Filed Pursuant to Rule 424(b)(3)

Registration No. 333-264834

 

Offer of up to 25,000,000 shares of common stock offered by the Registrant

and 25,000,000 shares of common stock issuable upon exercise of warrants

and 38,410,644 shares offered by Selling Shareholders

 

We are offering to sell up to 25,000,000 shares of common stock at a per share price of $0.01 and warrants for an additional 25,000,000 shares of our common stock, exercisable for a one-year period at a per share exercise of $0.01 in a self-underwritten primary offering (the “Offering”). The total proceeds from the Offering will not be escrowed or segregated but will be available to us immediately. Solely for purposes of the Offering, the securities will be bundled into units, where each unit is comprised of one (1) share of our common stock and a warrant for an additional share of our common stock. There is no minimum number of shares of units required to be purchased, and, therefore, investors who purchase shares will bear the risk that the Offering will not be fully subscribed and the Company cannot be assured of raising any minimum amount of proceeds from the Offering. The total proceeds received by the Company may not be sufficient to fully implement its business plan or sustain continued operations. No commission or other compensation related to the sale of the shares will be paid.

 

This prospectus also relates to the offer and sale of 38,410,644 shares of common stock by the holders identified in this prospectus or their assigns (each a “Selling Shareholder” and, collectively, the “Selling Shareholders”), which includes (i) 2,956,667 shares issued to our founders, officers and directors in consideration for founding the Company and services provided to us; (ii) an aggregate of 4,939,111 shares issued to three shareholders in privately negotiated transactions at a purchase price per share between $0.0024 and $0.0234; (iii)30,243,397 shares to be issued upon the conversion of three outstanding convertible notes; (iv) 46,569 shares to be issued upon the exercise of warrants; and (v) 224,890 shares issued to two shareholders which converted their convertible notes. The Company will realize no proceeds from sales of common stock by the Selling Shareholders.

 

The primary offering by the Company and the secondary offering by the Selling Shareholders will run concurrently.

 

The Selling Shareholders will sell their shares at prevailing market prices or in privately negotiated transactions. We provide more information about how a Selling Stockholder may sell its shares in the section titled “Plan of Distribution” on page 30.

 

Our common stock is quoted on the OTCQB under the symbol “APYP.” The closing price of our common stock on February 13, 2024, as reported by the OTCQB was $.0340 per share.

 

The Selling Stockholders and any broker-dealers that participate in the distribution of the securities may be deemed to be “underwriters” as that term is defined in Section 2(a)(11) of the Securities Act of 1933, as amended.

 

The Company intends to maintain the current status and accuracy of this prospectus and to allow the Company to offer and sell the shares in the Offering for a period of up to two years, unless earlier completely sold, pursuant to Rule 415 of the General Rules and Regulations of the Securities and Exchange Commission (the “SEC”).

 

All costs incurred in the registration of the shares offered pursuant to this prospectus are being borne by the Company.

 

The Company does not have any current arrangements nor entered into any agreements with any underwriters, broker-dealers or selling agents for the sale of the shares in the Offering. If the Company can locate and enter into any such arrangement(s), the shares will be sold through such licensed underwriter(s), broker-dealer(s) and/or selling agent(s).

 

The Company will offer the shares in its Offering directly without payment to any officer or director of any commission or compensation for sale of the shares.

 

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE SECTION ENTITLED “RISK FACTORS” IN THIS PROSPECTUS BEGINNING ON PAGE 10.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is February 14, 2024

 

 

 

 

TABLE OF CONTENTS

 

    Page
ABOUT THIS PROSPECTUS   5
PROSPECTUS SUMMARY   6
BUSINESS OVERVIEW   6
RISK FACTORS SUMMARY   7
THE OFFERING   9
SELLING SHAREHOLDERS OFFERING   9
RISK FACTORS   10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS   26
USE OF PROCEEDS   26
DETERMINATION OF OFFERING PRICE   27
DILUTION   27
SELLING STOCKHOLDERS   28
PLAN OF DISTRIBUTION   30
DESCRIPTION OF CAPITAL STOCK   33
INTERESTS OF NAMED EXPERTS AND COUNSEL   34
DESCRIPTION OF BUSINESS   34
DESCRIPTION OF PROPERTY   34
LEGAL PROCEEDINGS   47
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS;   48
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   48
MANAGEMENT   52
EXECUTIVE COMPENSATION   55
PRINCIPALSHAREHOLDERS   60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   60
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES   61
LEGAL MATTERS   61
EXPERTS   61
WHERE YOU CAN FIND MORE INFORMATION   61
INDEX OF FINANCIAL STATEMENTS   F-1

 

You should rely only on the information contained in this prospectus, and any supplement or amendment to this prospectus. We have not authorized anyone to provide you with additional or different information. We do not take responsibility for, nor can provide any assurance as to the reliability of, any other information that others may give you. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus.

 

No action is being taken in any jurisdiction outside the United States to permit a public offering of our shares or possession or distribution of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to the Offering and the distribution of this prospectus applicable to that jurisdiction.

 

Investors should rely only on the information contained in this prospectus or contained in any prospectus supplement or free writing prospectus to be filed with the Securities and Exchange Commission (the “SEC”). The Company has not authorized anyone to provide you with additional information or information different from that contained in this prospectus filed with the SEC. The information contained in this prospectus is accurate only as of its date, regardless of the date of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

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FINANCIAL STATEMENT PRESENTATION

 

The financial statements for the years ended December 31, 2022, and 2021, and the nine months ended September 30, 2023, represent the operations of APPYEA, Inc., and its subsidiaries.

 

ABOUT THIS PROSPECTUS

 

As used in this prospectus, unless otherwise designated, the terms “we,” “us,” “our,” the “Company,” and “our company” refer to AppYea, Inc., a Nevada corporation and its subsidiaries (i) SleepX Ltd. a company formed under the laws of the State of Israel and (ii) Ta-nooma Ltd. a company formed under the laws of the State of Israel, (iii) AppYea Holdings, Inc. a Nevada corporation,

 

This prospectus describes the specific details regarding this offering and the terms and conditions of the securities being offered hereby and the risks of investing in our securities. You should read this prospectus, any free writing prospectus and the additional information about us described in the section entitled ‘‘Where You Can Find More Information’’ before making your investment decision.

 

Neither we, nor any of our officers, directors, agents, representatives or underwriters, make any representation to you about the legality of an investment in our securities. You should not interpret the contents of this prospectus or any free writing prospectus to be legal, business, investment or tax advice. You should consult with your own advisors for that type of advice and consult with them about the legal, tax, business, financial and other issues that you should consider before investing in our securities.

 

ADDITIONAL INFORMATION

 

You should rely only on the information contained in this prospectus and in any accompanying prospectus supplement. No one has been authorized to provide you with different or additional information. The securities are not being offered in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of such documents.

 

TRADEMARKS AND TRADE NAMES

 

This prospectus includes trademarks which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, service marks, trade names and/ or copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the respective owners of the trademarks and trade names will not assert, to the fullest extent under applicable law, their rights thereto.

 

INDUSTRY AND MARKET DATA

 

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including market position and market opportunity, is based on information from our management’s estimates, as well as from industry publications and research, surveys and studies conducted by third parties. The third-party sources from which we have obtained information generally state that the information contained therein has been obtained from sources believed to be reliable, but we cannot assure you that this information is accurate or complete. We have not independently verified any of the data from third-party sources nor have we verified the underlying economic assumptions relied upon by those third parties. Similarly, internal company surveys, industry forecasts and market research, which we believe to be reliable, based upon management’s knowledge of the industry, have not been verified by any independent sources. Our internal company surveys are based on data we have collected over the past several years, which we believe to be reliable. Management estimates are derived from publicly available information, our knowledge of our industry, and assumptions based on such information and knowledge, which we believe to be reasonable and appropriate. However, assumptions and estimates of our future performance, and the future performance of our industry, are subject to numerous known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in this prospectus and those described elsewhere in this prospectus. These and other important factors could result in our estimates and assumptions being materially different from future results. You should read the information contained in this prospectus completely and with the understanding that future results may be materially different and worse from what we expect. See the information included under the heading “Cautionary Note Regarding Forward-Looking Statements.”

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider before investing in our securities. You should read the entire prospectus carefully, especially the “Risk Factors,” and our financial statements and the accompanying notes to those statements, included elsewhere in this prospectus, before making an investment decision.

 

Business Overview

 

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

 

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

 

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

 

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.

 

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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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.

 

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

 

The AppySleep product is currently in serial manufacturing stage.

 

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

 

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

 

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

 

Recent Events and Developments

 

Between June-November 2023, we raised an aggregate of $723,569 from the private placement of shares of our common stock at a per share price of $0.01 and the issuance of warrants, exercisable for a two year period from the date of issuance for an identical number of shares at a per share exercise price of $0.04, in respect of the raise the investors are entitled to an aggregate 72,356,900 shares of our common stock and identical number of warrants. The subscription proceeds are being used to complete the IOS design and development of our biofeedback snoring treatment wristband (AppySleep) as well as general corporate matters. The investor is entitled to invest in the aforementioned terms up to $1,350,000 and no assurance can be provided that the Investors will in fact provide the additional investments.

 

Following the raise, we started manufacturing our wristband for the Android App during November 2023, and we delivered them to our pre-ordered customers during January 2024 as well as new orders.

 

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

 

In addition, certain of the above referenced investors purchased from Leonite Fund LP and Diagonal Lending LLC outstanding convertible promissory notes issued by us in the aggregate amount of $724,658. Following the purchase of these outstanding notes, the purchasers agreed to amend the terms of the notes to extend the maturity date of each note to December 31, 2024 and to amend the conversion price thereof to $0.0054 (in the case of note purchased from Leonite Funding LP) and $0.005 (in the case of the note purchased from Diagonal Lending LLC). In addition, the purchasers agreed to not convert the notes purchased until the earlier of June 30, 2024 and such time as the purchasers complete the purchase of an additional outstanding promissory note issued by the Company to an unrelated third party in the aggregate amount of $720,000 (the “Additional Third Party Note”). In connection with the foregoing, the holder of the Additional Third Party Note agreed to extend the maturity date of such note to June 30, 2024 and to not convert such note during such period. In consideration thereof, the Company agreed with the holder that in the event that on June 30, 2024 the preceding 90 day VWAP is less than $0.04 (the “90 day VWAP”), then the Company will issue to the holder additional shares of the Company’s common stock where the number of shares is determined by quotient of (i) the spread below $0.04 times seven million shares divided by the 90 day VWAP. Solely for the purposes of illustration, if the 90 day VWAP is $0.03 the holder of the Additional Third Party Note would be issued an additional 2,333,333 shares [$0.01 X 7,000,000 / $0.03].

 

RISK FACTORS SUMMARY

 

Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Registration Statement on Form S-1. If any of the following risks actually occurs (or if any of those listed elsewhere in this Registration Statement on Form S-1 occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

 

Risk Related to our Financial Position and Need for Capital

 

  To date, we have generated insignificant amounts of revenue from commercial sales and our future profitability is uncertain.
 

If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development and you will likely lose your entire investment.

  Raising additional capital may cause dilution to our existing stockholders.
  There is substantial doubt about our ability to continue as a going concern.
  We have incurred net losses every year and expect to continue to incur increased expenses.

 

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Risks Relating to our Business and our Industry

 

  Our subsidiary, SleepX Ltd. and B.G. Negev Technologies and Applications Ltd., and Mor Research Application Ltd., have entered into a Licensing agreement which if terminated could have adverse effects on our business
  We may encounter numerous difficulties frequently encountered by companies in the early stage of operations.
  Changes in the configuration of the technology underlying our devices and application under development may result in additional costs or delay
  The nature of the technology platforms utilized by us are complex and highly integrated, and failure to successfully manage releases or integrate new updates, it could harm our revenues, operating income, and reputation.
  Security breaches, cyberattacks or other cyber-risks of our IT and production systems could expose us to significant liability and cause our business and reputation
  The market opportunity for our products and services may not develop in the ways that we anticipate
  If we are unable to maintain successful relationships with our channel partners
  The loss of the services of our key management and personnel or the failure to attract additional key personnel could adversely affect our ability to operate our business
  Our ability to implement and manage growth strategy is uncertain
  We may not be able to retain our key personnel or attract additional personnel
  Our future success may also depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel
  International business transactions will expose us to local business risks in different countries, which could have a material adverse effect on its financial condition or results of operations
  We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome
  We intend to rely on third parties to conduct clinical trials (if needed).
  The Protection from our Future Patents is Uncertain
  Obsolescence of our technologies
  Government Regulations May Result in Costs and Delays
  Dependence on collaborators to develop and test our devices.

 

Risks Relating to Our Israel Operations

 

  Our technology development are headquartered in Israel and, therefore, our results may be adversely affected by economic restrictions imposed on, and political and military instability in, Israel.
  Our research and development activities are conducted out of Israel and may be disrupted as a result of the obligation of Israeli citizens to perform military service
  Our business may be affected by boycotts of Israel

 

Risks Related to Ownership of Our Common Stock

 

  Our Chairman controls approximately 70% of our outstanding voting stock
 

We have the right to issue shares of preferred stock and if were to issue preferred stock, it is likely to have rights, preferences and privileges that may adversely affect the common stock. Our CEO has, by virtue of his preferred stock ownership, voting control over all matters.

 

We do not intend to pay cash dividends on our capital stock in the foreseeable future..

 

Upon purchase of our securities in this offering, you will incur immediate and substantial dilution in the book value of your shares. You will experience further dilution if we issue additional equity or equity-linked securities in the future.

 

The number of shares of common stock outstanding is based on 340,836,657 shares of common stock issued and outstanding as of February 13, 2024 and excludes as of that date:

 

Corporate Information

 

Our principal executive offices are located at 16 Natan Alterman Street, Gan Yavne, Israel. Our telephone number is (800) 674-3561. Our website address is www.appyea.com. Information contained in, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

 

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THE OFFERING

 

Common stock outstanding prior to the Offering
(As of February 13, 2024)
  340,836,657 shares
     
Shares of common stock offered by us in the Offering   25,000,000 shares
     
Common stock outstanding after completion of the Offering (assuming all of the shares have been sold and none of the warrants exercised)   365,836,657 shares
     
Use of proceeds   We intend to use the net proceeds from the Offering after deducting the estimated offering expenses for R&D and working capital. See “Use of Proceeds” on page 26 of this prospectus.
     
OTCQB Symbol   APYP
     
Risk factors   Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10.

 

The number of shares of common stock outstanding is based on 340,836,657 shares of common stock issued and outstanding as of February 13, 2024 and excludes as of that an aggregate of 21,792,175 shares of common stock issuable upon the exercise of warrants and 208,976,095 shares issuable upon conversion of outstanding convertible notes.

 

SELLING SHAREHOLDERS OFFERING

 

The Selling Shareholders set forth herein, who are deemed to be statutory underwriters, are offering 38,410,644 of the Company’s common stock, consisting of (i) 2,956,667 shares issued to our founders, officers and directors in consideration for founding the Company and services provided to us; (ii) an aggregate of 4,939,111 shares issued to four shareholders between in privately negotiated transactions at a purchase price per share between $0.0024 and $0.0234; (iii) 30,243,397 shares to be issued upon the conversion of three outstanding convertible notes; (iv) 46,569 shares to be issued upon the exercise of warrants; and (v) 224,890 shares issued to two shareholders which converted their convertible notes or received them under a loan agreement. The Company will realize no proceeds from sales by the Selling Shareholders. The registration of the shares of our common stock in the Selling Shareholders Offering does not necessarily mean that any shares of our common stock will be sold by any of the Selling Shareholders, and we cannot predict when or in what amounts any of the Selling Shareholders may sell any of our shares of common stock offered by this prospectus. See the section of this prospectus entitled “Selling Shareholders” for additional information about the Selling Shareholders. The Selling Shareholders may offer all or part of the shares for resale from time to time through public or private transactions, at $0.01 per share. The Company is paying for all registration, listing and qualification fees, printing fees and legal fees.

 

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RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information in this Registration Statement on Form S-1 before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part of your investment.

 

Risk Related to our Financial Position and Need for Capital

 

We have generated to date an insignificant amount of revenue from commercial sales to date and our future profitability is uncertain.

 

We were incorporated in Nevada and have a limited operating history, and our business is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise. Since inception, we have incurred losses and expect to continue to operate at a net loss for at least the next several years. Our net losses for the years ended December 31, 2022 and December 31, 2021, were $1,304,000 and $3,179,000, respectively, and our accumulated deficit as of December 31, 2022 and December 31, 2021 was $4,509,000 and $3,205,000, respectively. Our net losses for the nine months ended September 30, 2023 and 2022, were $2,087,000 and $738,000, respectively, and our accumulated deficit as of September 30, 2023 was $6,596,000. There can be no assurance that the products will be successfully commercialized, and the extent of our future losses and the timing of our profitability are highly uncertain. If we are unable to achieve profitability, we may be unable to continue our operations.

 

If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development and you will likely lose your entire investment.

 

We will need to continue to seek capital from time to time to continue development of our products and we cannot provide any assurances that any revenues they may generate in the future will be sufficient to fund our ongoing operations. We believe that we will need to raise substantial additional capital to fund our continuing operations and the development and commercialization of our products. We anticipate that we will need an additional $5,000,000 to (i) complete product design and testing for our products; and (ii) build the infrastructure for our sustained growth.

 

Our business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced products, acquire complementary products, business or technologies or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment. In addition, we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned, and this would require additional capital. However, we may not be able to secure funding when we need it or on favorable terms. We may not be able to raise sufficient funds to commercialize the products we intend to develop.

 

If we cannot raise adequate funds to satisfy our capital requirements, we will have to delay, scale back or eliminate our research and development activities or future operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements may require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing, including rights to certain major geographic markets. This could result in sharing revenues which we might otherwise retain for ourselves. Any of these actions may harm our business, financial condition and results of operations.

 

The amount of capital we may need depends on many factors, including the progress, timing and scope of our product development programs; our ability to enter into and maintain collaborative, licensing and other commercial relationships; and our partners’ commitment of time and resources to the development and commercialization of our products.

 

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Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our products on unfavorable terms to us.

 

We may seek additional capital through a variety of means, including through private and public equity offerings and debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms of such financings may include liquidation or other preferences, anti-dilution rights, conversion and exercise price adjustments and other provisions that adversely affect the rights of our stockholders, including rights, preferences and privileges that are senior to those of our holders of common stock in the event of a liquidation. In addition, debt financing, if available, could include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures, or declaring dividends and may require us to grant security interests in our assets. If we raise additional funds through collaborations, strategic alliances, or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, or products or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may need to curtail or cease our operations.

 

There is substantial doubt about our ability to continue as a going concern.

 

As of September 30, 2023, we had cash of $156,000. In addition, as of September 30, 2023, we had liabilities of 3,627,000. As of the date of this report, we do not have adequate resources to fund our operations through March 2024 without considering any potential future milestone payments that we may receive under any new collaborations that we may enter into in the future or any future capital raising transactions. We do not know whether additional financing will be available when needed, whether it will be available on favorable terms, or if it will be available at all. These factors raise substantial doubt about our ability to continue as a going concern. In the event that we are unable to obtain additional financing, we may be unable to continue as a going concern. There is no guarantee that we will be able to secure additional financing. Changes in our operating plans, our existing and anticipated working capital needs, costs related to legal proceedings we might become subject to in the future, the acceleration or modification of our development activities, any near-term or future expansion plans, increased expenses, potential acquisitions or other events may further affect our ability to continue as a going concern.

 

Similarly, the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2022 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

 

Risks Relating to our Business and our Industry

 

Our subsidiary, SleepX Ltd. and B.G. Negev Technologies and Applications Ltd., and Mor Research Application Ltd., have entered into a Licensing agreement which if terminated could have adverse effects on our business.

 

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, SleepX 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. In addition to the agreed upon royalty fees to be paid by SleepX to BGN, there is a milestone payment of $60,000 upon the attainment of regulatory approval from applicable authority in the USA or Europe to market and sell the licensed products. As of the date of this prospectus, 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.

 

11

 

 

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

 

Our business derives from such license and in the event of a termination this could have adverse effects on the Company and cause issues in the distribution and marketing of our products.

 

We may encounter numerous difficulties frequently encountered by companies in the early stage of operations.

 

We have a limited operating history upon which an investor can evaluate our current business and future prospects. Any potential investor must consider the risks and difficulties frequently encountered by early-stage companies. Historically, there has been a high failure rate among early-stage companies. Our future performance will depend upon a number of factors, including our ability to:

 

  generate revenues and implement our business plan and growth strategy;
  attract and retain marketing and commercial sponsors;
  aggressively counter and respond to actions by our competitors;
  maintain adequate control of our expenses;
  attract, retain and motivate qualified personnel;
  react to member preferences and demands;
  maintain regulatory compliance; and
 

generate sufficient working capital through our operations or through issuance of additional debt or equity financing, and to continue as a going concern.

 

We cannot assure investors that we will successfully address any of these factors, and our failure to do so could have a material adverse effect on our business, financial condition, results of operations and future prospects.

 

Changes in the configuration of the technology underlying our devices and application under development may result in additional costs or delay.

 

It is common that various aspects of the development program, such as manufacturing methods and configuration, are altered along the way in an effort to optimize processes and results. Any changes we make carry the risk that they will not achieve the intended objectives. Any of these changes could cause our products under development to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered device. Such changes may also require additional testing, regulatory notification or regulatory approval. This could delay completion of clinical trials, increase costs, delay approval of our future products and jeopardize our ability to commence sales and generate revenue.

 

The nature of the technology platforms utilized by us are complex and highly integrated, and if we fail to successfully manage releases or integrate new updates, it could harm our revenues, operating income, and reputation.

 

The technology platforms developed by us accommodate integrated applications that include our own developed technology and third-party technology, thereby substantially increasing their functionality. By enabling such system interoperability, our communications platform both reduces implementation and ongoing costs, and improves overall management efficiencies.

 

Due to this complexity and the condensed development cycles under which we operate, we may experience errors in our software, corruption or loss of our data, or unexpected performance issues from time to time. For example, our solutions may face interoperability difficulties with software operating systems or programs being used by our customers, or new releases, upgrades, fixes or the integration of acquired technologies may have unanticipated consequences on the operation and performance of our other solutions. If we encounter integration challenges or discover errors in our solutions late in our development cycle, it may cause us to delay our launch dates. Any major integration or interoperability issues or launch delays could have a material adverse effect on our revenues, operating income and reputation.

 

12

 

 

Security breaches, cyberattacks or other cyber-risks of our IT and production systems could expose us to significant liability and cause our business and reputation to suffer and harm our competitive position.

 

Our corporate infrastructure stores and processes our sensitive, proprietary and other confidential information (including as related to financial, technology, employees, marketing, sales, etc.) which is used on a daily basis in our operations. In addition to that, our software involves transmission and processing of our customers’ confidential, proprietary and sensitive information. We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data.

 

High-profile cyberattacks and security breaches have increased in recent years, with the potential for such acts heightened as a result of the number of employees working remotely. Security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting IT products and enterprise infrastructure. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and often are not recognized until launched against a specific target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As we continue to increase our client base and expand our brand, we may become more of a target for third parties seeking to compromise our security systems and we anticipate that hacking attempts and cyberattacks will increase in the future. We cannot give assurance that we will always be successful in preventing or repelling unauthorized access to our systems. We also may face delays in our ability to identify or otherwise respond to any cybersecurity incident or any other breach. Additionally, we use third-party service providers to provide some services to us that involve the storage or transmission of data, such as SaaS, cloud computing, and internet infrastructure and bandwidth, and they face various cybersecurity threats and also may suffer cybersecurity incidents or other security breaches. Despite our security measures, our IT and infrastructure may be vulnerable to attacks. Threats to IT security can take a variety of forms. Individual and groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, continuously undertake attacks that pose threats to our customers and our IT. These actors may use a wide variety of methods, which may include developing and deploying malicious software or exploiting vulnerabilities in hardware, software, or other infrastructure in order to attack our products and services or gain access to our networks, using social engineering techniques to induce our employees, users, partners, or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our users’ or customers’ data, or acting in a coordinated manner to launch distributed denial of service or other coordinated attacks. Inadequate account security practices may also result in unauthorized access to confidential and/or sensitive data.

 

Security risks, including, but not limited to, unauthorized use or disclosure of customer data, theft of proprietary information, theft of intellectual property, theft of internal employee’s PII/PHI information, theft of financial data and financial reports, loss or corruption of customer data and computer hacking attacks or other cyberattacks, could require us to expend significant capital and other resources to alleviate the problem and to improve technologies, may impair our ability to provide services to our customers and protect the privacy of their data, may result in product development delays, may compromise confidential or technical business information, may harm our competitive position, may result in theft or misuse of our intellectual property or other assets and could expose us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties, If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures and our products could be harmed, we could lose potential sales and existing customers, our ability to operate our business could be impaired, and we may incur significant liabilities, and we could suffer harm to our reputation and competitive position, and our operating results could be negatively impact our business.

 

13

 

 

The market opportunity for our products and services may not develop in the ways that we anticipate.

 

The demand for our products and services can change quickly and in ways that we may not anticipate because the market in which we operate is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements, changes in customer requirements and a limited ability to accurately forecast future customer orders. Our operating results may be adversely affected if the market opportunity for our products and services does not develop in the ways that we anticipate or if other technologies become more accepted or standard in our industry or disrupt our technology platforms.

 

The loss of the services of our key management and personnel or the failure to attract additional key personnel could adversely affect our ability to operate our business.

 

A loss of one or more of our current officers or key employees or consultants could severely and negatively impact our operations. We have no present intention of obtaining key-man life insurance on any of our executive officers or management. Additionally, competition for highly skilled technical, managerial and other personnel is intense. As our business develops, we might not be able to attract, hire, train, retain and motivate the highly skilled managers and employees we need to be successful. If we fail to attract and retain the necessary technical and managerial personnel, our business will suffer and might fail.

 

Our ability to implement and manage growth strategy is uncertain.

 

Implementation of our growth strategy may impose significant strain on our management, operating systems and financial resources. Failure by the Company to manage its growth, or unexpected difficulties encountered during expansion into different markets, could have a materially adverse impact on our results of operations or financial condition. Our ability to continue to operate our business depends upon a number of factors, including (i) generating sufficient funds for operations, (ii) our executive management team and our financial and accounting controls, and (iii) staffing, training and retaining skilled on-site management personnel. Certain of these factors are beyond our control and may be affected by the economy or actions taken by competing companies. Further, there can be no assurance that our market analysis and proprietary business data will continue to support our current marketing plans.

 

We may not be able to retain our key personnel or attract additional personnel, which could affect our ability to complete necessary clinical trials, application & product development, and obtain approvals so that we can generate revenue sufficient to continue as a going concern diminishing your return on investment.

 

Our performance is substantially dependent on the services and on the performance of our Management. We are, and will be, heavily dependent on the skill, acumen and services of our key executives. Our performance also depends on our ability to attract, hire, retain and motivate our officers and key employees. The loss of the services of our executives could result in lost revenue depending on the length of time and effort required to find qualified replacements. We have not entered into long-term employment agreements with all of our key personnel and currently have no “Key Employee” life insurance policies.

 

Our future success may also depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel.

 

Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. If we are unable to attract, retain, and train the necessary technical, managerial, marketing and customer service personnel, our expectations of increasing our clientele could be hindered, and our profitability reduced.

 

14

 

 

As the Company intends to be conducting international business transactions, it will be exposed to local business risks in different countries, which could have a material adverse effect on its financial condition or results of operations.

 

The Company intends to promote and sell its product candidates internationally by virtue of the global access to its products line and it expects to have customers located in several countries. The Company’s international operations will be subject to risks inherent in doing business in foreign countries, including, but not necessarily limited to:

 

  New and different legal and regulatory requirements in local jurisdictions;
  Potentially adverse tax consequences, including imposition or increase of taxes on transactions or withholding and other taxes on remittances and other payments by subsidiaries;
  Risk of nationalization of private enterprises by foreign governments;
  Legal restrictions on doing business in or with certain nations, certain parties and/or certain products; and,
  Local economic, political and social conditions, including the possibility of hyperinflationary conditions and  political instability.

 

The Company may not be successful in developing and implementing policies and strategies to address the foregoing factors in a timely and effective manner in the locations where it will do business. Consequently, the occurrence of one or more of the foregoing factors could have a material adverse effect on its base operations and upon its financial condition and results of operations.

 

Since our products may be available over the Internet in foreign countries and the Company may have customers residing in foreign countries, foreign jurisdictions may require it to qualify to do business in their country. It will be required to comply with certain laws and regulations of each country in which it conducts business, including laws and regulations currently in place or which may be enacted related to Internet services available to the residents of each country from online sites located elsewhere.

 

The Company’s operations in developing markets could expose it to political, economic and regulatory risks that are greater than those it may face in established markets. Further, its international operations may require it to comply with additional United States and international regulations.

 

For example, it may be required to comply with the Foreign Corrupt Practices Act, or “FCPA,” which prohibits companies or their agents and employees from providing anything of value to a foreign official or agent thereof for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. The Company may operate in some nations that have experienced significant levels of governmental corruption. Its employees, agents and contractors, including companies to which it outsources business operations, may take actions in violation of its policies and legal requirements. Such violations, even if prohibited by its policies and procedures, could have an adverse effect on its business and reputation. Any failure by the Company to ensure that its employees and agents comply with the FCPA and applicable laws and regulations in foreign jurisdictions could result in substantial civil and criminal penalties or restrictions on its ability to conduct business in certain foreign jurisdictions, and its results of operations and financial condition could be materially and adversely affected.

 

We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.

 

Our business relies in large part on granted and pending patents which we own. However, the grant of a patent does not ensure that litigation will not arise where the validity of the patent is challenged or that the patent will not be found by a court to infringe upon patents held by others. Furthermore, any litigation relating to our patent rights is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business and financial condition.

 

We may not be able to obtain third-party reimbursement or favorable product pricing, which would reduce our ability to operate profitably.

 

Our ability to successfully commercialize certain of our proposed products may depend to a significant degree on reimbursement of the costs of such products and related services at acceptable levels from government authorities and other organizations. We cannot assure you that reimbursement in the United States or foreign countries will be available for any products we may develop or, if available, will not be decreased in the future, or that reimbursement amounts will not reduce the demand for, or the price of, our products with a consequent harm to our business. We cannot predict what additional regulation or legislation may be enacted in the future or what effect such regulation or legislation may have on our business. If additional regulations are overly onerous or expensive makes our business more expensive or burdensome than originally anticipated, we may be forced to significantly downsize our business plans or completely abandon our business model.

 

15

 

 

It may be difficult to enforce a U.S. judgment against us, our officers and some of our directors and the foreign persons named in this registration statement in the United States or in foreign countries, or to assert U.S. securities laws claims in foreign countries or serve process on our officers and directors and these experts.

 

While we are incorporated in the State of Nevada, currently three of our directors and executive officers are not residents of the United States, and the foreign persons named in this Annual report on Form 10-K are located outside of the United States. The majority of our assets are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or foreign court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in foreign countries. Foreign courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that foreign countries are not necessary the most appropriate forum in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that foreign law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by foreign countries law. There is little binding case law in foreign countries addressing the matters described above.

 

We have not adopted various corporate governance measures, and as a result, stockholders may have limited protections against interested director transactions, conflicts of interest and similar matters.

 

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of corporate management and the securities markets. Because our securities are not yet listed on a national securities exchange, we are not required to adopt these corporate governance measures and have not done so voluntarily in order to avoid incurring the additional costs associated with such measures. Furthermore, the absence of the governance measures referred to above with respect to our Company may leave our stockholders with more limited protection in connection with interested director transactions, conflicts of interest and similar matters.

 

We intend to rely on third parties to conduct clinical trials (if needed). If these third parties do not meet our deadlines or otherwise conduct the trials as required, our clinical trials programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.

 

We do not have the ability to conduct all aspects of our clinical trials ourselves. We intend to use Contract Research Organizations (CROs) to conduct clinical trials that we may be required to conduct and will rely upon medical institutions, clinical investigators and CRO’s and consultants to conduct these trials in accordance with our clinical protocols. Our future CROs, investigators and other third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials.

 

There is no guarantee that any CROs, investigators and other third parties upon which we rely for administration and conduct of clinical trials will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fail to meet expected deadlines, fail to adhere to our clinical protocols or otherwise perform in a substandard manner, our clinical trials may be extended, delayed, or terminated. If any of these clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for any clinical trials we conduct may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized.

 

The Protection from our Future Patents is Uncertain.

 

We will rely on patents and trade secrets for the protection of our intellectual property. The issuance of a patent by the Patent Office does not ensure that the patent will be upheld if it is challenged in litigation or that the patent will not be found to infringe upon patents validly issued to others. We could be exposed to substantial litigation expense defending their intellectual property as well as liability to others.

 

16

 

 

Our Products may Become Technologically Obsolete.

 

The anti-snoring and anti-sleep apnea products market is characterized by extensive research and development activities. New developments are expected to continue at a rapid pace and there can be no assurance that new discoveries will not render our products, processes and devices uneconomical or obsolete. The likelihood of success for our products must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the development of new medical processes, devices and products and their level of acceptance by the medical community.

 

We may Encounter Liabilities Involving Customers and Third Parties.

 

The sale of medical devices can result in claims for injury if a product causes harm or fails to perform as promised. Although we have not been subject to any such claim, no assurance can be given that such claims will not be made in the future or that we can obtain any insurance coverage. If we were subject to an uncovered claim, our assets could be greatly reduced. Though we intend to obtain product liability insurance prior to the commercialization of our product, we currently don’t have a policy in place.

 

Government Regulations May Result in Costs and Delays.

 

The development, testing, production and marketing of our future products are subject to regulation by the FDA as devices under 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. Additionally, our products may be subject to regulation by similar agencies in other states and foreign countries. While we believe that we have complied with all applicable laws and regulations, continued compliance with such laws or regulations, including any new laws or regulations, might impose additional costs on us which could adversely affect its financial performance and results of operations.

 

Any product candidates we may advance into clinical trials (assuming the FDA so requires) may be subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize some of our product candidates, all of which can adversely affect our business.

 

Before we can market a new medical device, such as our proposed Apnea related products, we must first receive clearance under Section 510(k) of the FDA. In the 510(k) clearance process, before a device may be marketed in the US, the FDA must determine that such proposed device or app is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved pre-market approval (“PMA”) and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device.

 

The 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. Despite the time, effort and cost, a device may not be cleared by the FDA. Any delay or failure to obtain necessary regulatory clearances could harm our business, including our ability to commercialize our product and our shareholders could lose their entire investment. Furthermore, even if we are granted the required regulatory clearances, such clearances may be subject to significant limitations on the indicated uses for the device, which may limit the market for our product.

 

As noted, our regulatory approval plan is to obtain 510(K) clearance, however no assurance can be granted that we will so succeed. If the 510(k) clearance is not granted to us, the device testing, clinical trials, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA in the United States and by comparable health authorities in foreign markets.

 

17

 

 

Despite the time and expense invested in clinical trials of product candidates, commercial sale approval from applicable regulatory authority is never guaranteed.

 

FDA or and other regulatory agency can delay, limit or deny approval of a product candidate for many reasons, including:

 

 

the FDA or other foreign regulatory authority as applicable may disagree with the design or implementation of our clinical trials;

  we may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe and effective for any indication;
  the FDA may not accept the clinical data from trials which are conducted by individual investigators in countries where the standard of care is potentially different from the United States;
  the results of clinical trials may not meet the level of statistical significance required by the FDA for clearance;
  the FDA may disagree with our interpretation of data from the bench testing, or clinical trials;
  the FDA may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; or
  the approval policies or regulations of the FDA may significantly be changed in a manner rendering our clinical data insufficient for approval.

 

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our products or impact our ability to modify our products after clearance on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain clearance for our devices, increase the costs of compliance or restrict our ability to maintain products after clearance. For example, as part of the Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation both pre- and post-clearance. Some of these proposals and reforms could impose additional regulatory requirements upon us that could delay our ability to obtain new clearance, increase the costs of compliance or restrict our ability to maintain any commercial sale approval we are able to obtain.

 

With respect to foreign markets, approval procedures vary among countries and can involve additional product testing and administrative review periods. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates.

 

We may be subject to numerous and varying privacy and security laws, and our failure to comply could result in penalties and reputational damage.

 

We are subject to laws and regulations covering data privacy and the protection of personal information, including health information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues which may affect our business. In the U.S., numerous federal and state laws and regulations, including state security breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of personal information. Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues for us. If we fail to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties if we knowingly obtain or disclose individually identifiable health information from a covered entity in a manner that is not authorized or permitted by the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HIPAA.

 

18

 

 

Other countries have, or are developing, laws governing the collection, use and transmission of personal information as well. The EU and other jurisdictions have adopted data protection laws and regulations, which impose significant compliance obligations. In the EU, for example, effective May 25, 2018, the GDPR replaced the prior EU Data Protection Directive (95/46) that governed the processing of personal data in the European Union. The GDPR imposes significant obligations on controllers and processors of personal data, including, as compared to the prior directive, higher standards for obtaining consent from individuals to process their personal data, more robust notification requirements to individuals about the processing of their personal data, a strengthened individual data rights regime, mandatory data breach notifications, limitations on the retention of personal data and increased requirements pertaining to health data, and strict rules and restrictions on the transfer of personal data outside of the EU, including to the U.S. The GDPR also imposes additional obligations on, and required contractual provisions to be included in, contracts between companies subject to the GDPR and their third-party processors that relate to the processing of personal data. The GDPR allows EU member states to make additional laws and regulations further limiting the processing of genetic, biometric or health data.

 

Any failure to comply with the requirements of GDPR and applicable national data protection laws of EU member states, could lead to regulatory enforcement actions and significant administrative and/or financial penalties against us (fines of up to Euro 20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher), and could adversely affect our business, financial condition, cash flows and results of operations.

 

If we or our third-party manufacturers fail to comply with the FDA’s Quality System Regulation, or QSR, our manufacturing operations could be interrupted.

 

In the US, we and our future contract manufacturers are required to comply with the FDA’s QSR requirements which covers the methods and documentation of the design, testing, production, quality control, labeling, packaging, storage shipping and distribution of our products. In other foreign countries ISO 13485 standard is used (but not limited), to show compliance with the design and manufacturing requirements. We and our suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we or our distributors market our products abroad. We continue to monitor our quality management in order to improve our overall level of compliance. Our facilities will be subject to periodic and unannounced inspection by U.S. and other foreign regulatory agencies as applicable to audit compliance with the regulations. If our facilities or those of our suppliers are found to be in violation of applicable laws and regulations, or if we or our suppliers fail to take satisfactory corrective action in response to an adverse inspection, the regulatory authority could take enforcement action, including any of the following sanctions:

 

  untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
  customer notifications or repair, replacement or refunds;
  operating restrictions or partial suspension or total shutdown of production;
  recalls, withdrawals, or administrative detention or seizure of our products;
  refusing or delaying requests for 510(k) marketing clearance applications relating to new products or modified products;
  withdrawing the product from the market;
  refusing to provide Certificates for Foreign Government;
  refusing to grant export approval for our products; or
  pursuing criminal prosecution.

 

Any of these sanctions could impair our ability to produce AppySleep PRO in a cost-effective and timely manner in order to meet our customers’ demands and could have a material adverse effect on our reputation, business, results of operations and financial condition. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.

 

We depend on our collaborators to help us develop and test our devices, and our ability to develop and commercialize our devices may be impaired or delayed if collaborations are unsuccessful.

 

Our strategy for the development, testing and commercialization of our anti-snoring devices may require that we enter into collaborations with consultants, corporate partners, licensors, licensees and others. We are dependent upon the subsequent success of these other parties in performing their respective responsibilities and the continued cooperation of our partners. Our collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to our research and development activities related to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us.

 

19

 

 

Under agreements with collaborators, we may rely significantly on such collaborators to, among other things, design prototypes for and value our intellectual property, and market for us any commercial products that result from our collaborations.

 

With respect to any additional clinical studies for our products which are required by the FDA or with respect to Clinical Trials relating to the development of our core technology for other applications, we rely on clinical investigators and clinical sites, some of which are private practices, and some of which are research university- or government-affiliated, to enroll patients in our Clinical Trials.

 

However, we may not be able to control the amount and timing of resources that clinical sites and other third parties may devote to our Clinical Trials. If these clinical investigators and clinical sites fail to enroll a sufficient number of patients in our Clinical Trials, or if the clinical sites fail to comply adequately with the clinical protocols, we will be unable to complete these trials, which could prevent us from obtaining regulatory approvals for our products or other products developed from our core technology. Our agreements with clinical investigators and clinical sites for clinical testing place substantial responsibilities on these parties and, if these parties fail to perform as expected, our trials could be delayed or terminated.

 

If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain are compromised due to their failure to adhere to our clinical protocols or for other reasons, our Clinical Trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for, or successfully commercialize, our products or other products developed from our core technology.

 

In addition to the foregoing, any initial or additional clinical studies for any of our products which are required by the FDA and any Clinical Trials relating to the development of our core technology for other applications may be delayed or halted for numerous other reasons, including, but not limited to, the following:

 

  the FDA, an Institutional Review Board (“IRB”) or other regulatory authorities place our clinical trial on hold;
  patients do not enroll in Clinical Trials at the rate we expect;
  patient follow-up is not at the rate we expect;
  IRBs and third-party clinical investigators delay or reject our trial protocol;
  third-party organizations do not perform data collection and analysis in a timely or accurate manner;
 

regulatory inspections of our Clinical Trials or manufacturing facilities, among other things, require us to undertake corrective action or suspend or terminate our Clinical Trials, or invalidate our Clinical Trials;

  changes in governmental regulations or administrative actions; and
  the interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness.

 

If our products are approved for reimbursement, we anticipate experiencing significant pressures on pricing.

 

We may not develop a substantial number of commercialized products.

 

We are a development stage company and currently have one commercialized product, the AppySleep. We believe that the patents that we have acquired will allow us to develop additional devices and prove usefulness for other applications. However, while we believe we will achieve the desired clinical results, commercialization of each of our products remains subject to certain significant risks. Our efforts may not lead to commercially successful products for a number of reasons, including:

 

  we may not be able to obtain regulatory approvals for our devices, or the approved indication may be narrower than we seek;
  any of our devices may not prove to be safe and effective in Clinical Trials to the FDA’s satisfaction;
  physicians may not receive any reimbursement from third-party payers, or the level of reimbursement may be insufficient to support widespread adoption of our devices;
  we may experience delays in our continuing development program;
  any products that are approved by regulators may not be accepted in the marketplace by physicians or patients;
  we may not have adequate financial or other resources to complete the continued development or to commence the commercialization of our devices and we will not have adequate financial or other resources to achieve significant commercialization of our devices;
  we may not be able to manufacture our products in commercial quantities or at an acceptable cost; and
  rapid technological change may make our technology and products obsolete.

 

Non-FDA Government Regulation May Affect our Results.

 

The advertising of our devices will be subject to both FDA and Federal Trade Commission regulations. In addition, the sale and marketing of our devices will be subject to a complex system of federal and state laws and regulations intended to deter, detect, and respond to fraud and abuse in the healthcare system. These laws and regulations restrict and may prohibit pricing, discounting, commissions and other commercial practices that may be typical outside of the healthcare business. In particular, anti-kickback and self-referral laws and regulations will limit our flexibility in crafting promotional programs and other financial arrangements in connection with the sale of our products and related services, especially with respect to physicians seeking reimbursement through Medicare or Medicaid. These federal laws include, by way of example, the following:

 

  the anti-kickback statute prohibits certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid and other federal healthcare programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other federal healthcare programs;
  the physician self-referral prohibition, commonly referred to as the Stark Law, which prohibits referrals by physicians of Medicare or Medicaid patients to providers of a broad range of designated healthcare services in which the physicians or their immediate family members have ownership interests or with which they have certain other financial arrangements;
  the anti-inducement law, which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program;
  the Civil False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment by the federal government, including the Medicare and Medicaid programs; and
  the Civil Monetary Penalties Law, which authorizes the US Department of Health and Human Services (“HHS”) to impose civil penalties administratively for fraudulent or abusive acts.

 

Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, money penalties, imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs, or both. These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract with persons excluded from the Medicare and other government programs.

 

Many states have adopted or are considering legislative proposals similar to the federal fraud and abuse laws, some of which extend beyond the Medicare and Medicaid programs to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of whether the service was reimbursed by Medicare or Medicaid. Many states have also adopted or are considering legislative proposals to increase patient protections, such as limiting the use and disclosure of patient-specific health information. These state laws typically impose criminal and civil penalties similar to the federal laws.

 

In the ordinary course of their business, medical device manufacturers and suppliers have been and are subject regularly to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. Recent federal and state legislation has greatly increased funding for investigations and enforcement actions, which have increased dramatically over the past several years. This trend is expected to continue. Private enforcement of healthcare fraud also has increased, due in large part to amendments to the Civil False Claims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. These whistleblower suits by private persons, known as qui tam relaters, may be filed by almost anyone, including physicians and their employees and patients, our employees, and even competitors. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), in addition to its privacy provisions, created a series of new healthcare-related crimes.

 

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Our Clinical Trials could be delayed by factors over which we have little control.

 

The start or conduct of a clinical trial can be delayed by a number of factors that may include, but are not limited to, government sequestration that could limit the availability of federal grants or delay in the approval and compliance process of where our clinical trial will be conducted. As a result, the purchase of equipment necessary to prepare and optimize the prototype for the clinical trial could be delayed.

 

The FDA may require additional Clinical Trials and any adverse results in such Clinical Trials, or difficulties in conducting such Clinical Trials, could have a material adverse effect on our business.

 

The occurrence of unexpected findings in connection with any initial or subsequent clinical trial required by the FDA may prevent or delay obtaining approval. In addition, subsequent clinical studies would require the expenditure of additional company resources and could be a long and expensive process subject to unexpected delays. Any adverse results in such Clinical Trials, or difficulties in conducting such Clinical Trials, could have a material adverse effect on our business.

 

If any additional products are approved by the FDA, they may be approved only for narrow indications.

 

Even if approved, our devices may not be approved for the indications that are necessary or desirable for successful commercialization.

 

If we wish to modify any of our devices after receiving FDA approval, including changes in indications or other modifications that could affect safety and effectiveness, additional approvals could be required from the FDA, we may be required to submit extensive pre-clinical and clinical data, depending on the nature of the changes. Any request by the FDA for additional data, or any requirement by the FDA that we conduct additional clinical studies, could delay the commercialization of our devices and require us to make substantial additional research, development and other expenditures. We may not obtain the necessary regulatory approvals to market our devices in the U.S. or anywhere else. Any delay in, or failure to receive or maintain, approval for our proprietary square wave form device and/or cell-free therapies could prevent us from generating revenue or achieving profitability, and our business, financial condition, and results of operations would be materially adversely affected.

 

Our reliance on the activities of our non-employee consultants whose activities are not wholly within our control, may lead to delays in development of proposed products or in the development of our business.

 

We rely extensively upon and have relationships with consultants. These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time to be dedicated to our activities.

 

Risks Relating to Our Israel Operations

 

Our technology development are headquartered in Israel and, therefore, our results may be adversely affected by economic restrictions imposed on, and political and military instability in, Israel.

 

Our technology development headquarters, which houses substantially all of our research and development team, including engineers, machinists, researchers, and clinical and regulatory personnel as well as the facility of our contract manufacturer and final assembly are located in Israel. Our employees, service providers, directors and officers are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could materially and adversely affect our business, financial condition and results of operations and could make it more difficult for us to raise capital. Although we plan to maintain inventory in the United States and Israel, an extended interruption could materially and adversely affect our business, financial condition and results of operations.

 

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Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and has raised concerns regarding security in the region and the potential for armed conflict. Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Any losses or damages incurred by us could have a material adverse effect on our business. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among parties hostile to Israel in areas that neighbor Israel, such as the Syrian government, Hamas in Gaza and Hezbollah in Lebanon. Any armed conflicts, terrorist activities or political instability in the region could materially and adversely affect our business, financial condition and results of operations.

 

Our operations and the operations of our contract manufacturer may be disrupted as a result of the obligation of Israeli citizens to perform military service.

 

Many Israeli citizens are obligated to perform one month, and in some cases more, of annual military reserve duty until they reach the age of 45 (or older, for reservists with certain occupations) and, in the event of a military conflict, may be called to active duty. In response to terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be additional military reserve duty call-ups in the future in connection with this conflict or otherwise. Some of our employees, consultants and employees of the manufacturer of our products, are required to perform annual military reserve duty in Israel and may be called to active duty at any time under emergency circumstances. Our operations and the operations of our manufacturer could be disrupted by such call-ups.

 

Our sales may be adversely affected by boycotts of Israel.

 

Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.

 

Risks Related to Ownership of Our Common Stock

 

Our chairman may exert significant influence over its affairs, including the outcome of matters requiring stockholder approval.

 

Our Chairman owns, in the aggregate, beneficially own approximately 71.4% of our outstanding common stock as of the date of this filing. As a result, he will have the ability, acting together, to control the election of the Company’s directors and the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of the Company, (ii) a sale of all or substantially all of its assets, and (iii) amendments to its certificate of incorporation. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to the Company’s other stockholders and be disadvantageous to the Company’s stockholders with interests different from those individuals. Certain of these individuals also have significant control over the Company’s business, policies and affairs as officers or directors of the Company. Therefore, you should not invest in reliance on your ability to have any control over the Company.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, which research and reports are not and would not be subject to our control. We currently do not have and may never obtain research coverage by securities analysts, and industry analysts that currently cover us may cease to do so. If no securities analysts commence coverage of our company, or if industry analysts cease coverage of our company, the trading price for our stock could be materially and adversely impacted. In the event we obtain securities analyst coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price may be materially and adversely impacted. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

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A decline in the price of our common stock could affect our ability to raise any required working capital and adversely impact our operations.

 

A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise any required capital for our operations. Because we intend to fund the Company in the future primarily through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future may have a material adverse effect upon our business plan and operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

 

The large number of shares eligible for immediate and future sales may depress the price of our stock.

 

As of the date of this offering circular we have shares of common stock outstanding. shares are “free trading” and may serve to overhang the market and depress the price of our common stock.

 

“Penny Stock” rules may make buying or selling our common stock difficult. Limitations upon Broker-Dealers Effecting Transactions in “Penny Stocks”

 

Trading in our common stock is subject to material limitations as a consequence of regulations which limit the activities of broker-dealers effecting transactions in “penny stocks.” Pursuant to Rule 3a51-1 under the Exchange Act, our common stock is a “penny stock” because it (i) is not listed on any national securities exchange or The NASDAQ Stock Market™, (ii) has a market price of less than $5.00 per share, and (iii) its issuer (the Company) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three (3) years) or $5,000,000 (if the issuer has been in business for less than three (3) years).

 

Rule 15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on “penny stocks”, which makes selling our common stock more difficult compared to selling securities which are not “penny stocks.” Rule 15a-9 restricts the solicitation of sales of “penny stocks” by broker-dealers unless the broker first (i) obtains from the purchaser information concerning his financial situation, investment experience and investment objectives, (ii) reasonably determines that the purchaser has sufficient knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in “penny stocks”, and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser’s investment experience and financial sophistication.

 

Rules 15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in “penny stocks” first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying the risks inherent in investing in “penny stocks”, (ii) all compensation received by the broker-dealer in connection with the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair market value of the securities.

 

There can be no assurance that any broker-dealer which initiates quotations for the Common Stock will continue to do so, and the loss of any such broker-dealer likely would have a material adverse effect on the market price of our common stock.

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described below, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

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Because our common stock is deemed a low-priced “penny stock,” it will be cumbersome for brokers and dealers to trade in our common stock, making the market for our common stock less liquid and negatively affect the price of our stock.

 

We will be subject to certain provisions of the Securities Exchange Act of 1934 (the “Exchange Act”), commonly referred to as the “penny stock” rules as defined in Rule 3a51-1. A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Since our stock is deemed to be a penny stock, trading is subject to additional sales practice requirements of broker-dealers. These require a broker-dealer to:

 

  Deliver to the customer, and obtain a written receipts for, a disclosure document;
  Disclose certain price information about the stock;
  Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;
  Send monthly statements to customers with market and price information about the penny stock; and
  In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

 

Consequently, penny stock rules and FINRA rules may restrict the ability or willingness of broker-dealers to trade and/or maintain a market in our common stock. Also, prospective investors may not want to get involved with the additional administrative requirements, which may have a material adverse effect on the trading of our shares.

 

We Have Paid No Dividends

 

We never have paid any dividends on our common stock, and we do not intend to pay any dividends in the foreseeable future.

 

We have the right to issue shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences and privileges that may adversely affect the common stock. Our CEO has, by virtue of his preferred stock ownership, voting control over all matters.

 

We are authorized to issue 500,000 shares of “blank check” preferred stock, with such rights, preferences and privileges as may be determined from time-to-time by our board of directors. We currently have 258,745 shares of Convertible Preferred Stock outstanding, the majority of which is held by our CEO, chairman and our previous CEO. Our board of directors is empowered, without shareholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences and privileges for the preferred stock. The issuance of shares of preferred stock, depending on the rights, preferences and privileges attributable to the preferred stock, could adversely reduce the voting rights and powers of the common stock and the portion of the Company’s assets allocated for distribution to common stockholders in a liquidation event, and could also result in dilution in the book value per share of the common stock we are offering. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of the Company, to the detriment of the investors in the common stock offered hereby. We cannot assure you that the Company will not, under certain circumstances, issue shares of its preferred stock.

 

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The elimination of personal liability of our directors and officers under Nevada law and the existence of indemnification rights held by our directors, officers and employees may result in substantial expenses.

 

Our Second Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws eliminate to the furthest extent permitted under Nevada law the personal liability of our directors and officers to us, our stockholders and creditors for damages as a result of any act or failure to act in his or her capacity as a director or officer. Furthermore, our Amended and Restated Articles of Incorporation, our Amended and Restated Bylaws and individual indemnification agreements that we have entered with each of our directors and officers provide that we are obligated to indemnify, subject to certain exceptions, each of our directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, to advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for such damages, even if such actions might otherwise benefit our stockholders.

 

We do not intend to pay cash dividends on our capital stock in the foreseeable future.

 

We have never declared or paid any cash dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. We currently intend to retain all future earnings to fund the development of our products.

 

Risks Related to this Offering

 

The primary offering by us and the secondary offering by the Selling Shareholders will run concurrently, which may affect the success of the primary offering.

 

This prospectus relates to two concurrent offerings, the primary offering by us where we will receive the gross proceeds of subscription for units of our common stock and the secondary offering by the Selling Shareholders where we will not receive any of the proceeds of sales of share by the Selling Shareholders. The concurrent nature of the offerings may adversely affect the primary offering by the Company which would reduce, or possibly eliminate, any of the proceeds that we may receive.

 

We may allocate the net proceeds from the Offering in ways which differ from our estimates based on our current plans and assumptions.

 

The allocation of net proceeds of the Offering set forth in the “Use of Proceeds” section below represents our estimates based upon our current plans and assumptions regarding industry and general economic conditions, and any future revenues and expenditures. The amounts and timing of our actual expenditures will depend on numerous factors, including market conditions, cash generated from operations, if any, business developments and related rate of growth. We may find it necessary or advisable to use portions of the proceeds from this Offering for other purposes. You may not have an opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our proceeds. As a result, you and other shareholders may not agree with our allocation of net proceeds decisions.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, which research and reports are not and would not be subject to our control. We currently do not have and may never obtain research coverage by securities analysts, and industry analysts that currently cover us may cease to do so. If no securities analysts commence coverage of our company, or if industry analysts cease coverage of our company, the trading price for our stock could be materially and adversely impacted. In the event we obtain securities analyst coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price may be materially and adversely impacted. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

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If you purchase our securities in this offering, you will incur immediate and substantial dilution in the book value of your shares. You will experience further dilution if we issue additional equity or equity-linked securities in the future.

 

The public offering price per share of our common stock and warrants will be substantially higher than the net tangible book value per share of our common stock immediately prior to the offering. After giving effect to the sale of 25,000,000 shares of our common stock in this offering, at the assumed fixed public offering price of $0.01 per share, and after deducting the estimated offering expenses payable by us, purchasers of our common stock in this offering will incur immediate dilution of $0.00084 per share in the net tangible book value of the common stock they acquire. For a further description of the dilution that investors in this offering may experience, see “Dilution.”

 

A decline in the price of our common stock could affect our ability to raise any required working capital and adversely impact our operations.

 

A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise any required capital for our operations. Because we intend to fund the Company in the future primarily through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future may have a material adverse effect upon our business plan and operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

 

The large number of shares eligible for immediate and future sales may depress the price of our stock.

 

As of the date of this offering circular we have shares of common stock outstanding. shares are “free trading” and may serve to overhang the market and depress the price of our common stock.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statements in this prospectus about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management and market for our common stock are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.

 

Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this prospectus. You should read this prospectus and the documents that we reference herein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Because the risk factors referred to on page 5 of this prospectus could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus, and particularly our forward-looking statements, by these cautionary statements.

 

USE OF PROCEEDS

 

If we sell all the 25,000,000 shares offered in the primary offering, we estimate the net proceeds to us from this Offering will be approximately $240,000, based on an initial offering price of $0.01 per share, after deducting estimated offering expenses of $10,000 payable by us. In the event that all warrants issued in the Offering are exercised at a per share exercise price of $0.01, the company will receive additional $250,000.

 

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We intend to use the net proceeds from this offering for general corporate purposes, including working capital. We may use the net proceeds from this offering to fund possible acquisitions of other companies, products or technologies, though no such acquisitions are currently contemplated.

 

The table below depicts how we plan to utilize the proceeds in the event that 25%, 50%, 75% and 100% if all the Common Shares in this Offering are sold for maximum aggregate gross proceeds to us of $240,000, after deducting estimated placement offering expenses payable by us.

 

% of Full Amount Raised.   25%   50%   75%   100%
Amount Raised  $62,500    125,000    187,500    250,000 
Offering Expenses  $10,000    10,000    10,000    10,000 
Sales and Marketing  $13,200    26,400    39,600    52,800 
General and Administrative  $18,000    36,000    54,000    72,000 
Research and Development   17,400    34,800    52,200    69,600 
General Working Capital  $11,400    22,800    34,200    45,600 

 

We will not receive any proceeds from the sale of common stock by the selling shareholders. However, if the selling shareholders exercise all of their warrants, we shall receive $250,000.

 

This expected use of our net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including any unforeseen cash needs.

 

As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds from this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business.

 

Any funds we raise in this offering will be immediately available for our use and will not be returned to investors. We will not maintain an escrow, trust, or similar account for the receipt of proceeds from the sale of our shares.

 

In the event that the raise is substantially less than the maximum proceeds (less than 50%), we shall focus our efforts and funds on the sale of the AppySleep product, by redirecting budget set for R&D to working capital to fulfil wristband orders, until we either become profitable or raise additional funds as required.

 

DETERMINATION OF OFFERING PRICE

 

The selling stockholders will determine at what price they may sell the shares of common stock offered by this prospectus, and such sales may be made at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices.

 

DILUTION

 

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share and the as-adjusted net tangible book value per share after this Offering.

 

The net tangible book value (deficit) of our common stock as of September 30, 2023 was approximately $(3,425,000), or approximately $(0.01205) per share. Net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the total number of our shares of common stock outstanding as of September 30, 2023.

 

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After giving effect to the sale of 25,000,000 Shares in this offering at the offering price of $0.01 per Share, our as adjusted net tangible book value as of September 30, 2023 would have been approximately $(2,945,000) or approximately $(0.009527) per share. This represents an immediate increase in net tangible book value of approximately $0.00155 per share to our existing security holders and an immediate dilution in as-adjusted net tangible book value of approximately $(0.00084) per share to purchasers of units in this offering, as illustrated by the following table:

 

Public offering price per Share  $0.01 
Consolidated net tangible book value per Common Share  $(0.01205)
Increase in consolidated net tangible book value per Common Share  $0.00155 
As adjusted consolidated net tangible book value per Common Share  $(0.009527)
Dilution per Common Share to new investors participating in this offering  $(0.00084)

 

In the event that the raise is substantially less than the maximum proceeds (less than 50%), we shall focus our efforts and funds on the sale of the AppySleep product, by redirecting budget set for R&D to working capital to fulfil Wristband orders, until we either become profitable or raise additional funds as required.

 

SELLING SHAREHOLDERS

 

This prospectus also covers the resale by the Selling Shareholders of an aggregate of 38,410,644 shares of common stock, consisting of (i) 2,956,677 shares issued to our founders, officers and directors in consideration for founding the Company and services provided to us; (ii) an aggregate of 4,939,111 shares issued to investors at a purchase price of between $0.0224 and $0.0234 per share; (iii) an aggregate of 30,243,397 shares to be issued upon the conversion of outstanding convertible notes issued to accredited investors in private offerings; (iv) an aggregate of 46,569 Warrant Shares to be issued upon the exercise of Warrants issued in the Private Placements; and (v) 224,890 shares issued to two shareholders which converted their convertible notes or received them under a loan agreement.

 

The Selling Shareholders, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares referred to above. The Selling Shareholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act. We may from time to time include additional selling shareholders in supplements or amendments to this prospectus. After the date of effectiveness, the Selling Shareholders may have sold or transferred, in transactions covered by this prospectus or in transactions exempt from the registration requirements of the Securities Act, some or all of their shares of common stock.

 

The Selling Shareholders may sell some, all or none of its shares. We do not know how long the Selling Shareholders will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the Selling Shareholders regarding the sale of any of the shares.

 

The following table sets forth the shares beneficially owned, as of February 13, 2024 by the Selling Shareholders prior to the offering contemplated by this prospectus, the number of shares that the Selling Shareholders may offer and sell from time to time under this prospectus and the number of shares which the Selling Shareholders would own beneficially if all such offered shares are sold.

 

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act. The percentage of shares beneficially owned prior to the offering is based on 340,836,657 shares of our common stock outstanding as of February 13, 2024.

 

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None of the Selling Shareholders are a registered broker-dealer or an affiliate of a registered broker-dealer.

 

Name of Selling Shareholder   Shares of Common Stock Owned Prior to Offering     Shares of Common Stock to be Offered for the Selling Shareholder’s Account     Shares of Common Stock Owned by the Selling Shareholder After the Offering     Percent of Common Stock to be Owned by the Selling Shareholder After the Offering  
Boris Molchadsky(1)     99,754,464       2,576,901       97,177,563         %
Ron Mekler     1,519,104       379,776       1,139,328         %
Ron Weisberg     2,228,019       557,004       1,671,015         %
Yair Dahan     1,316,557       329,139       987,418         %
Nexense Technologies USA Inc.(2)     67,549,471       4,052,968       63,496,503         %
Caro Partners LLC(3)           125,000             *  
Byron Young(4)           99,890             *  
Plutus Investments L.P.(5)           30,243,397             *  
Mesodi Consulting Ltd.(6)           46,569             *  

 

*Represents less than 1%

 

(1) Boris Molchadsky is Chairman of the Board of Directors and a Director of the Company.

 

(2) Boris Molchadsky has the power to vote or dispose of the securities held of record by the selling stockholder and may be deemed to beneficially own those securities.

 

(3) Represents shares issued upon conversion of convertible notes. Brian John has the power to vote or dispose of the securities held of record by the selling stockholder and may be deemed to beneficially own those securities.

 

(4) Represents shares issued upon conversion of convertible notes

 

(5) Represents shares issuable upon conversion of convertible notes. Leon Svirski has the power to vote or dispose of the securities held of record by the selling stockholder and may be deemed to beneficially own those securities.

 

(6) Represents shares issuable the exercise of common stock warrants. Uzi Ovits has the power to vote or dispose of the securities held of record by the selling stockholder and may be deemed to beneficially own those securities.

 

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PLAN OF DISTRIBUTION

 

Our shares of common stock subject to the Offering will be sold through our management, who may be considered an underwriter as that term is defined in Section 2(a)(11) of the Securities Act. Our management will not receive any commission in connection with the sale of shares, although we may reimburse them for direct expenses incurred by them in connection with the offer and sale of the shares. We estimate our total offering registration costs to be approximately $400 and our legal, accounting, miscellaneous and related fees will be $9,600 equaling a total expense to the Company of $10,000 relating to the registration. There is no minimum number of shares that must be sold by us for the Offering to proceed. We will retain any proceeds from the Offering.

 

Our management will be relying on, and complying with, Rule 3a4-1(a)(4)(ii) of the Exchange Act as a “safe harbor” from registration as a broker-dealer in connection with the offer and sale of the shares. In order to rely on such “safe harbor” provisions provided by Rule 3a4-1(a) (4) (ii), each must be in compliance with all of the following:

 

  an individual must not be subject to a statutory disqualification;
     
  an individual must not be compensated in connection with such selling participation by payment of commissions or other payments based either directly or indirectly on such transactions;
     
  an individual must not be an associated person of a broker-dealer;
     
  an individual must primarily perform, or is intended primarily to perform at the end of the Offering, substantial duties for or on behalf of the Company otherwise than in connection with transactions in securities; and
     
  an individual must perform substantial duties for the Company after the close of the Offering not connected with transactions in securities, and not have been an associated person of a broker or dealer for the preceding 12 months, and not participate in selling an offering of securities for any issuer more than once every 12 months.

 

Each member of our management will comply with the guidelines enumerated in Rule 3a4-1(a) (4) (ii). Neither our management nor any of their affiliates will be purchasing shares in the Offering.

 

You may purchase shares by completing and manually executing a subscription agreement and delivering it with your payment in full for all shares you wish to purchase to our offices. A copy of the form of that subscription agreement is attached as an exhibit to our registration statement of which this prospectus is a part. Your subscription will not become effective until accepted by us and approved by our counsel. Our subscription process is as follows:

 

  this prospectus, with subscription agreement, is delivered by the Company to each offeree;
     
  the subscription is completed by the offeree, and submitted with check back to the Company where the subscription and a copy of the check is emailed to counsel for review;
     
  each subscription is reviewed by counsel for the Company to confirm the subscribing party completed the form, and to confirm the state of acceptance;
     
  once approved by counsel, the subscription is accepted by management and the funds will be deposited within four days of acceptance;
     
  subscriptions not accepted are returned with all funds sent with the subscription within three business days of the Company’s receipt of the subscription, without interest or deduction of any kind.

 

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We will pay all of the expenses incident to the registration, offering, and sale of the shares to the public other than commissions or discounts of underwriters, broker-dealers, or agents.

 

We will be subject to applicable provisions of the Exchange Act and the rules and regulations under it, including, without limitation, Rule 10b-5.

 

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, as permitted by that rule, or Section 4(a)(1) under the Securities Act, if available, rather than under this prospectus, provided that they meet the criteria and conform to the requirements of those provisions, including the requirements of Rule 144(i) applicable to former “shell companies.”

 

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal. Such commissions will be in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction will not be in excess of a customary brokerage commission in compliance with FINRA Rule 5110.

 

In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and if such short sale shall take place after the date that this registration statement is declared effective by the SEC, the selling stockholders may deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares, to the extent permitted by applicable law. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). Notwithstanding the foregoing, the selling stockholders have been advised that they may not use shares registered pursuant to this registration statement to cover short sales of our common stock made prior to the date the registration statement of which this prospectus forms a part is declared effective by the SEC.

 

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealer or agents participating in the distribution of the shares of common stock offered hereby may be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.

 

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Each selling stockholder has informed us that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. Upon us being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker-dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate, would exceed eight percent (8%).

 

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with in all respects.

 

Any selling stockholder may sell some, all or none of the shares of common stock to be registered pursuant to the registration statement of which this prospectus forms a part.

 

Each selling stockholder and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholder and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

 

We will pay all expenses of the registration of the shares of common stock, including, without limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that each selling stockholder will pay all underwriting discounts and selling commissions, if any, and any legal expenses incurred by it.

 

Penny Stock Rules

 

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “institutional accredited investors.” The term “institutional accredited investor” refers generally to those accredited investors who are not natural persons and fall into one of the categories of accredited investor specified in subparagraphs (1), (2), (3), (7) or (8) of Rule 501 of Regulation D promulgated under the Securities Act, including institutions with assets in excess of $5,000,000.

 

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form required by the SEC, and impose a waiting period of two business days before effecting the transaction. The risk disclosure document provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account.

 

The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.

 

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These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

 

DESCRIPTION OF CAPITAL STOCK

 

General

 

The following description of our capital stock is intended as a summary only. We refer you to our articles of incorporation and bylaws which have been filed as exhibits to the registration statement of which this prospectus is a part, and to the applicable provisions of Nevada Revised Statutes.

 

Our authorized capital stock consists of 900 Million shares of common stock par value $0.0001 per share and 500,000 shares of preferred stock, par value $0.0001 per share (“Series A Preferred Stock”). As of February 8, 2024, there were 340,836,657 shares of our common stock and 258,745 shares of our Series A Preferred Stock issued and outstanding.

 

Common Stock

 

Each holder of shares of our common stock is entitled to one vote for each share held of record on all matters submitted to the vote of stockholders, including the election of directors. The holders of shares of common stock have no preemptive, conversion, subscription or cumulative voting rights. There is no provision in our articles of incorporation or bylaws that would delay, defer or prevent a change in control of our company.

Preferred Stock

 

Our Board may issue preferred stock in one or more series without shareholder approval. Our Board may determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock. The rights of holders of our common stock described above, will be subject to, and may be adversely affected by, the rights of any preferred stock that we may designate and issue in the future.

 

On June 29, 2021 the Company filed for an increase in its series of preferred stock to 500,000 shares and designated as the Series A Preferred Stock. The holders of the Series A Preferred Stock have the right to convert such stock into common stock at a conversion rate equal to one share of preferred for 1,500 shares per the common stock for the five previous trading days. The holders of Class A Preferred Stock shall vote 1,000 shares of common for each share of Class A Preferred Stock.

 

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INTERESTS OF NAMED EXPERTS AND COUNSEL

 

Crone Law Group, P.C. serves as our legal counsel in connection with this offering. An affiliate thereof holds 2.400,000 shares of our Common stock which were granted in respect of services rendered to the Company.

 

DESCRIPTON OF PROPERTY

 

We do not own any real property. We utilize an office at the residence of our Chief Executive Officer as our executive offices at nominal rent.

 

DESCRIPTION OF BUSINESS

 

Overview

 

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

 

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

 

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

 

Business Overview

 

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

 

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

 

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

 

General Background

 

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

 

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

 

Currently available anti-snoring devices consist mainly of oral appliances that are recommended for use by patients suffering of 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.

 

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

 

The AppySleep product is currently in serial manufacturing stage.

 

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

 

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

 

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

 

Our Strategy

 

We plan to debut the marketing of the AppySleep app and the first AppySleep product in the first quarter of 2024. Concurrently, we plan to file a 510(k) FDA request for the AppySleep LAB app for the non-contact diagnosis of sleep apnea during 2024, and an FDA process for DreamIT PRO for the treatment of sleep apnea during 2025.

 

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.

 

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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 arrangement 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 intend to establish a logistical distribution facility in the US and Israel.

 

The License Agreement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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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 the outstanding common stock of the Company.

 

R&D and New Product Development

 

We believe our strong research and development capabilities are one of our principal competitive strengths. Our R&D activities are conducted at our subsidiary’s facility in Israel. Our team of employees and sub-contractors is comprised of current and future dedicated research and development employees, system architects, algorithm developers engineers, software engineers, electronics and electro-optics engineers quality engineers and regulatory experts, who are responsible for the research design, development and testing of our technologies and product candidates.

 

SleepX was founded in June 2019 on the basis of technology developed in the biomedicine department of Ben-Gurion University in Israel. The technology is protected by a number of strong international patents and it monitors physiological parameters during sleep using unique algorithms and detects snoring and sleep apnea.

 

In 2021, the company signed a license agreement with Nexense Technologies USA. Inc., an American company registered in Delaware that owns two U.S. patents approved for the treatment of snoring through external stimuli (vibration).

 

The combination of the two technologies allows the company to manufacture and market unique products for comprehensive monitoring of physiological parameters during sleep, detection of snoring and sleep apnea and their treatment.

 

We intend to sell our product lines through distributors and dealer networks. We would start with online selling of our products, according to regulations approvals, through the company website and several online stores and through third party resellers such as AliExpress and Amazon. Our products are currently manufactured in China with minor adaptive software specifications and design. We intend to purchase the wristband on the shelf components from third party manufacturers and do the assembly, molding, and distribution in a facility in Israel. Ultimately, we intend to bring the whole production line to a local manufacturer in Israel.

 

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Intellectual Property:

 

We rely on a combination of patents, trade secrets, non-disclosure agreements, and other intellectual property to protect the proprietary technologies that we believe are important to our business. Our success will depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions and know-how, defend and enforce our patents, maintain our licenses, preserve our trade secrets, and operate without infringing valid and enforceable patents and other proprietary rights of third parties. We also rely on continuing technological innovation to develop, strengthen, and maintain our proprietary position in the field of sleep apnea.

 

The Company’s technology is protected by patents, for both the medical and nonmedical fields in the United States, Israel and Europe. The Company’s measurement technology utilizes a technique that measures a range of physical parameters as a function of time to a level of accuracy previously unattainable.

 

We own or have exclusive rights to eight (8) United States and two (2) foreign issued patents, two (2) pending applications in the United States and one (1) pending applications in Europe.

 

Our patent portfolio includes:

 

High-sensitivity Sensors for Sensing Various Physiological Phenomena, particularly useful in Anti-snoring Apparatus and Methods. Patent number US 7,866,212 B2, issued on January 11, 2011. A mechanical vibration sensor adapted to be brought into contact with an object for sensing mechanical vibrations in the object, includes a body of a soft elastomeric material having high transmissivity and low attenuation properties with respect to a preselected type of energy waves; and a pair of transducers mounted, by mounting members having high attenuation properties with respect to the energy waves, in spaced relationship to each other to define a transmission channel between the transducers. Such sensor is particularly useful in a method and apparatus for controlling snoring by a person, by utilizing a stimulus device effective, when sensing snoring, to immediately produce a response in the person tending to interrupt the person’s snoring.
   
Apparatus for use in controlling snoring and sensor. Patent number US 7,716,988 B2, issued on May 18, 2010. Apparatus for use in controlling snoring, including: a sensor system for sensing snoring by a person while sleeping, and a stimulus device effective, when actuated by the sensor system, to apply a stimulus to the person for producing a response tending to interrupt the person’s snoring. The stimulus device includes a vibrator and a band for enclosing a body part of the person and for applying a vibration to the body part. Also described is a force or displacement sensor, which includes a housing filled with a liquid having high transmissivity and low attenuation properties with respect to acoustical waves, and an acoustical transmitter and an acoustical receiver carried by opposed walls of the housing spaced from each other to define between them an acoustical transmission channel of the liquid. The housing is deformable by a force such as to change the length of the acoustical transmission channel in accordance with the applied force. A measuring system measures the transit time of an acoustical wave through the acoustical transmission channel to provide a measurement of the applied force.

 

Apparatus and method for diagnosing sleep quality, patent number US 2015/0119741 A1, issued on April 30, 2015. A method of distinguishing sleep period states that a person experiences during a sleep period, the method comprising: using a non-contact microphone to acquire a sleep sound signal representing sounds made by a person during sleep; segmenting the sleep sound signals into epochs; generating a sleep sound feature vector for each epoch; providing a first model that gives a probability that a given sleep period state experienced by the person in a given epoch exhibits a given sleep sound feature vector; providing a second model that gives a probability that a first sleep period state associated with a first epoch transitions to a second sleep period state associated with a subsequent second epoch; and processing the feature vectors using the first and second models to determine a sleep period state of the person from a plurality of possible sleep period states for each of the epochs.

 

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Estimation of sleep quality parameters from whole night audio analysis, patent number US 2020/1193423 A1, issued on March 26, 2020. The present invention relates to a system and method for determining sleep quality parameters according to audio analyses, comprising: obtaining an audio recorded signal comprising sleep sounds of a subject; segmenting the signal into epochs; generating a feature vector for each epoch, wherein each of said feature vectors comprises one or more feature parameters that are associated with a particular characteristic of the signal and that are calculated according to the epoch signal or according to a signal generated from the epoch signal; inputting the generated feature vectors into a machine learning classifier and applying a preformed classifying model on the feature vectors that outputs a probabilities vector for each epoch, wherein each of the probabilities vectors comprises the probabilities of the epoch being each of the sleep quality parameters; inputting the probabilities vectors for each epoch into a machine learning time series model and applying a preformed sleep quality time series pattern function on said probabilities vectors that outputs an enhanced probabilities vector for each epoch; determining a final sleep quality parameter for each epoch by calculating the most probable sleep quality parameters sequence.
   

Apparatus and method for diagnosing obstructive sleep apnea, patent number US 9,844,336 B2, issued on December 19, 2017. An embodiment of the invention provides a method of diagnosing obstructive sleep apnea, the method comprising: acquiring a sleep sound signal comprising sounds made by a person during sleep; detecting a plurality of snore sounds in the sleep sound signal; determining a set of mel-frequency cepstral coefficients for each of the snore sounds; determining a characterizing feature for the sleep sound signal responsive to a sum of the variances of the cepstral coefficients; and using the characterizing feature to diagnose obstructive sleep apnea in the person. The Patent is also registered in Europe and Israel: European patent number – EP2608717 A4, issued on May 11, 2016 and Israeli patent number – IL224852A.

 

Methods and systems for estimation of obstructive sleep apnea severity in wake subjects by multiple speech analyses, Patent No.: US 11,672,472 B2, issued on June 13, 2023. A method and system for the estimation of apnea-hypopnea index (AHI), as an indicator for Obstructive sleep apnea (OSA) severity, by combining speech descriptors from three separate and distinct speech signal domains. These domains include the acoustic short-term features (STF) of continuous speech, the long-term features (LTF) of continuous speech, and features of sustained vowels (SVF). Combining these speech descriptors may provide the ability to estimate the severity of OSA using statistical learning and speech analysis approaches.

 

Determining Apnea-Hypopnea Index AHI from speech, Patent No.: US 2015/0351663 A1, issued on December 10, 2015. A method of determining a value for an apnea-hypopnea index (AHI) for a person, the method comprising: recording a voice track of a person, extracting features from the voice track that characterize the voice track; and processing the features to determine an AHI.

 

Apparatus and method for diagnosing sleep quality, Patent No.: US 11,633,150 B2, issued on April 25, 2023. A method of distinguishing sleep period states that a person experiences during a sleep period, the method comprising: using a non-contact microphone to acquire a sleep sound signal representing sounds made by a person during sleep; segmenting the sleep sound signals into epochs; generating a sleep sound feature vector for each epoch; providing a first model that gives a probability that a given sleep period state experienced by the person in a given epoch exhibits a given sleep sound feature vector; providing a second model that gives a probability that a first sleep period state associated with a first epoch transitions to a second sleep period state associated with a subsequent second epoch; and processing the feature vectors using the first and second models to determine a sleep period state of the person from a plurality of possible sleep period states for each of the epochs.

 

The market size of those suffering from snoring and sleep apnea on the one hand and attractive price to the consumer on the other hand are expected to allow the company to gain a large number of users through online marketing. We plan to continue developing big data-based algorithms for predicting life-threatening illnesses and health events and to warn ahead of time.

 

In addition to self-development, we are examining acquisitions of technologies and synergistic companies to enable our customers a holistic solution for quality and healthy sleep.

 

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Competition

 

The snoring treatment market is characterized by a large number of players that with solutions concentrated around the nose and mouth such as: Plastic cones inserted into the nose and assembled in the nostrils; Silicone mold that is inserted into the mouth to push the lower jaw forward; strap tied around the head and jaw in order to keep the mouth closed. One of the most common treatments is tying a tennis ball to the back in order to make a habit of not sleeping on the back. These treatments are both inconvenient and ineffective for most people, resulting in the user giving up and discarding the treatment after a short period.

 

In addition, there are a number of apps for monitoring snoring using a microphone but none of them are for treatment. It is important to note that the use of the microphone for breathing monitoring is protected by patents belonging to the company and it intends after the raise to act legally to enforce them.

 

Sleep Apnea market is divided into two segments:

 

(i) Identification and characterization: In most cases, this procedure takes place overnight in a sleep laboratory, following a doctor’s referral. An inconvenient process that requires the subject to sleep outside his house while connected to many sensors. One of the setbacks of sleeping in a sleep laboratory is that it’s different from the sleeping conditions at home and therefore will not accurately reflect the problem and potentially affect the diagnoses. Furthermore, it is very expensive to conduct such an evaluation, as it requires overnight hospitalization.

 

It is possible to perform the sleep test at home by renting the required equipment for the procedure. Most devices used in home testing measure saturation during the night, by using a clip monitor placed on the index finger and connecting to additional devices. The test is expensive, uncomfortable, and less accurate. The AppySleep LAB app was designed to overcome such inconveniences, it is installed on a smartphone and can perform a test every night, accurately, without patient contact, while being convenient, effective, precise, and cheap.

 

(ii) Treatment of sleep apnea: After characterization and identification of the disorder, the most common solution accepted today is CPAP – a Face mask attached with a tube to a compressor which during the night pressurizing air into the patient’s lungs in order to open air passages and prevent them from being blocked. Most people can’t adapt to the solution due to discomfort - Interfering with changing sleep position, pressing the area of the face. Only severe cases, where the patient is at high risk, they continue to use the device. The company’s solution, that instead of pressurizing the blockage, teaches the patient to sleep in a correct position, where the block is not created.

 

We operate in highly competitive segments of the Health Tech markets. We face competition from many different sources, including commercial medical device enterprises, academic institutions, government agency, and private and public research institutions. Many of our competitors have significantly greater financial, product development, manufacturing and marketing resources than us. Large Health Tech companies have extensive experience in clinical testing and obtaining regulatory approval for medical devices. We also may compete with these organizations to recruit scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

 

We expect our principal competitors to be the Philips SmartSleep Snoring Relief band, which is intended to reduce snoring by prompting the user to sleep on his side rather than on the back, with a positional monitor that detects when the user is turning and delivers gentle vibration that prompt the user to sleep on his side. Another competitor is Fitbit, which offers sleep tracking on its devices since 2017, by measuring the users heart rate and movement to provide them with a breakdown of their sleep cycles. In addition to this, in May 2021, Fitbit confirmed that a new feature called Snore & Noise Detect was added to analyze noise levels and determine whether the user is snoring. Amazon’s Alexa is expected to soon allow for the detection of sleep apnea.

 

Manufacturing

 

Currently, we do not own or operate manufacturing facilities. While we plan to depend on third party contract manufacturers for device manufacturing, we plan to perform the final assembly, quality control and release of finished goods in our facilities. The components of the wristband are considered off the shelf products with minor adaptive software specifications and design, which makes us independent of one manufacturer. We intend to purchase the wrist band on the shelf components from third party manufacturers and do the assembly, molding, and distribution in a facility in Israel. Ultimately, we intend to bring the whole production line to a local manufacturer in Israel.

 

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We currently manufacture our bracelets in an OEM factory in China, with a monthly manufacturing capacity of 48,000 units. We plan on procuring enough units to suffice for three months of orders at all times, in such we minimize our exposure to supply chain disruptions. By holding enough stock in our warehouses to supply orders for three months our management believes that such supply would mitigate the impact of supply chain disruptions, should these occur. Furthermore, our products don’t contain any special materials which would have an effect on the ability of our supplier to manufacture the product.

 

Manufacturers of our products are required among other things, to comply with applicable FDA manufacturing requirements contained in the FDA’s Quality System Regulation. The QSR requires manufacturing quality assurance and quality control as well as the corresponding maintenance of records and documentation.

 

The algorithm and application programming is done in Israel by the Company service providers and employees.

 

Distribution and Revenue Generation

 

In the first stage, the company will market its products to the final consumer through the company’s website via the acquisition of media (investment in online marketing). The company has reviewed and made necessary adjustments for efficient marketing through social networks – Facebook, Instagram, and Google. In the European market the company Conducts negotiations with distributors and pharmacy chain stores. Since the company’s products are based on a smartphone app marketing will also be made through the Apple and Google App Stores.

 

For the DreamIT wristband, our strategy is to establish relationships with third parties (such as well-established sales organizations, distributors, pharmacies, chain stores and marketing coordinators) that will assist us in developing, marketing, selling and implementing our products. In parallel, we intend selling directly, through our website and other online webstores worldwide.

 

We believe that strategic and technology-based relationships with medical facilities are fundamental to our success. We have forged numerous relationships with medical device distributors to enhance our combined capabilities. This approach enhances our ability to accelerate market penetration, accelerate the pace of our sales growth and solidify relationships.

 

We have a variety of marketing programs designed to create brand awareness and market recognition for our product offerings and for sales lead generation. Our marketing efforts include attending and presenting at healthcare related conferences, advertising, content development and distribution, public relations, social media publication of technical and informative articles in industry journals and sales training.

 

In addition, our strategic partners would augment our marketing and sales campaigns through seminars, trade shows and joint public relations and advertising campaigns. Our customers and strategic partners provide references and recommendations that we often feature in external marketing activities.

 

For the PRO devices, our strategy, in addition to the above-mentioned channels, is to market through healthcare professionals, customers and third-party payors, HMO’s, insurance companies, cardiologists, hospitals, and sleep laboratories.

 

Facilities

 

Currently, the Company uses third party service providers facilities for manufacturing, assembly and distribution of company products. We intend to open logistic distribution centers in Israel and in the US. The Company shall rent office spaces for her operations in Israel and the US.

 

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Government Regulation and Product Approval

 

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labelling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing.

 

Government Regulations.

 

Before we can market AppySleep LAB and AppySleep PRO to the public in the US, we believe they will need to obtain clearance for commercial sale. Our devices, except for the AppySleep wristband, will be subject to ongoing regulation by the FDA in the US and other federal, state, and local regulatory bodies.

 

FDA regulations govern, among other things, product design and development, manufacturing, labelling, pre-clinical and clinical trials, post-market adverse event reporting, post-market surveillance, complaint handling, repair or recall of products, product storage, record keeping, pre-market clearance, advertising and promotion, and sales and distribution.

 

Unless an exemption applies, each medical device, such as our AppySleep LAB and AppySleep PRO that is intended to be commercially distributed in the United States requires 510(k) clearance from the FDA. Based on the FDA guidance documents that we have reviewed, we expect to be subject to the shorter and more streamlined 510(k) process for AppySleep LAB, which typically involves less risk of uncertainty, and the submission of less supporting documentation, and without the costly clinical trials; though of course no prior guarantee can be provided as to such regulatory treatment. Generally, gaining 510(k) clearance for a product depends on demonstrating that the subject product is “substantially equivalent” to a previously cleared 510(k) device.

 

For the AppySleep PRO, the clearance process may involve three material steps. First, we will engage the FDA in a pre-submission conference to ensure that we understand and meet the FDA’s requirements, expectations and standards with regard to approval of our product candidates. At this meeting, our team, including our FDA regulatory consultant, will receive FDA comments and guidance regarding our proposed submission during the pre-market notification period for 510(K) clearance (including any suggested modifications to the device description, indications for use or summary of supporting data contained in the notification). Then we will prepare our submission to the FDA accordingly.

 

The FDA’s 510(k) clearance pathway generally takes from three to twelve months from the date the application is completed, but, if additional testing, verifications or other procedures (or even clinical trials) are required, can take significantly longer.

 

After a medical device receives 510(k) clearance by the FDA, any modification that could significantly affect its safety or effectiveness, or that would constitute a significant change in its intended use, requires to re-determine the regulatory path.

 

The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination regarding whether a new premarket submission is required for the modification of an existing device, the FDA can, at its discretion, require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance is obtained.

 

Failure to comply with applicable regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies, which may include any of the following sanctions: untitled letters or warning letters, fines, injunctions, consent decrees, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions, partial suspension or total shutdown of production, refusal of or delay in granting 510(k) clearance of new products or modified products or rescinding previously granted 510(k) clearances. Any of these sanctions could result in higher than anticipated costs and have a material adverse effect on our reputation, business and financial condition. See “Risk Factor – Government Regulation,” above.

 

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The FDA can delay, limit or deny clearance of our proposed devices for many reasons, including:

 

  our inability to demonstrate that our product is safe and effective for its intended users;
  our inability to demonstrate that our product is the “substantial equivalent” of a previously cleared device;
  the data from clinical studies that we undertake may be insufficient to support clearance; and
  failure of the manufacturing process or facilities we use to meet applicable requirements.

 

In addition, the FDA may change its pre-market policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay clearance of our devices.

 

Any delay in, or failure to receive or maintain regulatory compliance prior to marketing our devices could prevent us from generating revenue therefrom or achieving profitability.

 

Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some customers from using our proposed product and adversely affect our reputation and the perceived safety and efficacy of our proposed devices. If the FDA requires us to go through a more rigorous examination for our proposed product than we currently expect, such as requiring additional testing further verification or other procedures, we may require substantial additional funding sooner than anticipated and/or our product could be severely delayed. Being subject to an extended period of scrutiny or being required to conduct expensive clinical trials would be particularly harmful to our business.

 

Ongoing Regulation by FDA.

 

Upon FDA clearance, we will seek to obtain in the U.S. a CPT code for purposes of reimbursement by Medicare and Medicaid.

 

Placing the AppySleep LAB and AppySleep PRO device on the market requires in addition:

 

  Establishment, registration and device listing;
     
  quality system regulation, which requires manufacturers, including third party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;
     
  labeling regulations and FDA prohibitions against the promotion of products for un-cleared, unapproved or “off-label” uses, and other requirements related to advertising and promotional activities;
     
  Medical device reporting (MDR) regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
     
  Corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;
     
  Labelling and Unique Device Identification (UDI) regulations; and
     
  Post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device. (Refer to the section below)

 

Post-Approval Requirements

 

Although premarket clinical trials provide important information on a device’s safety and effectiveness, it is possible that new safety concerns will emerge once the device is on the market. As a result, the FDA continues to monitor device performance after a device has been approved. FDA officials conduct routine inspections of medical device manufacturing facilities across the United States. Manufactures may be informed of inspections in advance, or the inspections may be unannounced. Inspection may be routine or cause by a particular problem. The purpose of these inspections is to make sure developers are following good manufacturing practices. Furthermore, the FDA can shut down a manufacturing facility if required standards are not met.

 

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Clinical Useability Studies

 

In addition to the above, we plan to conduct clinical useability studies in the U.S. or other countries on products that have not yet been cleared or approved for a particular indication. Additional regulations govern the approval, initiation, conduct, documentation and reporting of clinical studies to regulatory agencies in the countries or regions in which they are conducted. Such investigational use is generally also regulated by local and institutional requirements and policies which usually include review by an ethics committee or institutional review board, or IRB. Failure to comply with all regulations governing such studies could subject the company to significant enforcement actions and sanctions, including halting of the study, seizure of investigational devices or data, sanctions against investigators, civil or criminal penalties, and other actions. Without the data from one or more clinical studies, it may not be possible for us to secure the data necessary to support certain regulatory submissions, to secure reimbursement or demonstrate other requirements. We cannot assure that access to clinical investigators, sites and subjects, documentation and data will be available on the terms and timeframes necessary.

 

Reimbursement

 

Our current go-to-market strategy does not contemplate or rely upon governmental or third party payor reimbursement, to the snoring treatment device. Following FDA approval for the treatment and identification of sleep apnea, we may seek reimbursement for product candidates as a means to expand the adoption of products and broaden our customer base.

 

To the extent that we adopt a market strategy which is in whole or in part reliant on third party reimbursement, commercial sales of our future products will depend in part on the availability of reimbursement from such third-party payors, including government health administrative authorities, managed care providers, private health insurers and other organizations. Each third-party payor may have its own policy regarding what products it will cover, the conditions under which it will cover such products, and how much it will pay for such products. Third-party payors are increasingly examining the medical necessity and cost effectiveness of medical products and services in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved devices. Further, healthcare policy and payment reform models and medical cost containment models are being considered and/or adopted in the United States and other countries. Legislative and/or administrative reforms to applicable reimbursement systems may significantly reduce reimbursement for the services in which our products are used or result in the denial of coverage for such services outright. As a result, third-party reimbursement adequate to enable us to realize an appropriate return on our investment in research and product development may not be available for our products.

 

Other Healthcare Laws and Compliance Requirements

 

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration), other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), the United States Department of Justice and individual United States Attorney offices within the Department of Justice, and state and local governments.

 

Anti-Kickback Statutes in the United States

 

The U.S. federal anti-kickback statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of a good or service, for which payment may be made in whole or in part under a U.S. federal healthcare program such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that, if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under U.S. federal healthcare programs, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other U.S. federal healthcare programs. The reach of the federal anti-kickback statute was broadened by the ACA, which, among other things, amends the intent requirement of the federal anti-kickback statute. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. The ACA further provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act or the Civil Monetary Penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

 

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The U.S. federal anti-kickback statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services, or OIG, has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the anti-kickback statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG or the U.S. Department of Justice.

 

Many states have adopted laws similar to the U.S. federal anti-kickback statute. Some of these state prohibitions are broader than the U.S. federal statute, and apply to the referral of patients and recommendations for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs. Government officials have focused certain enforcement efforts on marketing of healthcare items and services, among other activities, and have brought cases against individuals or entities with sales personnel who allegedly offered unlawful inducements to potential or existing physician users in an attempt to procure their business.

 

U.S. Health Insurance Portability and Accountability Act of 1996

 

HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, including private payors, or making false statements relating to healthcare matters. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information and which can impose civil or criminal liability for violations of its provisions.

 

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates” — independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

 

International Regulation

 

The European Commission is the legislative body responsible for the EU MDR (Medical Device Regulation) with which manufacturers selling medical products in the European Union and the European Economic Area, or EEA, must comply. The European Union has adopted regulation of the design, manufacture, labelling, clinical studies, post-market clinical follow-up, post-market surveillance and vigilance for medical devices. Devices that comply with the requirements of a relevant EU MDR will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable regulations and, accordingly, can be marketed throughout the European Union and EEA, after being certified by a Notified Body. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states.

 

In addition to regulations in the United States, there are a variety of foreign regulations governing clinical trials and commercial sales and distribution of any product candidates. The approval process varies from country to country, and the time may be longer or shorter than that required for bringing the product to the US market.

 

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Employees & Consultants

 

We currently engage on a full time basis, three employees and several service providers. In addition, six individuals are engaged in product research and development and the remainder in various fields of legal, accounting, management, marketing and regulatory consulting.

 

Corporate Values and Ethics

 

We strongly believe that our success depends on all of our employees identifying with our company’s purpose and understanding how their work contributes to the Company’s overall strategy. To this end, we engaged in an inclusive all-company process to develop our company purpose, vision, mission and values.

 

Our corporate culture and values, along with our employees are our most valuable. These values, are:

 

● Passion,

● Integrity,

● Excellence,

● Responsibility,

● Innovation, and

● Spirit of Collaboration.

 

These values form part of our goal setting and review process to ensure accountability to these values at all levels. In order to further ensure we live our values and our culture stays unique and strong, our Board of Directors and executive management team put significant focus on our human capital resources.

 

We utilize a variety of channels to facilitate open and direct communication, including: (i) monthly all-hands staff meetings, (ii) regular open learning forums to promote peer learning or town hall meetings with executives; (iii) regular ongoing update communications; and (iv) employee surveys beyond the annual engagement survey referenced above on an as-needed basis.

 

Employee Compensation and Benefits

 

Our compensation programs are designed to align the compensation of our employees with the Company’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance. Specifically:

 

● We provide employee base salaries that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.

● To foster a stronger sense of ownership and align the interests of employees with those of our shareholders, we offer both a stock option program and employee stock purchase program to eligible employees under our broad-based equity incentive plans.

● Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.

 

Diversity and Inclusion

 

Ingrained in our culture is the philosophy that each individual offers diverse perspectives, backgrounds and experiences that create great outcomes when we are united as a team. We respect our people and embrace our differences. We welcome everyone and value the ideas generated by our collective uniqueness. We aspire that all of our teammates reach their full potential and we encourage them to be confident in their differences.

 

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Employee Development and Training

 

We invest significant resources in developing and retaining the talent needed to achieve our business goals. To support our employees in reaching their full potential, we offer internal and promote external learning and development opportunities. Education assistance is offered to financially support employees who seek to expand their knowledge and skill base.

 

Corporate and Available Information

 

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are available free of charge though our website (http://www.irmedical.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Except as otherwise stated in these documents, the information contained on our website or available by hyperlink from our website is not incorporated by reference into this report or any other documents we file, with or furnish to, the SEC.

 

Our common stock is listed and traded on the Over-the-counter market OTCQB under the symbol “APYP.”

 

Legal Proceedings

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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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.

 

MARKET AND INDUSTRY DATA

 

This prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated size of such markets. We obtained the industry, market and similar data set forth in this prospectus from our internal estimates and research and from industry research, publications, surveys and studies conducted by third parties. In some cases, we do not expressly refer to the sources from which this data is derived. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.

 

MARKET PRICE AND DIVIDENDS

 

Our shares of our common stock are quoted on OTC Market, QB market under the symbol “APYP.” Such quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and do not necessarily represent actual transactions.

 

The last reported sales price of our common stock on the OTCQB market on February 12, 2024, was $0.0375.

 

Holders

 

On February 6, 2024 there were approximately 65 shareholders of record of the Company’s common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owner’s common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.

 

The transfer agent of our common stock is VStock Transfer, LLC, 18 Lafayette Street, Woodmere, NY, 11598. Their telephone number is (212) 828-8436.

 

Dividends

 

The Company has never paid dividends on its common stock and does not anticipate that it will pay dividends in the foreseeable future. It intends to use any future earnings for the expansion of its business. Any future determination of applicable dividends will be made at the discretion of the board of directors and will depend on the results of operations, financial condition, capital requirements and other factors deemed relevant.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and notes thereto, as well as the “Risk Factors” and “Description of Business” sections included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

 

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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 revenues from product sales to date.

 

Research and Development Expenses

 

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

 

Our research and development costs include costs are comprised of:

 

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

 

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

 

General and Administrative Expenses

 

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

 

Financial Expenses

 

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

 

Comparison of the Three and Nine Months Ended September 30, 2023 to the Three and Nine Months Ended September 30, 2022

 

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

 

Revenues. We have not recorded any revenues to date.

 

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Research and Development Expenses, Research and development expenses increased from $31,000 to $34,000 during the three months ended September 30, 2022 and decreased from $73,000 to $50,000 during the nine months ended September 30, 2023. The increase in research and development expenses during the three month period is primarily attributable to increased investment in intellectual property and development of our products which commenced during the third quarter of 2023 following the receipt of the proceeds of the private placements discussed in the quarterly report.

 

General and Administrative Expenses. General and administrative expenses decreased from $513,000 and $1,592,000 for the three and nine months ended September 30, 2022, to $261,000 and $1,128,000, respectively, for the corresponding periods in 2023. The decrease in general and administrative expenses during the three and nine month periods is primarily due to the allocation of salary and professional services expenses, of which $560,500 were non-cash stock based non-cash compensation expenses resulting from options awards to our management and advisors during 2023. In order to allocate expenses more accurately, as of the third quarter of 2023 the CEO salary expenses were allocated equally between research and development, sales and marketing and general and administrative, and the Chairman expenses were equally allocated between sales and marketing and general and administrative expenses.

 

Loss. Loss for the three months and nine months ended September 30, 2023 was $1,456,000 and $2,087,000, respectively, and is primarily attributable to non-cash stock based compensation expenses.

 

Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021.

 

Our financial results for the year ended December 31, 2022 are summarized as follows in comparison to the year ended December 31, 2021:

 

   Year Ended 
   December 31, 2022   December 31, 2021 
         
Operating Expenses          
Research and Development  $129,000   $81,000 
General and Administrative  $2,017,000   $632,000 
Financing expenses (income)  $(858,000)  $6,000 
           
Loss for the year  $1,304,000   $3,179,000 

 

Revenues. We have not recorded any revenues to date.

 

Research and Development Expenses, Research and development expenses increased from $81,000 to $129,000 during the twelve months ended December 31, 2021 and 2022, respectively. The increase is primarily attributable to investment in intellectual property and development of our products.

 

General and Administrative Expenses. General and administrative expenses increased from $632,000 to $2,017,000 during the twelve months ended December 31, 2021 and 2022, respectively. The increase is primarily attributable to due to salary and professional services expenses, of which $999,000 were non-cash stock based non-cash compensation expenses resulting from options awards to our Chief Financial Officer and advisors.

 

Loss. Loss for the twelve months ended December 31, 2021 and 2022, was $3,179,000 and $1,304,000 respectively, and is primarily attributable to non-cash stock based compensation expenses referred to above.

 

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Liquidity and Capital Resources

 

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

 

As of September 30, 2023, we had a total of $156,000 in cash resources and approximately $3,627,000 of liabilities, all of which are current liabilities.

 

AppYea has experienced operating losses since its inception and had a total accumulated deficit of $6,596,000 as of September 30, 2023. We expect to incur additional costs and require additional capital. We have incurred losses in nearly every year since inception. These losses have resulted in significant cash used in operations. During the fiscal quarters ended September 30, 2023 and 2022, our cash used in operations was approximately $410,000 and $505,000, respectively. We need to continue and amplify our research and development efforts for our product candidates (which are in various stages of development), strengthen our patent portfolio, establish operations processes and pursue FDA clearance and international regulatory approvals as we continue to conduct these activities, we expect the cash needed to fund operations to increase significantly over the next several years.

 

The following table provides a summary of operating, investing, and financing cash flows for the period ended September 30, 2023 and 2022 respectively:

 

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

 

Between June-November 2023, we raised an aggregate of $723,569 from the private placement of shares of our common stock at a per share price of $0.01 and the issuance of warrants, exercisable for a two year period from the date of issuance for an identical number of shares at a per share exercise price of $0.04, in respect of the raise the investors are entitled to an aggregate 72,356,900 shares of our common stock and identical number of warrants. The subscription proceeds are being used to complete the IOS design and development of our biofeedback snoring treatment wristband (AppySleep product) as well as general corporate matters. The investor is entitled to invest in the aforementioned terms up to $1,350,000 and no assurance can be provided that the Investors will in fact provide the additional investments.

 

Management believes that funds on hand, will enable us to fund our operations and capital expenditure requirements through the end of the first quarter of 2024. We need to raise additional operating capital in order to maintain operations as presently conducted and to realize our business plan.

 

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

 

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.

 

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

 

Going Concern

 

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We have a stockholders’ deficit of $3,269,000 and a working capital deficit of $3,427,000 at September 30, 2023 as well as negative operating cash flows. Our report from our independent registered public accounting firm for the quarter ended September 30, 2023, includes an explanatory paragraph stating the Company has recurring losses and limited operations which raise substantial doubt about its ability to continue as a going concern. If the Company is unable to obtain adequate capital, the Company may be required to reduce the scope, delay, or eliminate some or all of its planned operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

MANAGEMENT

 

Set forth below is certain information regarding our executive officers and directors. Each of the directors listed below was elected to our board of directors to serve until our next annual meeting of stockholders or until his or her successor is elected and qualified. The following table sets forth information regarding the members of our board of directors and our executive officers as of January 31, 2024:

 

Name  Age   Position
        
Boris (Bary) Molchadsky  46   Chairman of the Board of Directors
Adi Shemer  52   Chief Executive Officer
Asaf Porat  45   Chief Financial Officer, Director
Neil Kline  51   Director
Ron Mekler  50   Director

 

Business Experience

 

The following is a brief account of the education and business experience of our current directors and executive officers:

 

Boris Molchadsky, Chairman. In September 2019, Mr. Molchadsky co-founded SleepX Ltd., and continues to serve as Chairman today. In August 2015, Mr. Molchadsky co-founded Nexense Technologies USA. Inc., a corporation focused on non-intrusive treatment for snoring and sleep apnea. He additionally co-founded GPIS Ltd., in March 2007 and consults through it to companies until today. Furthermore, Mr. Molchadsky has over fifteen years of experience in the capital markets working in leading investment firms. In the recent years, he has been working in the field of sleep health in collaboration with the world’s leading research institution, such as the Ben Gurion University, Soroka Medical Center and Millenium Sleep Lab. Mr. Molchadsky holds a B.A. in Business Management and Finance from the University of Manchester and a M.B.A in Finance from the Ono Academic College, in Israel.

 

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The Board believes that Mr. Molchadsky’s extensive experience in the industry, his long-standing involvement with SleepX and his knowledge of our product candidates ideally situate him to serve on our Board.

 

Adi Shemer, Chief Executive Officer, possesses over 20 years’ senior level experience in revitalizing and developing international markets for companies with wide ranging experience in product strategy and market analysis. Mr. Shemer established and managed marketing and distribution channels in the USA and Europe, mainly in the field of medical devices. From September 2019 he was director of operations at Moving Life Ltd, an Israel based company that develops and markets devices intended to assist senior age population, with the mobile scooter as its flagship product, where he was primarily responsible for managing the company’s U.S. based subsidiary, including developing a full service marketing system, information systems for control and sales management and overseeing the development of new products and upgrades to existing products. From December 2018 to October 2019, he served as CEO for TR Bikes Ltd, an Israel based company that develops, manufactures and markets manual and electric cargo bicycles for recreational and business purposes, where he established engineering infrastructures of suppliers and production lines, oversaw direct marketing and B2B effort,s including internet and production platform infrastructures. From September 2009 to December 2018, he served as CEO at Tzora Active Systems Ltd, an Israel based company that develops, manufactures, and markets add-on power motors for wheelchairs where he oversaw the re-design and re-focus of the company’s business and developed a strategic marketing plan in Israel and international markets. Mr. Shemer has BA from Ariel University in Israel in Industrial Engineering.

 

Asaf Porat, Chief Financial Officer. From December 2019 to June 2021, Mr. Porat served as CFO for Geneyx LTD, a genetic and clinical data source for pharma research, advancing novel diagnostics and drug development (SAAS). Mr. Porat was additionally the co-founder and CFO of Cannibble FoodTech Ltd (CSE: PLCN)., from June 2018 to January 2020. Prior to this, he served as managing partner of ONYX Investment Banking from July 2014 to January 2020. From Nov 2014 through Nov 2017, Mr. Porat served as an independent board member of Apolo Power (traded on the TASE). Mr. Porat received a B.A. in Economics and Management from the Ben Gurion University of the Negev in 2003, and an M.B.A in finance and accounting from Tel Aviv University in 2007.

 

The Board believes that Mr. Porat’s wide ranging international business experience qualify him to serve on our Board.

 

Dr. Neil Kline, Board member. Dr. Neil Kline is an internist/sleep physician and entrepreneur with a diverse history in digital tech, media, life sciences and healthcare startups. He founded Sleep Disorder Associates and American Sleep Association. Dr. Kline attended UCSD for undergraduate, PCOM for medical school and internal medicine residency and sleep fellowship training at the University of Pennsylvania.

 

The Board believes that Dr. Klein’s extensive knowledge of the relevant technologies qualify him to serve on our Board.

 

Ron Mekler, Director. Mr. Mekler has been serving in key positions during the past 20 years in both public and private institutions in Israel. Since June 2013, he has been serving as chief financial officer at Clalit Health Services - the largest Health Services organization in Israel. Prior thereto, between 2005-2013, he was Controller for Raviv Acs., a manufacturer of vehicle parts. In the years 2003-2005 he served as a Controller in Ashtrom, a Real Estate property management Company. Between 2001-2003 Mr. Mekler started his career as an intern at Price Water House Coopers specializing in industrial, real estate and high-tech Companies. Mr. Mekler is a certified accountant since 2003 (from BGU University) and has MBA in Business Management from the Ono Academic College.

 

The Board believes that Mr. Mekler’s extensive experience in accounting and financial management qualifies him to serve on our Board

 

Code of Ethics

 

We do not have a code of ethics that applies to our officers, employees, and directors.

 

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Corporate Governance

 

The business and affairs of the company are managed under the direction of our board. We have a board consisting of 3 members. In addition to the contact information in this prospectus, each stockholder will be given specific information on how he/she can direct communications to the officers and our director of the corporation. All material communications from stockholders are relayed to our board.

 

Role in Risk Oversight

 

Our board is primarily responsible for overseeing our risk management processes. The board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

 

Each executive officer serves at the pleasure of the Board.

 

Family relationships

 

There are no family relationships among any of our officers or directors.

 

Committees

 

Our Board has established an audit committee which operates under a charter that has been approved by our board.

 

Our board has determined that all of the members of each of the board’s audit committees are independent as defined under the rules of the NASDAQ Capital Market. In addition, all members of the audit committee meet the independence requirements contemplated by Rule 10A-3 under the Exchange Act. We currently have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(D)(5) of Regulation S-K.

 

We currently do not have a nominating or compensation committees or committees performing similar functions nor does our Company have a written nominating or compensation charter. Our Directors believe that it is not necessary to have such committees, at this time, because the Director(s) can adequately perform the functions of such committees.

 

Audit Committee

 

The audit committee’s main function is to oversee our accounting and financial reporting processes and the audits of our financial statements. This committee’s responsibilities include, among other things:

 

  appointing our independent registered public accounting firm;
     
  evaluating the qualifications, independence and performance of our independent registered public accounting firm;
     
  approving the audit and non-audit services to be performed by our independent registered public accounting firm;
     
  reviewing the design, implementation, adequacy and effectiveness of our internal accounting controls and our critical accounting policies;
     
  discussing with management and the independent registered public accounting firm the results of our annual audit and the review of our quarterly unaudited financial statements;

 

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  reviewing, overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;
     
  reviewing on a periodic basis, or as appropriate, any investment policy and recommending to our board any changes to such investment policy;
     
  preparing the report that the SEC requires in our annual proxy statement;
     
  reviewing and approving any related party transactions and reviewing and monitoring compliance with our code of conduct and ethics; and
     
  reviewing and evaluating, at least annually, the performance of the audit committee and its members including compliance of the audit committee with its charter.

 

Mr. Kline and Mr. Mekler are the members of our audit committee. Mr. Mekler, chairman of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NASDAQ Capital Market.

 

Dr. Neil Kline qualifies an independent director. Although our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of the NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

Involvement in legal proceedings  

 

There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.

 

Nominations to the Board of Directors

 

Director candidates are considered based upon various criteria, including without limitation their broad-based business and professional skills and experiences, expertise in or knowledge of the life sciences industry and ability to add perspectives relating to that industry, concern for the long-term interests of our stockholders, diversity, and personal integrity and judgment. Our Board of Directors has a critical role in guiding our strategic direction and overseeing the management of our business, and accordingly, we seek to attract and retain highly qualified directors who have sufficient time to engage in the activities of our Board of Directors and to understand and enhance their knowledge of our industry and business plans.

 

EXECUTIVE COMPENSATION

 

The following table summarizes the compensation earned in each of our fiscal years ended December 31, 2023 and 2022 by the executive officers listed below, which we refer to as the Named Executive Officers.

 

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Summary Compensation Table

 

Name and Principal Position  Year   Salary
(1)
   Bonus
($)
   Option Awards
($)(2)
   All other compensation
($)
   Total 
                         
Boris Molchadsky, Chairman  2022    167,486(4)               167,486 
   2023    169,424(4)               169,424 
                              
Adi Shemer, Chief Executive Officer (3)  2022                     
   2023    85,440(5)       227,414        312,854 
                              
Asaf Porat, Chief Financial Officer  2022    167,486(6)               167,486 
   2023    169,392(6)       309,539        478,931 

 

(1) All compensation received by SleepX Ltd.’s executive officers is paid in NIS. For the purposes of completing this table, with respect to compensation paid during the fiscal year ended December 31, 2022 and 2023, SleepX converted each NIS denominated amount into U.S. dollars by dividing the NIS amount by the exchange rate effective on the date the fee was incurred.
   
(2) In accordance with SEC rules, the amounts in this column reflect the fair value on the grant date of the option awards granted to the named executive, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The grant-date fair value of the stock options in this column is a non-cash expense for us that reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our Common Stock on the date of exercise.
   
(3) Mr. Shemer was appointed as Chief Executive Officer on July 7, 2023.
   
(4) Due to cash flow constraints, the actual amounts paid with respect to 2022 and 2023 was $51,783 and $73,941, respectively, with the balance deferred until such time as the Company’s cash flow will enable payment.
   
(5) Due to cash flow constraints, the actual amounts paid with respect to 2023 was $42,688, with the balance deferred until such time as the Company’s cash flow will enable payment.
   
(6) Due to cash flow constraints, the actual amounts paid with respect to 2022 and 2023 was $57,990 and $107,378, respectively, with the balance deferred until such time as the Company’s cash flow will enable payment.

 

Narrative Disclosure to Summary Compensation Table

 

Our Board follows the following processes and procedures for the consideration and determination of executive and director compensation:

 

In establishing compensation amounts for executives, we seek to provide compensation that is competitive in light of current market conditions and industry practices. Accordingly, we will generally review market data, which is comprised of proxy-disclosed data from peer companies and information from nationally recognized published surveys for the biopharmaceutical industry, adjusted for size. The market data helps the committee gain perspective on the compensation levels and practices at the peer companies and to assess the relative competitiveness of the compensation paid to our executives. The market data thus guides us in its efforts to set executive compensation levels and program targets at competitive levels for comparable roles in the marketplace. We then considers other factors, such as the importance of each executive officer’s role to the Company, individual expertise, experience, performance, retention concerns and relevant compensation trends in the marketplace, in making its final compensation determinations.

 

Elements of Compensation

 

In addition to each officer’s base salary, our executive officer compensation program consists of a cash incentive bonus plan and discretionary stock option awards in addition to customary benefits. The amounts of compensation awarded for each element of the Company’s compensation program (i.e., base salary, bonuses and stock options) are reviewed in connection with the Company’s performance.

 

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Base Salary

 

Annual base salaries compensate our executive officers for fulfilling the requirements of their respective positions and provide them with a level of cash income predictability and stability with respect to a portion of their total compensation. We believe that the level of an executive officer’s base salary should reflect the executive’s performance, experience and breadth of responsibilities, our understanding of salaries for similar positions within our industry, and any other factors relevant to that particular job.

 

Base salaries are typically negotiated at the outset of an executive’s employment. Salary levels are considered annually as part of our performance review process, but also in cases including promotion or other changes in the job responsibilities of an executive officer. For named executive officers, initial base salaries generally are established in connection with negotiation of an offer of employment and employment agreement. Increases in base salary have several elements. In addition to promotion and increased responsibilities, merit and Company-wide general increases are also taken into consideration.

 

Stock-Based Awards

 

Historically, we have generally granted stock options to our employees, including our named executive officers, in connection with their initial employment with us. We also have historically granted stock options on an annual basis as part of annual performance reviews of our employees.

 

Our equity award program is the primary vehicle for offering long-term incentives to our executives. We do not have any equity ownership guidelines for our executives, which is consistent with other pre-commercial biotechnology companies that use stock options as the long-term incentive vehicle. Further, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, the vesting feature of our equity awards contributes to executive retention by providing an incentive for our executives to remain in our employment during the vesting period. We expect that our Board will continue to use annual equity awards to compensate our executive officers. We may also make additional discretionary grants, typically in connection with the promotion of an employee, to reward an employee, for retention purposes or in other circumstances as the Board deems appropriate.

 

Employment and Severance Arrangements

 

We consider it essential to the best interests of our stockholders to foster the continuous employment of our key management personnel. In this regard, we recognize that the possibility of a change in control may exist and that the uncertainty and questions that it may raise among management could result in the departure or distraction of management personnel to the detriment of the Company and our stockholders. In order to reinforce and encourage the continued attention and dedication of certain key members of management, we have entered into written employment agreements with certain of our named executive officers that, while at-will, contain certain change in control and severance provisions.

 

Employment Agreements

 

On July 1, 2021, SleepX, Ltd. and Boris Molchadsky entered into an employment agreement pursuant to which Mr. Molchadsky serves as Chairman of the Board and Chief Executive Officer of SleepX and Chairman of the Board of the Company. Under the agreement with Mr. Molchadsky, he is paid an annual salary of the current New Israeli Shekel equivalent of approximately $144,636, payable on monthly basis. SleepX Ltd is authorized to terminate the employment agreement for any reason subject to payment of five months’ salary. Under the terms of the employment agreement with him, Mr. Molchadsky also receives Manager’s Insurance under Israeli law for his to which SleepX Ltd contributes amounts equal to (a) 8-1/3 percent for severance payments, and 6.5%, or up to 7.5% (including disability insurance) designated for premium payment (and Mr. Molchadsky contributes an additional 6%) of each monthly salary and (b) 7.5 % of his salary (with Mr. Molchadsky contributing an additional 2.5%) to an education fund, a form of deferred compensation program established under Israeli law. Mr. Molchadsky is also provided with a monthly travel expense New Israeli Shekel equivalent of approximately $98.

 

In addition, upon the earlier of: a capital raise of $1,000,000, or by July 1, 2022, Mr. Molchadsky shall be entitled to an increase of an annual amount of the current New Israeli Shekel equivalent of approximately $37,00, payable on monthly basis. Additionally, Mr. Molchadsky is entitled to (i) a success bonus of 1.5% of any capital raise of up to $10,000,000 and (ii) a success bonus of 1.0% of any revenues of the Company up to accumulated revenues of $20,000,000.

 

 57 

 

 

On July 7, 2023, the Board of Directors of AppYea, Inc. (the “Company”) appointed Adi Shemer as Chief Executive Officer (“CEO”) of the Company, effective immediately. Mr. Shemer has been working with the Company since February 2023 as a consultant.

 

In connection with his appointment as CEO, Mr. Shemer and the Company’s subsidiary SleepX, Ltd. entered into an Employment Agreement (the “Agreement”) setting forth the terms of his employment and compensation. Under the Agreement, Mr. Shemer is entitled to monthly salary of 40,000 NIS (equivalent to $10,800 as of the date of this report), of which the payment of 20,000 NIS is deferred until such time as the Company raises at least $1 million in aggregate proceeds from the private placement of its securities. Under the Agreement, Mr. Shemer is also entitled to the following: (i) Manager’s Insurance under Israeli law to which SleepX contributes amounts equal to (a) 8-1/3 percent for severance payments, and 6.5%, or up to 7.5% (including disability insurance) designated for premium payment (and Mr. Shemer contributes an additional 6%) of each monthly salary payment, and (b) 7.5% of his salary (with Mr. Shemer contributing an additional 2.5%) to an education fund, a form of deferred compensation program established under Israeli law. Either Mr. Shemer or SleepX is entitled to terminate the employment at any time upon 30 days prior notice.

 

Under the Agreement, Mr. Shemer was awarded options under the Company’s employee stock option plan for 11,500,000 shares of the Company’s common stock at a per share exercise price of $0.0001, vesting over a period of 30 months, on a quarterly basis, beginning with the quarter ending September 30, 2023, provided that Mr. Shemer continues in the employ of SleepX and continues to provide CEO services to the Company. At the end of the 30 month period, he is entitled to options for an additional 11,500,000 shares at the same exercise price provided he has been in the continuous employ of SleepX. The options are exercisable through July 2033. In connection with his consulting services, he was awarded options for 1,000,000 shares of the Company’s common stock, exercisable through July 2033 at a per share exercise price of $0.0001 per share, all of which have vested.

 

On July 1, 2021, SleepX, Ltd. and Asaf Porat entered into an employment agreement pursuant to which Mr. Porat serves as Chief Financial Officer and Director of SleepX and the Company. Under the agreement with Mr. Porat, he is paid an annual salary of the current New Israeli Shekel equivalent of approximately $144,636, payable on monthly basis. SleepX Ltd is authorized to terminate the employment agreement for any reason subject to payment of five months’ salary. Under the terms of the employment agreement with him, Mr. Porat also receives Manager’s Insurance under Israeli law to which SleepX Ltd contributes amounts equal to (a) 8-1/3 percent for severance payments, and 6.5%, or up to 7.5% (including disability insurance) designated for premium payment (and Mr. Porat contributes an additional 6%) of each monthly salary and (b) 7.5 % of his salary (with Mr. Porat contributing an additional 2.5%) to an education fund, a form of deferred compensation program established under Israeli law. Mr. Porat is also provided with a monthly travel expense New Israeli Shekel equivalent of approximately $98.

 

In addition, upon the earlier of: a capital raise of $1,000,000, or July 1, 2022, Mr. Porat shall be entitled to an increase of an annual amount of the current New Israeli Shekel equivalent of approximately $37,000, payable on monthly basis. Additionally, Mr. Porat is entitled to (i) a success bonus of 1.5% of any capital raise of up to $10,000,000 and (ii) a success bonus of 1.0% of any revenues of the Company up to accumulated revenues of $20,000,000.

 

Under his agreement, Mr. Porat was issued, on July 1. 2021, options to purchase up to 3% of the then outstanding amount of shares of the Company’s common stock. The percentage amount to which Mr. Porat is entitled was increased to 4% as of December 31, 2021 (retroactive to the date of the original grant). For a two year period ending on June 30, 2023, Mr. Porat is entitled to anti-dilution protection such that he is at all times entitled to options for 4% of the then total outstanding number of shares of common stock, after giving effect to the issuance of the option to him. The determination of options for additional shares to which he is entitled shall be determined on a monthly basis. The vesting schedule provides that on the first day of each calendar month options in an amount equal to 1/24 of the then outstanding options vest. Accordingly, as of December 31, 2022, Mr. Porat holds options for 9,205,450 shares, of which, as of December 31, 2022, options for 6,904,087 shares have vested.

 

Outstanding Equity Awards

 

The table below reflects all outstanding equity awards made to each Named Executive Officer that were outstanding at December 31, 2023.

 

Name  Number of Securities Underlying Unexercised Options (#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable  

Option

Exercise Price

($)

  

Option Expiration

Date

Asaf Porat   10,237,740    0   $0.0001   07.01.2031
Asaf Porat   2,559,435    22,178,305   $0.0001   07.01.2033
Adi Shemer   916,667    83,333   $0.0001   02.01.2033
Adi Shemer   4,600,000    18,400,000   $0.0001   07.01.2033

 

* On March 14, 2022 a reverse stock split was implemented at a ratio of two hundred (200) to one (1). The reverse stock split is reflected retrospectively in these calculations.

 

 58 

 

 

Change-in-Control Agreements

 

The Company does not have any change-in-control agreements with any of its executive officers.

 

Employment Agreement with Mr. Adi Shemer (CEO)

 

Compensation of Directors

 

The following table sets forth for each non-employee director that served as a director during the year ended December 31, 2023:

 

Year Ended December 31, 2023

 

Name  

Fees Earned or Paid in Cash

($)

   

Stock Awards

($)

    Option Awards ($)(1)    

Non Equity Incentive Plan Compensation

($)

   

Non-Qualified Deferred Compensation Benefits

($)

   

All Other compensation

($)

   

Total

($)

 
Neil Kline                       4,498 (2)                                                     4,498  
Ron Merkel                     25,997 (3)                             25,997  

 

1. In accordance with SEC rules, the amounts in this column reflect the fair value on the grant date of the option awards granted to the named executive, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The grant-date fair value of the stock options in this column is a non-cash expense for us that reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our common stock on the date of exercise.

 

2. In respect of options for 500,000 shares of Common Stock

 

3. In respect of options for 1,000,000 shares of Common Stock

 

As of February 1, 2022 the company engaged with Dr. Neil Kline as a board member. For his services he was granted stock option under ESOP to purchase 500,000 of the Company’s common stock, par value $0.0001 per share of the Company (the “Common Stock”), on a post-split basis. Upon grant, the Options vest as follows: (i) 50% following 12 months on the first anniversary of the appointment and (ii) the balance of shares of Common Stock, in four (4) consecutive fiscal quarters, beginning with the quarter ending April 30, 2023. The Option shall be exercisable at a per share exercise price of $0.0001 and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between Dr. Kline and the Company.

 

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

 

 59 

 

 

The Company reimburses its directors for any out-of-pocket cost reasonably incurred to attend a Board meeting.

 

PRINCIPAL SHAREHOLDERS

 

Name of Beneficial Owner  COMMON STOCK   % of class (Common Stock)   SERIES A PREFERRED STOCK (1)   % of class (Series A Preferred)     
Officers and Directors                         
                          
Todd Violette, former Chief Executive Officer           26,250    8.75%    
Boris Molchadsky, Chairman and Chief Executive Officer   167,303,935(2)   49.1%   222,664    86.1%     
Asaf Porat, Chief Financial Officer and Director   13,223,747(3)   3.88%            
Neil Kline, Director   500,000(4)   0.001%               
                        
Plutus Investments LP   75,773,765(5)   22.2%               
Ron Mekler   1,769,104(6)   0.0052%               
Officers and Directors as a Group (five persons)   188,220,214(7)   55.2%   

222,664

    

86.1

%    

 

  (1) The Series A Preferred Stock were issued in June 2020. The Series A Preferred Stock is authorized to vote with the Common Stock in all stockholder meetings that the Common Stock may vote and each share has voting power equal to 1,000 votes per share and are convertible at a rate of 1,500 common stock to each preferred share.
  (2) Comprised of 99,754,464 shares held directly by Mr. Molchadsky and 67,549,471 held through Nexense Technologies Inc.
  (3) Comprised of shares issuable upon exercise of currently exercisable options. Does not include options for an additional 7,392,769 shares scheduled to vest over the next 6 months.
  (4) Comprised of shares issuable upon exercise of currently exercisable options. Does not include options for an additional 500,000 shares scheduled to vest over the next 12 months.
  (5) Comprised of (i) 7,059,667 shares and (ii) 68,714,098 shares issuable upon conversion of convertible notes based on the publicly traded stock as of January 23, 2024. The notes are not convertible prior to July 1, 2024.
  (6) Comprised of (i) 1,519,104 shares and (ii) 250,000 shares issuable upon exercise of currently exercisable options.
  (7) Comprised of shares issuable upon exercise of currently exercisable options.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

Except as described below, since January 1, 2021 there has not been, nor is there currently proposed, any transaction to which we are or were a party in which the amount involved exceeds the lesser of $120,000 and 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any of their respective affiliates or immediate family members, had, or will have, a direct or indirect material interest.

 

During the course of 2021, our subsidiary SleepX lent to Mr. Molchadsky, our Chief Executive Officer, an aggregate amount of $136,936 as of the date hereof. The interest rate on the loan was at an annual rate of 3.4% and the loan was repayable in full by December 31, 2022. On June 1, 2022, we entered into a consulting agreement with GPIS Ltd, an Israeli company where the sole shareholder is our Chief Executive Officer for management services. The agreement provides for fee payments in four instalments in the aggregate amount of $182,000 between June and August 2022. The arrangement satisfied the repayment of the loan to Mr. Molchadsky.

 

 60 

 

 

During December 2022, Mr. Molchadsky lent to the Company a total amount of $22,734. The loan bears interest at an annual rate of 5%.

 

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

 

During 2020, the Non-controlling interest in Ta-nooma (subsidiary of SleepX), lent to Ta-nooma a long-term loan. As December 31, 2021, the outstanding loan balance amounts to $41,082.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

LEGAL MATTERS

 

The Crone Law Group P.C. has opined on the validity of the shares being offered hereby.

 

EXPERTS

 

The financial statements included in this prospectus and in the registration statement for the fiscal years ended December 31, 2021 and December 31, 2022 have been audited by Barzily & Co., an independent registered public accounting firm and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Resale Shares offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the Resale Shares offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.

 

You may read and copy the registration statement of which this prospectus is a part, as well as our reports, proxy statements and other information, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s Internet site can be found at http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing us at AppYea, Inc., 447 Broadway 2nd FL, 10013 New York, United States or telephoning us at (800) 674-3561.

 

We are subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information are available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above. You may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

 

 61 

 

 

APPYEA INC. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2022 AND 2021

 

 

 

 

APPYEA INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2022 AND 2021

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Auditors (PCAOB ID: 2015) F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Changes in Deficiency F-5
   
Consolidated Statements of Cash Flows F-6 - F-7
   
Notes to the Consolidated Financial Statements F-8 - F-44

 

F-1

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Appyea Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Appyea Inc. and its subsidiary (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “Financial Statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.

 

We have served as the Company’s auditor since 2021

 

By: /s/ Barzily and Co.

BARZILY AND CO., CPA’s

Jerusalem, Israel, 2023

 

March 29, 2023

 

F-2

 

 

APPYEA INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

 

       December 31,   December 31, 
   Note   2022   2021 
ASSETS               
Current assets               
Cash and cash equivalents        60    206 
Other accounts receivables   3    19    13 
Loan to a Related party   7(a)   -    137 
Inventory Advance               
Total current assets        79    356 
                
Non-current assets               
Property and equipment, net   4    2    2 
Intangible assets. net   5    124    148 
Total non-current asset        126    150 
                
Total assets        205    506 
                

LIABILITIES AND DEFICIENCY

               
Current liabilities               
Trade payables        67    30 
Other accounts payable and related party payables   6    340    65 
Short-term loans from related party   7(b)   80    89 
Convertible loans related party   7(c)   36    32 
Convertible loans         693      
Short-term loans   8    693    112 
Convertible loans – current maturities   8    1,528    1,933 
Warrants liability   8    24    260 
Financial liability at fair value        24      
Total current liabilities        2,768    2,521 
                
Non-current liabilities               
Convertible loan – net of current maturities   8    -    415 
Total non current liabilities        -    415 
                
Total liabilities        2,768    2,936 
                
DEFICIENCY               

SHAREHOLDERS’ DEFICIENCY

               
AppYea Inc. Stockholders’ Deficiency:               
Convertible preferred stock, $0.0001 par value   9    -    - 
Common stock, $0.0001 par value   9    21    21 
Stock Payables        27    - 
Additional Paid in Capital        1,912    768 
Accumulated deficit        (4,509)   (3,205)
Total AppYea Inc. stockholders’ deficiency        (2,549)   (2,416)
Non-controlling interests        (14)   (14)
                
Total Deficiency        (2,563)   (2,430)
                
Total liabilities and deficiency        205    506 

 

The accompanying notes are an integral part of the financial statements.

 

F-3

 

 

APPYEA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands)

 

       2022   2021 
      

For the year ended

December 31,

 
   Note   2022   2021 
             
Research and development expenses       129    81 
Sales and marketing expenses       16    5 
General and administrative expenses  10    2,017    632 
               
Operating loss       (2,162)   (718)
               
Reverse merger cost       -    (2,457) 
Change in fair value of convertible loans and warrant liability       910     - 
Financial expenses, net       (52)   (6)
Loss before income tax benefit              
Income tax benefit              
               
Consolidated net loss       (1,304)   (3,181)
               
Non-controlling interests       -    2 
               
Net loss attributable to AppYea Inc.       (1,304)   (3,179)
               
Net Loss Per Common Share:              

Basic and Diluted

       (0.005)   (0.026)
               
Weighted Average Number of Common Shares Outstanding:              

Basic and Diluted*

       219,588,562    118,852,344 

 

*The number of preferred and common shares outstanding were retroactively adjusted as a result of a reverse merger and reverse split, see Note 1 and Note 9.

 

The accompanying notes are an integral part of the financial statements.

 

F-4

 

 

APPYEA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY

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

 

   Number*   Amount   Number*   Amount   Payables   Capital   Deficit   Total   interests   Deficiency 
   Preferred Stock   Common Stock   Stock   Additional Paid in   Accumulated      Non-controlling   Total 
   Number*   Amount   Number*   Amount   Payables   Capital   Deficit   Total   interests   Deficiency