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 JuneSeptember 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

incorporation or organization)

 

(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 AugustNovember 14, 2023, there were outstanding 240,321,157284,122,657 shares of the registrant’s common stock, par value $0.0001 per share.

 

 

 

 

APPYEA, INC.

Form 10-Q

June 30 JuneSeptember 30, 2023

 

 Page
  
PART I — FINANCIAL INFORMATION 
  
Item 1 – Unaudited Condensed Consolidated Financial Statements 
  
Condensed Consolidated Balance Sheets – JuneSeptember 30, 2023 (unaudited) and December 31, 202234
  
Condensed Consolidated Statements of Operations for the three and sixnine months ended JuneSeptember 30, 2023 and 2022 (unaudited)45
  
Condensed Consolidated Statement of Changes in Stockholders’ Equity (deficit) for the three and sixnine months ended JuneSeptember 30, 2023 and 2022 (unaudited)5-66-7
  
Condensed Consolidated Statements of Cash Flows for the sixnine months ended JuneSeptember 30, 2023 and 2022 (unaudited)78
  
Notes to Unaudited Condensed Consolidated Financial Statements8-179-18
  
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations1819
  
Item 3 – Quantitative and Qualitative Disclosures About Market Risk2324
  
Item 4 – Controls and Procedures24
  
PART II — OTHER INFORMATION2425
  
Item 1 – Legal Proceedings2425
  
Item 1A – Risk Factors2425
  
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds2425
  
Item 3 – Defaults upon Senior Securities2425
  
Item 4 – Mine Safety Disclosures25
  
Item 5 – Other Information25
  
Item 6 – Exhibits2526
  
Exhibit Index2526
  
SIGNATURES2627

 

2

 

APPYEA INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2023

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Page
Condensed Consolidated Balance Sheets4
Condensed Consolidated Statements of Operations5
Condensed Consolidated Statements of Changes in Deficiency6-7
Condensed Consolidated Statements of Cash Flows8
Notes to the Condensed Consolidated Financial Statements9-18

3

 

APPYEA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

 

 June 30, December 31, 
 2023 2022  September 30, 2023 December 31, 2022 
 Unaudited Audited  Unaudited Audited 
ASSETS                
Current assets                
Cash and cash equivalents  47   60   156   60 
Other accounts receivables  43   19   37   19 
                
Inventory Advance  7   - 
Total current assets  90   79   200   79 
                
Non-current assets                
Property and equipment, net  1   2   2   2 
Intangible assets, net  113   124   142   124 
Total non-current assets  114   126   144   126 
                
Total assets  204   205   344   205 
                

LIABILITIES AND DEFICIENCY

                
Current liabilities                
Trade payables  38   67   65   67 
Other accounts payable and related party payables  511   340   595   340 
Short-term loans from related party  79   80   78   80 
Convertible loans from related party  38   36   -   36 
Convertible Short-term loans at fair value  233   693 
Convertible loans  781   693 
Convertible loans at fair value  1,416   1,528   1,925   1,528 
Warrants liability  231   24 
Financial liability at fair value  183   24 
                
Total liabilities  2,546   2,768   3,627   2,768 
                
DEFICIENCY                
AppYea Inc. Stockholders’ Deficiency:                
Convertible preferred stock, $0.0001 par value  -   -   -   - 
Common stock, $0.0001 par value  22   21   26   21 
Stock Payables  74   27   468   27 
Additional Paid in Capital  2,716   1,912   2,833   1,912 
Accumulated deficit  (5,140)  (4,509)  (6,596)  (4,509)
        
Total AppYea Inc. stockholders’ deficiency  (2,328)  (2,549)  (3,269)  (2,549)
Non-controlling interests  (14)  (14)  (14)  (14)
                
Total Deficiency  (2,342)  (2,563)  (3,283)  (2,563)
                
Total liabilities and deficiency  204   205   344   205 

 

3
4 

 

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands)

  2023  2022  2023  2022 
  

For the period of

three months ended

September 30,

  

For the period of

nine months ended

September 30,

 
  2023  2022  2023  2022 
  Unaudited  Unaudited 
             
Research and development expenses  34   31   50   73 
Sales and marketing  47   1   49   12 
General and administrative expenses  261   513   1,128   1,592 
                 
Operating loss  (342)  (545)  (1,227)  (1,677)
                 
Change in fair value of convertible loans and warrant liability  (712)  (119)  (451)  1,004 
Financial income (expenses), net  (402)  (19)  (409)  (65)
Loss before income tax benefit  (1,456)  (683)  (2,087)  (738)
                 
Income tax benefit  -   -   -   - 
                 
Net loss  (1,456)  (683)  (2,087)  (738)
                 
Net Loss attributable to AppYea Inc.  (1,456)  (683)  (2,087)  (738)
Loss per Common Share                
Basic and Diluted  -   -   -   - 
Weighted Average number of Common Shares Outstanding basic and diluted  242,243,536   220,730,798   234,943,286   219,350,536 

 

  2023  2022     2022 
  For the period of three months ended June 30,  For the period of six months ended June 30, 
  2023  2022  2023  2022 
  Unaudited  Unaudited 
             
Research and development expenses  7   17   16   42 
Sales and marketing  2   3   2   1 1 
General and administrative expenses  440   632   867   1,079 
                 
Operating loss  (449)  (652)  (885)  (1,132)
                 
Change in fair value of convertible loans and warrant liability  95   (125)  261   1,123 
Financial income (expenses), net  12   (30)  (7)  (46)
Loss before income tax benefit  (342)  (807)  (631)  (55)
                 
Income tax benefit  -   -   -   - 
                 
Net loss  (342)  (807)  (631)  (55)
                 
Net Loss attributable to AppYea Inc.  (342)  (807)  (631)  (55)
                 
Loss per Common Share                
                 
Basic  0   (0.003)  0   0 
Diluted  0   (0.003)  0   0 
                 

Weighted Average number of Common Shares Outstanding basic and diluted

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

4
 5

 

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 
 Number Amount Number Amount Payables Capital Deficit Total interests Deficiency  Preferred Stock Common Stock Stock Additional Paid in Accumulated   Non-controlling Total 
           Unaudited          Number Amount Number Amount Payables Capital Deficit Total interests Deficiency 
Balance as of January 1, 2022  300,000   -   218,246,326   21   -    768   (3,205)  (2,416)  (14)  (2,430)
                                         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   -   241       242       242 
CLA - change of classification                      66       66       66 
Share issuance upon conversion of preferred stock  (29,201)  -   43,801,500   4   -   (4)  -   -   -   - 
Issuance of shares to service providers  -   -   2,484,472   -   -    80   -   80   -   80           -                             
Stock payables  -   -   -   -   28       -   28   -   28   -   -   -   -   441   -   -   441   -   441 
Issuance of shares          -                             
Share based compensation  -   -   -   -   -    508   -   508   -   508   -   -   -   -   -   618   -   618   -   618 
Net loss  -   -   -   -   -    -   (55)  (55)  -   (55)  -   -   -   -   -   -   (2,087)  (2,087)  -   (2,087)
                                       

 

 

                                        
Balance as of June 30, 2022  300,000   -   220,730,798   21   28   1,356   (3,260)  (1,855)  (14)  (1869)
Balance as of September 30, 2023  270,799        -   284,122,657   26   468   2,833   (6,596)  (3,269)       (14)  (3,283)

 

5
  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  -   -   -   -   35       -   35   -   35 
Issuance of shares          200,000       (13)  13                 
Share based compensation  -   -   -   -   -   775   -   775   -   775 
Net loss  -   -   -   -   -   -   (738)  (738)  -   (738)
                                         
Balance as of September 30, 2022  300,000       -   220,930,798   21   22   1,636   (3,943)  (2,264)     (14)  (2,278)

 6

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY

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

 Preferred Stock Common Stock Stock Additional Paid in Accumulated  Non-controlling Total  Number Amount Number Amount Payables Capital Deficit Total interests Deficiency 
 Number Amount Number Amount Payables Capital Deficit Total interests Deficiency  Preferred Stock Common Stock Stock Additional Paid in Accumulated   Non-controlling Total 
           Unaudited          Number Amount Number Amount Payables Capital Deficit Total interests Deficiency 
Balance as of April 1, 2023  300,000   -   229,565,414   22   28   2,351   (4,798)  (2,397)  (14)  (2,411)
                                         Unaudited 
Share issuance upon conversion of Convertible notes  -   -   10,755,743   -   -    83   -   83   -   83 
Balance as of July 1, 2023  300,000   -   240,321,157   22   74   2,716   (5,140)  (2,328)  (14)  (2,342)
                                        
CLA - change of classification                  -   66       66       66 
Share issuance upon conversion of preferred stock  (29,201)  -   43,801,500   4   -   (4)  -   -   -   0 
Stock payables  -   -   -   -   46       -   46   -   46   -   -   -       394   -   -   394   -   394 
Share based compensation  -   -   -   -   -    282   -   282   -   282   -   -   -   -   -   55       55       55 
Net loss  -   -   -   -   -    -   (342)  (342)  -   (342)  -   -   -   -   -       (1,456)  (1,456)      (1,456)
                                                                                
Balance as of June 30, 2023  300,000   -   240,321,157   22   74   2,716   (5,140)  (2,328)  (14)  (2,342)
Balance as of September 30, 2023  270,799        -   284,122,657   26   468   2,833   (6,596)  (3,269)     (14)  (3,283)

 

  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)
  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 July 1, 2022  300,000       220,730,798   21   28   1,356   (3,260)  (1,855)  (14)  (1869)
Balance  300,000       220,730,798   21   28   1,356   (3,260)  (1,855)  (14)  (1869)
                                         
Issuance of shares  -   -   200,000   -   (13)  13   -       -     
Stock payables  -   -   -   -   7       -   7   -   7 
Share based compensation  -   -   -   -   -   267   -   267   -   267 
Net loss  -   -   -   -   -   -   (683)  (683)  -   (683)
                                         
Balance as of September 30, 2022  300,000       -   220,930,798   21   22   1,636   (3,943)  (2,264)     (14)  (2,278)
Balance  300,000       -   220,930,798   21   22   1,636   (3,943)  (2,264)     (14)  (2,278)

 

6
7 

 

APPYEA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

 2023 2022  2023 2022 
 For The six Months Ended  For The nine Months Ended 
 June 30,  September 30, 
 2023 2022  2023 2022 
 Unaudited  Unaudited 
Cash flows from operating activities:                
Net loss  (631)  (55)  (2,087)  (738)
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization  12   12   18   18 
Share based compensation  570   603   650   877 
Change in fair value of convertible loans and warrant liability and financial expenses  (261)  (1,077)  778   (939)
Changes in operating assets and liabilities:                
Other current assets  (24)  (9)  (18)  (9)
Accounts payable  76   124   272   91 
Accounts payables – related party  66   -   (22)  195 
                
Net cash used in operating activities  (192)  (402)  (410)  (505)
                
Cash flows from Investing activities:        
Research and development expenses capitalization  (36)  - 
        
Net cash used by investing activities  (36)  - 
        
Cash flows from financing activities:                
Proceeds on account of Stock Payables  40   13   417   13 
Proceeds from convertible Note received less issuance expenses  141   368   141   368 
Issuance of warrants measured at FV  -   9   -   9 
                
Net cash provided by financing activities  181   390   558   390 
                
Effect of foreign exchange on cash and cash equivalents  2   (5)  (17)  (9)
Change in cash and cash equivalents  (9)  (17)  95   (124)
Cash and cash equivalents at beginning of period  60   206   60   206 
                
Cash and cash equivalents at end of period  51   189   156   82 

 

7
8 

 

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, pinkQB 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 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 at a rate of 1,500 to 1 as shares of common stock of the Company. The acquisition of the Preferred Shares provided Boris Molchadsky control of a majority of the Company’s voting equity capitalcapital..

 

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 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 of the result of the transactions mentioned above, Mr. Molchadsky controls approximately 71.4% of the total voting power of 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 operation. Since its incorporation and as of the financial statements date, SleepX holds66.7% of the voting interest of Ta-nooma.

 

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

 

8
9 

 

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 JuneSeptember 30, 2023, and December 31, 2022, the Company has a stockholders’ deficiency of $2,328,0003,269,000 and $2,549,000, respectively. These matters, among others, raise substantial doubt aboutBetween June and November 2023, the Company’s ability to continue as a going concern.Company raised proceeds of $523,569 from the private placement of its securities. 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 an 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. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

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. The accounting policies implemented in the interim financial statements is 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.

 

Recently Issued Accounting Pronouncements

 

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
10 

 

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.

 

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

A.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 JuneSeptember 30, 2023, the loan balance amounted to NIS 115,725 ($31,27730,263).

 

C. Convertible loans from related party

B.Convertible loans from related party

 

On August 22, 2021 Evergreen Venture Partners LLC (“Evergreen”), owned by Douglas O. McKinnon, principle 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. The related party has advanced to the Company $25,000 funds under the Note. Under the terms of the note, which bears interest at a rate of 8% per annum, the note holder can convert the note into shares of common stock at 35% discount to the highest daily trading price over the 10 days’ preceding conversion but in any event not less than $0.10 per share.share. The note contains standard events of default. As of June 30, 2022,During the relatedquarter Evergreen sold the note to non-related party has advanced to the Company $25,000 funds under the Note and there are no assurances if there will be additional loans. As of June 30, 2023, the principal plus interest is estimated by the company as $29,025investors (Note 6-N).

 

10
11 

 

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

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

 

C.D. Balances with related parties

SCHEDULE OF BALANCE WITH RELATED PARTIES

 

June 30,

2023

 December 31, 2022  

September 30,

2023

 

December 31,

2022

 
 In U.S. dollars in thousands  In U.S. dollars in thousands 
      
Liabilities:                
Employees and payroll accruals  185   268   205   268 
Related party payables  206   140   198   140 
Short term loan  79   80   78   80 
Convertible loan
  38   36   -   36 

D.Transactions with related parties

 

E. Transactions with related parties

SCHEDULE OF TRANSACTION WITH RELATED PARTIES

 2023  2022 
 

Six months ended

June 30,

  2023 2022 
 2023  2022  

Nine months ended

September 30,

 
 In U.S. dollars in thousands  2023 2022 
    In U.S. dollars in thousands 
Expenses:                
Management fee to the Company’s CEO  90   35   129   84 
Salaries and related cost *)  614   593   667   896 
Salaries and related cost  614   593   667   896 

*)Including share-based compensation for the sixNine months ended JuneSeptember 30, 2023 and 2022 in the amount of $526,000 560,500and $487,000743,000, respectively.

 

11
12 

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 4- CONVERTIBLE LOANS AND WARRANTS

The following table summarizes fair value measurements by level as of JuneSeptember 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 thousands  In U.S. dollars in thousands 
Assets                                
None  -   -   -   -   -   -   -   - 
                                
Liabilities                                
Convertible Loans  -   -   2,257   2,257   -   -   2,257   2,257 
Warrants      -   24   24 
Financial liability      -   24   24 

 

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 

September 30, 2023 Level 1  Level 2  Level 3  Total 
  In U.S. dollars in thousands 
Assets                
None  -   -   -   - 
                 
Liabilities                
Convertible Loans  -   -   1,925   1,925 
Financial liability      -   183   183 

 

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

SCHEDULE OF CONVERTIBLE LOANS AT FAIR VALUE

 June 30, 2023 December 31, 2022  

September 30,

2023

 

December 31,

2022

 
 Convertible Loans at Fair Value  Convertible Loans at Fair Value 
 June 30, 2023 December 31, 2022  

September 30,

2023

 

December 31,

2022

 
 $000  $000 
Opening Balance  2,257   2,492   2,257   2,492 
Additional convertible loans (a)  153   526   153   526 
Repayment of convertible loan (b)  -   (18)  -   (18)
Conversion of convertible loan (c)  (243)  -   (243)  - 
Change in fair value of convertible loans liability  (480)  (743)
Decrease of Notes purchased (Note 6k)  (530)  - 
Change in fair value of convertible loans liability through profit or loss  288   (743)
Closing balance  1,687   2,257   1,925   2,257 

 

(a)During the sixNine months ended JuneSeptember 30, 2023, and the year ended December 31, 2022, the Company received a principal amount of $152,750 and $526,826 respectively.The amount received during the period  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 sixNine months ended JuneSeptember 30, 2023, and the year ended December 31, 2022, the Company repaid nill and $17,500, respectively.

(c)During the sixNine months ended JuneSeptember 30, 2023, and the year ended December 31, 2022, a total amount of $242,538 and $0 respectively, were converted into 19,390,359 shares of common stock.

 

12
13 

 

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 June 30, As of December 31,  As of As of 
 2023 2022  September 30, 2023 December 31, 2022 
Expected term (in years)  1-1.5   0.5   0.75-1.26   0.5 
Expected average (Monte Carlo) volatility  171%  169%  199%  169%
Expected dividend yield  -   -   -   - 
Risk-free interest rate  5.2%-5.4%  4.8%  5.4%-5.5%   4.8%
WACC  30%  30%  29%  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 Exercisable    

Number of

Warrants

  

Weighted Average

Remaining
Contractual life
(in years)

  

Weighted Average

Exercise Price

  

Valuation as of

December 31, 2022

 
 300,000   2.9   0.043  $11,351 
 300,000   3.35   0.043  $11,679 
 8,334   2.9   0.6  $230 
 32,500   3.35   0.6  $992 

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

 

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

Warrants Outstanding and Exercisable    

Number of

Warrants

  

Weighted Average

Remaining
Contractual life
(in years)

  Weighted Average Exercise Price  Valuation as of September 30, 2023 
 8,334   2.16   0.6  $23 
 32,500   2.61   0.6  $116 

 

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
14 

 

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  As of 
  September 30, 2023  December 31, 2022 
Expected term  2.16-2.61   2.9-3.35 
Expected average volatility  172%-174%   179%
Expected dividend yield  -   - 
Risk-free interest rate  4.54%-4.72%   4.09%-4.15% 
Common Stock Market Value $0.0263  $0.043 

  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 

*600,000 options were cancelled (Note 6K)

 

NOTE 5 - STOCK BASED COMPENSATION

 

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

SCHEDULE OF NUMBER OF OPTIONS GRANTED

  Number of  

Weighted average

exercise price

 
  

Nine months ended

September 30, 2023

 
  Number of  

Weighted average

exercise price

 
  options  in USD 
       
Options outstanding at January 1, 2023  10,246,284  $0.0001 
Options granted during the period  37,770,029  $0.0001 
Options outstanding at the end of period  48,016,313  $0.0001 
Options exercisable at the end of period  13,183,291  $0.0001 

 

         
  Six months ended June 30, 2023 
  

Number of

options

  Weighted average exercise price in USD 
       
Options outstanding at January 1, 2023  10,846,284  $0.0001 
Options granted during the period  3,532,290  $0.0001 
Options outstanding at the end of period  14,378,574  $0.0001 
Options exercisable at the end of period  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-Q2’2023  July 1, 2021 January 2022 Q1-Q3’2023 
Vesting period  2 years   2 years   0.25-3 years   2 years   2 years   0.25-3 years 
Expected average volatility  187.7%  187.7%  178%-187.7%   187.7%  187.7%  172%-187.7% 
Expected dividend yield  -   -   -   -   -   - 
Common Stock Value $0.76  $0.01-$0.08  $0.01-$0.02  $0.76  $0.01-$0.08  $0.009-$0.015 
Risk-free interest rate  0.3%  1.81%  3.39%-3.98 %  0.3%  1.81%  3.39%-3.98% 

 

For the sixNine months ended JuneSeptember 30, 2023 and 2022 the company recognized expenses, to such options, in the amount of $562,000618,000 and $507,000, respectively. The expense is non-cash stock-based compensation expense resulting from options awards to our Chief Financial Officer and advisors. 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
15 

 

APPYEA INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 6 - SIGNIFICANT EVENTS DURING THE PERIOD

 

A-On January 1, 2023, the company engaged Ron Mekler as awas appointed to the board member.of directors of the Company. For his services he was granted stock option to purchase 500,000 of the Company’s common stock, valued at $21,498. Upon grant, the Optionsoptions 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 beoptions are 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 to be entered into between Mr. Mekler and the Company.

B-On February 1, 2023, the companyCompany engaged with Adi Shemer as a board advisor. For his services he was granted stock option to purchase 1,000,000 of the Company’s common stock, valued at $20,498. Upon grant, the Optionsoptions vest as follows: (i) 33% following 12 months on the first12 month 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 beoptions are exercisable at a per share exercise price of $0.0001 and shall otherwise be subject to the other terms and conditions specified in ana Stock Option Grant Agreement to be entered into between Mr. Shemer and the Company.

C-

During the first quarter of 2023, the companyCompany signed an amendment with an existing holder of a PrincipalConvertible Note in the amount of $437,190 CLA lender(“CLA”) with the following understandings:terms: (i) the note shall bewas amended so that the Fixed Conversion Pricefixed conversion price is $0.022, (ii) the principal amount of the Note shall bewas 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 shallwas to be added to it.it, (iv) Thethe Maturity Date with respect to all Tranchesoutstanding amounts advanced under the Note shall bewas amended to be July 31, 2023.2023 and (v) several sale limitations on trading during the period beginning on the Effective Dateeffective date of the agreement and ending on the Amended Maturity Date.amended maturity date were instituted. The warrant exercise price was adjusted accordingly. Since this amendment

The CLA was known already in December 2022 its resultspurchased by a third party during the third quarter and terms were included in the fair value as of 31.12.2022.changed according to Note 6-K.

D-On May 1, 2023, the companyCompany 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. UponUp on grant, the Optionsoptions 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 beoption is 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 ana Stock Option Grant Agreement to be entered into between the consultant and the Company.

E-On June 1, 2023, the companyCompany 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 Optionsoptions vest on a monthly basis over a period of 3 months from grant. The Option shall beoption is 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 ana Stock Option Grant Agreement to be entered into between the consultant and the Company.

16

 

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 votevoted 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,6-K, the holder of the Additional Third PartyThird-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$0.04 times seven million shares divided by the 90 day VWAP. Solely for
I-On July 1, 2023, the purposes of illustration, ifcompany granted Asaf Porat, the 90-day VWAP is $Company CFO, stock options to purchase 0.0310,237,740 the holder of the AdditionalCompany’s common stock, valued at $92,102, exercisable through July 2033 at a per share exercise price of $0.0001 per share. 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 a Stock Option 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.
J-On July 7, 2023, the Board 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.

17

K-In June 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with qualified investors (the “Investor”), pursuant to which the Company agreed to issue and sell (the “Offering”) up to an aggregate of 135,000,000 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 135,000,000 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 September 30, 2023, the Company received aggregate gross proceeds of $406,494 from the Investor, which entitles him to 40,649,400 shares and warrants. No assurance can be provided that the Investors will provide additional investments.
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 and readying for commercialization of the Snoring Treatment Device.
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. Following the purchase of these outstanding notes, the Purchasers and the company 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”). As a result of the change in the conversion price the company changed the classification of the loans from fair value to cost basis. The conversion component of these loans has not yet been recorded in Equity in view of the fact that these loans cannot be converted as of the date of the financial statements.
In connection with the purchase from Leonite of the Note would beby the Purchasers, the 600,000 Warrants previously issued an additionalto Leonite were cancelled. The decrease in the warrant liability was recorded to financial income on the profit and loss statement. 2,333,333
L-On July 25, 2023, SleepX Ltd, the Company’s subsidiary, was granted a patent (US 11672472 B2) by the United States Patent and Trademark Office, titled: “Methods and systems for estimation of obstructive sleep apnea severity in wake subjects by multiple speech analyses.” The patent extends through December 2038, and provides broad coverage in the field of sleep monitoring.
M-On July 26, 2023, Mr. Boris Molchadsky sold 2,334 shares [$0.01 X 7,000,000 / $0.03]Series A convertible preferred stocks, for a total amount of $70,000.
N-On August 16, 2023, the aforementioned purchasers completed the purchase of 67,068 Series A convertible preferred stocks and the purchase of a related party note. The Purchasers agreed to amend the terms of the note, to extend the maturity date to December 31, 2024, and to amend the conversion price thereof to $0.005.

NOTE 7 - SUBSEQUENT EVENTS

 

A-On July 1,October 7th, 2023, Asaf Porat, our CFO, was granted stock options to purchase 10,237,740“Iron Swords” war broke out in Israel (“The war”). As a result, the scope of economic and business activity in the country decreased. The company relies on foreign suppliers for manufacturing, marketing and shipment of products, and as such, doesn’t see any implication on the Company’s common stock, valued at $92,102. Upon grant,operations. Future product development made in Israel is likely to slow down.   The Company is continuing to regularly follow developments on the Options vest over a period of 24 months,matter and will continue to examine the effects 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.its operations.

B-At the end of October, the company wired to its wristband manufacturer the completion of the cost for manufacturing the first serial wristband units. The wristbands shall be delivered at the end of November and shipped to customers during December.
C-Following Note 6-K, the company received after the end of the 3rd quarter an additional aggregated $117,075 under the subscription agreement.
D-During November 2023, the Company was notified of a lawsuit that was originally filed on August, 2022, in the Tel Aviv Magistrate’s Court against our Chairman and majority shareholder, Boris Molchadsky, G.P.I.S Ltd., an entity controlled by Mr. Molchadsky, Nexsense, Inc. (the former shareholder of SleePX Ltd.) and SleepX, Ltd., our subsidiary (collectively, the “Defendants”) [Civil lawsuit number 25441-08-22]. The suit was filed by a fund operating out of Israel. A copy of the claim was served to the defendants only six months after it was submitted to court, on February 21, 2023. The lawsuit is based on the alleged breach of partnership and loan agreements as well as other related allegations, including violation of agreements reached in a mediation proceeding that took place in 2015. On July 7,24, 2023, the BoardDefendants (except for Nexsense, Inc.) filed a statement of Directors appointed Adi Shemer as Chief Executive Officer (“CEO”)defense, denying the allegations and argued that the claim should be dismissed, due to the statute of limitations, lack of cause of action, lack of jurisdiction, delay in filing the Company, effective immediately. Mr. Shemer has been working withclaim, and respecting SleepX, also due to the Company since February 2023 as a consultant. In connection with his appointment as CEO, Mr. Shemerlack of legal rivalry between SleepX 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.plaintiff.
   
  UnderRecently, the Agreement, Mr. ShemerMagistrate’s Court in Tel Aviv accepted the request regarding lack of material jurisdiction, and the claim was awarded options underthen transferred to the Company’s employee stock option plan for 11,500,000 shareseconomic department 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 continuesDistrict Court 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.Tel Aviv.
   
  The Investorfirst preliminary hearing has been scheduled for February 14, 2024. The Company and other unaffiliated entities (collectively,its legal consultants concluded that they cannot, at this stage, know the “Purchasers’) purchased from Leonite Fund LPeffects, if any, of these actions on its subsidiary SleepX and Diagonal Lending LLC outstanding convertible promissory notes issued by/ or 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, our subsidiary,accordingly, no provision was granted a patent (US 11672472 B2) by the United States Patent and Trademark Office, titled: “Methods and systems for estimation of obstructive sleep apnea severity in wake subjects by multiple speech analyses.” The patent extends through 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.recorded.

 

17

 18

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

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 JuneSeptember 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 from 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.

 

19

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.

18

 

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:

 

DreamITAppySleep – Biofeedback snoring treatment wristband, combined with the SleepXAppySleep 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 DreamITAppySleep product is currently in testing and calibration stage in preparation for serial manufacturing.manufacturing stage.

 

DreamITAppySleep PRO – is a wristband for the treatment of sleep apnea using biofeedback in combination with SleepXAppySleep PRO app. The unique algorithms of SleepXAppySleep 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 PROAppySleep LAB – 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.

 

During the 3rd quarter of 2023 we filed a Trademark request application for the registration of AppySleep and changed its products names from DreamIT, SleepX PRO, and DreamIT PRO, to AppySleep, AppySleep LAB, and AppySleep PRO, respectively.

Recent Corporate HistoryDevelopments

We started manufacturing our wristband for the Android App during November 2023, and we expect it would be delivered to our pre-ordered customers during December 2023.

 

Reverse MergerIn addition, following our capital raise in June-July 2023, we have recharged our development efforts and are currently focusing on the development of our new IOS & Android App version of AppySleep which we anticipate releasing to the market during the first quarter of 2024. The new App will be cloud based with newly added features that we believe will improve its diagnostic abilities.

We are finalizing our marketing materials and landing pages, and we plan to start intensive marketing efforts for our product during December 2023.

 

On August 2, 2021, AppYea entered into a stock exchange agreement with SleepX Ltd., a company formed under the lawsWe continue to expand our patent portfolio in purpose of the State of Israel (“SleepX”)increasing our advantage versus other sleep monitoring companies which aren’t treating snoring and controlled by the majority shareholder of AppYea, our chairman 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.

19

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 3,000 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.obstructive sleep apnea.

 

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.

20

 

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.

 

20

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 the 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.

 

21

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 SixNine Months Ended JuneSeptember 30, 2023 to the Three and SixNine Months Ended JuneSeptember 30, 2022

 

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

21
  For the three- months period ended September 30  For the Nine months period ended September 30 
  2023  2022  2023  2022 
  U.S dollars 
Research and development expenses  34,000   31,000   50,000   73,000 
General and administrative expenses  261,000   513,000   1,128,000   1,592,000 
                 
Financial income (expenses), net  (402,000)  (19,000)  (409,000)  (65,000)
                 
Loss for the period  (1,456,000)  (683,000)  (2,087,000)  (738,000)

 

Revenues. We have not recorded any revenues to date.

 

Research and Development Expenses, Research and development expenses decreasedincreased from $17,000 and $42,000$31,000 to $34,000 during the three and six months ended JuneSeptember 30, 2022 and decreased from $73,000 to $7,000$50,000 during the nine months ended September 30, 2023.. The increase in research and $16,000, respectively, for the corresponding periods in 2023. The decrease in each ofdevelopment expenses during the three and six month periodsperiod is primarily attributable to decreasedincreased investment in intellectual property and development of our products.products which commenced during the third quarter of 2023 following the receipt of the proceeds of the private placements discussed in this report.

General and Administrative Expenses. General and administrative expenses decreased from $632,000$513,000 and $1,079,000$1,592,000 for the three and sixnine months ended JuneSeptember 30, 2022.2022, to $440,000$261,000 and $867,000,$1,128,000, respectively, for the corresponding periods in 2023. The decrease in general and administrative expenses during the three and nine month periods is primarily due to the allocation of salary and professional services expenses, of which $526,000$560,500 were non-cash stock based non-cash compensation expenses resulting from options awards to our Chief Financial Officermanagement and advisors.advisors during 2023. In order to allocate expenses more accurately, as of the third quarter of 2023 the CEO salary expenses were allocated equally between research and development, sales and marketing and general and administrative, and the Chairman expenses were equally allocated between sales and marketing and general and administrative expenses.

22

 

Loss. Loss for the three months and sixnine months ended JuneSeptember 30, 2023 was $342,000$1,456,000 and $631,000,$2,087,000, respectively, and is primarily attributable to non-cash stock based compensation expenses referred to above.

 

Liquidity and Capital Resources

 

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

 

As of JuneSeptember 30, 2023, we had a total of $47,000$156,000 in cash resources and approximately $2,546,000$3,627,000 of liabilities, all of which are current liabilities from financing.liabilities.

 

AppYea has experienced operating losses since its inception and had a total accumulated deficit of $5,140,000$6,596,000 as of JuneSeptember 30, 2023. We expect to incur additional costs and require additional capital. We have incurred losses in nearly every year since inception. These losses have resulted in significant cash used in operations. During the fiscal quarters ended JuneSeptember 30, 2023 and 2022, our cash used in operations was approximately $192,000$410,000 and $402,000,$505,000, 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 period ended JuneSeptember 30, 2023 and 2022 respectively:

 

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

22
  For the nine months ended 
  September 30, 2023  September 30, 2022 
  US Dollars 
Net cash used in operating activities $(410,000)  (505,000)
Net cash used in investment activities $(36,000)  - 
Net cash provided by Financing Activities $558,000   390,000 

 

In June-JulyBetween June-October 2023, we raised an aggregate of $133,000$523,569 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 isinvestors are entitled to an aggregate 13,300,00052,356,900 shares of our common stock and warrants for an identical number of shares.warrants. 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 beThe Funds are being utilized towardsfor the completion of the design and development and readying for commercialization of the Snoring Treatment Device. SubjectThe investor is entitled to invest in 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 Stockaforementioned terms up to $1,350,000 and Warrants on the same terms as the initial investment. Nono 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.the end of the first quarter of 2024. We need to raise additional operating capital in order to maintain operations as presently conducted and to realize our business plan.

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.

23

 

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 $2,342,000$3,269,000 and a working capital deficit of $2,456,000$3,427,000 at JuneSeptember 30, 2023 as well as negative operating cash flows. Our report from our independent registered public accounting firm for the quarter ended JuneSeptember 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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

23

ITEM 4.CONTROLS AND PROCEDURES

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

 

As of JuneSeptember 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 JuneSeptember 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.

 

24

Changes in Internal Control Over Financial Reporting

 

During the quarter ended JuneSeptember 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

 

FromITEM 1. LEGAL PROCEEDINGS

On August 11, 2022, a lawsuit was filed in the Tel Aviv Magistrate’s Court against our Chairman and majority shareholder, Boris Molchadsky, G.P.I.S Ltd., an entity controlled by Mr. Molchadsky, Nexsense, Inc. (the former shareholder of SleepX Ltd.) and SleepX, Ltd., our subsidiary (collectively, the “Defendants”) [Civil lawsuit number 25441-08-22]. The suit was filed by a fund operating out of Israel. A copy of the claim was served to the defendants only six months after it was submitted to court, on February 21, 2023.

The lawsuit is based on the alleged breach of partnership and loan agreements as well as other related allegations, including violation of agreements reached in a mediation proceeding that took place in 2015.

The suit alleges that the Defendants, amongst other things, did not disclose to the plaintiff certain transactions to which the Plaintiff was presumably entitled to compensation and hence the plaintiff demanded an accounting of the transactions and refund of amounts invested. With respect to SleepX. the plaintiff alleged that it made a deal with Nexsense, Inc. which wasn’t disclosed to the plaintiff, while allegedly the technology and patents of Nexsense, Inc. were transferred to SleepX (which was established shortly before the reverse merger between AppYea and SleepX), thus allegedly aimed to the concealment of assets from the plaintiff.

On July 24, 2023, the Defendants (except for Nexsense, Inc.) filed a statement of defense, denying the allegations and argued that the claim should be dismissed, due to the statute of limitations, lack of cause of action, lack of jurisdiction, delay in filing the claim, and respecting SleepX, also due to the lack of legal rivalry between SleepX and the plaintiff.

In addition, the Defendants submitted several preliminary requests to dismiss the claim outright, including a plea to dismiss the claim on the grounds it was submitted to the magistrate court, which is not the competent court according to law, due to the economic nature of the claim. Nexsense, Inc. submitted a request to dismiss the claim against it because it was not properly served under the law (given the different service rules for defendants whose domicile is outside of Israel).

Recently, the Magistrate’s Court in Tel Aviv accepted the request regarding lack of material jurisdiction, and the claim was then transferred to the economic department of the District Court in Tel Aviv.

The first preliminary hearing has been scheduled for February 14, 2024.

We cannot, at this stage, know the effects, if any, of these actions on our subsidiary SleepX and / or the Company. However, SleepX together with the other Defendants, intend to vigorously defend against the lawsuit.

Aside from the disclosure above, 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

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

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

 

During the covered by this report period, we issuedcommitted to twoissue to 5 investors an aggregate of 19,390,35940,649,371 shares of our common stock upon conversioninvestment of $242,538$406,494 in outstanding convertible loans.company equity.

 

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

24

ITEM 4.SAFETY DISCLOSURES

ITEM 4. SAFETY DISCLOSURES

 

None.

 

ITEM 5.OTHER INFORMATION:

ITEM 5. OTHER INFORMATION:

 

None

 

25

ITEM 6.EXHIBITS

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)

 

2526

 

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/ Adi ShemerBy:Asaf Porat
 Adi Shemer Asaf Porat
 Chief Executive Officer Chief Financial Officer
 (Principal Executive Officer) (Principal Financial and Accounting Officer)
    
Date: August 14,November 16, 2023Date: August 14,November 16, 2023

 

2627