LOTT 10-Q
Techlott Inc. (LOTT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from _________ to _________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(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 | ||
| None | 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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 20, 2026, the registrant had shares of common stock outstanding, par value $ per share.
APPYEA, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2026
TABLE OF CONTENTS
| 2 |
APPYEA INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2026
| 3 |
APPYEA INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2026
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 4 |
APPYEA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
| March 31 | December 31, | |||||||
| 2026 | 2025 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | ||||||||
| Other accounts receivables | ||||||||
| Inventory | ||||||||
| Marketable Securities | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | ||||||||
LIABILITIES AND DEFICIENCY | ||||||||
| Current liabilities | ||||||||
| Trade payables | ||||||||
| Other accounts payable and related party payables | ||||||||
| Short-term loans from related party | ||||||||
| Derivative liability – Anti-dilution rights (note 4) | ||||||||
| Convertible loans – At fair value | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Long term convertible loans at fair value (note 4) | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
| AppYea Inc. Stockholders’ Equity: | ||||||||
| Convertible preferred A stock, $ par value | ||||||||
| Convertible preferred B stock, $ par value | ||||||||
| Common stock, $ par value | ||||||||
| Shares to be issued | ||||||||
| Additional Paid in Capital | ||||||||
| Treasury Stocks | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total AppYea Inc. stockholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total liabilities and equity | ||||||||
The accompanying notes are an integral part of the financial statements.
| 5 |
APPYEA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands)
| For
the three months ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Unaudited | Unaudited | |||||||
| Revenues | ||||||||
| Cost of sales | ( | ) | ||||||
| Gross profit | ( | ) | ||||||
| Research and development | ( | ) | ||||||
| Amortization of intangible assets | ( | ) | ||||||
| Sales and marketing | ( | ) | ( | ) | ||||
| General and administrative | ( | ) | ( | ) | ||||
| Operating loss | ( | ) | ( | ) | ||||
| Change in fair value | ( | ) | ( | ) | ||||
| Financial (expenses) income | ( | ) | ||||||
| Loss before income tax benefit | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to AppYea Inc. | ( | ) | ( | ) | ||||
| Net Loss per Common Share: | ||||||||
| Basic and Diluted | ) | ) | ||||||
| Weighted Average number of Common Shares Outstanding basic and diluted | ||||||||
The accompanying notes are an integral part of the financial statements.
| 6 |
APPYEA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY
(U.S. dollars in thousands except share data)
| Preferred Stock - Series A | Preferred Stock – Series B | Common Stock | Treasury | Additional Paid in | Shares to be | Accumulated | Non- controlling | Total | ||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Amount | Stocks | Capital | issued | Deficit | Total | interests | Equity | ||||||||||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2026 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Share based Compensation | | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Shares issuance to service providers | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issuance to investors | | | | |||||||||||||||||||||||||||||||||||||||||
| Share to be issued to investors | ||||||||||||||||||||||||||||||||||||||||||||
Repurchase of stock options | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2026 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| 7 |
| Preferred Stock | Common Stock | Additional Paid in | Accumulated | Non-controlling | Total | |||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Deficit | Total | interests | Equity | ||||||||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2025 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Share based Compensation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares issuance to service providers | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Shares issuance to investors | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Share to be issued to investors | ||||||||||||||||||||||||||||||||||||||||
| Share to be issued to service providers | - | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the financial statements.
| 8 |
APPYEA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
| For
The Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Share based compensation | ( | ) | ||||||
| Change in fair value of convertible loans and warrant liability | ||||||||
| Financial expenses, net | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Accounts payables | ||||||||
| Accounts payables – related party | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Research and development expenses capitalization | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Common Stock | ||||||||
| Proceeds from issuance of common stock net of issuance expenses | ||||||||
| Net cash provided by financing activities | ||||||||
| Foreign exchange on Cash and cash equivalents | ( | ) | ||||||
| Change in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | ||||||||
The accompanying notes are an integral part of the financial statements.
| 9 |
APPYEA INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - GENERAL
| A. | 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 has not generated significant revenues from operations. On November 1, 2021 the Company was redomiciled in the State of Nevada. | |
| The Company’s common stock is traded on the OTC Markets, OTCQB tier, under the symbol “APYP”. | ||
| B. | Strategic Development | |
| On August 20, 2025 the Company entered into an agreement with Techlott Enterprises Ltd. (“Techlott”), a Cypriot company, for the purchase (the “Techlott Purchase Agreement”) of proprietary blockchain-based decentralized lottery and gaming ecosystem leveraging smart contracts, verifiable randomness, and advanced infrastructure to deliver transparent, secure, and scalable lottery and gaming experiences (the “Technology”) and the underlying intellectual property for consideration consisting of shares of the Company’s common stock par value $ per share (the “Common Stock”). For further details, refer to the Company’s Annual Report on Form 10-K for the year ended December 31,2025. | ||
| C. | SleepX LTD is a company formed under the laws of the State of Israel and a wholly owned subsidiary of the Company (“SleepX”). SleepX is a research and development company that has developed a proprietary product for monitoring and treating sleep apnea and snoring. The technology is protected by several international patents. | |
| SleepX
has incorporated, together with an unrelated third party, a privately held company under the laws of the State of Israel named Ta-nooma
Ltd. (“Ta-nooma”). Ta-nooma has developed sleeping monitoring technology for which patent applications were filed and
has no revenue from operations. Since its incorporation and as of the financial statements date, SleepX holds | ||
| D. | Going Concern |
The
financial statements are presented on a going-concern basis. To date, the Company has not generated any significant revenues, suffered
recurring losses from operations, incurred negative cash flows from operating activities, and is dependent upon external sources for
financing its operations. As of March 31, 2026 the Company had an accumulated deficit of $
The accumulated deficit raises 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”.
| 10 |
APPYEA INC.
NOTES TO THE FINANCIAL STATEMENTS
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, 2025, from which the accompanying condensed consolidated balance sheet dated December 31, 2025, was derived. The accounting policies implemented in the interim financial statements are consistent with the accounting policies implemented in the annual financial statements as of December 31, 2025, except of the following accounting pronouncement adopted by the Company.
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. | Short-term loans from related parties |
During
2021, SleepX borrowed from Nexense Technologies USA. Inc., a Delaware corporation which is majority
owned by Boris Molchadsky, the Company’s Chairman. an aggregate amount of $
During
2020, the minority shareholder of Ta-nooma advanced a loan to Ta-nooma in the amount of NIS
| B. | Balances with related parties |
| March 31, 2026 | December 31, 2025 | |||||||
| In U.S. dollars in thousands | ||||||||
| Liabilities: | ||||||||
| Employees and payroll accruals | ||||||||
| Related party payables | ||||||||
| Short term loans | ||||||||
| 11 |
APPYEA INC.
NOTES TO THE FINANCIAL STATEMENTS
| C. | Transactions with related parties |
| For
the three months ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| In U.S. dollars in thousands | ||||||||
| Expenses: | ||||||||
| Consulting fees, Salaries and related cost | ||||||||
| Share based compensation | ||||||||
All of the five board members in the Company do not receive cash compensation for their directorship roles. Company’s Bylaws provide that a director or officer shall be indemnified and held harmless by the Corporation, to the fullest extent permitted by the laws of the State of Nevada.
NOTE 4 - CONVERTIBLE LOANS AND WARRANTS AND ANTI-DILUTION LIABILITIES
The following table summarizes fair value measurements by level as of March 31, 2026 and December 31, 2025 measured at fair value on a recurring basis:
| March 31, 2026 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| In U.S. dollars | ||||||||||||||||
| Assets | ||||||||||||||||
| None | - | - | - | - | ||||||||||||
| Liabilities | ||||||||||||||||
| Convertible Loans (including long term) | - | - | 878 | |||||||||||||
| Derivative liability - Anti dilution rights | - | - | 7,837 | |||||||||||||
| and December 31, 2025 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| In U.S. dollars | ||||||||||||||||
| Assets | ||||||||||||||||
| None | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Convertible
Loans (including long term) | ||||||||||||||||
| Derivative liability - Anti dilution rights | ||||||||||||||||
NOTE 4 - CONVERTIBLE LOANS AND WARRANTS AND ANTI-DILUTION LIABILITIES (cont.)
| (i) | The Convertible Loans changes consist of the following as of March 31, 2026 and December 31, 2025: |
| Convertible Loans at Fair Value | ||||||||
| March 31, 2026 | December 31, 2025 | |||||||
| $000 | ||||||||
| Opening Balance, (including short term loans from related party which is also convertible) | ||||||||
| Conversion of convertible loan | ( | ) | ||||||
| Transition from amortized cost to convertible loans measured at fair value | ||||||||
| Change in fair value of convertible loans liability | ( | ) | ( | ) | ||||
| Closing balance | ||||||||
| 12 |
APPYEA INC.
NOTES TO THE FINANCIAL STATEMENTS
The estimated fair values of the Convertible loans were measured according to the Monte Carlo Model using the following assumptions:
| As of March 31, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| Expected term (in years) | ||||||||
| Expected average (Monte Carlo) volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| WACC | % | % | ||||||
| (ii) | The Derivative liability – Anti-dilution rights changes consist of the following as of March 31, 2026 and December 31, 2025: |
| Anti-Dilution Liabilities at Fair value | ||||||||
| March 31, 2026 | December 31, 2025 | |||||||
| $000 | ||||||||
| Opening Balance | ||||||||
| Recognition of anti-dilution rights granted to new investors (see Note 6 – Capital raise) | ||||||||
| Fair value adjustment | ||||||||
| Closing balance | ||||||||
NOTE 5 - STOCK BASED COMPENSATION
| Three months ended March 31, 2026 | ||||||||
| Number of | Weighted average exercise price | |||||||
| options | in USD | |||||||
| Options outstanding on January 1, 2026 | $ | |||||||
| Options granted during the period | $ | |||||||
| Options exercised during the period | $ | |||||||
| Options cancelled during the period | ( | ) | $ | |||||
| Options outstanding at the end of period | $ | |||||||
| Options exercisable at the end of period | ||||||||
(*) The aggregate intrinsic value of options outstanding as of March 31, 2026 was approximately $ million, calculated based on the Company’s share price of $ at that date.
For the three months ended March 31, 2026 and 2025 the company recognized expenses, to such options, in the amount of $ and $, respectively. The expense is non-cash stock-based compensation expense resulting from options awards to the Chief Executive Officer, 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.
NOTE 6 - SIGNIFICANT EVENTS DURING AND AFTER THE PERIOD
| (i) Capital raise |
On
January 27, 2026, the Company received gross proceeds of $
One
of the abovementioned investors, has invested $
Derivative liability – Anti-dilution rights
(i) These rights entitle the holders to receive additional shares of the Company’s common stock upon future capital raises (up to specified thresholds), in order to maintain their relative ownership. As the number of shares to be issued is variable, these rights are not considered indexed to the Company’s own stock. Accordingly, under ASC 815-40, such rights are classified as derivative liabilities.
(ii) The derivative liabilities are measured at fair value, with changes in fair value recognized in the statement of operations under “change in fair value of derivative liabilities.”
The liabilities are presented within current or non-current liabilities in the balance sheet, based on the expected timing of settlement.
(iii) The anti-dilution protection is triggered upon future equity
financings up to $
a. Valuation methodology
(i) The fair value of the anti-dilution feature was determined using a scenario-based approach that considers potential future financing outcomes.
(ii) For each scenario, the Company estimated (i) the value of the shares assuming the anti-dilution protection is in place and (ii) the value assuming no such protection exists. The incremental value attributable to the anti-dilution feature represents the difference between these two outcomes.
(iii) The expected value across scenarios was probability-weighted and subsequently discounted to present value using an appropriate weighted average cost of capital.
(iv) Key assumptions include expected future Company valuations, dilution rates in potential capital raises, timing of potential financing events, and the probability assigned to each scenario.
b. Anti-dilution liability valuation
(i) The valuation reflects scenario analysis of potential future
financing events. Two representative scenarios were considered: (i) a financing event at a Company valuation of approximately $
(ii) The resulting fair value reflects the probability-weighted outcomes of these scenarios, consistent with the valuation methodology described above. The valuation involves significant unobservable inputs and is classified within Level 3 of the fair value hierarchy.
(iii) Changes in key assumptions, including expected Company valuation and dilution rates, could result in a material change in the fair value of the derivative liability.
(ii) Settlement with former CEO
In January 2026, the Company entered into a settlement and release agreement with its former Chief Executive Officer, Mr. Adi Shamer.
Pursuant to the agreement, Mr. Shamer agreed to fully release and discharge the Company from any and all claims. In connection with the settlement, Mr. Shamer returned to the Company vested but unexercised stock options previously granted to him.
In
consideration for the foregoing, the Company paid Mr. Shamer NIS
Following the execution of the agreement, Mr. Shamer holds shares of the Company’s common stock.
(iii) In connection with the consulting agreement entered into with the Company’s Chief Financial Officer (“CFO”), The aggregate grant date fair value of the options was approximately $.
(iv) Subsequent to the end of the reporting period, the Company commenced deployment of its technology with its first customer, a local lottery operator in The Gambia.
| 13 |
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 forward-looking statements within the meaning of the safe-harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding our strategy, market opportunity, planned geographic and vertical expansion, future commercial deployments, capital requirements, regulatory matters, and prospective listing. Words such as “may,” “will,” “expect,” “intend,” “plan,” “believe,” “anticipate,” “estimate,” “potential,” and similar expressions identify forward-looking statements.
Forward-looking statements rest on management’s current expectations and are subject to substantial risks, uncertainties, and changes in circumstances that are outside the Company’s control. Actual results may differ materially. Important factors are described under the heading “Risk Factors” in our 2025 10-K, as updated by our subsequent filings with the SEC. Except as required by law, we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date of this report. The terms “we,” “us,” “our,” “AppYea,” and the “Company” refer to AppYea, Inc. and its consolidated subsidiaries unless context otherwise requires.
Overview
We are a Nevada corporation whose common stock is quoted on the OTC Markets, OTCQB tier, under the symbol “APYP.” We currently operate in two areas: (i) the development and commercial deployment of a blockchain-based technology platform supporting licensed lottery, draw-based gaming, and casino-style gaming operators, which is our principal area of focus following our acquisition of the Techlott IP on December 31, 2025; and (ii) legacy digital health products developed by our wholly-owned subsidiary SleepX for sleep apnea and snoring monitoring, with respect to which we continue to evaluate strategic options.
Our blockchain-based technology is designed to support core lottery operational processes — including ticket registration, draw execution, and prize distribution — through smart-contract logic, verifiable randomness, and audit-trail capabilities intended to support regulatory and operator-side compliance. As of the date of this report, our commercial operations consist of one active customer deployment, located in The Gambia. All of our material commercial revenue from the platform during the three months ended March 31, 2026 was derived from this single customer. While our existing commercial deployment is in the lottery vertical, the Platform’s underlying components, including smart-contract execution, verifiable randomness, and modular backend services, are configurable to support a broader range of regulated gaming applications, including casino-style table games and instant-win products, when offered by licensed gaming operators in jurisdictions where such activities are permitted. Casino and other gaming operations are typically subject to distinct licensing regimes and regulatory requirements that differ materially from those applicable to lottery operations, and operators offering such products would generally be required to hold the relevant gaming licenses and to comply with the regulatory requirements applicable in their respective jurisdictions.
While we intend to focus on the development and expansion of our lottery and gaming business, we continue to explore options with respect to our legacy digital health business.
Industry Background
The global lottery industry is large and well-established.
We believe the following industry trends are favorable to our business, although there can be no assurance that any of these trends will continue or that, if they do continue, we will be positioned to benefit from them:
| -- | Digital channel growth. A growing share of lottery purchases is conducted through digital channels rather than traditional retail terminals, particularly in jurisdictions with established mobile payment infrastructure. | |
| -- | Mobile payment adoption in emerging markets. The expansion of mobile-money and digital payment infrastructure in certain emerging markets, including parts of Africa and Asia, has reduced traditional barriers to participation in regulated lottery games. | |
| -- | Regulatory focus on verifiable fairness. Lottery and gaming regulators in a number of jurisdictions have signaled increasing interest in technical mechanisms by which the fairness, integrity and auditability of lottery operations can be independently verified, rather than relying solely on regulator inspection of operator-controlled systems. |
We believe these trends create demand for technology platforms that can support digital and mobile lottery and gaming participation while providing operators and regulators with mechanisms to independently verify fairness and integrity. The Platform is designed to address this demand. The extent to which we are able to capitalize on these trends, however, is subject to a range of factors outside our control, including regulatory developments, the pace of technology adoption among lottery and gaming operators, and competition from established and emerging providers.
| 14 |
Our Platform
We have developed and commercially deployed technology platform designed to support lottery and gaming operations through a combination of smart contract infrastructure, verifiable randomness, and modular backend systems. The Platform is intended to support transparency, operational efficiency, and auditability for lottery and gaming operators and regulators. The Platform is designed to be deployed alongside, or as a replacement for, an operator’s existing legacy systems, depending on operator requirements; we do not represent that the Platform alone ensures operational efficiency or regulatory compliance, both of which depend on the operator’s broader system architecture, business processes, and regulatory environment.
As of the date of this report, our commercial operations are in an early stage, with one active customer deployment in The Gambia, Africa. All of our lottery and gaming revenue to date has been derived from this single customer. Our future growth depends on, among other things, securing additional customers, expanding into new markets, and continuing to develop the Platform.
Platform Architecture
The Platform combines on-chain components (smart contracts deployed on a public blockchain) with off-chain components (backend services, operator-facing administrative tools, and integration interfaces). The Platform is designed to support high-throughput environments and may be deployed across multiple jurisdictions, subject in each case to applicable regulatory requirements and operator-specific configuration.
At its core, the system utilizes blockchain-based smart contracts to automate certain operational processes, including ticket registration, draw execution, and prize distribution. These processes are designed to reduce reliance on manual intervention and improve consistency and traceability across lottery and gaming operations, although they remain subject to the limitations of the underlying blockchain network and the integrity of the smart-contract code, including the risk of undiscovered vulnerabilities.
The Platform integrates frontend interfaces, backend services, and blockchain components to deliver a unified system that can be adapted to various operator requirements and regulatory environments.
A central component of the Platform is its use of third-party verifiable randomness services for draw execution. The system integrates the Chainlink Verifiable Random Function (“Chainlink VRF”) service to generate cryptographically verifiable random outcomes. We consume Chainlink VRF on a per-request basis using the LINK token; we do not have a written commercial agreement with Chainlink Labs governing access to the service. This approach is intended to:
| -- | Reduce the risk of manipulation in the draw process. | |
| -- | Provide a cryptographic record that outcomes are generated in accordance with predefined rules. | |
| -- | Support regulatory and audit requirements related to fairness and integrity. |
We are also developing additional mechanisms to further bind draw outcomes to predefined rule sets and improve traceability and auditability of each draw event. We rely on the continued availability of Chainlink VRF on terms acceptable to us; the unavailability or material modification of the Chainlink VRF service could require us to migrate to an alternative randomness service, which could be costly and disruptive.
Platform Capabilities
The Platform is designed as a modular system that supports a range of operational capabilities for lottery and gaming operators, including:
Lottery Management. End-to-end management of lottery lifecycle processes, including ticket sales, draw execution, and prize distribution, with system events recorded and traceable.
Operator Tools and Back Office. Administrative interfaces that provide near-real-time visibility into system activity, including transaction tracking, reporting, and operational controls. These tools are intended to support compliance, auditing, and operational oversight.
Affiliate and Promotional Systems. Integrated tools for campaign management, affiliate tracking, and promotional logic, enabling operators to manage user acquisition and engagement strategies, subject in each case to applicable regulatory restrictions on lottery and gaming marketing in the operator’s jurisdiction.
| 15 |
Player Engagement Features. Optional engagement features, such as promotional campaigns and reward-based mechanisms, designed to support user retention and activity. Where required, these features are configurable to incorporate operator-specific responsible-gaming and self-exclusion controls; however, ultimate responsibility for compliance with responsible-gaming requirements rests with the operator.
Technology Roadmap
Our technology development roadmap includes:
| -- | Expansion to additional blockchain networks to support scalability and flexibility. | |
| -- | Enhancement of API-based services for third-party operators. | |
| -- | Continued development of operator tools and user interfaces. | |
| -- | Integration of additional payment methods and regional capabilities. | |
| -- | Ongoing improvements to security, monitoring, and system performance. |
These initiatives are intended to support our long-term strategy of providing a scalable and compliant technology platform for the global lottery and gaming industry. There can be no assurance that we will be able to execute on this roadmap on the timeline anticipated, or at all, particularly in light of our current capital position.
Our Products and Services
We provide technology products and services designed to support licensed lottery and gaming operators. We do not, and do not intend to, hold lottery, gaming or wagering licenses in our own name; we operate as a business-to-business technology supplier to licensed operators.
Platform Access and Deployment. We provide operators with access to the Platform, including system setup, configuration, and deployment tailored to the operator’s requirements and regulatory environment.
Customization and Development. We offer development services to adapt the Platform to specific customer needs, including custom game configurations, integration with local payment systems, adaptation to regulatory requirements, and development of additional features unique to each operator.
Ongoing Support and Maintenance. We provide continuous technical support and system maintenance services, including Platform monitoring, issue resolution, system updates and improvements, and operational support for live environments.
Additional Platform Capabilities. The Platform includes modules for lottery lifecycle management, administrative and reporting tools, affiliate and promotional systems, and user engagement features. These capabilities may be configured differently depending on the customer’s requirements.
Key Financial Terms and Metrics
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 generated insignificant 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.
| 16 |
Our research and development 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 software development, blockchain integration, smart contract auditing, security testing, and other technology-related services.
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 of the 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 Months Ended March 31, 2026 to the Three Months Ended March 31, 2025
| (U.S. dollars in thousands) | Three Months Ended March 31, | |||||||
| 2026 | 2025 | |||||||
| Revenue | - | 3 | ||||||
| Cost of sales | - | (4 | ) | |||||
| Gross profit (loss) | - | (1 | ) | |||||
| Operating expenses: | ||||||||
| Research and development | 215 | (6 | ) | |||||
| Amortization of intangible assets | 533 | |||||||
| Sales and marketing | 23 | 17 | ||||||
| General and administrative | 413 | 111 | ||||||
| Operating loss | (1,184 | ) | (123 | ) | ||||
| Change in fair value | (386 | ) | (44 | ) | ||||
| Financial income (expenses), net | 2 | (1 | ) | |||||
| Net loss | (1,568 | ) | (166 | ) | ||||
The three months ended March 31, 2026 represent the first full quarter following the Company’s strategic pivot to blockchain-based lottery technology and the consummation of the Techlott IP acquisition on December 31, 2025. The three months ended March 31, 2025 reflect the Company’s operations as a digital health company under prior senior management, prior to the engagement of the current Chief Executive Officer (Yakir Abadi), Executive Chairman (Eldar Edmond Grady), and Chief Financial Officer (Ron Mekler) in August 2025, and prior to the engagement of the current President (Mark Katzenelson) and Chief Technology Officer (Ben Harris) in December 2025. Period-over-period comparability is therefore materially limited.
| 17 |
Revenue.
The Company did not generate any revenue for the three months ended March 31, 2026, compared to $3,000 for the three months ended March 31, 2025. Prior-period revenue was attributable to legacy sales of the SleepX AppySleep biofeedback wristband and related products.
Cost of Sales.
The Company did not incur cost of sales for the three months ended March 31, 2026, compared to $4,000 for the three months ended March 31, 2025. The change reflects the shift in revenue mix from physical product sales (SleepX) to platform-based services (Techlott IP).
Research and Development Expenses.
Research and development expenses for the three months ended March 31, 2026 were approximately $215,000, compared to a net credit of $(6,000) for the three months ended March 31, 2025. Research and Development expenses for the period primarily consisted of approximately $63,000 of development costs associated with the continued enhancement and deployment of the acquired lottery platform, as well as $135,000 of allocated compensation expenses relating to the Company’s CTO (Ben Harris) and certain members of management that were previously attributed to research and development activities. Mr. Harris was appointed on December 31, 2025 and is entitled to monthly compensation of $30,000. The prior-period net credit reflected the reversal of previously recognized share-based compensation expense in connection with the forfeiture of stock options held by the Company’s former Chief Executive Officer, in January 2025; cash research and development expenses in the prior period were significantly lower than in the current period as a result of reduced engineering staffing during the strategic transition.
Amortization of Acquired Intangible Assets.
Amortization expenses for the three months ended March 31, 2026 were approximately $533,000, compared to nil for the three months ended March 31, 2025. Approximately $528,000 of the amortization expenses relates to the intellectual property acquired from Techlott on December 31, 2025, with the remaining amount attributable to the amortization of legacy SleepX patent assets.
Sales and Marketing Expenses.
Sales and marketing expenses for the three months ended March 31, 2026 were approximately $23,000, compared to $17,000 for the three months ended March 31, 2025.
General and Administrative Expenses.
General and administrative expenses for the three months ended March 31, 2026 were approximately $413,000, compared to $111,000 for the three months ended March 31, 2025. The increase reflects, among other items, the following developments that occurred after March 31, 2025 and are present for the first full quarterly period in the three months ended March 31, 2026: (i) consulting fees payable to the senior management team appointed in August 2025 (Mr. Abadi, Mr. Grady, and Mr. Mekler) and December 2025 (Mr. Katzenelson), aggregating approximately $255,000 of base monthly fees for the period (calculated as base monthly fees of $30,000 per month for each of Mr. Abadi, Mr. Grady, Mr. Katzenelson, and $10,000 per month for Mr. Mekler, for the three months ended March 31, 2026); (ii) share-based compensation expense relating to options granted to officers and consultants (including $78,000 of expense related to the vesting of 7,500,000 options held by Mr. Mekler on March 31, 2026), as compared to a net credit to share-based compensation in the prior period; and (iii) professional fees relating to the Company’s public reporting program, the Techlott IP acquisition, and ongoing legal matters. None of the professional fees to our management team have in fact been paid due to cash flow constraints but such amounts are being accrued, except for a monthly fee of $7,000 (of the $10,000) being paid to the Company’s CFO.
Change in Fair Value of Convertible Loans and Derivative Liabilities.
The change in fair value of convertible loans and derivative liabilities for the three months ended March 31, 2026 was expense of approximately $386,000, compared to expense of $(44,000) for the three months ended March 31, 2025. The current-period amount reflects the remeasurement of (i) the Plutus Note carried at fair value pursuant to the fair value option under ASC 815 and (ii) the anti-dilution derivative liabilities recognized in December 2025 in connection with the Techlott IP acquisition and the contractual anti-dilution rights of senior management. The prior-period amount reflected the remeasurement of convertible loan instruments outstanding during that period, none of which remain outstanding as of March 31, 2026 (other than the Plutus Note).
Financial Income (Expenses), Net.
Financial income (expenses), net for the three months ended March 31, 2026 was income of approximately $2,000, compared to expense of $1,000 for the three months ended March 31, 2025. Financial income for the period was primarily attributable to interest earned on U.S. dollar-denominated deposits. Financial expenses primarily reflect interest accrual on outstanding debt obligations and the effect of remeasurement of monetary balances denominated in non-U.S. dollar currencies (principally the New Israeli Shekel).
| 18 |
Net Loss.
Net loss for the three months ended March 31, 2026 was approximately $(1,568,000), compared to net loss of $(166,000) for the three months ended March 31, 2025. The increase in net loss primarily reflects the items described above, in particular the post-acquisition amortization of the Techlott IP and the consulting fees payable to the senior management team appointed during the second half of 2025.
Liquidity and Capital Resources
We have funded our operations to date through a combination of equity issuances and convertible debt financings. As of March 31, 2026, we had cash and cash equivalents of approximately $811,000 and total liabilities of approximately $9,726,000, of which approximately $8,848,000 were current. As of December 31, 2025, we had cash and cash equivalents of $408,000.
Cash and cash equivalents available to the Company increased substantially during the year ended December 31, 2025 (from $79,000 at December 31, 2024 to $408,000 at December 31, 2025) in connection with the strategic pivot and related capital raising activities described in the 2025 10-K. The Company’s reported operating cash usage for the three months ended March 31, 2026 reflects materially higher fixed operating costs than for the corresponding 2025 period, attributable principally to the consulting arrangements with the senior management team that took effect in August 2025 and December 2025.
January 2026 Capital Raise.
On January 27, 2026, we received aggregate proceeds of $750,000 from four qualified investors, in exchange for the issuance of 34,090,910 shares of common stock and warrants to purchase up to 20,454,545 additional shares of common stock at an exercise price of $0.026 per share, exercisable for a three-year period. The proceeds are being used for general corporate purposes, including the continued development of our blockchain-based technology platform.
Cash Flows.
The following table summarizes our cash flows for the periods presented:
| (U.S. dollars in thousands) | Three Months Ended March 31, | |||||||
| 2026 | 2025 | |||||||
| Net cash used in operating activities | (297 | ) | (103 | ) | ||||
| Net cash used in investing activities | - | (1 | ) | |||||
| Net cash provided by financing activities | 698 | 124 | ||||||
| Effect of exchange rate changes on cash | 2 | (5 | ) | |||||
| Net change in cash and cash equivalents | 403 | 16 | ||||||
| Cash and cash equivalents, beginning of period | 408 | 79 | ||||||
| Cash and cash equivalents, end of period | 811 | 95 | ||||||
We expect to continue to incur substantial expenses in connection with the development of our blockchain-based technology platform, the addition of new customers, geographic expansion, and our public-reporting compliance program. Based on management’s current projections, we believe that our existing cash resources, taken together with the proceeds from the January 27, 2026 capital raise, will be sufficient to fund our operations through December 2026. We will require additional capital to fund our operations beyond such date and to execute our long-term strategic objectives. There is no assurance that we will be able to obtain additional capital on commercially reasonable terms, or at all. If we are unable to raise additional capital, we may be required to delay, scale back, or eliminate planned activities, which would have a material adverse effect on the Company.
| 19 |
Going Concern
For the three months ended March 31, 2026, and as of the date of this report, we assessed our financial condition and concluded that based on our current and projected cash resources and commitments, as well as other factors mentioned above, there is a substantial doubt about our ability to continue as a 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 an accumulated deficit of $27,023,000 and a working capital deficit of $7,934,000 on March 31, 2026, as well as negative operating cash flows. Included in this amount is a non-monetary liability of approximately $7,837,000 related to anti-dilution obligations reflecting the future potential issuance of shares to investors and controlling shareholders in connection with future equity issuances. Excluding this non-monetary component, the Company’s working capital deficit would have been approximately $97,000.
The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2025 contained an explanatory paragraph stating that the Company’s recurring losses and limited operations raise substantial doubt about its ability to continue as a going concern; the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have not been audited or reviewed by our independent registered public accounting firm. 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. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.
We cannot be sure that future funding will be available to us on acceptable terms, or at all. Due to often volatile nature of the financial markets, equity and debt financing may be difficult to obtain.
We may seek to raise any necessary additional capital through a combination of private or public equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights, future revenue streams, or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through private or public equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Anti-Dilution Rights.
As described in Note 4 to the unaudited condensed consolidated financial statements and in the 2025 10-K, certain of the Company’s officers and Techlott hold contractual anti-dilution rights covering specified ownership percentages and aggregate values. Future issuances of common stock or convertible securities may trigger the issuance of additional shares to these holders, resulting in further dilution to the holders of common stock. The fair value of the related derivative liabilities, and changes in fair value, are reflected in our condensed consolidated balance sheet and condensed consolidated statement of operations, respectively.
Critical Accounting Estimates
Our critical accounting estimates are described in the 2025 10-K. Critical estimates affecting the unaudited condensed consolidated financial statements for the three months ended March 31, 2026 include, in particular, (i) the fair value of the Plutus Note (Level 3 inputs); (ii) the fair value of derivative liabilities relating to anti-dilution rights (Level 3 inputs); (iii) the recoverability and useful life of the Techlott IP intangible asset; and (iv) the going-concern assessment. Changes in the assumptions or unobservable inputs underlying these estimates could have a material effect on our reported results.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined under Item 303(a)(4) of Regulation S-K.
| 20 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2026. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2026, due to the material weakness in our internal control over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
As disclosed in Item 9A of the 2025 10-K, our management identified a material weakness in our internal control over financial reporting relating to segregation of duties. Our management is composed of a small number of professionals, resulting in limitations on segregation of duties such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis by our internal control over financial reporting. The material weakness was first identified during the year ended December 31, 2025 and has not been remediated as of March 31, 2026.
Plan for Remediation
We continue to evaluate measures designed to remediate the material weakness, including the engagement of third-party accounting and reporting consultants to provide additional review of significant transactions and complex accounting matters. We expect to remain materially dependent on third-party service providers in this regard for the foreseeable future. We will not consider the material weakness remediated until the applicable controls have operated for a sufficient period of time and our management has concluded, through testing, that the controls are operating effectively.
Changes in Internal Control over Financial Reporting
Other than the matters described above, there were no changes in our internal control over financial reporting during the three months ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that any system of disclosure controls and procedures, or internal control over financial reporting, however well designed and operated, can provide only reasonable, not absolute, assurance of achieving its objectives. Management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
| 21 |
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding our material legal proceedings, see Item 3 of our 2025 Annual Report on Form 10-K, which information is incorporated herein by reference. There have been no material developments in those proceedings during the three months ended March 31, 2026.
Aside from the matter described in Item 3 of our 2025 10-K, from time to time we may become involved in various legal proceedings that arise in the ordinary course of business. Although the outcomes of legal proceedings cannot be predicted with certainty, we are not currently aware of any other legal proceedings or claims that we believe, either individually or in the aggregate, will have a material adverse effect on our business, financial condition, or results of operations.
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. There have been no material changes to the risk factors disclosed under Item 1A of the 2025 10-K. Investors should carefully consider those risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q and our other reports filed with the SEC, before purchasing or otherwise acquiring shares of our common stock. The risks and uncertainties described in those filings are not the only ones we face. Additional risks and uncertainties not currently known to us, or that we currently consider immaterial, may also impair our business operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
N/A
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During
the three months ended March 31, 2026, none of our directors or executive officers
| 22 |
Item 6. Exhibits
* Filed herewith.
** Furnished herewith.
| 23 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| APPYEA, INC. | ||
| By: | /s/ Yakir Abadi | |
| Yakir Abadi | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: | May 20, 2026 | |
| By: | /s/ Ron Mekler | |
| Ron Mekler | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| Date: | May 20, 2026 | |
| 24 |