paragraph stating the Company has recurring losses and limited operations which raise substantial doubt about its ability to continue as a going concern. If the Company is unable to obtain adequate capital, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

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ITEM 4.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31,June 30, 2023, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of March 31,June 30, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at reasonable assurance level, as further described below.

 

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter ended March 31,June 30, 2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

From time to time we may become involved in various legal proceedings that arise in the ordinary course of business, including actions related to our intellectual property. Although the outcomes of these legal proceedings cannot be predicted with certainty, we are currently not aware of any such legal proceedings that arise in the ordinary course of business, including actions related to our intellectual property. Although the outcomes of these legal proceedings cannot be predicted with certainty, we are currently not aware of any such legal proceedings or claims that we believe, either individually or in the aggregate, will have a material adverse effect on our business, financial condition, or results of operations.

 

ITEM 1A.RISK FACTORS

 

An investment in the Company’s Common Stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 31, 2023, in addition to other information contained in our reports and in this quarterly report in evaluating the Company and its business before purchasing shares of our Common Stock. There have been no material changes to our risk factors contained in such registration statement.

 

ITEM 2.UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

 

During the quarter,period, we issued to two investorinvestors an aggregate of 8,634,616 19,390,359 shares of our common stock upon conversion of $161,473$242,538 in outstanding convertible loans.loans.

 

We relied upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) by virtue of Section 4(a)(2) thereof and/or Regulation S promulgated by the SEC under the Act with respect to the issuance of such securities.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None

 

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ITEM 4.SAFETY DISCLOSURES

 

None.

 

ITEM 5.OTHER INFORMATION:

 

None

 

ITEM 6.EXHIBITS

 

Exhibit Index:

 

31.1Certification of Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
  
31.2Certification of Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
  
32.1Certification of Chief Executive Officer (Principal Executive Officer), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.2Certification of Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
  
101.INSInline XBRL Instance Document
  
101.SCHInline XBRL Taxonomy Extension Schema
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
  
101.LABInline XBRL Taxonomy Extension Label Linkbase
  
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
  
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

AppYea, Inc.

(Registrant)

 

By:/s/ Barry MolchadskyAdi Shemer By:Asaf Porat
 Barry MolchadskyAdi Shemer  Asaf Porat
 Chief Executive Officer  Chief Financial Officer
 (Principal Executive Officer)  (Principal Financial and Accounting Officer)
Date: May 15,August 14, 2023Date: May 15,August 14, 2023

 

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