Techlott Inc 10-Q for FY2024 Q3
Techlott Inc. (LOTT)
About this 10-Q
Techlott Inc filed this 10-Q on November 19, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1000
- Net loss
- $512K
- compared with a net loss of $1.46M a year earlier
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 | (I.R.S. Employer | |
| incorporation or organization) | 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 | ||
| 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.
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).
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 | ☐ |
| ☐ | 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 November 12, 2024, there were outstanding shares of the registrant’s common stock, par value $ per share.
APPYEA, INC.
Form 10-Q
September 30, 2024
| 2 |
APPYEA INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2024
| 3 |
APPYEA INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2024
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 4 |
APPYEA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands except share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | ||||||||
| Other accounts receivables | ||||||||
| Inventory | ||||||||
| 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 | ||||||||
| Short-term loans from related parties | ||||||||
| Convertible loans at amortized cost | ||||||||
| Convertible loans at fair value | ||||||||
| Financial liability at fair value | ||||||||
| Total liabilities | ||||||||
| DEFICIENCY | ||||||||
| AppYea Inc. Stockholders’ Deficiency: | ||||||||
| Convertible preferred stock, $ par value | ||||||||
| Common stock, $ par value | ||||||||
| Shares to be issued | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total AppYea Inc. stockholders’ deficiency | ( | ) | ( | ) | ||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total Deficiency | ( | ) | ( | ) | ||||
| Total liabilities and deficiency | ||||||||
| 5 |
APPYEA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands except share and per share data)
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| For the period of three months ended September 30, | For the period of nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| Income | ||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||||||
| Research and development expenses | ||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of convertible loans and warrant liability | ( | ) | ( | ) | ||||||||||||
| Financial expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss attributable to AppYea Inc. | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss per Common Share | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Weighted Average number of Common Shares Outstanding basic and diluted | ||||||||||||||||
| 6 |
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 | shares to be | Additional Paid in | Accumulated | Non-controlling | Total | ||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | issued | Capital | Deficit | Total | interests | Deficiency | |||||||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of Shares | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Shares to be issued to service providers | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares to be issued to investors | - | - | ||||||||||||||||||||||||||||||||||||||
| Share based compensation to investors | - | - | ||||||||||||||||||||||||||||||||||||||
| CLA - change of classification | ||||||||||||||||||||||||||||||||||||||||
| Share issuance upon conversion of Preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Shares to be issued upon option exercise | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares to be issued | - | - | ||||||||||||||||||||||||||||||||||||||
| Share issuance upon equity investment | ||||||||||||||||||||||||||||||||||||||||
| Options exercise | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Shares Issuance upon conversion of debt to related party | - | - | ||||||||||||||||||||||||||||||||||||||
| Share issuance from of stock payable | ||||||||||||||||||||||||||||||||||||||||
| Share issuance from of stock payable, shares | ||||||||||||||||||||||||||||||||||||||||
| Stock payables | ||||||||||||||||||||||||||||||||||||||||
| Share based compensation | ||||||||||||||||||||||||||||||||||||||||
| Convertible note conversion | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Share issuance upon conversion of convertible notes | ||||||||||||||||||||||||||||||||||||||||
| change of classification | ||||||||||||||||||||||||||||||||||||||||
| Share issuance upon conversion of preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock payables | - | - | ||||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| 7 |
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 | |||||||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||||||||||||||||
| Balance as of July 1, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Share issuance from of stock payable | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Stock payables | - | - | ||||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Convertible note conversion | - | |||||||||||||||||||||||||||||||||||||||
| - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Share issuance upon equity investment | - | - | ||||||||||||||||||||||||||||||||||||||
| Options exercise | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| 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, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| CLA - change of classification | ||||||||||||||||||||||||||||||||||||||||
| Share issuance upon conversion of preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock payables | - | - | ||||||||||||||||||||||||||||||||||||||
| Share based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| 8 |
APPYEA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
| 2024 | 2023 | |||||||
| For The nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Unaudited | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net 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 current assets | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accounts payables – related party | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from Investing activities: | ||||||||
| Research and development expenses capitalization | ( | ) | ( | ) | ||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Common Stock | ||||||||
| Proceeds on account of Stock Payables | ||||||||
| Proceeds from convertible Note received less issuance expenses | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of 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 | ||||||||
| Non-cash investing and financing activities | ||||||||
| Related partied debt conversion to option Common stock | ||||||||
| 9 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED 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 significant 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, OTCQB tier, under the symbol “APYP”.
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 and the Company started serial production in 2023. Subject to raising working capital, of which no assurance can be provided, the Company intends to focus on further development and commercialization of its products.
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
Product Development
The company flagship product is AppySleep – A Biofeedback snoring treatment wristband, combined with the AppySleep App (“AppySleep”).
The AppySleep product is currently in serial manufacturing and commercial stage. The AppySleep IOS and Android versions were launched during the third quarter of 2024. During the first 6 months of 2024 the company didn’t invest substantial capital in marketing AppySleep in order to invest it once the IOS version will be available for download, since the Company saw significant demand in the US market for the AppySleep IOS version.
Financial position
The
financial statements are presented on a going-concern basis. To date, the Company has not generated any significant revenues, experienced
recurring losses from operations, incurred negative cash flows from operating activities, and is dependent upon external sources for
financing its operations. As of September 30, 2024, the Company had an accumulated deficit of $
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 CONDENSED CONSOLIDATED STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with accounting principles in the United States of America (“U.S. GAAP”)for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The financial statements do not include a full set of disclosures as allowed pursuant the instructions disclosed above.
In the opinion of management, the financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The financial statements should be read with the annual financial statements of the Company as of December 31, 2023 from which the accompanying condensed consolidated balance sheet dated December 31, 2023, was derived. The accounting policies implemented in the financial statements are consistent with the accounting policies implemented in the annual financial statements as of December 31, 2023, except of the following accounting pronouncement adopted by the Company.
Recently Issued Accounting Pronouncements
Effective January 1, 2024, the Company adopted 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 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. The adoption of this new accounting guidance did not have an effect on the consolidated financial statements.
| 11 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” related to improvements to income tax disclosures. The amendments in this update require enhanced jurisdictional and other disaggregated disclosures for the effective tax rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. The adoption of this pronouncement is not expected to have a material impact on the Company’s financial statements.
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.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue Recognition at the amount to which it expects to be entitled when control of the products or services is transferred to its customers.
We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.
Our contracts are typically governed by a customer purchase order. The contract generally specifies the delivery of what constitutes a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers.
As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration, we expect to receive in exchange for transferring goods or providing services. We do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
A contract liability is recognized as deferred revenue when we invoice customers, or receive customer cash payments, in advance of satisfying the related performance obligation(s) under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.
We have one main revenue stream: wristband sales, with the AppySleep App. For this revenue stream, our performance obligations are satisfied at a point in time, and therefore, revenue is recognized at point in time when a customer takes control of the good or asset created by the service. Factors that may indicate transfer of control are when we have the right to receive payment for the good or service, when the legal title of the asset has been transferred, physical possession of the asset has been transferred, the customer obtains the significant risks and rewards of ownership of the asset, and the customer accepts the asset. For customers, control is transferred upon delivery.
| 12 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued):
We leverage drop-ship shipments with our partners and suppliers to deliver wristbands to our customers without having to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize revenue for drop-ship arrangements on a gross basis as the principal in the transaction when the product is received by the customer because we control the product prior to transfer to the customer. We also assume primary responsibility for the fulfillment in the arrangement, we assume inventory risk if something were to happen to the hardware during shipping, we set the price of the product charged to the customer.
The Company intend to recognize reductions to Products net sales related to future product returns, price protection and other customer incentive programs based on the Company’s expectations and historical experience. Currently, the returns are reduced from sales.
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 |
SCHEDULE OF BALANCE WITH RELATED PARTIES
September 30, 2024 | December 31, 2023 | |||||||
| In U.S. dollars in thousands | ||||||||
| Liabilities: | ||||||||
| Employees and payroll accruals | ||||||||
| Related party payables | ||||||||
| Short term loans | ||||||||
| 13 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 3 - RELATED PARTY BALANCES AND TRANSACTIONS (continued):
| C. | Transactions with related parties |
SCHEDULE OF TRANSACTION WITH RELATED PARTIES
| 2024 | 2023 | |||||||
| For the nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| In U.S. dollars in thousands | ||||||||
| Expenses: | ||||||||
| Salaries and related cost (including stock-based compensation in the amount of $ and $, respectively) | ||||||||
| Management fees | ||||||||
Both the Chairman and the chief financial officer are directors in the Company and do not receive compensation for their directorship roles. Company’s Bylaws provide that a director or officer shall be indemnified and held harmless by the Corporation, to the fullest extent permitted by the laws of the State of Nevada.
NOTE 4 - CONVERTIBLE LOANS AND WARRANTS
The following table summarizes fair value measurements by level as of September 30, 2024 and December 31, 2023 measured at fair value on a recurring basis:
SCHEDULE OF FAIR VALUE RECURRING BASIS
| December 31, 2023 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. dollars in thousands | ||||||||||||||||
| Assets | ||||||||||||||||
| None | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Convertible Loans At fair value | ||||||||||||||||
| Financial liability | ||||||||||||||||
| September 30, 2024 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| U.S. dollars in thousands | ||||||||||||||||
| Assets | ||||||||||||||||
| None | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Convertible Loans At fair value | ||||||||||||||||
| 14 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
The Convertible Loans changes consist of the following as of September 30, 2024 and December 31, 2023:
SCHEDULE OF CONVERTIBLE LOANS AT FAIR VALUE
| September 30, 2024 | December 31, 2023 | |||||||
| Convertible Loans at Fair Value | ||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Opening Balance, (including short term loans from related party which is also convertible) | ||||||||
| Additional convertible loans (a) | ||||||||
| Conversion of convertible loan (b) | ( | ) | ||||||
| Decrease of notes purchased | ( | ) | ||||||
| Change in fair value of convertible loans liability | ( | ) | ||||||
| Closing balance | ||||||||
| (a) |
| (b) |
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 September 30, | As of December 31, | |||||||
| 2024 | 2023 | |||||||
| Expected term (in years) | ||||||||
| Expected average (Monte Carlo) volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| WACC | % | % | ||||||
| 15 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2023:
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, 2023 | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
The following table summarizes information relating to outstanding warrants as of September 30, 2024:
| Warrants Outstanding | ||||||||||||||
Number of Warrants | Weighted Average Remaining Contractual life (in years) | Weighted Average Exercise Price | Valuation as of September 30, 2024 | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
At
the end of the second quarter the
The Convertible Loans at amortized cost changes consist of the following as of September 30, 2024 and December 31, 2023:
SCHEDULE OF CONVERTIBLE LOANS AMORTIZED COST
September 30, 2024 | December 31, 2023 | |||||||
| U.S. dollars in thousands | ||||||||
| Opening balance | ||||||||
| Transition from convertible loans measured at fair value to measurement at amortized cost | ||||||||
| Beneficial conversion feature | ( | ) | ||||||
| Financial expenses related to transition from fair value measurement to amortized cost | ||||||||
| Convertible conversion * | ( | ) | ||||||
| Accrued interest through profit or loss | ||||||||
| Closing balance | ||||||||
| * |
| 16 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 5 - STOCK-BASED COMPENSATION
| A. | The table below depicts the number of options granted to employees and service providers: |
| Nine months ended September 30, 2024 | ||||||||
| Number of options | Weighted average exercise price | |||||||
| in USD | ||||||||
| Options outstanding at January 1, 2024 | $ | |||||||
| Options granted during the period | $ | |||||||
| Options cancelled during the period (Note 7D) | ( | ) | $ | |||||
| Options issued during the period (Note 7A) | $ | |||||||
| Options exercised during the period* | ( | ) | $ | |||||
| Options outstanding at the end of period | $ | |||||||
| Options exercisable at the end of period | $ | |||||||
| * |
For the nine months ended September 30, 2024 and 2023 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.
| B. | On August 7 the board approved the issuance of warrant
of the Company’s common stock to Plutus in consideration of extending the maturity date of the outstanding loans to June 30, 2025.
The company registered for the issuance an expense of $ |
| 17 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 6 - CONTINGENT LIABILITIES
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. 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.
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.
A preliminary hearing was held on February 14, 2024. The presiding judge did not rule on the preliminary pleadings and urged the parties to attempt mediation before the ruling. The parties are considering different mediators (which must be mutually agreed to) and following the selection of a mediator, the parties will schedule a date for the mediation.
The Company cannot, at this stage, know the effects, if any, of these actions on its subsidiary SleepX and / or the Company, and accordingly, no provision was recorded.
NOTE 7 - SIGNIFICANT EVENTS DURING THE PERIOD
| A. | On May 14, 2024, the Board of the Company approved the conversion of outstanding amounts
owed to its officers and directors for unpaid compensation for options of the Company’s common stock, as follows: Boris Molchadsky,
the Company chairman, and Asaf Porat, the Company CFO, agreed to convert a portion of their unpaid compensation into options for shares
of the Company’s common stock at a per share conversion rate of $ | |
| B. | In addition, the Board approved the issuance of stock option to purchase shares of the Company’s
common stock, at a per share exercise price of $, to Adi Shemer, the Company CEO. Under his terms of his employment agreement, Mr.
Shemer is entitled to these options following the issuance by the Company of at least million shares of common stock in respect of
third-party investments in the Company, which was satisfied in February 2024. The options will vest in full on July 1, 2024. For the six-month
ended June 30, 2024 the Company recorded an expense related to the issuance of $ | |
| C. | During July 2024 the Company uploaded its newly developed cloud-based app to Google Play and Apple Store. | |
| D. | In July 2024, the Company and the CFO agreed to revise the employment terms of its CFO to part-time and decrease the salary and future options he’s entitled to. The CFO exercised vested options into shares through a cashless exercise. |
| 18 |
NOTE 7 - SIGNIFICANT EVENTS DURING THE PERIOD (continued):
| E. | On
July 18, 2024, the Company entered into a consulting agreement with a consultant to provide services related to the development of the
Company, promoting the company engagement with potential market participants, and assist with marketing materials. As consideration for
his Services, the company will issue to consultant two million ()
options to purchase shares of Company common stock, which shall vest as follows, subject to the continued provision of services by the
Consultant: The company
recognized during the quarter an expense of $ | |
| F. | On
August 4, 2024, the Company engaged with a shareholder of the company in a consulting agreement
with a monthly cash payment of NIS | |
| G. | On
August 7, 2024, the Board approved the issuance of a stock option to purchase
shares of the Company’s common stock, at a per share exercise price of $,
to Adi Shemer, the Company Chief Executive Officer. The options will vest in full on July 30, 2024. In addition, on August 7, 2024,
the Board also approved the issuance of options for an additional
million shares to Mr. Shemer, as a bonus for his contribution to the business. The options are exercisable at a per share purchase
price of $.
The company recognized for this issuance total cost of $ | |
| H. | In addition, the Board approved the issuance of a stock option to purchase shares of the Company’s common stock, at a per share exercise price of $, to Mr. Ron Mekler, the company independent board member, and issuance at the same terms of issuance of a stock option to purchase of the Company’s common stock to Mr. Tal Weitzman, the company software solutions service provider. | |
| I. | The Board also confirmed the issuance of shares to Plutus (Note 4). | |
| J. | The Board confirmed changing the exercise price of the stock options issued to Mr. Neil Kline and Mr. Ron Mekler, a director, in August 2023 from $ to $. | |
| K. | On September 30, 2024 the Company granted to Mr. Neil Kline shares according to his consulting agreement with the company. The total expenses for the nine months ended September 30, 2024 amounted to $. | |
| L. | During
the first nine months of 2024, the company received $ |
| 19 |
APPYEA INC.
NOTES TO THE FINANCIAL CONDENSED CONSOLIDATED STATEMENTS
NOTE 8 - SUBSEQUENT EVENTS
| A. | On November 14, 2024, the board approved the expedited vesting of the first options issued to Mr. Ron Mekler, a director, on January 1st, 2023, to September 1st, 2024. | |
| B. | In addition, the board approved issuing a stock option to purchase shares of the Company’s common stock, at a per-share exercise price of $, to a company shareholder in consideration of terminating a consulting agreement with a company controlled by him. | |
| C. | the board approved issuing a two-year stock option to purchase shares of the Company’s common stock, at a per-share exercise price of $, to a consultant of the company, in consideration of his efforts in obtaining an extension of the loans held by Plutus Investments LP to June 30, 2025. |
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| 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, 2023 as filed with the Securities and Exchange Commission, or the SEC, on April 1, 2024, as subsequently amended. 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 monitor and 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 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.
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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.
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:
AppySleep – Biofeedback snoring treatment wristband, combined with the AppySleep App.
The AppySleep app uses unique algorithms developed 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 change his sleep position and thus ceasing the snoring event.
The AppySleep product is currently in serial manufacturing stage and sales. The new AppySleep IOS and Android versions were launched during the third quarter of 2024.
AppySleep LAB – Is a medical application, intended 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 AppySleep LAB product is to begin calibration, following which we will file for 510(k) FDA approval.
AppySleep PRO – is a wristband for the treatment of sleep apnea using biofeedback in combination with AppySleep LAB app. The unique algorithms of AppySleep LAB, 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 AppySleep PRO and AppySleep LAB are currently in development stages, following which it would be ready to begin the testing stage in preparation for filing for FDA approval.
Our Strategy
We started marketing of the AppySleep app and wristband in the first quarter of 2024. Concurrently, subject to raising additional capital, we plan to file a 510(k) FDA submission for the AppySleep LAB app for the non-contact diagnosis of sleep apnea during 2025, and an FDA process for AppySleep PRO for the treatment of sleep apnea during 2026.
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Our goal over the next five years is to establish our technology and related products as the gold standard for the targeted sectors. The key elements of our strategy are as follows:
Develop and expand a balanced and diverse pipeline of products and product candidates. Our core platform technologies will include innovative anti-snoring and sleep apnea related devices and product candidates in various development and clinical stages. We plan to add products and product candidates to our pipeline by expanding our technologies being developed to additional indications and through investing in new technologies, products and product candidates. By maintaining this multi-product approach, we aim to provide a broad and comprehensive product offering, which we believe will result in multiple value inflection events, reduced risks to our potentially business associated with a particular product or product candidate and increased return on investment. Furthermore, product candidates that we develop may create attractive collaboration opportunities with diagnostics, medical devices and medical supplies companies.
Maintain a global, diverse network of specialists to accelerate knowledge synergies and innovation. We will utilize a global network of specialists to identify large and growing patient populations with significant unmet needs, evaluate and prioritize potential technologies, assist in designing development plans and diagnostic protocols and determine potential indications of our platform technologies to our target patient populations in various territories. We believe that maintaining this diverse network of specialists and industry specialists will allow us to continue to maximize knowledge and cost synergies, utilize shared commercial infrastructure across products, reduce risks of development and commercialization delays to our overall business and leverage our current and future platform technologies and technologies for additional products and product candidates.
Establish distribution channels to maximize the commercial potential of our products. We plan to seek out collaborative arrangements with major healthcare providers and consumer specialists to facilitate market adoption of our product candidates. We believe that such institutions are well positioned to directly benefit from improvements in accurate diagnosis and reduction of cost of care associated with the use of our product candidates. We also believe that the marginal cost of our product candidates compared to potential savings will make it economical for healthcare institutions to adopt our products regardless of whether or not additional costs of purchase of these products will be covered by third-party payors, such as government health care programs and commercial insurance companies.
Through cooperation with healthcare providers, we aim to develop and prove an economic model beneficial to them. In parallel, we intend selling directly, through our website and other online webstores worldwide. Thereafter, we plan to engage with private insurance plans to develop reimbursement programs encouraging the use of our product candidates. We expect that adoption rates of our product candidates will increase if hospitals and other medical institutions are compensated, in full or in part, for additional costs incurred when purchasing our products.
We established a logistical distribution facility in the US.
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.
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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.
In the event of an acquisition of all of the issued and outstanding share capital of the Israeli Subsidiary or of the Company and/or consolidation of the Israeli Subsidiary or the Company into or with another corporation (“Non IPO Exit”) or a listing of our common stock on a national exchange such as Nasdaq (the IPO Exit”), then the Licensors shall be entitled to an exit fee equal to 5% of the valuation of our company at the time of such exit and with respect to an IPO Exit, shares of common stock which will reflect in the aggregate 5% of then outstanding common stock of the Company.
Key Financial Terms and Metrics
The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.
Revenues
We have generated $16,000 in revenues from product sales as of September 30, 2024.
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.
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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 programming, 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 Nine Months Ended September 30, 2024 to the Three and Nine Months Ended September 30, 2023
| For
the three- months period ended September 30 | For
the Nine- months period ended September 30 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| U.S dollars | ||||||||||||||||
| Revenues | 1,000 | - | 16,000 | - | ||||||||||||
| Cost of sales | 2,000 | - | 8,000 | - | ||||||||||||
| Gross profit (loss) | (1,000 | ) | - | 8,000 | - | |||||||||||
| Research and development expenses | 159,000 | 34,000 | 316,000 | 50,000 | ||||||||||||
| Sales and marketing | 153,000 | 47,000 | 310,000 | 49,000 | ||||||||||||
| General and administrative expenses | 298,000 | 261,000 | 797,000 | 1,128,000 | ||||||||||||
| Operating loss | (610,000 | ) | (342,000 | ) | (1,415,000 | ) | (1,227,000 | ) | ||||||||
| Financial income (expenses), net | (41,000 | ) | (402,000 | ) | (191,000 | ) | (409,000 | ) | ||||||||
| Profit for the period (loss) | (512,000 | ) | (1,456,000 | ) | (1575,000 | ) | (2,087,000 | ) | ||||||||
Revenues. We recorded revenues of $1,000 and $16,000 for the three and nine months ended September 30, 2024 compared to nil each of the corresponding period in 2024. All revenues were from sales of our AppySleep wristband.
Research and Development Expenses, Research and development expenses increased from $34,000 and $50,000 during the three and nine months ended September 30, 2023 to $159,000 and $316,000, respectively, for the corresponding periods in 2024. The increase in each of the three and nine month periods is primarily attributable to increased investment in intellectual property and development of our products.
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Sales and Marketing. Sales and marketing expenses increased from $47,000 and $49,000 during each of the three and nine months ended September 30, 2023 to $153,000 and $310,000, respectively, for the corresponding periods in 2024. The increase in each of the three and nine month periods is primarily attributable to increased marketing efforts we undertook, since the beginning of the year, with respect to advance sales of our AppySleep wristband through Amazon and through our website.
General and Administrative Expenses. General and administrative expenses increased from $261,000 and $1,128,000 for the three and nine months ended September 30, 2023, to $298,000 and $797,000, respectively, for the corresponding periods in 2024. The change is primarily attributable to reallocation of cash and non-cash management expenses to research and development and to sales and marketing expenses.
Profit (loss). loss for the three months and nine months ended September 30, 2024 were $(512,000) and $(1,575,000), respectively, and is primarily attributable to non-cash stock based compensation expenses and change in fair value of convertible loans and warrant liability.
Liquidity and Capital Resources
From inception, we have funded our operations from a combination of loans and sales of equity instruments.
As of September 30, 2024, we had a total of $56,000 in cash resources and approximately $2,527,000 of liabilities, all of which are current liabilities from financing.
Management believes that funds on hand will enable us to fund our operations and capital expenditure requirements through December 2024. Accordingly, we need to raise additional operating capital in order to maintain operations as presently conducted and to realize our business plan. Without raising additional funds on an immediate basis, whether through the issuance of our securities, licensing fees for our technology or otherwise, we will also not be able to maintain operations as presently conducted. As previously disclosed in our periodic reports, we have been actively seeking additional capital. At the present time, we have no commitments for financing and no assurance can be given that we will be able to raise capital on commercially acceptable terms or at all. Even if we raise cash to meet our immediate working capital needs, our cash needs could be heavier than anticipated in which case we could be forced to raise additional capital. Our auditors included a “going concern” qualification in their auditors’ report for the year ended December 31, 2023 and for the succeeding quarters in 2024. Such “going concern” qualification may make it more difficult for us to raise funds when needed. Moreover, the current economic situation may further complicate our capital raising efforts. If we are unable to raise additional capital on an immediate basis, we may be forced to further curtail operations and either restructure or cease operations entirely.
AppYea has experienced operating losses since its inception and had a total accumulated deficit of $7,901,000 as of September 30, 2024. 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 nine months ended September 30, 2024 and 2023, our cash used in operations was approximately $569,000 and $410,000, 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 September 30, 2024 and 2023 respectively:
| For the nine months ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| US Dollars | ||||||||
| Net cash used in operating activities | $ | 569,000 | 410,000 | |||||
| Net cash used in investment activities | 82,000 | 36,000 | ||||||
| Net cash provided by Financing Activities (income) | $ | (486,000 | ) | (558,000 | ) | |||
Between September 2023 and September 2024, we raised an aggregate of $719,000from 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, and additional $225,000 from public capital raised through the company effective prospectus. In respect of the raise the investors were issued an aggregate of 83,899,953 shares of our common stock and identical number of warrants and 10,500,000 are to be issued. The subscription proceeds are being used to upgrade the IOS design and development of our biofeedback snoring treatment wristband (AppySleep product) as well as general corporate matters.
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Our accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. However, the Company has incurred substantial losses. Our current liabilities exceed our current assets and available cash is not sufficient to fund the expected future operations. The Company is raising additional capital through debt and equity securities in order to continue the funding of its operations. However, there is no assurance that the Company can raise enough funds or generate sufficient revenues to pay its obligations as they become due, which raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.
We may seek to raise any 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 $2,166,000 and a working capital deficit of $2,440,000 on September 30, 2024 as well as negative operating cash flows. Our report from our independent registered public accounting firm for the quarter ended September 30, 2024 includes an explanatory paragraph stating the Company has recurring losses and limited operations which raise substantial doubt about its ability to continue as a going concern. If the Company is unable to obtain adequate capital, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not Applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Interim Chief Executive Officer, to allow timely decisions regarding required disclosure. Management, with the participation of our Interim Chief Executive Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based on that evaluation, our management, including our Chief Executive Officer, concluded that our disclosure controls and procedures were not effective as of September 30, 2024.
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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. As disclosed in Item 9A of our Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the Securities and Exchange Commission on May 17, 2024, our management concluded that our internal control over financial reporting was not effective at December 31, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
As a result of our evaluation, we identified a material weakness in our controls related to segregation of duties and other immaterial weaknesses in several areas of data management and documentation. Our management is composed of a small number of professionals resulting in a situation where limitations on segregation of duties exist. Accordingly, and as a result of the material weakness identified above, we have concluded that the control deficiencies result in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented on a timely basis by the Company’s internal controls. We continue to employ and refine a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by executives. We expect to be materially dependent upon third parties to provide us with accounting consulting services for the foreseeable future which we believe will mitigate the impact of the material weaknesses discussed above.
Changes in Internal Control Over Financial Reporting
Except for the material weakness noted above, during the quarter ended September 30, 2024, 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 |
In 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).
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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.
A preliminary hearing was held on February 14, 2024. The presiding judge did not rule on the preliminary pleadings and urged the parties to attempt mediation before the ruling. The parties are considering different mediators (which must be mutually agreed to) and following the selection of a mediator, the parties will schedule a date for the mediation.
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 |
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, 2023, as filed with the SEC on April 1, 2024, as amended on May 17, 2024 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.
| ITEM 2. | UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS |
NEED SHARES ISSUED DURING THE QUARTER
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None
| ITEM 4. | MINE SAFETY DISCLOSURES |
None.
| ITEM 5. | OTHER INFORMATION: |
(i)
During the fiscal quarter ended September 30, 2024, none of our directors or executive officers
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| ITEM 6. | EXHIBITS |
Exhibit Index:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AppYea, Inc. | ||||
| (Registrant) | ||||
| By: | /s/ Adi Shemer | By: | Asaf Porat | |
| Adi Shemer | Asaf Porat | |||
| Chief Executive Officer | Chief Financial Officer | |||
| (Principal Executive Officer) | (Principal Financial and Accounting Officer) | |||
| Date: November 19, 2024 | Date: November 19, 2024 | |||
| 31 |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
OF REGISTRANT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(RULE 13a-14(a) or 15d-14(a) OF THE EXCHANGE ACT)
I, Adi Shemer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AppYea, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ Adi Shemer | |
| Adi Shemer, Chief Executive Officer | ||
| (Principal Executive Officer) |
Date: November 19, 2024
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
OF REGISTRANT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(RULE 13a-14(a) or 15d-14(a) OF THE EXCHANGE ACT)
I, Asaf Porat, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AppYea, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ Asaf Porat | |
| Asaf Porat, Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
Date: November 19, 2024
EXHIBIT 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Principal Executive Officer of AppYea, Inc. (the “Company”) hereby certifies to such officer’s knowledge that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Adi Shemer | |
| Adi Shemer, Chief Executive Officer | |
| (Principal Executive Officer) |
Dated: November 19, 2024
EXHIBIT 32.2
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Principal Executive Officer of AppYea, Inc. (the “Company”) hereby certifies to such officer’s knowledge that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Asaf Porat | |
| Asaf Porat, Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | |
| Dated: November 19, 2024 |