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
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.
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.”
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.
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. |
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.
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.
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.
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.
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:
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generate
revenues and implement our business plan and growth strategy; |
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attract
and retain marketing and commercial sponsors; |
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aggressively
counter and respond to actions by our competitors; |
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● |
maintain
adequate control of our expenses; |
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attract,
retain and motivate qualified personnel; |
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react
to member preferences and demands; |
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maintain
regulatory compliance; and |
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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.
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.
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.
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:
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New
and different legal and regulatory requirements in local jurisdictions; |
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Potentially
adverse tax consequences, including imposition or increase of taxes on transactions or withholding and other taxes on remittances
and other payments by subsidiaries; |
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Risk
of nationalization of private enterprises by foreign governments; |
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Legal
restrictions on doing business in or with certain nations, certain parties and/or certain products; and, |
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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.
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.
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.
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:
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the
FDA or other foreign regulatory authority as applicable may disagree with the design or implementation of our clinical
trials; |
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we
may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe and effective for any indication; |
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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; |
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the
results of clinical trials may not meet the level of statistical significance required by the FDA for clearance; |
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the
FDA may disagree with our interpretation of data from the bench testing, or clinical trials; |
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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 |
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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.
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:
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untitled
letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
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customer
notifications or repair, replacement or refunds; |
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operating
restrictions or partial suspension or total shutdown of production; |
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recalls,
withdrawals, or administrative detention or seizure of our products; |
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refusing
or delaying requests for 510(k) marketing clearance applications relating to new products or modified products; |
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withdrawing
the product from the market; |
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refusing
to provide Certificates for Foreign Government; |
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refusing
to grant export approval for our products; or |
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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.
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:
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● |
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; |
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● |
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; |
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● |
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.
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.
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.
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.
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:
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● |
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.
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.
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.
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.
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.
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.
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. |
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.
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.
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.
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.
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.
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:
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(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; |
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(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; |
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(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.
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(iv) |
Milestone
payment of $60,000 upon the attainment of regulatory approval from applicable authority in USA or Europe to market and sell the licensed
products |
As
of the date of these financials, we have not achieved any of these milestones.
Under
the License Agreement, the Licensors are entitled to terminate the License Agreement under certain conditions relating to a material
change in the business of our Israeli subsidiary or a breach of any material obligation thereunder or to a bankruptcy event of our Israeli
subsidiary. Under certain conditions, our Israeli subsidiary may terminate the License Agreement and return the licensed information
to the Licensors.
In
the event of an acquisition of all of the issued and outstanding share capital of the Israeli Subsidiary or of the Company and/or consolidation
of the Israeli Subsidiary or the Company into or with another corporation (“Non IPO Exit”) or a listing of our common stock
on a national exchange such as Nasdaq (the IPO Exit”), then the Licensors shall be entitled to an exit fee equal to 5% of the valuation
of our company at the time of such exit and with respect to an IPO Exit, shares of common stock which will reflect in the aggregate 5%
of 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.
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. |
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| ● |
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. |
| ● |
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. |
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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.
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.
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.
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.
The
FDA can delay, limit or deny clearance of our proposed devices for many reasons, including:
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our
inability to demonstrate that our product is safe and effective for its intended users; |
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our
inability to demonstrate that our product is the “substantial equivalent” of a previously cleared device; |
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the
data from clinical studies that we undertake may be insufficient to support clearance; and |
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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:
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Establishment,
registration and device listing; |
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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; |
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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; |
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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; |
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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; |
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Labelling
and Unique Device Identification (UDI) regulations; and |
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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.
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.
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.
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.
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.
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.”
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.
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.
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.
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.
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.
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; |
| |
● |
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.
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.
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.
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. |
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.
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.
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.
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
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
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.
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.
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 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance as of January 1, 2021 | |
| 225,000 | | |
| | | |
| 63,109,055 | | |
| 6 | | |
| - | | |
| (5 | ) | |
| (26 | ) | |
| (25 | ) | |
| (12 | ) | |
| (37 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of shares to service providers | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of shares to service providers, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of shares | |
| - | | |
| - | | |
| 45,690,956 | | |
| 5 | | |
| - | | |
| 294 | | |
| - | | |
| 299 | | |
| - | | |
| 299 | |
| Share issuance upon conversion of convertible notes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance upon conversion of convertible notes, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| CLA - change of classification | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock Payables | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Adjusting the amount of shares in light of issuance of AppYea shares | |
| - | | |
| - | | |
| 65,795,623 | | |
| 6 | | |
| - | | |
| (6 | ) | |
| - | | |
| | | |
| - | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shares issued in the Reverse Merger | |
| 75,000 | | |
| - | | |
| 43,650,692 | | |
| 4 | | |
| - | | |
| | | |
| - | | |
| 4 | | |
| - | | |
| 4 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance upon conversion of preferred stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance upon conversion of preferred stock, shares | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share based Compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 485 | | |
| - | | |
| 485 | | |
| - | | |
| 485 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,179 | ) | |
| (3,179 | ) | |
| (2 | ) | |
| (3,181 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2021 | |
| 300,000 | | |
| - | | |
| 218,246,326 | | |
| 21 | | |
| - | | |
| 768 | | |
| (3,205 | ) | |
| (2,416 | ) | |
| (14 | ) | |
| (2,430 | ) |
| Balance | |
| 300,000 | | |
| - | | |
| 218,246,326 | | |
| 21 | | |
| - | | |
| 768 | | |
| (3,205 | ) | |
| (2,416 | ) | |
| (14 | ) | |
| (2,430 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of shares | |
| - | | |
| - | | |
| 2,684,472 | | |
| - | | |
| - | | |
| 102 | | |
| - | | |
| 102 | | |
| - | | |
| 102 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock Payables | |
| - | | |
| - | | |
| - | | |
| - | | |
| 27 | | |
| - | | |
| - | | |
| 27 | | |
| - | | |
| 27 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share based Compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| 1,042 | | |
| - | | |
| 1,042 | | |
| - | | |
| 1,042 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| (1,304 | ) | |
| (1,304 | ) | |
| - | | |
| (1,304 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2022 | |
| 300,000 | | |
| - | | |
| 220,930,798 | | |
| 21 | | |
| 27 | | |
| 1,912 | | |
| (4,509 | ) | |
| (2,549 | ) | |
| (14 | ) | |
| (2,563 | ) |
| Balance | |
| 300,000 | | |
| - | | |
| 220,930,798 | | |
| 21 | | |
| 27 | | |
| 1,912 | | |
| (4,509 | ) | |
| (2,549 | ) | |
| (14 | ) | |
| (2,563 | ) |
| * | 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.
APPYEA
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(U.S.
dollars in thousands)
| | |
2022 | | |
2021 | |
| | |
For
the year ended December 31 | |
| | |
2022 | | |
2021 | |
| Cash flows
from operating activities: | |
| | | |
| | |
| Consolidated net
loss | |
| (1,304 | ) | |
| (3,181 | ) |
| Adjustments
to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 24 | | |
| 16 | |
| Share based compensation | |
| 1,144 | | |
| 485 | |
| Reverse merger cost | |
| - | | |
| 2,457 | |
| Change in fair value of convertible loans and warrant liability | |
| (910 | ) | |
| - | |
| Financial expenses, net | |
| 52 | | |
| - | |
| Changes
in operating assets and liabilities: | |
| | | |
| | |
| Other current assets | |
| 143 | | |
| 54 | |
| Accounts payable | |
| 171 | | |
| 1 | |
| Accounts payable – related party | |
| 85 | | |
| - | |
| Net cash used in operating
activities | |
| (595 | ) | |
| (168 | ) |
Cash
flows from investing activities: | |
| | | |
| | |
| Research and development expenses
capitalization | |
| | | |
| | |
| Purchase of property and equipment | |
| - | | |
| (3 | ) |
| Cash acquired in reverse merger
(Appendix A) | |
| - | | |
| | |
| Net cash provided by investing
activities | |
| - | | |
| 167 | |
| | |
| | | |
| | |
| Cash flows
from financing activities: | |
| | | |
| | |
| Proceeds on account of Stock Payables | |
| | | |
| | |
| Issuance of shares of Common
Stock | |
| - | | |
| 136 | |
| Loans received from a related
party | |
| 14 | | |
| 60 | |
| Convertible Note received | |
| 458 | | |
| - | |
| Repayment on account of convertible loans including interest | |
| (30 | ) | |
| - | |
| Issuance of warrants measured at FV | |
| | | |
| | |
| Net cash provided by financing
activities | |
| 442 | | |
| 196 | |
| | |
| | | |
| | |
| Foreign exchange on cash and
cash equivalent | |
| 7 | | |
| - | |
| Change
in cash and cash equivalents | |
| (146 | ) | |
| 195 | |
| Cash and cash equivalents
at beginning of year | |
| 206 | | |
| 11 | |
| | |
| | | |
| | |
| Cash and cash equivalents
at end of year | |
| 60 | | |
| 206 | |
| | |
| | | |
| | |
| Non-Cash Activity | |
| | | |
| | |
| | |
| | | |
| | |
| Purchase of Intangible Asset
by issuance of common stock | |
| | | |
| 163 | |
The
accompanying notes are an integral part of the financial statements
APPYEA INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(U.S.
dollars in thousands)
Appendix
A – Reverse Merger
| | |
For the year ended December 31, | |
| | |
2022 | | |
2021 | |
| Working capital (excluding cash and cash equivalents), net | |
| - | | |
| (129 | ) |
| Loans, convertible loans and warrants | |
| - | | |
| 2,752 | |
| Cost of reverse merger | |
| - | | |
| (2,457 | ) |
| Shares issued in the reverse merger | |
| - | | |
| 4 | |
| Cash acquired in reverse merger | |
| - | | |
| 170 | |
The
accompanying notes are an integral part of the financial statements.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 1 - GENERAL
AppYea,
Inc. (“AppYea”, “the Company”, “we” or “us”) was incorporated in the State of South Dakota
on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is
in the development stage with no significant revenues and no operating history. On November 1, 2021 the Company was redomiciled in the
State of Nevada.
The
Company’s common stock is traded on the OTC Markets, OTCQB tier, under the symbol “APYP”.
Reverse
merger
In
anticipation of the reverse merger described below, on July 2, 2021, Boris Molchadsky a majority shareholder of the Company, acquired
in a private transaction from the former majority shareholder consisting of 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 provided Boris
Molchadsky with control of a majority of the Company’s voting equity capital.
On
August 2, 2021, the Company entered into a stock exchange agreement with SleepX Ltd., a company formed under the laws of the State of
Israel (“SleepX”) and controlled by the majority shareholder of AppYea, Pursuant to the agreement, the outstanding equity
capital consisting of 1,724 common shares of SleepX was exchanged for 174,595,634 shares of common stock of the Company, based on the
agreement that determined that to SleepX shareholders will be issued common shares in the amount that will result in them holding 80%
of the issued common shares of AppYea. As a result, SleepX became a wholly owned subsidiary of the Company. On December 31, 2021, the
terms of the agreement were fulfilled; however, the issuance of the shares to SleepX shareholders, due to administrative matters, was
completed in March 2022 after the Company completed a reverse stock split (see Note 9E).
As
a result of the transaction mentioned above, as of December 31, 2022, Mr. Molchadsky controls approximately 71.4% of the total voting
power of AppYea.
SleepX
is an Israeli research and development company that has developed a unique product for monitoring and treating sleep apnea and snoring.
The technology is protected by several international patents and, subject to raising working capital, of which no assurance can be provided,
the Company plans to start serial production in 2023. The Company will focus on further development and commercialization of the products.
Its strategy will include continued investment in research and development and new initiatives in sales and marketing.
SleepX
has incorporated, together with an unrelated third party, a privately held company under the laws of the State of Israel named Ta-nooma
Ltd. (“Ta-nooma”). Ta-nooma has developed sleeping monitoring technology for which patent applications were filed and has
no revenue from operations. Since its incorporation and as of the financial statements date, Sleepx holds 66.7% of the voting interest
of Ta-nooma.
In
addition to SleepX, the Company has four wholly owned subsidiaries with no active operations.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
Accounting
treatment of Acquisition
AppYea
did not have material operations as of the date of the transactions and the Acquisition was accounted for as a reverse merger -a reverse
capitalization. The entity that issues securities (the legal acquirer or-AppYea) is identified as the acquiree for accounting purposes.
The entity whose interests are acquired (SleepX.) is the acquirer for accounting purposes. Since SleepX is considered the accounting
acquirer, these consolidated financial statements are prepared as a continuation of the operations of SleepX, except for the legal capital
which is of AppYea.
The
legal capital of AppYea in the financial statements is restated using the exchange ratio established in the stock exchange agreement
to reflect the number of shares of the legal acquirer issued in the reverse merger.
Following the above, as of December
31, 2021, the date of the transaction, the fair value of the net liabilities of AppYea was in the amount of $2,453,000.
This
amount is presented at cost of the reverse merger in the statement of operations.
Financial
position
The
financial statements are presented on a going concern basis. The Company has not yet generated any material revenues, has suffered
recurring losses from operations and is dependent upon external sources for financing its operations. As of December 31, 2022, the
Company has an accumulated deficit of 4,509,000 and
a stockholders’ deficiency of 2,563,000.
These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company
intends to continue to finance its operating activities by raising capital. There are no assurances that the Company will be
successful in obtaining an adequate level of financing needed for its long-term research and development activities on commercially
reasonable terms or at all. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the
development of its product candidates or may be required to implement cost reduction measures and may be required to delay part of
its development programs.
The
financial statements do not include any adjustments for the values of assets and liabilities and their classification that may be necessary
in the event that the Company is no longer able to continue its operations as a “going concern”.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”).
The
significant policies in the preparation of the consolidated financial statements are:
Use of Estimates in Preparation of Financial Statements
The
accompanying Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the
United States of America which require management to make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses. Significant estimates include the ability to continue as a going
concern, the recoverability of long-lived assets, the recoverability of amounts due from related parties, the valuation of
stock-based compensation and certain debt and derivative liabilities, recognition of loss contingencies and deferred tax valuation
allowances. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates,
which would be recorded in the period in which they become known. See note 8 regarding the Convertible Loans and Warrants
estimations.
| b. | Financial
statements in United States dollars: |
The
functional currency of the Company is the U.S. dollar, as the U.S. dollar is the currency of the primary economic environment in which
the Company operates. The Company’s transactions and balances denominated in U.S. dollars are presented at their original amounts.
Non-dollar transactions and balances have been re-measured to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected
in the statements of operations and are included in the Financial Expenses – net line. The exchange rate of the US Dollar to the
Israeli Shekel was 3.519 and 3.110 as of December 31, 2022 and 2021, respectively.
| c. | Cash
and Cash equivalents: |
Cash
equivalents are short-term highly liquid investments that are readily convertible to cash when originally purchased with maturities of
three months or less.
| d. | Property,
plant and equipment, net: |
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated
useful lives of the assets at the following annual rates:
SCHEDULE
OF ESTIMATED USEFUL LIVES OF ASSETS AT THE ANNUAL RATES
| |
|
% |
| Computers
equipment and software |
|
33 |
| |
e. |
Intangible Assets, net |
Identifiable
intangible assets are stated at cost, net of accumulated amortization. Patents are amortized using the straight-line method over 7 years.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 2 |
- |
SIGNIFICANT ACCOUNTING
POLICIES (cont.) |
The Company employees have subscribed to Section 14 of Israel’s Severance Pay Law, 5723-1963 (“Section 14”).
According to this section, these employees are entitled only to monthly deposits, with insurance companies, at a rate of 8.33% of their
monthly salary, made in the employee’s name. Payments in accordance with Section 14 release the Company from any future severance
liabilities (under the above Israeli Severance Pay Law) in respect of those employees. Neither severance pay liability nor severance
pay fund under Section 14 is recorded on the Company’s balance sheet.
| |
g. |
Derivative Financial Instruments |
Management
evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded
at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, the Company uses an option-pricing model to value the derivative instruments
at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required
within 12 months of the balance sheet date. We do not use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks.
| h. | Fair
value of financial instruments: |
As
defined in ASC 820, “Fair Value Measurements” (“ASC 820”), fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated,
or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes
a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs
(level 3 measurement).
The
three broad levels of the fair value hierarchy are as follows:
Level
1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level
2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly
Level
3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions
The
following table summarizes fair value measurements by level at December 31, 2022 measured at fair value on a recurring basis:
SCHEDULE
OF FAIR VALUE MEASUREMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
| December 31, 2022 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
In U.S. dollars | |
| Assets | |
| | | |
| | | |
| | | |
| | |
| None | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities | |
| | | |
| | | |
| | | |
| | |
| Convertible Loans | |
| - | | |
| - | | |
| 2,257 | | |
| 2,257 | |
| Warrants | |
| - | | |
| - | | |
| 24 | | |
| 24 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 2 |
- |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| i. | Concentrations
of credit risks: |
The
financial instruments include cash, accounts receivable, accounts payable, accrued expenses, loans payable, due to officers and
derivative financial instruments. Balances in various cash accounts may at times exceed federally insured limits. We have not
experienced any losses in such accounts. Cash and cash equivalents are invested in major banks in Israel and United States.
Generally, these deposits may be redeemed upon demand and therefore, management believes there is minimal risk. Other than certain
warrant and convertible instruments (derivative financial instruments)., we believe the carrying values of our financial instruments
approximate their fair values because they are short term in nature or payable on demand. Our derivative financial instruments are
carried at a measured fair value. The Company has no significant off-balance-sheet concentration of credit risk such as foreign
exchange contracts, option contracts or other foreign hedging arrangements.
For
convertible debt that does not contain an embedded derivative that requires bifurcation, the conversion feature is evaluated to determine
if the rate of conversion is below market value and should be categorized as a beneficial conversion feature (“BCF”). A BCF
related to debt is recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible debt is
recorded net of the discount for the BCF. The discount is amortized as additional interest expense over the term of the debt with the
resulting debt discount being accreted over the term of the note.
| |
k. |
The Fair Value Measurement Option |
We
have elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the
entire hybrid financing instrument at fair value under the guidance of ASC 815, Derivatives and Hedging (“ASC 815”).
The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value option, within
the change in fair value of convertible notes and derivatives in the accompanying consolidated statement of operations.
| l. | Research
and development costs: |
Research
and development consist of costs incurred in the process of developing product improvements or new products, and are expensed to the
statement of operations as incurred. As of now the company does not capitalize any of its research and development costs.
| m. | General
and administrative expenses: |
General
and administrative expenses consist of all corporate overhead costs incurred by the Company.
| |
n. |
Stock-Based Compensation: |
We
account for stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”). ASC 718, which requires
that the cost resulting from all share-based transactions be recorded in the financial statements over the respective service periods.
It establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to
apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The statement also establishes
fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based
payment transactions. The Company utilizes the straight-line method allocating the cost over the service period.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 2 |
- |
SIGNIFICANT ACCOUNTING
POLICIES (cont.) |
The
Company accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”),
using the liability method whereby deferred tax assets and liability account balances are determined based on the differences
between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
The
Company accounts for uncertain tax provisions in accordance with ASC 740-10-05, “Accounting for Uncertainty in Income Taxes.”
The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
| |
p. |
Basic and Diluted Net Income (Loss) per Share: |
The
Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share” which requires
presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by
dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period
including stock options, using the treasury stock method, and Convertible preferred stock, using the if-converted method: In
computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is
anti-dilutive. For the years ending December 31, 2022 and 2021, there were 49,824,701 and 1,586,926 shares, respectively, of
convertible preferred stock outstanding and conversion privileges attached to convertible promissory notes payable.
| |
q. |
Recent Accounting Pronouncements |
Recently Issued Accounting Pronouncements
On
January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The adoption of ASU 2019-12
did not have a material effect on its consolidated financial statements.
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which is intended to
address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics
of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments
and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible
instruments and earnings-per-share guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal
years, and interim periods in those fiscal years, beginning after December 15, 2023 (effective January 1, 2024) for smaller reporting
companies. The Company is determining the adoption of this new accounting guidance and the effect on its consolidated financial statements.
Throughout the period until implementation.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 2 |
- |
SIGNIFICANT ACCOUNTING POLICIES (cont.) |
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326),” referred to herein as ASU
2016-13, which significantly changes how entities will account for credit losses for most financial assets and certain other
instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an
expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain
other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct
write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the
amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new
pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at
each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also
measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or
not yet due may not require an allowance reserve under current generally accepted accounting principles, but under the new standard,
the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is
effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller
reporting companies. Early adoption is permitted. The Company is determining the adoption of this new accounting guidance and the
effect on its consolidated financial statements throughout the period until implementation.
Management
does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material
effect on the accompanying consolidated financial statements.
NOTE 3 - OTHER ACCOUNTS RECEIVABLE
SCHEDULE
OF OTHER ACCOUNTS RECEIVABLE
| | |
2022 | | |
2021 | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
In U.S. dollars in thousands | |
| Governmental authorities | |
| 12 | | |
| 7 | |
| Other receivables | |
| 7 | | |
| 6 | |
| Total other
accounts receivable | |
| 19 | | |
| 13 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT, NET
SCHEDULE Of PROPERTY
AND EQUIPEMENT, NET
| | |
2022 | | |
2021 | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
In U.S. dollars in thousands | |
| Computers | |
| |
| Cost | |
| 3 | | |
| 3 | |
| Accumulated depreciation* | |
| (1 | ) | |
| (1 | ) |
| Balance, Net | |
| 2 | | |
| 2 | |
*
Depreciation expense amounted to $0.2
for the year ended December 31, 2022.
NOTE 5 - INTANGIBLE ASSET
On
May 12, 2021, SleepX entered into a patent license agreement with Nexense Technologies USA Inc., (“Nexense”) a related
party, which is controlled by Boris Molchadsky, (the “Licensor”) pursuant to which SleepX will receive from the Licensor
the rights to use all of the Licensor’s owned intellectual property (the “IP”) for any commercial purposes.
Management believes that the IP is not currently ready for private or commercial use and therefore, SleepX will be required to
research, develop, apply for patents protection and invest in the IP in order to ready it for commercial use. Any change,
improvement, inventive addition, progress, results of research or a new product with respect to the intellectual property rights,
will all be owned solely by SleepX.
The
payment terms for the license agreement are 3% of the gross profit arising from the sale of the products based on the licensed IP and
up to an aggregate amount of $2,000,000. As part of the agreement, SleepX has issued the related party shares equivalent to 40% of SleepX,
after dilution.
The
IP asset is valued in the financial statements at the cost that Licensor paid to acquire the IP. As of December 31, 2022, the Company
has not generated any revenues and accordingly no royalties were incurred and paid.
SCHEDULE
Of INTANGIBLE ASSET
| | |
| | |
| Cost | |
$ | 163,000 | |
| Accumulated amortization | |
$ | (39,000) | |
| Total intangible assets | |
$ | 124,000 | |
For
the years ended December 31, 2022 and 2021 the amortization expense amounted to $23,285 and $15,000, respectively.
NOTE
6 - OTHER
ACCOUNTS PAYABLE AND RELATED PARTY PAYABLE
SCHEDULE
OF OTHER ACCOUNTS PAYABLE
| | |
2022 | | |
2021 | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
In U.S. dollars in thousands | |
| Accrued expenses | |
| 62 | | |
| 13 | |
| Deferred income | |
| 6 | | |
| 5 | |
| Government institutions | |
| 4 | | |
| 15 | |
| Employees and payroll accruals | |
| 268 | | |
| 32 | |
| TOTAL | |
| 340 | | |
| 65 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY BALANCES AND TRANSACTIONS
During
the course of 2021 and 2022, the Company loaned to Boris Molchadsky an aggregate amount of $181,936.
As of August 31, 2022, the loan was fully repaid.
| |
B. |
Short-term loans from related parties |
During
December 2022, Boris Molchadsky has lend to the Company a total amount of NIS 80,000 ($22,734). The loan bears interest at an annual
rate of 5%.
During
2021, SleepX borrowed from Nexense an aggregate amount of $47,623.
According to the agreement, the loan shall be repaid in an event that the Company’s profits are sufficient to repay the
aggregate loan amount and upon such terms and in such installments as shall be determined by the Board. The loan shall bear interest
at an annual rate equal to the minimum rate approved by applicable law in Israel (2.42%).
During
2020, the minority shareholder of Ta-nooma loaned Ta-nooma NIS 115,725
($32,886
As of December 31, 2022). The loan does not carry any interest expense and the repayment terms have yet to be determined.
| C. | Convertible
loans related party |
On
August 22, 2021 Evergreen Venture Partners LLC, owned by Douglas O. McKinnon, former CEO of the company, agreed to advance to the
Company up to $265,000 in
tranches under the terms of an 18 month
unsecured promissory note. Under the terms of the note, which bears interest at a rate of 8%
per annum, the
investor can convert the note into shares of common stock at 35% discount to the highest daily trading price over the 10 days’
preceding conversion but in any event not less than $0.10 per share.
The note contains standard events of default. As of the December 31, 2022, the related party has advanced to the Company $25,000 funds
under the Note and there are no assurances if there will be additional amounts transferred. As of December 31, 2022, and 2021, the
fair value as estimated by an independent external evaluation is $36,167 and $31,958 respectively, with a WACC of 30% and 25% respectively.
| |
D. |
Balances with related
parties |
SCHEDULE OF BALANCE WITH RELATED PARTIES
| | |
2022 | | |
2021 | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
In U.S. dollars in thousands | |
| Assets: | |
| | | |
| | |
| Receivables Note 7(a) | |
| - | | |
| 137 | |
| | |
| | | |
| | |
| Liabilities: | |
| | | |
| | |
| Employees and payroll accruals | |
| 268 | | |
| 46 | |
| Related party payables | |
| 140 | | |
| - | |
| Short term loan Note 7(b) | |
| 80 | | |
| 89 | |
| Convertible loan Note 7(c) | |
| 36 | | |
| 32 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 7 |
- |
RELATED PARTY BALANCES
AND TRANSACTIONS |
| |
E. |
Transactions with related
parties |
SCHEDULE OF TRANSACTION WITH RELATED PARTIES
| | |
2022 | | |
2021 | |
| | |
Year ended December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| | |
In U.S. dollars in thousands | |
| Expenses: | |
| | | |
| | |
| Salaries and related cost (including management fees and stock-based compensation, see Note 12) | |
| 1,356 | | |
| 595 | |
| AppYea’s Management fee participation | |
| - | | |
| (60 | ) |
| Financial income, net | |
| - | | |
| 2 | |
Both
the Chairman and the chief financial officer are directors in the Company and do not receive compensation for their directorship roles.
Company’s Bylaws provide that a director or officer shall be indemnified and held harmless by the Corporation, to the fullest extent
permitted by the laws of the State of Nevada/ See note 12 regarding salaries agreements.
On June 1, 2022, the Company signed a
consulting agreement with GPIS LTD, an Israeli company controlled by Boris Molchadsky, for the services of S-1 filing consultation, management
services and US development of company operations. The fee for its services is approximately $140,000, which will be paid in 3 installments.
As of December 31, 2022 the 3 installments, aforementioned, had been fully paid.
| F. | Purchase
of IP and royalties to related party |
See
Note 5
NOTE 8 - CONVERTIBLE LOANS AND WARRANTS
SCHEDULE
OF CONVERTIBLE LOANS AT FAIR VALUE
| |
|
Convertible Loans at Fair Value | |
| |
|
$K | |
| Opening Balance January 1, 2022 (including short term loans component from related party
which is also convertible) |
|
| 2,492 | |
| Additional convertible loans |
|
| 526 | |
| Repayment of convertible loan |
|
| (18 | ) |
| Finance income, net |
|
| (743 | ) |
| Closing balance as of December 31, 2022 |
|
| 2,257 | |
A.
Warrants
During
the year 2017, the Company granted 1,931,819 warrants. As of December 31, 2022 the Warrants expired and had been valued at nill.
On
November 24, 2021, the Company granted 300,000
warrants to Investor 2, valued as of December
31, 2022, at $11,351.
The expiry date of the warrants is on November
24, 2025. On May 09, 2022, the Company granted
additional 300,000 warrants to Investor 2, valued as
of December 31, 2022, at $11,679. The expiry date of the warrants is on May 09, 2026. See
(b) below (“Investor 2”).
These
warrants are converted with the same cashless exercise formula, in lieu of a cash exercise, equal to the number of Common Shares
computed using the following formula: the number of Warrants multiplied by the difference between the market price and the exercise
price, on the effective date of conversion, divided by the market price. As the numbers of shares to be issued for the exercise of
the warrants is variable, the warrants have been measured at fair value.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 8 |
- |
CONVERTIBLE LOANS AND WARRANTS (cont.) |
In
order to calculate the fair value of the warrants, an option pricing model was used. The model requires six basic data inputs: the exercise
or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price
in the future, and the dividend rate.
The
estimated fair values of the Warrants were measured according to the data as follows:
SCHEDULE OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
As of December 31, | |
| | |
2022 | | |
2021 | |
| Expected term | |
| 2.9-3.35 | | |
| 0.78-3.9 | |
| Expected average volatility | |
| 179 | % | |
| 185.45%-195.07 | % |
| Expected dividend yield | |
| 0 | % | |
| 0 | % |
| Risk-free interest rate | |
| 4.09%-4.15% | | |
| 0.3%-1.1 | % |
| Common Stock Market Value | |
$ | 0.043 | | |
$ | 0.16 | |
The
following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2022:
SUMMARIZES
RELATING TO OUTSTANDING AND EXERCISABLE WARRANTS
| Warrants Outstanding and Exercisable | | |
| |
| | | |
Weighted Average Remaining | | |
| | |
| |
Number of
Warrants | | |
Contractual life
(in years) | | |
Weighted Average
Exercise Price | | |
Valuation as of
December 31, 2022 | |
| | 300,000 | | |
| 2.9 | | |
| 0.043 | | |
$ | 11,351 | |
| | 300,000 | | |
| 3.35 | | |
| 0.043 | | |
$ | 11,679 | |
| | 8,334 | | |
| 2.9 | | |
| 0.6 | | |
$ | 230 | |
| | 32,500 | | |
| 3.35 | | |
| 0.6 | | |
$ | 992 | |
The
following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2021:
| Warrants Outstanding and Exercisable | | |
| |
| | | |
Weighted Average Remaining | | |
| | |
| |
Number of
Warrants | | |
Contractual life
(in years) | | |
Weighted Average
Exercise Price | | |
Valuation as of
December 31, 2021 | |
| | 1,931,819 | | |
| 0.78 | | |
| 0.1 | | |
$ | 211,622 | |
| | 308,334 | | |
| 3.9 | | |
| 0.6 | | |
$ | 48,270 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 8 |
- |
CONVERTIBLE LOANS AND WARRANTS (cont.) |
B.
Convertible loans (Hereinafter: CLA)
During
the years 2017-2021, the Company entered into convertible loan agreement (“CLA “) contracts with several investors as detailed
below.
The
Convertible Promissory Notes will accrue interest at rates of 5% - 12% per annum, default interest at rates of 12%-24% per annum, which
also convertible at the same terms as the loan.
Investor
1
CLA
1 (Issued by the company During March 2019 - January 2021)
The
CLA is convertible into shares of the Company’s Common Stock at a per share price equal to the lesser of (i)
$0.04, and (ii) the variable conversion price, which is defined as 65% of the lowest daily Volume Weighted Average Price
(‘VWAP’) in the twenty (20) Trading Days prior to the Conversion Date. The Note has 5% annual interest rate. As
of December 31, 2022, the Maturity date for the CLA above is June 30, 2023.
The
CLA was evaluated at a fair value measurement option as one component because in each scenario the investors will prefer to convert the
company shares instead of receiving the loan.
In order to calculate the fair value of the CLA, the independent valuation
appraiser used the Monte Carlo model and the Company assumptions regarding the expected conversion date. Using this model and assumptions,
the fair value was evaluated for $756,963
and $1,918,376
as a current maturities of convertible loans on December 31, 2022 and 2021,
respectively.
As
of December 31, 2022 and 2021, the estimated fair values of the Convertible Loan measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
As of December 31, | |
| | |
2021 | | |
2022 | |
| Expected term (in years) | |
| 1.09 | | |
| 0.5 | |
| Expected average (Monte Carlo) volatility | |
| 195.07 | % | |
| 169 | % |
| Expected dividend yield | |
| - | | |
| - | |
| Risk-free interest rate | |
| 0.7 | % | |
| 4.8 | % |
CLA
2 (Issued by the Company at the year of 2021)
During
the year 2021, the Company entered into a new CLA contract with Investor 1. In exchange for the CLA, the Company received an amount of
$250,000. As of December 31, 2022 the maturity date of the CLA is June 30, 2023.
The
CLA is convertible at a fair value measurement option at a price per share equal to the expected PPS at IPO event or the variable conversion price, which is defined as
60% of the lowest daily VWAP in the twenty (20) Trading Days prior to the Conversion Date, whichever yields the greatest number of shares.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 8 |
- |
CONVERTIBLE LOANS AND WARRANTS (cont.) |
The
CLA was evaluated at a fair value measurement option as one component because in each scenario the investors will prefer to convert the
company shares instead of receiving the loan.
In
order to calculate the fair value of the CLA, the independent valuation appraiser used the Company assumptions regarding the expected
conversion date. Using these assumptions, the fair value was evaluated, based on Monte Carlo model, for $555,039 and $318,156 as current maturities of convertible loans as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, and 2021, the estimated fair values of the
Convertible Loan measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
As of December 31, | |
| | |
2022 | | |
2021 | |
| Expected term (in years) | |
| 0.5 | | |
| 1.875 | |
| Risk free rate | |
| 4.8 | % | |
| - | |
| Volatility | |
| 169 | % | |
| - | |
| WACC | |
| - | | |
| 25 | % |
Investor
2
On
November 24, 2021, the Company signed CLA, Warrants and SPA agreements with Investor 2 for an aggregate amount of $500,000. As of December
2021, the Company received the first tranche an amount of $110,000 out of the aggregate committed amount. on May 09, 2022, the second
tranche of $390,000 was transferred to the Company. Upon receival of each tranche, the company issued to the investor 200,000 common
shares in consideration of the note.The maturity date of the Note is the earlier of 12 months from the date of each advance or the date
the Company closes on a registered public offering.
The
Company’s obligations under the CLA are secured by a security interest in substantially all of its assets pursuant to a Security
Agreement dated as of November 24, 2021, between it and the Company.
The
Convertible Promissory Note will be convertible at a price equal to $0.5. The conversion component was evaluated separately from the
loan.
On
November 24, 2021 and May 09, 2022, the investment was evaluated as three separate components: Warrants, common shares, Loan (Part
of the CLA) and conversion component. First, the independent valuation appraiser evaluated the Warrants and the stocks in Fair
Value, and the residual attributed to the CLA components. As of December 31, 2022, Warrants were evaluated at $11,351
and $11,679 respectively, The CLA were evaluated at $108,126 and $585,284 respectively.
In
order to evaluate the CLA components, it was evaluated based on their fair value ratio and then multiplied the residual by the acceptable
ratio of each of the CLA components. In addition, the independent valuation appraiser used Monte Carlo model
and Company assumptions regarding to the expected conversion date and the expected return date of the principal amount. Using this model
and assumptions, the expected conversion amount was evaluated.
In
addition, the warrants and the loan were evaluated because they identified as liabilities components. The conversion instrument was identified
as an equity component; therefore, it was evaluated only as of the agreement day. In order to calculate the fair value of the CLA Loan
the independent valuation appraiser used Company assumptions regarding to the expected conversion date and the expected return date of
the principal amount and then capitalized the loan using the company’s WACC for each valuation date. Using this model and assumptions,
the expected conversion amount was evaluated.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 8 |
- |
CONVERTIBLE LOANS AND WARRANTS (cont.) |
On
December 7, 2022, AppYea and Investor 2 signed a ‘First Amendment to Senior Secured Convertible Promissory Note’, in which the
maturity date of the loan will be amended to be April
30, 2023. Additionally, as part of this agreement,
the Company paid Leonite a payment of $30,000
to be applied as follows: $10,000
as an extension fee, $17,500
as partial payment of the balance due in connection
with the first tranche, and $2,500
for legal fees.
As of December 31, 2022 and 2021 the
Loan component was evaluated at $693,410 and $111,828 and presented as current maturities of convertible loans.
The
estimated fair values of the CLA measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
Year ended December 31, | |
| | |
2022 | | |
2021 | |
| Expected term | |
| 0.4 years | | |
| 0.87 years | |
| WACC | |
| 30 | % | |
| 25 | % |
| Expected date to repay | |
| May
9, 2023 | | |
| November 24, 2022 | |
Investor
3
On
November 23, 2022, the Company signed CLA agreement with Investor 3 for an aggregate amount of $675,000. As of December 31, 2022, the
Company received an amount of $68,000 out of the total amount.
The
maturity date is November 23, 2023.
The
Convertible Promissory Note will be convertible at a price equal 65% of the lowest trading price during the (10) days prior to the conversion
date, with 35% discount. The Convertible Promissory Note was evaluated as a single component.
As
of December 31, 2022 the Convertible Promissory Note was evaluated at $89,318 presented as current maturities of convertible loans.
Rest
of the investors
During
the year 2021, the Company signed additional CLA with an investor for the amount of $75,000.
The
CLA is convertible at a price equal to the variable conversion price, which is defined as 65% of the highest daily VWAP in the ten (10)
Trading Days prior to the Conversion Date. The maturity date of the CLA is January 29, 2023
The
CLA was evaluated, based on the Monte Carlo model, as one component because in each scenario the investors will prefer to convert
the company shares instead of receiving the loan.
In
order to calculate the fair value of the CLA, the independent valuation appraiser used Company assumptions regarding the expected conversion
date. Using Company WACC, the fair value was evaluated for $109,908 and $97,226 as current maturities of convertible loans as of December 31, 2022
and 2021, respectively.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 8 |
- |
CONVERTIBLE LOANS AND WARRANTS (cont.) |
The
estimated fair values of the CLA measured as follows:
SCHEDULE
OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
As of December 31, | |
| | |
2022 | | |
2021 | |
| Expected term | |
| 0.1 years | | |
| 1.1 years | |
| WACC | |
| 30 | % | |
| 25 | % |
NOTE 9 - STOCKHOLDERS’ EQUITY
| A. | Convertible
Preferred Stock |
Each
convertible preferred A share is convertible into 1,500 shares of common stock and may be voted together with the common shares at a
rate of 1,000 shares of common stock.
As
of December 31, 2022 and 2021, 300,000 shares of the Company’s convertible preferred stock were issued and outstanding. There are
500,000 convertible preferred shares authorized.
On
July 2, 2021, Boris Molchadsky, 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 acquisition of the Preferred Shares makes Boris Molchadsky the majority
shareholder, with the Company’s voting control.
As
of December 31, 2022, and 2021, 220,930,798 and 218,246,326 shares of the Company’s common stock were issued and outstanding, respectively.
There are 900,000,000 and 10,000,000,000 authorized common shares as of December 31, 2022 and 2021. The number of preferred and common
shares outstanding were retroactively adjusted as a result of a reverse merger and reverse split (see E below).
The
holder of the shares of Common Stock are entitled to the following rights:
| 1. | Right
to participate and vote in the Company’s general meetings, whether regular or extraordinary.
Each share will entitle its holder, when attending and participating in the voting in person
or via agent or letter, to one vote; |
| | | |
| | |
| |
2. |
Right to share in distribution of dividends, whether in cash
or in the form of bonus shares; the distribution of assets or any other distribution pro rata to the par value of the shares held by
them; |
| |
|
|
| |
3. |
Right to a share in the distribution of the Company’s
excess assets upon liquidation on a pro rata basis to the par value of the shares held by them. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
| NOTE 9 |
- |
STOCKHOLDERS’ EQUITY )Cont.) |
| A. | On
March 23, 2022, the Company issued all its stock payable and the shares to the former holders
of SleepX, according to the stock exchange agreement, in exchange for their shares. All their
shares were issued to IBI Trust Management to be held in trust for them, according to the
Israeli tax ruling. |
| | | |
| B. | During
the first quarter of 2022 the company issued 10,482,659 of common shares as a result of the
note conversions that occurred in the fourth quarter 2021, these shares were recorded in
the outstanding shares of the company as of December 31, 2021, as part of the shares regarding
the reverse merger. |
| | | |
| C. | On
March 14, 2022, the Company implemented a reverse Stock Split process of common and preferred
shares at a ratio of two hundred (200) to one (1). The reverse split was reflected in this
financial statement retroactively. |
| | | |
| | D. | On June 2, 2022, the Company issued 2,484,472
shares to Guerilla capital for its consulting services. |
| | | |
| | E. | On July 12, 2022, the Company issued 200,000 shares of the common stock to Investor 2. |
NOTE 10 - GENERAL AND ADMINISTRATIVE EXPENSES
SCHEDULE
OF GENERAL AND ADMINISTRATIVE EXPENSES
| | |
2022 | | |
2021 | |
| | |
| |
| | |
2022 | | |
2021 | |
| | |
In U.S. dollars in thousands | |
| Salaries and related costs (*) | |
| 1,356 | | |
| 528 | |
| Professional services | |
| 605 | | |
| 67 | |
| Vehicle expenses | |
| 10 | | |
| 7 | |
| Rent and building maintenance | |
| 1 | | |
| 5 | |
| Others | |
| 45 | | |
| 25 | |
| General
and administrative expenses | |
| 2,017 | | |
| 632 | |
During
2022 and 2021, an amount of $145,000 and $60,000, respectively, of the salaries paid by SleepX was allocated towards management fee charged
to AppYea.
| (*) | | includes stock-based
compensation of $1,049,379 and $485,096 respectively. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 11 - COMMITMENT AND CONTINGENCIES
| A) | On
March 15, 2020, SleepX entered into license agreement with B.G Negev Technologies and Applications
Ltd. and Mor Research Application Ltd. (the “Licensors”) pursuant to which SleepX
is entitled to receive from the Licensors an exclusive worldwide license with the right to
grant sub-licenses and with a term of 15 years, to research, develop, manufacture use, market,
distribute, offer for sale and sell the licensed products covered in the license agreement
(the “Licensed Products”). The payment terms for the license agreement are as
follows: |
| 1. | Annual
license fee – annual payments as follows: |
SCHEDULE
OF LICENSE ANNUAL PAYMENTS
| Year |
|
US$K |
| 1-4 |
|
0 |
| 5 |
|
10 |
| 6 |
|
20 |
| 7 |
|
30 |
| 8 |
|
40 |
| 9-15 |
|
50 |
| 2. | Running
royalties – 3% of all net sales received from the licensed products for a period of
up to 15 years from initiation of sales in each state using licensed IP. |
| 3. | Sublicense
payments – |
| a. | 25%
of sublicense income received prior to attainment of all regulatory approval for marketing
and sale of the licensed products in the first jurisdiction where the licensed products is
intended to be sold. |
| b. | 15%
of sublicense income received after the date recorded in section (a) above, but prior to
the first commercial sale of the licensed product. |
| c. | 10%
of sublicense income received after the date recorded in section (b) above. |
| 4. | Milestone
payment – payment of $60,000 upon the attainment of regulatory approval from applicable
authority in USA or Europe to market and sell the licensed products. |
| 5. | Exit
Fee Varies according to its kind upon consummation of the Exit event. |
In
addition to the payment terms mentioned above, SleepX will reimburse the Licensors for all incurred in the filling, prosecution and maintenance
of the licensor’s patents prior to the effective date. The amount of such expenses was $74,850 which was paid and are included
in the financial statements.
| |
B) |
In addition, the Company’s
obligations under the CLA with Investor 2 as mentioned above in Note 8, are secured by a security interest in substantially all of
its assets pursuant to a Security Agreement dated as of November 24, 2021 between the investor and the Company. |
| |
|
|
| |
C) |
On April 2022, SleepX entered
into an additional license agreement with B.G Negev Technologies and Applications Ltd. and Mor Research Application Ltd. (the “Licensors”)
pursuant to which SleepX is entitled to receive from the Licensors an exclusive worldwide license with the right to grant sub-licenses
and with a term of 15 years (the “additional license agreement”). According to the additional license agreement, the Company
will pay annual license fees according to the scheduled payments set forth in the additional license agreement. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 12 - EMPLOYEE BENEFITS
| |
A. |
SleepX’s
liability for severance pay is calculated according to Section 14 of the Israeli Severance Compensation Act, 1963 (“Section
14”), pursuant to which Holdings’ severance pay liability to its employees is fully discharged by monthly deposits to
pension fund accounts in the employees’ names, at a rate of 8.33% of the employees’ monthly salary. Under Israeli employment
law, payments in accordance with Section 14 release from any future severance payment obligations in respect of those employees.
The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of the cause
of termination. The severance pay liabilities and deposits under Section 14 are not reflected in the consolidated balance sheets
as the severance pay risks have been irrevocably transferred to the severance funds. |
On
July 1, 2021, SleepX has commenced the employment of 2 employees, the Chief Financial Officer and the Chairman who are both
considered related party. Under the agreement with the employees, they are entitled to receive NIS 20,000 ($5,683) monthly salary
(see also below). In addition, the Chief Financial Officer is entitled to Share-Based Compensation, according to the Company’s
Global Share Incentive Plan. For a two-year period ending on June 30, 2023, the Chief Financial Officer 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. As of December 31, 2022 and 2021 the Chief Financial Officer was entitled to 9,205,450 and
to 9,093,597 options, respectively.
| |
B. |
The
estimated fair values of the options granted were measured as follows: |
SCHEDULE
OF FAIR VALUE OF OPTIONS
| Grant date | |
July 1, 2021 | |
| Expected term | |
| 2 years | |
| Expected average volatility | |
| 187.7 | % |
| Expected dividend yield | |
| - | |
| Common Stock Value | |
$ | 0.76 | |
| Risk-free interest rate | |
| 0.3 | % |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 12 - EMPLOYEE BENEFITS (cont.)
The
table below depicts the number of options granted to such employee:
SCHEDULE
OF OPTIONS GRANTED TO EMPLOYEE
| Name | |
Number of Securities Underlying Unexercised Options (#) Exercisable | | |
Number of Securities Underlying Unexercised Options (#) Unexercisable | | |
Option Exercise Price ($) | | |
Option Expiration Date |
| | |
| | | |
| | | |
| | | |
|
| Chief Financial Officer | |
| 6,904,087 | | |
| 2,301,363 | | |
$ | 0.0001 | | |
07.01.2031 |
For
the years ended December 31, 2022 and 2021 the company recognized expenses, to such options, in the amount of $1,049,379 and $485,096,
respectively. The expense represents the aggregate grant date fair value for the option awards granted and vested during the fiscal years
presented, determined in accordance with FASB ASC Topic 718.
In
addition, each of the employees is entitled to a success bonus of 1.5% of any capital raised up to a total raise of $10M and a success
bonus of 1.0% of any revenues of the company up to accumulated revenues of $20M.
The
salary of the employees shall increase following a successful funding raise in the following manner: (1) NIS 20,000 ($5,683) salary for
an accumulated $500K-$1M capital raise; (2) additional NIS 10,000 ($2,842) for every additional $1M raise or a year after the commencement
date, the earliest of which; the increase shall continue up to a NIS 72,000 ($20,460). AppYea absorbs 50% of the cost of the SleepX employees
as management fees. As of December 31, 2022, the employees monthly gross salary raised to a total amount of NIS 40,000 (including the
salary basis – as described above in Note 12A).
| |
C. |
On
February 1, 2022, Neil Kline was appointed to the Company’s board of directors. The Company granted Mr. Kline an option to
purchase up to 500,000 shares of the Company’s common stock, valued at $39,998. Upon grant, the Options shall vest as follows: (i) 50% following
12 months from effective date and (ii) the balance of shares of Common Stock, in four (4) consecutive fiscal quarters, beginning
with the quarter ended 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 her and the Company. |
| |
|
|
| |
D. |
On
January 1, 2022, Amir Geva was appointed to the Company’s board of directors. The Company granted Mr. Geva an option to
purchase up to 500,000
shares of the Company’s common stock, valued at $49,960.
Upon grant, the
Options shall vest as follows: (i) 50% following 12 months from effective date and (ii) the balance of shares of Common Stock, in
four (4) consecutive fiscal quarters, beginning with the quarter ended March 31, 2023. The Option shall be exercisable at a
per share exercise price of $0.001
and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between
Mr. Geva and the Company. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE 13 - TAXES ON INCOME
| |
A. |
Taxation
under Various Laws |
The
tax rate applicable to SleepX Ltd. and Ta-nooma Ltd. is 23%.
Federal
tax rate applicable to AppYea Inc. is 21%.
| |
B. |
Net
operating losses carryforward |
The
net operating losses for SleepX and Ta-nooma as of December 31, 2022 amount to approximately $819,000 and $2,454, respectively. The net
operating losses for SleepX and Ta-nooma as of December 31, 2021 amount to approximately $232,000 and $40,000, respectively. The Company
is evaluating the loss carryforward in AppYea as a result of the reverse merger, and therefore currently values them at $0.
| |
C. |
Income
taxes on foreign subsidiaries |
Foreign
subsidiaries are taxed according to the tax laws in their respective country of residence. Neither Israeli income taxes, foreign withholding
taxes nor deferred income taxes were provided in relation to undistributed earnings of the Company’s foreign subsidiaries. This
is because the Company has the intent and ability to reinvest these earnings indefinitely in the foreign subsidiaries and therefore those
earnings are continually redeployed in those jurisdictions.
Income
tax expense for the years ended December 31, 2022 and 2021 are as follows:
SCHEDULE
OF INCOME TAX EXPENSES
| | |
2022 | | |
2021 | |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | | |
| | |
| Current income tax | |
| - | | |
| - | |
| Deferred taxed | |
| - | | |
| - | |
| Total | |
| - | | |
| - | |
The
Company have not received final tax assessments for income tax purposes since incorporation.
APPYEA INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 -TAXES ON INCOME (CONT.)
Deferred income
taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
SCHEDULE
OF DEFERRED TAXES ASSETS
| | |
2022 | | |
2021 | |
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | |
| | |
In U.S. dollars in thousands | |
| Deferred tax assets: | |
| | | |
| | |
| Net operation loss carryforward | |
| 178 | | |
| 64 | |
| | |
| | | |
| | |
| Net deferred tax asset before valuation allowance | |
| 178 | | |
| 64 | |
| Valuation allowance | |
| (178 | ) | |
| (64 | ) |
| | |
| | | |
| | |
| Net deferred tax asset | |
| - | | |
| - | |
The
Company has a valuation allowance against its net deferred tax assets due to the uncertainty of realization of the deferred tax assets
due to the operating loss history of the Company. The Company currently provides a valuation allowance against deferred taxes when it
is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation allowance could be reduced
or eliminated based on future earnings and future estimates of taxable income.
NOTE 14 - SUBSEQUENT EVENTS
| |
A. |
On
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”), valued at $21,498. 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. |
| |
|
|
| |
B. |
During
January 2023, Investor 2 converted a total principal amount of $72,222.5 from the first tranche of the note, for 2,500,000 ordinary
shares in total. Following the conversion, the company reached the following understanding with the Investor: (i) the note shall
be amended so that the Fixed Conversion Price is $0.022, (ii) the Note shall be increased by $7,500, (iii) if any portion of the
balance due under the Note remains outstanding on April 30, 2023, an extension fee equal to 15% of such outstanding balance shall
be added to it. (iv) The Maturity Date with respect to all Tranches advanced under the Note shall be amended to be July 31, 2023.
(v) several sale limitations on trading during the period beginning on the Effective Date and ending on the Amended Maturity Date.
(Note 8 – Investor 2). |
| |
C. |
On
February 1, 2023, the company engaged with Adi Shemer as a board advisor. For his services he was granted stock option under ESOP
to purchase 1,000,000 of the Company’s common stock, par value $0.0001 per share of the Company (the “Common Stock”), valued at $20,498. Upon grant, the Options vest as follows: (i) 33% following 12 months on the first anniversary of the appointment
and (ii) the balance of shares of Common Stock, in eight (8) consecutive fiscal quarters, beginning with the quarter ending April
31, 2024. The Option shall 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. Shemer and the Company. |
| |
|
|
| |
D. |
On
March 1, 2023, the CLA of $75,000 principal amount was converted into 5,384,616 shares (Note 8 – rest of the investors). |
| |
|
|
| |
E. |
During the first quarter of 2023 Investor 3 lend the company a total principal
amount of $152,750 under the signed agreement (Note 8 – Investor 3). |
APPYEA
INC. AND ITS SUBSIDIARIES
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2023
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APPYEA
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(U.S.
dollars in thousands)
| | |
September 30, 2023 | | |
December 31, 2022 | |
| | |
Unaudited | | |
Audited | |
| ASSETS | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash and cash equivalents | |
| 156 | | |
| 60 | |
| Other accounts receivables | |
| 37 | | |
| 19 | |
| | |
| | | |
| | |
| Inventory Advance | |
| 7 | | |
| - | |
| Total current assets | |
| 200 | | |
| 79 | |
| | |
| | | |
| | |
| Non-current assets | |
| | | |
| | |
| Property and equipment, net | |
| 2 | | |
| 2 | |
| Intangible assets, net | |
| 142 | | |
| 124 | |
| Total non-current assets | |
| 144 | | |
| 126 | |
| | |
| | | |
| | |
| Total assets | |
| 344 | | |
| 205 | |
| | |
| | | |
| | |
| LIABILITIES AND DEFICIENCY | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Trade payables | |
| 65 | | |
| 67 | |
| Other accounts payable and related party payables | |
| 595 | | |
| 340 | |
| Short-term loans from related party | |
| 78 | | |
| 80 | |
| Convertible loans from related party | |
| - | | |
| 36 | |
| Convertible loans | |
| 781 | | |
| 693 | |
| Convertible loans at fair value | |
| 1,925 | | |
| 1,528 | |
| Financial liability at fair value | |
| 183 | | |
| 24 | |
| | |
| | | |
| | |
| Total liabilities | |
| 3,627 | | |
| 2,768 | |
| | |
| | | |
| | |
| DEFICIENCY | |
| | | |
| | |
| AppYea Inc. Stockholders’ Deficiency: | |
| | | |
| | |
| Convertible preferred stock, $0.0001 par value | |
| - | | |
| - | |
| Common stock, $0.0001 par value | |
| 26 | | |
| 21 | |
| Stock Payables | |
| 468 | | |
| 27 | |
| Additional Paid in Capital | |
| 2,833 | | |
| 1,912 | |
| Accumulated deficit | |
| (6,596 | ) | |
| (4,509 | ) |
| | |
| | | |
| | |
| Total AppYea Inc. stockholders’ deficiency | |
| (3,269 | ) | |
| (2,549 | ) |
| Non-controlling interests | |
| (14 | ) | |
| (14 | ) |
| | |
| | | |
| | |
| Total Deficiency | |
| (3,283 | ) | |
| (2,563 | ) |
| | |
| | | |
| | |
| Total liabilities and deficiency | |
| 344 | | |
| 205 | |
APPYEA
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S.
dollars in thousands)
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
For the period of
three months ended
September 30, | | |
For the period of
nine months ended
September 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| | |
Unaudited | | |
Unaudited | |
| | |
| | |
| | |
| | |
| |
| Research and development expenses | |
| 34 | | |
| 31 | | |
| 50 | | |
| 73 | |
| Sales and marketing | |
| 47 | | |
| 1 | | |
| 49 | | |
| 12 | |
| General and administrative expenses | |
| 261 | | |
| 513 | | |
| 1,128 | | |
| 1,592 | |
| | |
| | | |
| | | |
| | | |
| | |
| Operating loss | |
| (342 | ) | |
| (545 | ) | |
| (1,227 | ) | |
| (1,677 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Change in fair value of convertible loans and warrant liability | |
| (712 | ) | |
| (119 | ) | |
| (451 | ) | |
| 1,004 | |
| Financial income (expenses), net | |
| (402 | ) | |
| (19 | ) | |
| (409 | ) | |
| (65 | ) |
| Loss before income tax benefit | |
| (1,456 | ) | |
| (683 | ) | |
| (2,087 | ) | |
| (738 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Income tax benefit | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
| (1,456 | ) | |
| (683 | ) | |
| (2,087 | ) | |
| (738 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Net Loss attributable to AppYea Inc. | |
| (1,456 | ) | |
| (683 | ) | |
| (2,087 | ) | |
| (738 | ) |
| Loss per Common Share | |
| | | |
| | | |
| | | |
| | |
| Basic and Diluted | |
| - | | |
| - | | |
| - | | |
| - | |
| Weighted Average number of Common Shares Outstanding basic and diluted | |
| 242,243,536 | | |
| 220,730,798 | | |
| 234,943,286 | | |
| 219,350,536 | |
APPYEA
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY
(U.S.
dollars in thousands except share data)
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Payables | | |
Capital | | |
Deficit | | |
Total | | |
interests | | |
Deficiency | |
| | |
Preferred Stock | | |
Common Stock | | |
Stock | | |
Additional Paid in | | |
Accumulated | | |
| | |
Non-controlling | | |
Total | |
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Payables | | |
Capital | | |
Deficit | | |
Total | | |
interests | | |
Deficiency | |
| | |
Unaudited | |
| Balance as of January 1, 2023 | |
| 300,000 | | |
| - | | |
| 220,930,798 | | |
| 21 | | |
| 27 | | |
| 1,912 | | |
| (4,509 | ) | |
| (2,549 | ) | |
| (14 | ) | |
| (2,563 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share issuance upon conversion of convertible notes | |
| | | |
| | | |
| 19,390,359 | | |
| 1 | | |
| - | | |
| 241 | | |
| | | |
| 242 | | |
| | | |
| 242 | |
| CLA - change of classification | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 66 | | |
| | | |
| 66 | | |
| | | |
| 66 | |
| Share issuance upon conversion of preferred stock | |
| (29,201 | ) | |
| - | | |
| 43,801,500 | | |
| 4 | | |
| - | | |
| (4 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| Issuance of shares to service providers | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock payables | |
| - | | |
| - | | |
| - | | |
| - | | |
| 441 | | |
| - | | |
| - | | |
| 441 | | |
| - | | |
| 441 | |
| Issuance of shares | |
| | | |
| | | |
| - | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Share based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 618 | | |
| - | | |
| 618 | | |
| - | | |
| 618 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,087 | ) | |
| (2,087 | ) | |
| - | | |
| (2,087 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of September 30, 2023 | |
| 270,799 | | |
| - | | |
| 284,122,657 | | |
| 26 | | |
| 468 | | |
| 2,833 | | |
| (6,596 | ) | |
| (3,269 | ) | |
| (14 | ) | |
| (3,283 | ) |
| | |
Preferred Stock | | |
Common Stock | | |
Stock | | |
Additional Paid in | | |
Accumulated | | |
| | |
Non-controlling | | |
Total | |
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Payables | | |
Capital | | |
Deficit | | |
Total | | |
interests | | |
Deficiency | |
| | |
Unaudited | |
| Balance as of January 1, 2022 | |
| 300,000 | | |
| - | | |
| 218,246,326 | | |
| 21 | | |
| - | | |
| 768 | | |
| (3,205 | ) | |
| (2,416 | ) | |
| (14 | ) | |
| (2,430 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of shares to service providers | |
| - | | |
| - | | |
| 2,484,472 | | |
| - | | |
| - | | |
| 80 | | |
| - | | |
| 80 | | |
| - | | |
| 80 | |
| Stock payables | |
| - | | |
| - | | |
| - | | |
| - | | |
| 35 | | |
| | | |
| - | | |
| 35 | | |
| - | | |
| 35 | |
| Issuance of shares | |
| | | |
| | | |
| 200,000 | | |
| | | |
| (13 | ) | |
| 13 | | |
| | | |
| | | |
| | | |
| | |
| Share based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 775 | | |
| - | | |
| 775 | | |
| - | | |
| 775 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (738 | ) | |
| (738 | ) | |
| - | | |
| (738 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of September 30, 2022 | |
| 300,000 | | |
| - | | |
| 220,930,798 | | |
| 21 | | |
| 22 | | |
| 1,636 | | |
| (3,943 | ) | |
| (2,264 | ) | |
| (14 | ) | |
| (2,278 | ) |
APPYEA
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY
(U.S.
dollars in thousands except share data)
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Payables | | |
Capital | | |
Deficit | | |
Total | | |
interests | | |
Deficiency | |
| | |
Preferred Stock | | |
Common Stock | | |
Stock | | |
Additional Paid in | | |
Accumulated | | |
| | |
Non-controlling | | |
Total | |
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Payables | | |
Capital | | |
Deficit | | |
Total | | |
interests | | |
Deficiency | |
| | |
Unaudited | |
| Balance as of July 1, 2023 | |
| 300,000 | | |
| - | | |
| 240,321,157 | | |
| 22 | | |
| 74 | | |
| 2,716 | | |
| (5,140 | ) | |
| (2,328 | ) | |
| (14 | ) | |
| (2,342 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| CLA - change of classification | |
| | | |
| | | |
| | | |
| | | |
| - | | |
| 66 | | |
| | | |
| 66 | | |
| | | |
| 66 | |
| Share issuance upon conversion of preferred stock | |
| (29,201 | ) | |
| - | | |
| 43,801,500 | | |
| 4 | | |
| - | | |
| (4 | ) | |
| - | | |
| - | | |
| - | | |
| 0 | |
| Stock payables | |
| - | | |
| - | | |
| - | | |
| | | |
| 394 | | |
| - | | |
| - | | |
| 394 | | |
| - | | |
| 394 | |
| Share based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 55 | | |
| | | |
| 55 | | |
| | | |
| 55 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| (1,456 | ) | |
| (1,456 | ) | |
| | | |
| (1,456 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of September 30, 2023 | |
| 270,799 | | |
| - | | |
| 284,122,657 | | |
| 26 | | |
| 468 | | |
| 2,833 | | |
| (6,596 | ) | |
| (3,269 | ) | |
| (14 | ) | |
| (3,283 | ) |
| | |
Preferred Stock | | |
Common Stock | | |
Stock | | |
Additional Paid in | | |
Accumulated | | |
| | |
Non-controlling | | |
Total | |
| | |
Number | | |
Amount | | |
Number | | |
Amount | | |
Payables | | |
Capital | | |
Deficit | | |
Total | | |
interests | | |
Deficiency | |
| | |
Unaudited | |
| Balance as of July 1, 2022 | |
| 300,000 | | |
| | | |
| 220,730,798 | | |
| 21 | | |
| 28 | | |
| 1,356 | | |
| (3,260 | ) | |
| (1,855 | ) | |
| (14 | ) | |
| (1869 | ) |
| Balance | |
| 300,000 | | |
| | | |
| 220,730,798 | | |
| 21 | | |
| 28 | | |
| 1,356 | | |
| (3,260 | ) | |
| (1,855 | ) | |
| (14 | ) | |
| (1869 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of shares | |
| - | | |
| - | | |
| 200,000 | | |
| - | | |
| (13 | ) | |
| 13 | | |
| - | | |
| | | |
| - | | |
| | |
| Stock payables | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7 | | |
| | | |
| - | | |
| 7 | | |
| - | | |
| 7 | |
| Share based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 267 | | |
| - | | |
| 267 | | |
| - | | |
| 267 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (683 | ) | |
| (683 | ) | |
| - | | |
| (683 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of September 30, 2022 | |
| 300,000 | | |
| - | | |
| 220,930,798 | | |
| 21 | | |
| 22 | | |
| 1,636 | | |
| (3,943 | ) | |
| (2,264 | ) | |
| (14 | ) | |
| (2,278 | ) |
| Balance | |
| 300,000 | | |
| - | | |
| 220,930,798 | | |
| 21 | | |
| 22 | | |
| 1,636 | | |
| (3,943 | ) | |
| (2,264 | ) | |
| (14 | ) | |
| (2,278 | ) |
APPYEA
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.
dollars in thousands)
| | |
2023 | | |
2022 | |
| | |
For The nine Months Ended | |
| | |
September 30, | |
| | |
2023 | | |
2022 | |
| | |
Unaudited | |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
| (2,087 | ) | |
| (738 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 18 | | |
| 18 | |
| Share based compensation | |
| 650 | | |
| 877 | |
| Change in fair value of convertible loans and warrant liability and financial expenses | |
| 778 | | |
| (939 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Other current assets | |
| (18 | ) | |
| (9 | ) |
| Accounts payable | |
| 272 | | |
| 91 | |
| Accounts payables – related party | |
| (22 | ) | |
| 195 | |
| | |
| | | |
| | |
| Net cash used in operating activities | |
| (410 | ) | |
| (505 | ) |
| | |
| | | |
| | |
| Cash flows from Investing activities: | |
| | | |
| | |
| Research and development expenses
capitalization | |
| (36 | ) | |
| - | |
| | |
| | | |
| | |
| Net cash used by investing activities | |
| (36 | ) | |
| - | |
| | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | |
| Proceeds on account of Stock Payables | |
| 417 | | |
| 13 | |
| Proceeds from convertible Note received less issuance expenses | |
| 141 | | |
| 368 | |
| Issuance of warrants measured at FV | |
| - | | |
| 9 | |
| | |
| | | |
| | |
| Net cash provided by financing activities | |
| 558 | | |
| 390 | |
| | |
| | | |
| | |
| Effect of foreign exchange on cash and cash equivalents | |
| (17 | ) | |
| (9 | ) |
| Change in cash and cash equivalents | |
| 95 | | |
| (124 | ) |
| Cash and cash equivalents at beginning of period | |
| 60 | | |
| 206 | |
| | |
| | | |
| | |
| Cash and cash equivalents at end of period | |
| 156 | | |
| 82 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
1 - GENERAL
AppYea,
Inc. (“AppYea”, “the Company”, “we” or “us”) was incorporated in the State of South Dakota
on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is
in the development stage with no significant revenues and no operating history. On November 1, 2021 the Company was redomiciled in the
State of Nevada.
The
Company’s common stock is traded on the OTC Markets, QB tier, under the symbol “APYP”.
Reverse
merger
In
anticipation of the reverse merger described below, on July 2, 2021, Boris Molchadsky a majority shareholder of the Company, acquired
in a private transaction from the former majority shareholder two hundred and twenty-five thousand (225,000) Shares of Series A Preferred
Stock of the Company. The Series A Preferred Shares have the right to vote at 1,000 to 1 as shares of common stock and are convertible
at a rate of 1,500 to 1 as shares of common stock of the Company. The acquisition of the Preferred Shares provided Boris Molchadsky control
of a majority of the Company’s voting equity capital.
On
August 2, 2021, the Company entered into a stock exchange agreement with SleepX Ltd., a company formed under the laws of the State of
Israel (“SleepX”) and controlled by the majority shareholder of AppYea, Pursuant to the agreement, the outstanding equity
capital consisting of 1,724 common shares of SleepX was exchanged for 174,595,634 shares of common stock of the Company, based on the
agreement that determined that to SleepX shareholders will be issued common shares in the amount that will result in them holding 80%
of the common shares issued of AppYea. As a result, SleepX became a wholly owned subsidiary of the Company. On December 31, 2021, the
terms of the agreement were fulfilled; however, the issuance of the shares to SleepX shareholders, due to administrative matters, was
completed in March 2022 after the Company completed a reverse stock split. The shares that were issued are represented in the 2021 financial
statements.
SleepX
is an Israeli research and development company that has developed a unique product for monitoring and treating sleep apnea and snoring.
The technology is protected by several international patents and, subject to raising working capital, of which no assurance can be provided,
the Company plans to start serial production in Q4 2023. The Company will focus on further development and commercialization of the products.
Its strategy will include continued investment in research and development and new initiatives in sales and marketing.
SleepX
has incorporated, together with an unrelated third party, a privately held company under the laws of the State of Israel named Ta-nooma
Ltd. (“Ta-nooma”). Ta-nooma has developed sleeping monitoring technology for which patent applications were filed and has
no revenue from operation. Since its incorporation and as of the financial statements date, SleepX holds 66.7% of the voting interest
of Ta-nooma.
In
addition to SleepX, the Company has four wholly owned subsidiaries with no active operations.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
1 - GENERAL (cont.)
Financial
position
The
financial statements are presented on a going concern basis. The Company has not yet generated any material revenues, has suffered
recurring losses from operations and is dependent upon external sources for financing its operations. As of September 30, 2023, and
December 31, 2022, the Company has a stockholders’ deficiency of $3,269,000
and $2,549,000,
respectively. Between June and November 2023, the Company raised proceeds of $523,569 from the private placement of its securities. The Company
intends to continue to finance its operating activities by raising capital. There are no assurances that the Company will be
successful in obtaining an adequate level of financing needed for its long-term research and development activities on commercially
reasonable terms or at all. If the Company will not have sufficient liquidity resources, the Company may not be able to continue the
development of its product candidates or may be required to implement cost reduction measures and may be required to delay part of
its development programs. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The
financial statements do not include any adjustments for the values of assets and liabilities and their classification may be necessary
in the event that the Company is no longer able to continue its operations as a “going concern”.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
The
interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“U.S. GAAP”). The interim financial statements do not include a full disclosure as required in annual financial statements
and should be read with the annual financial statements of the Company as of December 31, 2022. The accounting policies implemented in
the interim financial statements is consistent with the accounting policies implemented in the annual financial statements as of December
31, 2022, except of the following accounting pronouncement adopted by the company.
Recently
Issued Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which is intended to
address issues identified as a result of the complexity associated.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (cont.)
with
applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06
reduces the number of accounting models for convertible debt instruments and convertible preferred stocks, and enhances information transparency
by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback
from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods in those fiscal years, beginning after
December 15, 2023 (effective January 1, 2024) for smaller reporting companies. The Company is determining the adoption of this new accounting
guidance and the effect on its consolidated financial statements throughout the period until implementation.
Use
of Estimates in Preparation of Financial Statements
The
preparation of consolidated financial statements in conformity with U.S. GAAP accounting principles requires management to make estimates
and assumptions. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon
information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts
of expenses during the reporting period. Actual results could differ from those estimates.
NOTE
3 - RELATED PARTY BALANCES AND TRANSACTIONS
| |
A. |
Short-term loans from related parties |
During
2021, SleepX borrowed from Nexense an aggregate amount of $47,623. According to the agreement, the loan shall be repaid in the event
that the Company’s profits are sufficient to repay the aggregate loan amount and upon such terms and in such installments as shall
be determined by the Board. The loan shall bear interest at an annual rate equal to the minimum rate approved by applicable law in Israel
(2.9% in 2023).
During
2020, the minority shareholder of Ta-nooma loaned Ta-nooma NIS 115,725. The loan does not carry any interest expense and the repayment
terms have yet to be determined. As of September 30, 2023, the loan balance amounted to NIS 115,725 ($30,263).
| |
B. |
Convertible loans from related party |
On
August 22, 2021 Evergreen Venture Partners LLC (“Evergreen”), owned by Douglas O. McKinnon, principle stockholder of the
Company, agreed to advance to the Company up to $265,000 in tranches under the terms of an 18 month unsecured promissory note. The related
party has advanced to the Company $25,000 funds under the Note. Under the terms of the note, which bears interest at a rate of 8% per
annum, the note holder can convert the note into shares of common stock at 35% discount to the highest daily trading price over the 10
days’ preceding conversion but in any event not less than $0.10 per share. The note contains standard events of default. During
the quarter Evergreen sold the note to non-related party investors (Note 6-N).
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
3 - RELATED PARTY BALANCES AND TRANSACTIONS (cont.)
| |
C. |
Balances with related parties |
SCHEDULE
OF BALANCE WITH RELATED PARTIES
| | |
September 30,
2023 | | |
December 31,
2022 | |
| | |
In U.S. dollars in thousands | |
| | |
| |
| Liabilities: | |
| | | |
| | |
| Employees and payroll accruals | |
| 205 | | |
| 268 | |
| Related party payables | |
| 198 | | |
| 140 | |
| Short term loan | |
| 78 | | |
| 80 | |
| Convertible loan | |
| - | | |
| 36 | |
| |
D. |
Transactions with related parties |
SCHEDULE
OF TRANSACTION WITH RELATED PARTIES
| | |
2023 | | |
2022 | |
| | |
Nine months ended
September 30, | |
| | |
2023 | | |
2022 | |
| | |
In U.S. dollars in thousands | |
| Expenses: | |
| | | |
| | |
| Management fee to the Company’s CEO | |
| 129 | | |
| 84 | |
| Salaries and related cost *) | |
| 667 | | |
| 896 | |
| Salaries and related cost | |
| 667 | | |
| 896 | |
| *) | | Including share-based
compensation for the Nine months ended September 30, 2023 and 2022 in the amount of $560,500 and $743,000, respectively. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS
The
following table summarizes fair value measurements by level as of September 30, 2023 and December 31, 2022 measured at fair value on
a recurring basis:
SCHEDULE OF FAIR VALUE RECURRING BASIS
| December 31, 2022 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
In U.S. dollars in thousands | |
| Assets | |
| | | |
| | | |
| | | |
| | |
| None | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities | |
| | | |
| | | |
| | | |
| | |
| Convertible Loans | |
| - | | |
| - | | |
| 2,257 | | |
| 2,257 | |
| Financial liability | |
| | | |
| - | | |
| 24 | | |
| 24 | |
| September 30, 2023 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| | |
In U.S. dollars in thousands | |
| Assets | |
| | | |
| | | |
| | | |
| | |
| None | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities | |
| | | |
| | | |
| | | |
| | |
| Convertible Loans | |
| - | | |
| - | | |
| 1,925 | | |
| 1,925 | |
| Financial liability | |
| | | |
| - | | |
| 183 | | |
| 183 | |
The
Convertible Loans changes consist of the following as of September 30, 2023 and December 31, 2022:
SCHEDULE OF CONVERTIBLE LOANS AT FAIR VALUE
| | |
September 30,
2023 | | |
December 31,
2022 | |
| | |
Convertible Loans at Fair Value | |
| | |
September 30,
2023 | | |
December 31,
2022 | |
| | |
$000 | |
| Opening Balance | |
| 2,257 | | |
| 2,492 | |
| Additional convertible loans (a) | |
| 153 | | |
| 526 | |
| Repayment of convertible loan (b) | |
| - | | |
| (18 | ) |
| Conversion of convertible loan (c) | |
| (243 | ) | |
| - | |
| Decrease of Notes purchased (Note 6k) | |
| (530 | ) | |
| - | |
| Change in fair value of convertible loans liability through profit or loss | |
| 288 | | |
| (743 | ) |
| Closing balance | |
| 1,925 | | |
| 2,257 | |
| |
(a)
|
During
the Nine months ended September 30, 2023, and the year ended December 31, 2022, the Company received a principal amount of $152,750
and $526,826 respectively. |
| |
|
|
| |
(b)
|
During
the Nine months ended September 30, 2023, and the year ended December 31, 2022, the Company repaid nill and $17,500, respectively. |
| |
|
|
| |
(c)
|
During
the Nine months ended September 30, 2023, and the year ended December 31, 2022, a total amount of $242,538 and $0 respectively, were
converted into 19,390,359 shares of common stock. |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
The
estimated fair values of the Convertible loans were measured according to the Monte Carlo Model using the following assumptions:
SCHEDULE OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
As of | | |
As of | |
| | |
September 30, 2023 | | |
December 31, 2022 | |
| Expected term (in years) | |
| 0.75-1.26 | | |
| 0.5 | |
| Expected average (Monte Carlo) volatility | |
| 199 | % | |
| 169 | % |
| Expected dividend yield | |
| - | | |
| - | |
| Risk-free interest rate | |
| 5.4%-5.5 | % | |
| 4.8 | % |
| WACC | |
| 29 | % | |
| 30 | % |
The
following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2022:
SUMMARIZES RELATING TO OUTSTANDING AND EXERCISABLE WARRANTS
| Warrants Outstanding and Exercisable | | |
| |
Number of
Warrants | | |
Weighted Average
Remaining
Contractual life
(in years) | | |
Weighted Average
Exercise Price | | |
Valuation as of
December 31, 2022 | |
| | 300,000 | | |
| 2.9 | | |
| 0.043 | | |
$ | 11,351 | |
| | 300,000 | | |
| 3.35 | | |
| 0.043 | | |
$ | 11,679 | |
| | 8,334 | | |
| 2.9 | | |
| 0.6 | | |
$ | 230 | |
| | 32,500 | | |
| 3.35 | | |
| 0.6 | | |
$ | 992 | |
The
following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2023:
| Warrants Outstanding and Exercisable | | |
| |
Number of
Warrants | | |
Weighted Average
Remaining
Contractual life
(in years) | | |
Weighted Average Exercise
Price | | |
Valuation as of September 30,
2023 | |
| | 8,334 | | |
| 2.16 | | |
| 0.6 | | |
$ | 23 | |
| | 32,500 | | |
| 2.61 | | |
| 0.6 | | |
$ | 116 | |
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
4 - CONVERTIBLE LOANS AND WARRANTS (cont.)
The
estimated fair values of the Warrants were measured according to the data as follows:
SCHEDULE OF FAIR VALUES OF WARRANTS AND CONVERTIBLE LOAN ASSUMPTION USED
| | |
As of | | |
As of | |
| | |
September 30, 2023 | | |
December 31, 2022 | |
| Expected term | |
| 2.16-2.61 | | |
| 2.9-3.35 | |
| Expected average volatility | |
| 172%-174 | % | |
| 179 | % |
| Expected dividend yield | |
| - | | |
| - | |
| Risk-free interest rate | |
| 4.54%-4.72 | % | |
| 4.09%-4.15 | % |
| Common Stock Market Value | |
$ | 0.0263 | | |
$ | 0.043 | |
*600,000 options were cancelled (Note 6K)
NOTE
5 - STOCK BASED COMPENSATION
| |
A. |
The table below depicts the number of options granted to consultants
and employees: |
SCHEDULE OF NUMBER OF OPTIONS GRANTED
| | |
Number of | | |
Weighted average
exercise price | |
| | |
Nine months ended
September 30, 2023 | |
| | |
Number of | | |
Weighted average
exercise price | |
| | |
options | | |
in USD | |
| | |
| | |
| |
| Options outstanding at January 1, 2023 | |
| 10,246,284 | | |
$ | 0.0001 | |
| Options granted during the period | |
| 37,770,029 | | |
$ | 0.0001 | |
| Options outstanding at the end of period | |
| 48,016,313 | | |
$ | 0.0001 | |
| Options exercisable at the end of period | |
| 13,183,291 | | |
$ | 0.0001 | |
| |
B. |
The estimated fair values of the options granted to directors and employees were measured using Black and Scholes Model based on the
following assumptions: |
SCHEDULE OF FAIR VALUE OF OPTIONS
| Grant date | |
July 1, 2021 | | |
January 2022 | | |
Q1-Q3’2023 | |
| Vesting period | |
| 2 years | | |
| 2 years | | |
| 0.25-3 years | |
| Expected average volatility | |
| 187.7 | % | |
| 187.7 | % | |
| 172%-187.7 | % |
| Expected dividend yield | |
| - | | |
| - | | |
| - | |
| Common Stock Value | |
$ | 0.76 | | |
$ | 0.01-$0.08 | | |
$ | 0.009-$0.015 | |
| Risk-free interest rate | |
| 0.3 | % | |
| 1.81 | % | |
| 3.39%-3.98 | % |
For
the Nine months ended September 30, 2023 and 2022 the company recognized expenses, to such options, in the amount of $618,000 and $507,000,
respectively. The expense is non-cash stock-based compensation expense resulting from options awards to our Chief Financial Officer and
advisors. The expense represents the aggregate grant date fair value for the option awards granted and vested during the fiscal years
presented, determined in accordance with FASB ASC Topic 718.
APPYEA
INC.
NOTES
TO THE FINANCIAL STATEMENTS
NOTE
6 - SIGNIFICANT EVENTS DURING THE PERIOD
| |
A- |
On January 1, 2023, Ron Mekler was appointed to the board of directors
of the Company. For his services he was granted stock option to purchase 500,000
of the Company’s common stock, valued at $21,498. Upon
grant, the 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 options
are exercisable at a per share exercise price of $0.0001
and shall otherwise be subject to the other terms and conditions specified in an Option Grant Agreement to be entered into between
Mr. Mekler and the Company. |
| |
|
|
| |
B- |
On February 1, 2023, the Company engaged with Adi Shemer as a board
advisor. For his services he was granted stock option to purchase 1,000,000
of the Company’s common stock, valued at $20,498. Upon
grant, the options vest as follows: (i) 33% on the 12 month anniversary of the appointment and (ii) the balance of shares of Common
Stock, in eight (8) consecutive fiscal quarters, beginning with the quarter ending April 31, 2024. The options are
exercisable at a per share exercise price of $0.0001
and shall otherwise be subject to the other terms and conditions specified in a Stock Option Agreement to be entered into
between Mr. Shemer and the Company. |
| |
|
|
| |
C- |
During the first quarter of 2023, the Company signed an
amendment with an existing holder of a Convertible Note in the amount of $437,190 (“CLA”)
with the
following terms: (i) the note was amended so that the fixed conversion price is $0.022, (ii) the principal amount of the Note was
increased by $7,500, (iii) if any portion of the balance due under the Note remains outstanding on April 30, 2023, an extension fee
equal to 15% of such outstanding balance was to be added to it, (iv) the Maturity Date with respect to all outstanding amounts
advanced under the Note was amended to July 31, 2023 and (v) several sale limitations on trading during the period beginning on the
effective date of the agreement and ending on the amended maturity date were instituted. The warrant exercise price was adjusted
accordingly.
The
CLA was purchased by a third party during the third quarter and terms were changed
according to Note 6-K. |
| |
|
|
| |
D- |
On May 1, 2023, the Company engaged a consultant for management of CRM
system and marketing campaigns. In consideration, the consultant was granted stock options to purchase 500,000
of the Company’s common stock, valued at $7,489. Up
on grant, the options vest as follows: (i) 33% following 12 months anniversary of the appointment and (ii) the balance of shares of
Common Stock, in eight (8) consecutive quarters, beginning with the quarter ending April 30, 2024. The option is exercisable, for a
period of 2 years after reaching full vesting, at a per share exercise price of $0.0001 and shall otherwise be subject to the other
terms and conditions specified in a Stock Option Agreement to be entered into between the consultant and the Company. |
| |
|
|
| |
E- |
On June 1, 2023, the Company engaged a consultant for its digital
marketing effort. For his services the consultant was granted stock options to purchase 500,000
of the Company’s common stock, valued at $5,414. Upon
grant, the options vest on a monthly basis over a period of 3 months from grant. The option is exercisable for a period of two
years following vesting, at a per share exercise price of $0.0001 and shall otherwise be subject to the other terms and conditions
specified in a Stock Option Agreement to be entered into between the consultant and the Company. |
| |
F- |
On June 14, 2023, SleepX Ltd, the Company’s subsidiary,
was granted a patent (US20150119741A1) by the United States Patent and Trademark Office, titled: “Apparatus and Method for Diagnosing
Sleep Quality.” The patent extends through February 2036, and provides broad coverage in the field of sleep monitoring. |
| |
|
|
| |
G- |
On June 18 2023, the holders of the majority (the “Majority
Holders”) of the Company outstanding convertible Preferred Series A Shares par value $0.0001 per share (the “Preferred Shares”)
agreed to provide that each Preferred Share shall have voting rights equal to 3,000 shares of the Company’s Common Stock which
may be voted at any meeting or any action of the Company shareholders at which the holders of the Common Stock are entitled to participate. |
| |
|
|
| |
H- |
In connection with Note 6-K, 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 the spread below $0.04 times seven million shares divided by the 90 day VWAP. |
| |
|
|
| |
I- |
On July 1, 2023, the
company granted Asaf Porat, the Company CFO, stock options to purchase 10,237,740
of the Company’s common stock, valued at $92,102,
exercisable through July 2033 at a per share exercise price of $0.0001
per share. Upon grant, the Options vest over a period of 24 months, on a monthly basis. The option is exercisable at a per
share exercise price of $0.0001 and
shall otherwise be subject to the other terms and conditions specified in a Stock Option Agreement between Mr. Porat and the
Company. In addition, subject to the investment in the company, Mr. Porat shall be entitled to an additional 14,500,000
common shares on December 31, 2023. |
| |
|
|
| |
J- |
On July 7, 2023, the Board appointed Adi Shemer as Chief Executive Officer (“CEO”) of the Company, effective immediately. Mr.
Shemer has been working with the Company since February 2023 as a consultant. In connection with his appointment as CEO, Mr. Shemer and
the Company’s subsidiary SleepX, Ltd. entered into an Employment Agreement (the “Agreement”) setting forth the terms
of his employment and compensation. Under the Agreement, Mr. Shemer is entitled to monthly salary of 40,000 NIS (equivalent to $10,810
as of the date of this report), of which the payment of 20,000 NIS is deferred until such time as the Company raises at least $1 million
in aggregate proceeds from the private placement of its securities. Under the Agreement, Mr. Shemer is also entitled to the following:
(i) Manager’s Insurance under Israeli law to which SleepX contributes amounts equal to (a) 8-1/3 percent for severance payments,
and 6.5%, or up to 7.5% (including disability insurance) designated for premium payment (and Mr. Shemer contributes an additional 6%)
of each monthly salary payment, and (b) 7.5% of his salary (with Mr. Shemer contributing an additional 2.5%) to an education fund, a
form of deferred compensation program established under Israeli law. Either Mr. Shemer or SleepX is entitled to terminate the employment
at any time upon 30 days prior notice. |
| |
|
|
| |
|
Under
the Agreement, Mr. Shemer was awarded options under the Company’s employee stock option plan for 11,500,000 shares of the
Company’s common stock at a per share exercise price of $0.0001, vesting over a period of 30 months, on a quarterly basis,
beginning with the quarter ending September 30, 2023, provided that Mr. Shemer continues in the employ of SleepX and continues to
provide CEO services to the Company. At the end of the 30-month period, Mr. Shemer is entitled to options for an additional
11,500,000 shares at the same exercise price provided he has been in the continuous employ of SleepX. The options are exercisable
through July 2033. In connection with the consulting services rendered prior to his appointment as CEO, he was awarded options for
1,000,000 shares of the Company’s common stock, exercisable through July 2033 at a per share exercise price of $0.0001 per
share, all of which have vested. |
| |
K- |
In June 2023, the Company
entered into a Subscription Agreement (the “Subscription Agreement”) with qualified investors (the
“Investor”), pursuant to which the Company agreed to issue and sell (the “Offering”) up to an aggregate of 135,000,000
shares of the Company’s common stock par value $0.0001
per share (the “Common Stock”) at a per share purchase price of $0.01,
and Common Stock purchase warrants, exercisable for a two year period from the date of issuance, to purchase up to an additional 135,000,000
shares of Common Stock at a per share exercise price of $0.04
(the “Warrants”). The subscription agreement was closed on July 19, 2023. As of September 30, 2023, the Company received
aggregate gross proceeds of $406,494
from the Investor, which entitles him to 40,649,400
shares and warrants. No assurance can be provided that the Investors will provide additional investments. |
| |
|
|
| |
|
The
subscription proceeds are being used by the Company to complete the IOS design and development of its biofeedback snoring treatment
wristband (the “Snoring Treatment Device”) as well as general corporate matters and readying for commercialization of
the Snoring Treatment Device. |
| |
|
|
| |
|
The Investor and other unaffiliated
entities (collectively, the “Purchasers’) purchased from Leonite Fund LP and Diagonal Lending LLC outstanding convertible
promissory notes issued by the Company. Following the purchase of these outstanding notes, the Purchasers and the company agreed to amend
the terms of the notes to extend the maturity date of each note to December 31, 2024, and to amend the conversion price thereof to $0.00561
(in the case of note purchased from Leonite Funding LP) and $0.005 (in the case of the note purchased from Diagonal Lending LLC). In
addition, the Purchasers agreed to not convert the notes purchased until the earlier of June 30, 2024, and such time as the Purchasers
complete the purchase of an additional outstanding promissory note issued by the Company to an unrelated third party in the aggregate
amount of $720,000 (the
“Additional Third Party Note”). As a result of the change in the conversion price the company changed the classification of the loans from fair value to cost basis. The conversion component of these
loans has not yet been recorded in Equity in view of the fact that these loans cannot be converted as of the date of the financial statements. |
| |
|
|
| |
|
In
connection with the purchase from Leonite of the Note by the Purchasers, the 600,000 Warrants previously issued to Leonite were
cancelled. The decrease in the warrant liability was
recorded to financial income on the profit and loss statement.
|
| |
|
|
| |
L- |
On July 25, 2023, SleepX
Ltd, the Company’s subsidiary, was granted a patent (US 11672472 B2) by the United States Patent and Trademark Office,
titled: “Methods and systems for estimation of obstructive sleep apnea severity in wake subjects by multiple speech
analyses.” The patent extends through December 2038, and provides broad coverage in the field of sleep monitoring. |
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M- |
On July 26, 2023, Mr. Boris Molchadsky sold 2,334 Series A
convertible preferred stocks, for a total amount of $70,000. |
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N- |
On August 16, 2023, the aforementioned purchasers completed
the purchase of 67,068 Series A convertible preferred stocks and the purchase of a related party note. The Purchasers agreed to amend
the terms of the note, to extend the maturity date to December 31, 2024, and to amend the conversion price thereof to $0.005. |
NOTE
7 - SUBSEQUENT EVENTS
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A- |
On October 7th, 2023, “Iron Swords” war broke out
in Israel (“The war”). As a result, the scope of economic and business activity in the country decreased. The company relies
on foreign suppliers for manufacturing, marketing and shipment of products, and as such, doesn’t see any implication on the Company’s
operations. Future product development made in Israel is likely to slow down. The Company is continuing to regularly follow developments
on the matter and will continue to examine the effects on its operations. |
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B- |
At the end of October, the company wired to its wristband manufacturer
the completion of the cost for manufacturing the first serial wristband units. The wristbands shall be delivered at the end of November
and shipped to customers during December. |
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C- |
Following Note 6-K, the company received after the end of the
3rd quarter an additional aggregated $117,075 under the subscription agreement. |
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D- |
During November 2023, the
Company was notified of a lawsuit that was originally filed on August, 2022, in the Tel Aviv Magistrate’s Court against our
Chairman and majority shareholder, Boris Molchadsky, G.P.I.S Ltd., an entity controlled by Mr. Molchadsky, Nexsense, Inc. (the
former shareholder of SleePX Ltd.) and SleepX, Ltd., our subsidiary (collectively, the “Defendants”) [Civil lawsuit
number 25441-08-22]. The suit was filed by a fund operating out of Israel. A copy of the claim was served to the defendants only six
months after it was submitted to court, on February 21, 2023. The lawsuit is based on the alleged breach of partnership and loan
agreements as well as other related allegations, including violation of agreements reached in a mediation proceeding that took place
in 2015. On July 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. |
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Recently,
the Magistrate’s Court in Tel Aviv accepted the request regarding lack of material jurisdiction, and the claim was then transferred
to the economic department of the District Court in Tel Aviv. |
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The
first preliminary hearing has been scheduled for February 14, 2024. The Company and its legal consultants concluded that they cannot,
at this stage, know the effects, if any, of these actions on its subsidiary SleepX and / or the Company, and accordingly, no provision was recorded. |
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