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, under the symbol “APYP”.
On
July 22, 2022, the Company filed an application to the OTC Markets Group for being listed on the OTCQB tier. On October 14, 2022, the
Company shares started trading on the OTCQB.
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 majority of the Company’s voting equity capital.
On
August 2, 2021, the Company entered into a stock exchange agreement with SleepX Ltd., a company formed under the laws of the State of
Israel (“SleepX”) and controlled by the majority shareholder of AppYea, Pursuant to the agreement, the outstanding equity
capital consisting of 1,724 common shares of SleepX was exchanged for 174,595,634 shares of common stock of the Company, based on the
agreement that determined that to SleepX shareholders will be issued common shares in the amount that will result in them holding 80%
of the 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.
As
of the result of the transactions mentioned above, Mr. Molchadsky controls approximately 74% of the total voting power of AppYea.
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 2022. 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 holds 73.8% of the voting interest
of Ta-nooma.
In
addition to SleepX, the Company has four wholly owned subsidiaries with no active operations.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
1 - GENERAL (cont.)
Accounting
treatment of Acquisition
AppYea
did not have an operation as of the date of the transactions and the Acquisition was accounted for as a reverse merger. The entity that
issues securities (the legal acquirer or-AppYea) is identified as the acquiree for accounting purposes. The entity whose interests are
acquired (SleepX.) is the acquirer for accounting purposes. Since SleepX is considered the accounting acquirer, these consolidated financial
statements are prepared as a continuation of the operations of SleepX, except for the legal capital which is of AppYea.
The
legal capital of AppYea in the financial statements is restated using the exchange ratio established in the stock exchange agreement
to reflect the number of shares of the legal acquirer issued in the reverse merger.
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 September 30, 2022, and December 31,
2021, the Company has an accumulated deficit of $3,943,000 and $3,205,000, respectively. These matters, among others, raise substantial
doubt about the Company’s ability to continue as a going concern. The Company intends to continue to finance its operating activities
by raising capital. There are no assurances that the Company will be successful in obtaining 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.
The
financial statements do not include any adjustments for the values of assets and liabilities and their classification that 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, 2021. 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, 2021, except of the following accounting pronouncement adopted by the company.
Recently
Issued Accounting Pronouncements, adopted
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which is intended to
address issues identified as a result of the complexity associated
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
During
2021 and 2022, the Company borrowed to Mr. Boris Molchadsky (chairman and control person of the company) an aggregate amount of $181,936,
which bears an annual interest rate of 3.4%. As of September 30, 2022, the loan’s balance
was nil.
| B. | Short-term loans
from related parties |
During
2021, SleepX borrowed from Nexense Technologies LTD, principal stockholder, an aggregate amount of $47,623. According to the agreement,
the loan shall be repaid in an 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 (3.4%and 3.23% in 2021 and 2022, respectively).
During
2020, the minority shareholder of Ta-nooma loaned Ta-nooma $41,082. The loan does not carry any interest expense and the repayment terms
have yet to be determined. As of September 30, 2022 the loan’s balance remains the same.
| C. | Convertible
loans related party |
On
August 22, 2021, Evergreen Venture Partners LLC, owned by Douglas O. McKinnon, principal stockholder of the Company, agreed to advance
to the Company up to $265,000 in tranches under the terms of an 18-month unsecured promissory note. Under the terms of the note, which
bears interest at a rate of 8% per annum, the 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. The note contains standard
events of default. As of the September 30, 2022, the related party has advanced to the Company $25,000 funds under the Note and there
are no assurances if there will be additional loans. As of September 30, 2022, the fair value as estimated by an independent external
evaluation with a WACC of 29% is $27,088.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
3 - RELATED PARTY BALANCES AND TRANSACTIONS (cont.)
| D. | Balances with
related parties |
SCHEDULE OF BALANCE WITH RELATED PARTIES
| |
September 30, 2022 | | |
December 31, 2021 | |
| |
In U.S. dollars in thousands | |
Assets: | |
| |
Receivables | |
| - | | |
| 137 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Other accounts payable | |
| 58 | | |
| - | |
Employees and payroll accruals(included in other accounts payable) | |
| 83 | | |
| 46 | |
Short term loan | |
| 89 | | |
| 89 | |
Convertible loan | |
| 27 | | |
| 32 | |
| E. | Transactions
with related parties |
SCHEDULE OF TRANSACTION WITH RELATED PARTIES
| |
2022 | | |
2021 | |
| |
Nine months ended September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
| |
In U.S. dollars in thousands | |
Expenses: | |
| | | |
| | |
Management fee to the Company’s CEO *) | |
| 264 | | |
| - | |
Salaries and related cost (including share-based compensation in the amount of $743,000) | |
| 896 | | |
| 135 | |
*) | As of the second
quarter, 2022, the salary of the Company’s CEO is being paid as a management fee to a related company, wholly owned by the CEO. |
| F. | On
June 1, 2022, the Company signed a consulting agreement with GPIS LTD, an Israeli company
controlled by Boris Molchadsky, for the services of S-1 filing consultation, management services
and US development of company operations. The fee for its services is approximately $140,000,
which will be paid in 3 installments. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS
A.
Warrants
During
the year of 2017, the Company granted 1,931,819 warrants. As of September 30, 2022, the Warrants were valued at $96,805. The expiry date
of the warrants is on October 13, 2022.
On
November 24, 2021, the Company granted 300,000
warrants valued at $43,270.
The expiry date of the warrants is on November
23, 2025, see (b) below (“Investor 2”).
In connection with the warrants issued to Investor 2, the Company also issued 8,334
warrants to an introducing advisor with the same
terms and conditions received by Investor 2. As of September 30, 2022, the total valuation of both of these warrants is valued at $14,439.
On May 9, 2022, the Company granted an
additional 300,000
warrants to Investor 2 (the “second tranche”) as defined in the agreement, see (b) below. In connection with the warrants
issued to Investor 2, the Company also issued 32,500
warrants to an introducing advisor with the same terms and conditions received by Investor 2. As of September 30, 2022, the total
valuation of both of these warrants is valued at $16,598.
These
warrants are converted with the same cashless exercise formula, in lieu of a cash exercise, equal to the number of Common Shares computed
using the following formula: the number of Warrants multiplied with the difference between the market price and the exercise price, on
the effective date of conversion, divided by the market price. As the numbers of shares to be issued for the exercise of the warrants
is variable the warrants have been measured at fair value.
In
order to calculate the fair value of the warrants, an option pricing model was used. The model requires six basic data inputs: the exercise
or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price
in the future, and the dividend rate.
As
of September 30, 2022, 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
September 30, 2022 | |
Expected term | |
| 0.04 – 3.61 years | |
Expected average volatility | |
| 80% -190 | % |
Expected dividend yield | |
| - | |
Risk-free interest rate | |
| 2.79% -4.24 | % |
Common Stock Market Value | |
$ | 0.0611 | |
The
following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2022:
SUMMARIZES
RELATING TO OUTSTANDING AND EXERCISABLE WARRANTS
Warrants Outstanding and Exercisable | | |
| | |
| |
| | |
Weighted Average Remaining
Contractual life | | |
Weighted
Average Exercise
| | |
Valuation as of | | |
| |
Number of Warrants | | |
(in years) | | |
Price | | |
September 30, 2022 | | |
Level | |
1,931,819 | | |
0.04 | | |
$ | 0.011 | | |
$ | 96,805 | | |
3 | |
308,334 | | |
3.15 | | |
$ | 0.6 | | |
$ | 14,439 | | |
2 | |
32,500 | | |
3.61 | | |
$ | 0.6 | | |
$ | 1,622 | | |
2 | |
300,000 | | |
3.61 | | |
$ | 0.6 | | |
$ | 14,976 | | |
2 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
B.
Convertible loans (Hereinafter: CLA)
During
the years of 2017-2021, the Company entered into convertible loan agreement (“CLA “) contracts with several investors as
detailed below.
The
Convertible Promissory Notes accrue interest at rates of 5% - 12% per annum, default interest at rates of 12%-24% per annum, which also
convertible at the same terms as the respective loans.
Investor
1
CLA
1 (Issued by the company During March 2019 - January 2021)
The
CLA is convertible into shares of the Company’s Common Stock at a per share price equal to the lesser of (i) $0.04, and (ii) the
variable conversion price, which is defined as 65% of the lowest daily Volume Weighted Average Price (‘VWAP’) in the twenty
(20) Trading Days prior to the Conversion Date. Maturity date for the CLA above is up to December 31, 2022.
The
CLA was evaluated at a fair value measurement option as one component because in each scenario the investors will prefer to convert the
company shares instead of receiving the loan.
In order to calculate the fair value of
the CLA, the independent valuation appraiser used Monte Carlo model and the Company assumptions regarding to the expected conversion date.
Using this model and assumptions, the fair value was evaluated for $872,755as a short- term convertible loan on September 30, 2022.
As
of September 30, 2022, the estimated fair values of the Convertible Loan measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| |
As of
September 30, 2022 | |
Expected term | |
| 0.25 years | |
Expected average (Monte Carlo) volatility | |
| 190 | % |
Expected dividend yield | |
| - | |
Risk-free interest rate | |
| 3.3 | % |
CLA
2 (Issued by the Company during 2021)
During
the year 2021, the Company entered into a new CLA contract with Investor 1. In exchange to the CLA, the Company received an amount of
$250,000. The maturity date of the CLA is May 10, 2023.
The
CLA is convertible at a fair value measurement option at a price per share equal to the variable conversion price, which is defined as
60% of the lowest daily VWAP in the twenty (20) Trading Days prior to the Conversion Date.
The
CLA was evaluated at a fair value measurement option as one component because in each scenario the investors will prefer to convert the
company shares instead of receiving the loan.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
In order to calculate the fair value of
the CLA, the independent valuation appraiser used the Company assumptions regarding the expected conversion date. Using these assumptions,
the fair value was evaluated for $510,688 as short-term convertible loan on September 30, 2022.
For
the period ended September 30, 2022, the estimated fair values of the Convertible Loan measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| |
As of
September 30,2022 | |
Expected term | |
| 0.25 years | |
WACC | |
| 29% | |
Investor
2
On
November 24, 2021, the Company signed CLA, Warrants and SPA agreements with Investor 2 for an aggregate amount of $500,000. As of December
2021, the Company received an amount of $110,000 out of the aggregate committed amount. The Investor shall remit the balance upon filing
of a Registration Statement on Form S-1.
On
May 9, 2022, the Company received the rest of the investment, the second tranche, an amount of $390,000.
The
maturity date of the Note is the earlier of 12 months from the date of each advance or the date the Company closes on a registered public
offering.
The
Company’s obligations under the CLA are secured by a security interest in substantially all of its assets pursuant to a Security
Agreement dated as of November 24, 2021, between it and the Company. The Convertible Promissory Note will be convertible at a price equal
to $0.5. The conversion component was evaluated in separate from the loan.
On
November 24, 2021, and May 5, 2022, both investments, were evaluated as separate components: Warrants, common shares, Loan (Part of the
CLA) and conversion component. First, the independent valuation appraiser evaluated the Warrants and the stocks in Fair Value, and the
residual attributed to the CLA components.
In
order to evaluate the CLA components, it was evaluated based on their fair value ratio and then multiplied the residual by the acceptable
ratio of each of the CLA components. In addition, the independent valuation appraiser used Monte Carlo model and Company assumptions
regarding to the expected conversion date and the expected return date of the principal amount. Using this model and assumptions, the
expected conversion amount was evaluated.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
In
addition, as of September 30, 2022, the warrants and the loan were identified as liabilities components. The conversion instrument was
identified as an equity component; therefore it was evaluated only as of the agreement day. In order to calculate the fair value of the
CLA Loan as of September 30, 2022, the independent valuation appraiser used Company assumptions regarding to the expected conversion
date and the expected return date of the principal amount and then capitalized the loan using the company’s WACC for each valuation
date.
Using
this model and assumptions, the expected conversion amount was evaluated. As of September 30, 2022 the Loans component were evaluated
(the first and second tranches) at $559,230 and were classified as short term loan.
As
of September 30, 2022, the estimated fair values of the CLA measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| |
As of September 30, 2022 | |
Expected term | |
| 0.58
year | |
WACC | |
| 29 | % |
Rest
of the investors
During
the year of 2021, the Company signed additional CLA with an investor for an amount of $75,000.
The
CLA is convertible at a price equal to the variable conversion price, which is defined as 65% of the lowest daily VWAP in the twenty
(20) Trading Days prior to the Conversion Date. The maturity date of the CLA is January 29, 2023.
The
CLA was evaluated as one component because in each scenario the investors will prefer to convert the company shares instead to receive
the loan.
In
order to calculate the fair value of the CLA, the independent valuation appraiser used Company assumptions regarding the expected conversion
date. Using Company WACC, the fair value was evaluated for $82,547 as short- term convertible loan on September 30, 2022.
As
of September 30, 2022, the estimated fair values of the CLA measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN
| |
As of September 30, 2022 | |
Expected term | |
| 0.25-0.42 years | |
WACC | |
| 29 | % |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
5 - SIGNIFICANT EVENTS DURING THE PERIOD
| A. | On
May 10, 2022, the Company filed an S-1 registration statement and its audited financials.
The registration statement became effective on September 29, 2022. |
| B. | The
Company has accumulated 491,200 common shares payable, in total value of $22,000, to be issued
to a service provider, as part of his compensation, during the second and third quarter of
2022. |
| C. | On
July 12, 2022, the Company issued 200,000 shares of common stock to Leonite (see note
4B). |
| D. | On
July 20, 2022, the board of the Company approved creating an Audit Committee of the Board
of Directors, and appointed Dr. Neil Klein as independent Member of the Audit Committee. |
| E. | On
August 1, 2022, the board of the Company approved prolonging the agreement with GPIS and
adding $42,000 to its compensation. In addition, the board agreed to extend the life term
of all warrants issued to employees to ten years from day of issuance. |
| F. | On
September 6, 2022, the Company uploaded its first version of the SleepX App to the Google
Play Store. |
| G. | On
September 8, 2022, AppYea received extension confirmation for strategic patent in UK, Germany,
and France. The patent protects the right to use a microphone of any type and sound analysis
for the purpose of identifying and diagnosing sleep apnea. |
| H. | On
September 12, 2022, the company signed an agreement with a hardware manufacturer for its
DreamIT wristband. |
NOTE
6 - SUBSEQUENT EVENTS
| A. | On
October 13, 2022, warrants issued in 2017 expired without being exercised (Note 4A). |
| B. | On
October 14, 2022, the company shares started trading on the OTCQB. |